CFA Practice Question

There are 191 practice questions for this study session.

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 Contributed Comments 8

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.
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