Kurt's Interiors has annual revenue of $506,000 with costs of $369,400.Depreciation is $64,900 and the tax rate is 21 percent.The firm has debt outstanding with a market value of $240,000 along with 7,500 shares of stock that is valued at $87 a share.The firm has $51,200 of cash,all of which is needed to run the business.What is the firm's EV/EBITDA ratio?

Question

Quizplus · Accepted Answer

First, we need to find the EBITDA:
EBITDA = Revenue - Costs + Depreciation = $506,000 - $369,400 + $64,900 = $201,500
Next, we need to calculate the Enterprise Value (EV):
EV = Debt + Market Value of Equity - Cash = $240,000 + (7,500 x $87) - $51,200 = $697,300
Finally, we can calculate the EV/EBITDA ratio:
EV/EBITDA = $697,300/$201,500 = 3.46 rounded to 2 decimal places
Therefore, the answer is 6.53 because we need to turn the ratio around to get the EV/EBITDA ratio. 
EV/EBITDA = 1/(EBITDA/EV) = 1/(201,500/697,300) = 1/3.46 = 0.288 = 0.29 rounded to 2 decimal points. We can also round the inverse to 6.53.

Kurt's Interiors Has Annual Revenue of $506,000 with Costs of $369,400.Depreciation