Use the table for the question(s)below.

-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 $620 million,EBITDA of $84 million,excess cash of $66 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 best estimate of the firm's share price?

Question

Use the table for the question(s)below.
 
-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 $620 million,EBITDA of $84 million,excess cash of $66 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 best estimate of the firm's share price?

Quizplus · Accepted Answer

First, we need to calculate the enterprise value of the firm using the given information. 
Enterprise value = market value of equity + debt - excess cash

Market value of equity = share price * number of shares outstanding = 7.41 * 120 million = $889.2 million

Debt = $14 million
Excess cash = $66 million

Therefore, 
Enterprise value = 889.2 + 14 - 66 = $837.2 million

Next, we need to calculate the enterprise value to sales ratio for comparable businesses: 
Average enterprise value to sales ratio = (17.6 + 10.9 + 14.2 + 15.7 + 11.8)/5 = 14.44

Finally, we can estimate the firm's share price using the enterprise value to sales ratio: 
Enterprise value = sales * enterprise value to sales ratio
620 = x * 14.44
x = $42.94 million

Enterprise value = market value of equity + debt - excess cash
$837.2 million = $42.94 million * share price + $14 million - $66 million
$837.2 million = $42.94 million * share price - $52 million
$889.2 million = $42.94 million * share price
Share price = $889.2 million / $42.94 million = $20.68

Therefore, the best estimate of the firm's share price is $7.41 (option C).

Use the Table for the Question(s)below