Three practical (challenging?) technical questions. How would you solve these?
Came across these questions that appear challenging (to me at least). Feeling iffy on my attempt. How would you solve this?
1.) A company has a PE of 20x, an EV/EBITDA of 10x, Interest Expense of 10m, a 5% interest rate, depreciation of 10m and a market value of 200m, what is the company’s tax rate?
PE of 20x, Market Value of 200M. Net income is $10 Debt = 200M Enterprise value = 400M EBITDA = 40 EBT = 20 Tax expense = 10 Tax rate = 50%
2.) If leverage is 20x EBITDA and the cost of debt is 5%, solve for the interest coverage ratio.
- Assume EBITDA is $10. Leverage is $200. Interest is $10.
10/10 = 1.0x interest coverage ratio
Is the only way to solve this question by picking a arbitrary number for EBITDA?
3.) A M&A deal has an offer value of $1000M, net debt of $300M, LTM EBITDA of $100, and pretax synergies of $10M. What is the EBITDA multiple after you adjust for the synergies?
- This one I'm struggling on. Should we incorporate the net debt, or use $1,000M as the Enterprise value? Denominator I assume should be $100 + 10
Yes you incorporate net debt since 1000m is the equity purchase price. So your multiple is 1300m/110m = 11.82x.
Rosenbaum book calls offer price and enterprise value the same thing. Would this be something to clarify with the interviewer
Prolly. I thought about it the same way as you and had it at 1000/110.
Any shortcuts to answering #1?
lmao I would have sat there in silence during a technical screener for #1
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