Question

An analyst has gathered the following data for Sure Money Inc (SMI): Recent share price $31.25 Shares outstanding 30 million Market value of debt $115 million Cash and marketable securities $47.6 million Investments $247 million Net income $119.4 million . Interest expense $5.8 million • Depreciation $6.9 million Amortization $2.3 million • Taxes $85.9 million The EV/EBITDA ratio for SMI is closest to Select one: O a. 2.62 b. 5.26 C. 3.44 d. 4.78

Answer 1

Answer is d. 4.78.

EV = market value of debt + market value of equity

Market value of debt is given as $115 million. Market value of equity = market price per share*shares outstanding = $31.25*30 million = $937.5 million

EV = $115 million + $937.5 million = $1,052.5 million

EBITDA or earnings before interest, tax and depreciation & Amortization = Net income + Interest expense + Depreciation + Amortization + Taxes = $119.4 million + $5.8 million + $6.9 million + $2.3 million + $85.9 million = $220.3 million

EV/EBITDA ratio = $1,052.5 million/$220.3 million = 4.78