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You are trying to value subject company's share price
You are trying to value subject company's share price. Guideline public companies have a MVIC to EBITDA ratio of 17.38 and subject company earned EBITDA equal to 2,430. Assume the following facts: Shares of Subject company stock = 1,200 Long Term Debt for Subject Company = 8,200 Accounts Payable for Subject Company = 1,600 Notes Payable (current) for Subject Company = 1,400 Compute, to the second decimal place, the value of a single share of Subject Company Stock
Expert Solution
MVIC stands for the market value of invested capital. It represents the sum of both the market value of owner's equity and the long term interest bearing debt.
MVIC / EBITDA = 17.38
MVIC / 2430 = 17.38
MVIC = 2430 * 17.38
MVIC = $42,233.4
MVIC = Equity capital + Long term debt
42,233.4 = Equity capital + 8200 ( Out of all the liabilities given only $8200 is a long term liability)
Equity capital = 42,233.4 - 8200
Equity capital = 34,033.4
Price of 1 share = Equity Capital / Number of shares outstanding ( Number of shares outstanding = 1200)
Value of 1 share = 34033.4 / 1200
Value of 1 share = 28.361
Therefore we get the value of 1 equity share as $28.36
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