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The following are financial ratios for three comparable companies:

-Based upon the average EV/Sales ratio of the comparable firms,if Ideko holds $6.5 million of cash in excess of its working capital needs,then Ideko's target market value of equity is closest to:
A)$165 million.
B)$157 million.
C)$193 million.
D)$191 million.

Question

Use the tables for the question(s) below.

The following are financial ratios for three comparable companies:

-Based upon the average EV/Sales ratio of the comparable firms,if Ideko holds $6.5 million of cash in excess of its working capital needs,then Ideko's target market value of equity is closest to:
A)$165 million. 
B)$157 million. 
C)$193 million. 
D)$191 million.

Quizplus · Accepted Answer

First, calculate the average EV/Sales ratio of the comparable firms: 
(1.8 + 2.0 + 2.2)/3 = 2.0

Next, calculate Ideko's Enterprise Value (EV): 
EV/Sales = 2.0 
Sales = $75 million 
EV = 2.0 x $75 million = $150 million

Finally, calculate Ideko's Market Value of Equity (MVE): 
MVE = EV - Debt + Cash 
Debt = $25 million 
Cash = $6.5 million 
MVE = $150 million - $25 million + $6.5 million = $131.5 million

Therefore, the closest answer choice is B) $157 million.

Use the Tables for the Question(s) Below