After researching the competitors of R Enterprises, you determine that most comp
ID: 2749674 • Letter: A
Question
After researching the competitors of R Enterprises, you determine that most comparable firms have the following valuation ratios:
R enterprises has EPS of $1.80, EBITDA of $295 million, $30 million in cash, $42 million in debt, and 100 million shares outstanding. What range of prices is consistent with both sets of multiples?
The range of prices will be:
Highest price within both the P/E and EV/EBITDA ranges is $ ?
Lowest price within both the P/E and EV/EBITDA ranges is $ ?
Comp 1 Comp 2 Comp 3 Comp 4 EV/EBITDA 12 11 12.5 10 P/E 19 18 20 17Explanation / Answer
Highest price within both the P/E and EV/EBITDA ranges is (Comp 3)
P/E = 20
=> Price per share = 20 * EPS
= 20 * $1.80
= $36.00
EV/EBITDA = 12.5
=> EV = 12.5 * EBITDA
= 12.5 * $295 million
= $3,687.50 million
Share price = $3,687.50 million / 100 million
= $36.88
Therefore, highest share price range is $36.00 to $36.88.
Lowest price within both the P/E and EV/EBITDA ranges is (Comp 4)
P/E = 17
=> Price per share = 17 * EPS
= 17 * $1.80
= $30.60
EV/EBITDA = 10
=> EV = 10 * EBITDA
= 10 * $295 million
= $2,950.00 million
Share price = $2,950.00 million / 100 million
= $29.50
Therefore, lowest share price range is $29.50 to $30.60.