Question 1

Company A is considering acquiring Company B.
Company B EBITDA: $10 million.
Peer Group Average EV/EBITDA multiple: 8x.
Company B Net Debt: $20 million.

Using the market multiple approach, what is the estimated Equity Value of Company B?

Accepted Answer

1. Calculate Enterprise Value (EV) = Metric x Multiple. 2. Calculate Equity Value = EV - Debt + Cash (Net Debt is Debt - Cash, so EV - Net Debt).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Confusing Enterprise Value with Equity Value; adding debt instead of subtracting.

Company A is considering acquiring Company B. <br/>Company B EBITDA: $10 million.<br/>Peer Group Average EV/EBITDA multiple: 8x.<br/>Company B Net Debt: $20 million.<br/><br/>Using the market multiple approach, what is the estimated Equity Value of Company B?

How to approach this question

Full Answer

Common mistakes

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