Question

acme products corp., a chemicals firm, has $813 million in earnings before interest, taxes, depreciation, and amortization (ebitda), $240 million in debt, $60 million in cash, and 52 million in outstanding shares. the average enterprise value to ebitda (ev/ebitda) ratio of firms in the chemicals industry is 6. what should a share of acme products corp. be worth?

Answer 1

To determine the value of a share of Acme Products Corp., we need to calculate the enterprise value (EV) and then divide it by the number of outstanding shares. The EV can be calculated by adding the market value of the company's debt and subtracting the company's cash and cash equivalents from its market capitalization. The market capitalization can be estimated using the EV/EBITDA ratio.

Step-by-step explanation:

To determine the value of a share of Acme Products Corp., we need to calculate the enterprise value (EV) and then divide it by the number of outstanding shares. Enterprise value is calculated by adding the market value of the company's debt and subtracting the company's cash and cash equivalents from its market capitalization. In this case, the market value of the debt is $240 million and the cash and cash equivalents are $60 million. The market capitalization can be calculated by multiplying the share price by the number of outstanding shares. The EV/EBITDA ratio can be used to estimate the market capitalization by multiplying it with the EBITDA.

Let's calculate the EV:

1. Market value of debt = $240 million
2. Cash and cash equivalents = $60 million
3. Market capitalization = Share price x Number of outstanding shares
4. EV = Market capitalization + Market value of debt - Cash and cash equivalents

Using the given information, we can substitute it into the formula and solve for the share price:

Share price = EV / Number of outstanding shares