Question

Edelman Engines has $14 billion in total assets — of which cash and equivalents total $120 million. Its balance sheet shows $2.1 billion in current liabilities — of which the notes payable balance totals $1.08 billion. The firm also has $7.7 billion in long-term debt and $4.2 billion in common equity. It has 300 million shares of common stock outstanding, and its stock price is $37 per share. The firm's EBITDA totals $1.554 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations. Round your answers to two decimal places.

Answer 1

Answer:

Market/book= 2.6428 times

EV/EBITDA= 13.37 times

Explanation:

Edelman engines have $4.2 billion in common equity

The common stock outstanding is 300 million

The share price is $37

The first step is to calculate the market value

= Common stock outstanding × share price

=300,000,000 × $37

= $11,100,000,000

Therefore the Edelman's market/book can be calculated as follows

= 11,100,000,000/4,200,000,000

= 2.6428 times

The EV can be calculated as follows

= Market value of equity + Total debt-cash and cash equivalent

= $11,100,000,000+ $7,700,000,000 + $2,100,000,000-0.120000000

= $20.78 billion

EBITDA = $1.554 billion

Therefore the EV/EBITDA can be calculated as follows

$20.78 billion/1.554 billion

= 13.37 times