Answer:
The enterprise value is $926,450
Explanation:
First, we need to calculate Earnings per share (EPS) as follow
EPS = Net profit / Numbers of outstanding shares = (
Where
Net Profit = Sales x Profit Margin = $697,000 x 6.8% = $47,396
Numbers of outstanding shares = 17,500 shares
Placing values in the formula
EPS = $47,396 / 17,500 shares = $2.71 per share
Now calculate market capitalization as follow
Market Capitalization = Price of stock x Numbers of outstanding shares
where
Price of stock = Price earning ratio x earning per share = 11.8 x $2.71 = $31.98
Numbers of outstanding shares = 17,500 shares
Placing values in the formula
Market Capitalization = $31.98 x 17,500 = $559,650
Enterprise value can be calculated using the following formula
Enterprise Value = Market capitalization + Value of debt - Cash
Where
Market capitalization = $559,650
Value of debt = $408,000
Cash = $41,200
Placing values in the formula
Enterprise Value = $559,650 + $408,000 - $41,200
Enterprise Value = $926,450
