Use the table for the question(s) below
$\begin{array}{cccccc}
\text { Name }&\text { Market } & \text { Enterprise } & & & \text { Enterprise } & \text { Enterprise } \
&\text { Capitalisation } & \text { Value } & & \text { Price/ } & \text { Value/ } & \text { Value/ } \
&\text { (\$ million) } & \text { (\$ million) } & \text { P/E } & \text { Book } & \text { Sales } & \text { EBITDA }\
\text { News Ltd } & 6350 & 10,163 & 7.36 & 0.73 & 1.4 & 5.04 \
\text { Seven West } & 2423 & 3472 & 18.09 & 2.64 & 1.10 & 7.21 \
\text { Ten Network } & 675 & 3061 & 9.76 & 1.68 & 1.40 & 5.64 \
\text { APN } & 326 & 1192 & 14.89 & 0.39 & 1.31 & 7.65 \
\text { Fairfax Media } & 267 & 1724 & 6.55 & 0.82 & 1.57 & 6.65\
\text { Average } &&& 11.33 & 1.25 & 1.35 & \mathbf{6 . 4 4} \
\text { Maximum } &&& +60 \% & 112 \% & +16 \% & +22 \% \
\text { Minimum } &&& -40 \% & 69 \% & -18 \% & -19 \%\
\end{array}$
-The table above shows the share prices and multiples for a number of firms in the media industry? Another media firm (not shown) had sales of $620 million, EBITDA of $84 million, excess cash of $66 million, $14 million of debt, and 120 million shares outstanding. If the firm had an EPS of $0.48, what is the difference between the estimated share price of this firm if the average price-earnings ratio is used and the estimated share price if the average enterprise value/EBITDA ratio is used?

Question

Quizplus · Accepted Answer

The average P/E ratio is 11.33, so the estimated share price using P/E is 11.33 * $0.48 = $5.44. The average EV/EBITDA ratio is 6.44, so the estimated enterprise value is 6.44 * $84 million = $540.96 million. Subtracting debt and adding cash gives an equity value of $540.96M - $14M + $66M = $592.96M. Dividing by 120 million shares gives a share price of $4.95. The difference is $5.44 - $4.95 = $0.49.

Use the Table for the Question(s) Below -The Table Above Shows the Share Prices and Multiples for }&\text