Question

After researching the competitors of EJH Enterprises, you determine that most comparable firms have the following valuation ratios: Comp 1 Comp 2 Comp 3 Comp 4 EV/EBITDA 11 12.5 P/E 19 18 20 12 10 EJH Enterprises has EPS of $2.00, EBITDA of $300 million, $27 million in cash, $45 million in debt, and 103 million shares outstanding. What range of prices is consistent with both sets of multiples? The range of prices will be: Lowest price within both ranges, the P/E and EV/EBITDA ranges, is $ (Round to two decimal places.) Highest price within both ranges, the P/E and the EV/EBITDA ranges, is $ . (Round to two decimal places.)

Answer 1

Solution:-

11 13 Comp 4 10 300 3,000 Price range using EV/EBITDA ratio:- Formula EV/EBITDA ratio Given EBITDA ($m) Given Enterprise value EV/EBITDA*EBITDA Debt Given Cash Given Equity EV-debt+cash Shares outstanding (millions) Given Price per share Equity/Shares o/s Comp 1 Comp 2 Comp 3 12 300 300 300 3,600 3,300 3,750 45 45 27 27 3,582 3,282 3,732 103 103 103 34.78 31.86 36.23 45 45 27 27 2,982 103 28.95 Price range using P/E ratio:- Comp 1 Comp 2 Comp 3 Comp 4 || P/E ratio EPS ($) Price per share Formula Given Given EPS*PE ratio 38 36 40 3 4

As can be seen in the tables, the price rang using EV/EBITDA is 28.95-36.23, and the price range using P/E is 34-40

Therefore,

- Lowest price within both ranges, is $28.95

- Highest price within both ranges, is $40.00