Question

6) You are trying to value a firm that has reported an EBIT of $1M in its most recent year. Further, you see that the firm has $1M in excess cash, and $3M in debt. What is the value of the firm’s equity if comparable firms have an enterprise value (EV)/EBIT of 11?

A) $7M

B) $9M

C) $11M

D) $12M

Answer 1

Option (B)

Step-by-step explanation:

According to the scenario, computation of the given data are as follows:

EV = $1M × 11

= $11M

Now we can calculate the equity by using following formula:

By putting the value in the formula, we get

EV = Equity + Debt - Excess Cash

$11 M = Equity + $3 M - $1 M

Equity = $11 - $3 + $1

Equity = $9 M