Question 2. EV Multiples Assume that the following two companies are in the same

Question

Question 2. EV Multiples Assume that the following two companies are in the same industry, have the same EBITDA and similar growth profile. The main difference is the capital expenditure as shown below. Based on the EV/EBIT multiple, which company is more likely to trade at a premium? Company A Company B Large capital expenditure to buy new equipment/machinery in recent years, resulting in increased depreciation for the current and future years of depreciation /amortization Deferred in capital spending untila future period, resulting in small amount

Explanation / Answer

Correct answer will be Company A. Since both has same EBITDA profile the value of EBIT will be less for company A due to more depriciation which leads to higher value for EV/EBIT.

Company A will be more likely to trade at premium.

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.