P 10-15 (similar to) -Question Help * After researching the competitors of EJH E
ID: 2795447 • Letter: P
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P 10-15 (similar to) -Question Help * After researching the competitors of EJH Enterprises, you determine that most comparable firms have the following valuation ratios: Comp 1 12 19 Comp 3 12.5 20 Comp 4 10 17 Comp 2 EVIEBITDA P/E 18 EJH Enterprises has EPS of $1.80, EBITDA of $300 million, $25 million in cash, $45 million in debt, and 104 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 EVIEBITDA ranges is s (Round to two decimal places.) Lowest price within both the PE and EV/EBITDA ranges is $1- (Round to two decimal places.)Explanation / Answer
a) Highest P/E = 20 => Highest Price = P/E x EPS = 1.80 x 20 = $36.00
Highest EV/EBITDA = 12.5 => Highest EV = EV/EBITDA x EBITDA = 12.5 x 300 = $3,750 million
Equity Value = EV - Debt + Cash = 3,750 - 45 + 25 = $3,730 million
=> Share Price = Equity / No. of shares = 3,730 / 104 = $35.86
Hence, highest price = $36.00
b) Lowest P/E = 17 => Lowest Price = EPS x P/E = 17 x 1.80 = $30.60
Lowest EV/EBITDA = 10 => Lowest EV = 10 x 300 = $3,000 million
Equity Value = EV - Debt + Cash = 3,000 - 45 + 25 = $2,980 million
=> Share Price = Equity / No. of shares = 2,980 / 104 = $28.65
Hence, lowest price = 28.65
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