A company has 50 million shares outstanding trading at $20.00, total debt of $300 million, cash of $100 million, and noncontrolling interest of $50 million. No preferred stock is outstanding. What is its enterprise value?
A. $1,250 million
B. $1,350 million
C. $900 million
D. $1,200 million
Show answer and reasoning
Correct answer: A. $1,250 million
Enterprise value is market capitalization ($1,000 million) plus debt ($300 million) plus noncontrolling interest ($50 million) minus cash ($100 million), which equals $1,250 million.
- B: $1,350 million adds cash instead of subtracting it; cash is a non-operating asset that reduces the price an acquirer effectively pays.
- C: $900 million subtracts debt from market capitalization, which reverses the sign on debt and also ignores the minority interest.
- D: $1,200 million leaves out the $50 million noncontrolling interest, which must be added because consolidated EBITDA includes the minority's share.
Source: Series 79 Outline 1.2: Valuation
A company has an enterprise value of $1,250 million. Its trailing twelve-month EBIT is $100 million, EBITDA is $125 million, and net income is $60 million. Its market capitalization is $1,000 million. What is its EV/EBITDA multiple?
A. 20.8x
B. 8.0x
C. 12.5x
D. 10.0x
Show answer and reasoning
Correct answer: D. 10.0x
EV/EBITDA is $1,250 million divided by $125 million, which equals 10.0x.
- A: 20.8x divides enterprise value by net income ($1,250 / $60), which pairs an unlevered numerator with a levered, after-interest denominator.
- B: 8.0x divides market capitalization by EBITDA ($1,000 / $125), mixing an equity-level numerator with an unlevered denominator.
- C: 12.5x divides enterprise value by EBIT ($1,250 / $100) rather than by EBITDA.
Source: Series 79 Outline 1.2: Valuation
A target has a $400 million term loan, $150 million of senior notes, $30 million of capital lease obligations, and $80 million of cash and equivalents. What is its net debt for purposes of bridging from enterprise value to equity value?
A. $470 million
B. $550 million
C. $500 million
D. $630 million
Show answer and reasoning
Correct answer: C. $500 million
Net debt is total debt ($400 + $150 + $30 = $580 million) minus cash ($80 million), which equals $500 million.
- A: $470 million excludes the capital lease obligations, which are debt-like claims that rank ahead of equity and belong in the bridge.
- B: $550 million subtracts the $30 million of leases instead of the $80 million of cash.
- D: $630 million adds cash to debt rather than subtracting it.
Source: Series 79 Outline 1.2: Valuation
A stock trades at $40.00. The company reported diluted EPS of $2.50 for the last twelve months and consensus EPS for next year is $3.20. What is its trailing P/E multiple?
A. 12.5x
B. 0.06x
C. 16.0x
D. 6.4x
Show answer and reasoning
Correct answer: C. 16.0x
Trailing P/E is price divided by last-twelve-month EPS: $40.00 / $2.50 = 16.0x.
- A: 12.5x is the forward P/E ($40.00 / $3.20), which uses next year's estimate rather than trailing earnings.
- B: 0.06x is the earnings yield (EPS divided by price), which is the inverse of the P/E multiple.
- D: 6.4x divides the trailing P/E (16.0x) by trailing EPS ($2.50), a step with no valuation meaning.
Source: Series 79 Outline 1.2: Valuation
A company trades at a P/E of 20.0x and analysts expect EPS to grow 10% per year. What is its PEG ratio?
A. 10.0
B. 0.5
C. 200.0
D. 2.0
Show answer and reasoning
Correct answer: D. 2.0
PEG is P/E divided by the expected growth rate expressed as a whole number: 20 / 10 = 2.0.
- A: 10.0 is the growth rate itself and ignores the P/E.
- B: 0.5 inverts the ratio (growth divided by P/E).
- C: 200.0 multiplies P/E by the growth rate instead of dividing.
Source: Series 79 Outline 1.2: Valuation
