Which of the following pairs belongs together? A. Equity value and revenue B. Enterprise value and EBITDA C. Equity value and EBITDA D. Enterprise value and net earnings
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Equity value refers to the value of a company's equity, which is the difference between its assets and liabilities. Revenue is the income generated from sales. Enterprise value is the total value of a company, including both equity and debt. EBITDA (Earnings Show more…
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Texts: Johnson Pharmaceuticals and Pincer Scientific are two companies whose operations are identical in every way. However, Johnson Pharmaceuticals carries far more debt than Pincer does (though assume the weighted average costs of capital for both companies are identical). Assuming the market is valuing both companies correctly, which of the following statements is INCORRECT: 1. P/E is a preferable multiple to EV/EBIT for comparing these two companies. 2. Both companies will have an identical EV/EBITDA multiple. 3. Johnson will likely have a different P/E multiple than Pincer. 4. Both companies will have an identical enterprise value. 5. Both companies will have identical returns on invested capital. Fultz Enterprises and Houghlin Inc both have the same Enterprise value, EBITDA, and the same EBITDA growth expectations. Fultz is more capital intensive than Houghlin, requiring more reinvestment to achieve the forecast growth rate. They are otherwise identical. Based on this information, which of the following statements is correct? 1. Both companies will have identical EV/EBIT multiples. 2. Fultz is undervalued relative to Houghlin. 3. Houghlin is undervalued relative to Fultz. 4. Fultz will have a lower EBIT multiple than Houghlin. 5. Fultz and Houghlin are properly valued relative to one another on an EV/EBITDA basis.
Akash M.
AMC Corporation currently has an enterprise value of $400 million and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC’s enterprise value to either $600 million or $200 million. a. What is AMC’s share price prior to the share repurchase?What is AMC’s share price after the repurchase if its enterprise value goes up? What is AMC’s share price after the repurchase if its enterprise value declines? c. Suppose AMC waits until after the news comes out to do the share repurchase. What is AMC’s share price after the repurchase if its enterprise value goes up? What is AMC’s share price after the repurchase if its enterprise value declines? d. Suppose AMC management expects good news to come out. Based on your answers to parts b and c, if management desires to maximize AMC’s ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? e. Given your answer to part d, what effect would you expect an announcement of a share repurchase to have on the stock price? Why?
Breanna O.
AMC Corporation currently has an enterprise value of $400 million and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC’s enterprise value to either $600 million or $200 million. a. What is AMC’s share price prior to the share repurchase?b. What is AMC’s share price after the repurchase if its enterprise value goes up? What is AMC’s share price after the repurchase if its enterprise value declines? c. Suppose AMC waits until after the news comes out to do the share repurchase. What is AMC’s share price after the repurchase if its enterprise value goes up? What is AMC’s share price after the repurchase if its enterprise value declines? d. Suppose AMC management expects good news to come out. Based on your answers to parts b and c, if management desires to maximize AMC’s ultimate share price, will they undertake the repurchase before or after the news comes out? When would management undertake the repurchase if they expect bad news to come out? e. Given your answer to part d, what effect would you expect an announcement of a share repurchase to have on the stock price? Why?
Shu N.
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