   Chapter 4, Problem 10P Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

M/B,SHARE PRICE, AND EV/EBITDA You are given the following information: Stockholders' equity as. reported on the firm's balance sheet = $6.5 billion, price/earnings ratio = 9, common shares outstanding = 180 million, and market/book ratio = 2.0. The firm's market value of total debt is$7 billion, the firm has cash and equivalents totaling $250 million, and the firm’s EBITDA equals$2 billion. What is the price of a share of the company's common stock? What is the firm's EV/EBITDA?

Summary Introduction

To Determine: The price of common stock and EV/EBITDA ratio.

Introduction: The market to book ratio is additionally called as the price to book ratio, is a money related valuation metric used to assess an organization's present market value in respect to its book value. The EV/EBITDA ratio is a correlation of enterprise value and the EBIT (earnings before interest on taxes), deterioration, taxes and amortization.

Explanation

Determine the price of common stock

PriceofCommonStock=[StockholdersEquity×MarkettoBookRatioSharesOutstanding]=[$6,500,000,000×2180,000,000]=[$13,000,000,000180,000,000]=$72.2222or$72.22

Therefore the price of common stock is \$72.22

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