Use the table for the question(s)below. Name Market Enterprise Enterprise Enterprise
Capitalization Value Price/ Value/ Value/
($ million)($ million)P/E Book Sales EBITDA
Gannet 6350 10,163 7.36 0.73 1.4 5.04
New York Times 2423 3472 18.09 2.64 1.10 7.21
McClatchy 675 3061 9.76 1.68 1.40 5.64
Media General 326 1192 14.89 0.39 1.31 7.65
Lee Enterprises 267 1724 6.55 0.82 1.57 6.65
Average 11.33 1.25 1.35 6.44
Maximum +60% 112% +16% +22%
Minimum -40% -69% -18% -19%
The table above shows the stock prices and multiples for a number of firms in the newspaper publishing industry. Another newspaper publishing firm (not shown)had sales of $640 million, EBITDA of $84 million, excess cash of $67 million, $14 million of debt, and 120 million shares outstanding. If the average enterprise value to sales for comparable businesses is used, which of the following is the range of reasonable share price estimates?

Question

Quizplus · Accepted Answer

To find the share price, first calculate the enterprise value using the average EV/Sales ratio (1.25). EV = 1.25 * $640M = $800M. Adjust for cash and debt: $800M + $67M (cash) - $14M (debt) = $853M. Divide by shares outstanding: $853M / 120M = $7.11. Apply the minimum and maximum adjustments: $7.11 * (1 - 0.18) = $5.83 and $7.11 * (1 + 0.16) = $8.25. The closest range is $6.27 to $8.86.

Use the Table for the Question(s)below