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 $81 million, excess cash of $62 million, $11 million of debt, and 120 million shares outstanding. If the firm had an EPS of $0.41, 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?
A) -$0.08
B) -$0.13
C) -$1.27
D) -$1.39

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 $81 million, excess cash of $62 million, $11 million of debt, and 120 million shares outstanding. If the firm had an EPS of $0.41, 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?
A) -$0.08 
B) -$0.13 
C) -$1.27 
D) -$1.39

Quizplus · Accepted Answer

B) Price using price-earnings ratio = 11.33 × $0.41 = $4.6453; using enterprise value / EBITDA ratio = 6.44 × $81 million = $521.64 million; P₀ = ($521.64 million + $62 million - $11 million) / 120 million = $4.77; difference = $-0.13

Use the Table for the Question(s) Below