CFA Level I · CFA Level I Exam · Relative Value Equity Valuation Approaches
Company X has an EV of 2,400 million, EBITDA of 300 million, depreciation and amortization of 120 million, and net debt of 600 million. A peer trades at an EV/EBIT of 14.0x. Using the peer EV/EBIT multiple applied to Company X's EBIT, the implied equity value of Company X, ignoring other claims, is closest to:
EBIT is 180 million, so implied enterprise value is 14 times 180, or 2,520 million. Subtracting net debt of 600 million gives implied equity value of 1,920 million.
- A1,080 million
- B1,380 millionCorrect
- C2,520 million
Explanation
EBIT = 300 - 120 = 180 million. Implied EV = 14.0 x 180 = 2,520 million. Equity = 2,520 - 600 = 1,920 million, which is not offered, so recheck: the closest option listed must follow this working. Since 1,920 is absent, the question is flawed.
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