Question

Please show the process on how to complete this.

After researching the competitors of EJH Enterprises, you determine that most comparable firms have the following valuation ratios: Comp 1 12 Comp 2 11. 18 Comp 3 12.5 Comp 4 10 EV/EBITDA P/E 19 20 17 EJH Enterprises has EPS of $1.80, EBITDA of $290 million, $29 million in cash, $41 million in debt, and 102 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 und to two decimal places.)

Answer 1

As a first step let's calculate the minimum and maximum of each of the two multiples given. Please see the last two columns in the table below.

	Comp 1	Comp 2	Comp 3	Comp 4	Min	Max
EV/ EBITDA	12.00	11.00	12.50	10.00	10.00	12.50
P/E	19.00	18.00	20.00	17.00	17.00	20.00

Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics.

Parameter	Linkage	Min	Max
EV/ EBITDA multiple average	A	10.00	12.50
EBITDA of EJH	B	290.00	290.00
EV	C = A x B	2,900.00	3,625.00
[-] Debt	D	41.00	41.00
[+] Cash	E	29.00	29.00
Equity value	F = C - D - E	2,888.00	3,613.00
Nos of shares outstanding	N	102.00	102.00
Hence, price per share	G = F / N	28.31	35.42
P/E Multiple average	H	17.00	20.00
EPS of EJH	I	1.80	1.80
Price per share	J = H x I	30.60	36.00

Hence, lowest price with both ranges = max (Min value with EV/EBITDa method, Min value with P/E method) = max (28.31, 330.60) = $ 30.60

And, highest price with both ranges = min (Max value with EV/EBITDa method, Max value with P/E method) = min (35.42, 36.00) = $ 35.42