Technical Question: Share Price
Can anyone walk through this question?
A company has a P/E pf 20, 25% Tax Rate, $2000 Revenue, 100 S/O, EV/EBITDA of 7.5, $1000 debt, interest rate of 10%, and SG&A is $500. What is the share price?
I figured we just start at revenue, subtract SGA and debt interest to get to 1400 pre-tax income. Net-income=1050.
With Net Income, solve for equity value using P/E=20 to get Equity Value of 21000, divided by 100 shares to get a share price of $210.
Is this correct? I was thinking it might be possible to use the EV/EBITDA multiple instead, and backout to equity value...but wasn't sure if Ebitda could be solved as being Revenue-SG&A (2000-500) since no other figures are given.
Yes. But only because you are missing COGS. However, $210 is clearly wrong because that would imply this company generates 75% EBIT margins and >50% net margins. Maybe the interviewer expects candidates to say that this does not make any sense and then expect them to come up with a more realistic margin assumption. In any case, let's say $210 is correct. The EBITDA multiple was clearly thrown in there to confuse people who might think they need to use it for something.
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