I need help finding the enterprise value with the provided information below. We
ID: 2772740 • Letter: I
Question
I need help finding the enterprise value with the provided information below. We are using the following formula to find EBITDA ratio : enterprise value / EBITDA . The enterprise value formula is market value of equity + total debt - cash. However, I am confused about which numbers to use in the enterprise formula. Can someone please help me first solve for enterprise value then plug it into the EBITDA ratio formula? Thank you.
Hermetic, Inc., Balance Sheet (as of December 31)
Assets 2013 2014
Current assets
Cash $ 45 $ 50
Accounts receivable 270 290
Inventory 320 365
Total $ 635 $ 705
Fixed assets
Net plant and equipment 985 1100
Total assets $1620 $1805
Liabilities and equity 2002 2003
Current liabilities
Accounts payable $ 210 $ 260
Notes payable 110 175
Total $ 320 $ 435
Long-term debt 215 185
Stockholders’ equity
Common stock and paid-in surplus 290 290
Retained earnings 795 895
Total $1085 $1185
Total liabilities and equity $1620 $1805
Income Statement (2014)
Net sales $710.00
Cost of goods sold 480.00
Depreciation 30.00
Earnings before interest and taxes (EBIT) $200.00
Interest 20.00
Taxable income 180.00
Taxes 53.45
Net income $126.55
Retained earnings $100.00
Dividends 26.55
d) At the end of 2014, the firm had 100 shares of common stock outstanding and the stock price was $18 per share.
Explanation / Answer
EBITDA ratio:
= (Market value of equity+Total debt-Cash)÷EBITDA
= [100×$18-($1805-$1185)-$50]÷($200+$30)
= 4.91
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