Question

A company has a share price of $24.50 and 118 million shares outstanding. Its book equity is $688 million, its book debt-equity ratio is 3.2, and it has cash of $890 million.

How much would it cost to take over this business assuming you pay its enterprise value?

Answer 1

Enterprise value = $ 3,033

Step-by-step explanation:

The enterprise value is full value of business. It includes total equity and debt. However cash and cash equivalent are not included in it. Detail calculations are given below.

Enterprise Value = Market value of equity/common stock + Total debt- Cash

MV of equity = 24.5 * 118 = $ 2,891

Total Debt = 688/2*3 = $ 1,032

Cash = ($ 890)

Enterprise value = $ 3,033