### CFA Practice Question

There are 497 practice questions for this topic.

### CFA Practice Question

Consider the following information for a firm:

• Price per share: \$40
• Shares outstanding: 4 million
• Market value of debt: \$150 million
• Book value of debt: \$112 million
• Cash and investments: \$10 million
• Net income: \$20 million
• Net income from continuing operations: \$15 million
• Interest expense: \$5 million
• Depreciation and amortization: \$8 million
• Taxes: \$2 million

The EV/EBITDA ratio for the firm is ______.
A. 8
B. 10
C. 12
Explanation: EBITDA = (net income from continuing operations + interest expense + taxes + depreciation + amortization) = 15 + 5 + 2 + 8 = \$30 million
Market value of the firm = \$40 x 4 million + \$150 = \$310 million
EV = \$310 - \$10 = \$300
EV/EBITDA = 300 / 30 = 10

User Comment
danlan2 Why EV=310-10?
danlan2 EV
=Total Value-Cash and Investment
=Share Value+Debt Market Value-Cash and Investment
=40*4+150-10
=300
tumanta Note: calculate ebitda from continuing operations' profit
brandsat and why not from Net Income ? What's missed along the way ?
rhardin Net Income may include one-time charges that should not be included here.
gill15 From continuing operations...seriously...never would`ve figured that out on the exam...
farhan92 @rhardin - Thanks for that
khalifa92 enterprise value is used for acquiring and merging when happens the acquirer pays for its value + debt thus excluded the cash in its account from the equation.