Exhibit 14.12 presents market and profit data for three companies. Using this da

Question

Exhibit 14.12 presents market and profit data for three companies. Using this data, compute enterprise-value-to-EBITDA and enterprise-value-to-EBITA for Companies 1 and 2. Is the net difference between Company 1 and Company 2 the same for both ratios? If not, why might this be? If Company 3 has nonoperating assets value at $50 million, what are the company's appropriate enterprise-to-EBITDA and enterprise-value-to-EBITA multiples?

Exhibit 14.12 Company 1 Company 2 Company 3 Market Data Share Price 25 16 30 Shares Outstanding 5 8 15 Short-term debt 25 15 30 long-term debt 50 70 40 Operating Profit EBITDA 25 30 59 EBITA 22 23 51

Explanation / Answer

Formula:

Enterprise-value-to-EBITDA : Enterprise Value/EBITDA

Enterprise-value-to-EBITDA : Enterprise Value/EBITA

Market Data Company 1 Company 2 Company 3 Share Price 25 16 30 Shares Outstanding 5 8 15 Short-term debt 25 15 30 long-term debt 50 70 40 EBITDA 25 30 59 EBITA 22 23 51 Enterprise Value 200 213 520 Enterprise-value-to-EBITDA 8.00 7.10 8.81 Enterprise-value-to-EBITA 9.09 9.26 10.20

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