Question #5

Reading: Reading 18 Corporate Restructuring

PDF File: Reading 18 Corporate Restructuring.pdf

Page: 3

Status: Unattempted

Part of Context Group: Q5-6 First in Group
Shared Context
- Which of the following statements about Company P's WACC is most accurate? A) Weights of debt and equity are calculated using most recent book values, and include any financing raised or additional equity issued. B) The cost of debt will depend on the historical cost of debt of Company P only. C) Several factors influence the cost of debt: profitability, volatility of EBITDA, leverage, collateral, and so on.
Question
Which of the following is the best estimate of the value of equity of Company S, using the comparable company analysis?
Answer Choices:
A. €160,415,000
B. €151,153,000
C. €171,876,000
Explanation
Average EV/sales = (4.40 + 4.95 + 5.10 + 4.86) / 4 = 4.83 Company S's EV = 4.83 × 33,225,000 = 160,476,750 Company S's equity = EV – debt = 160,476,750 – 9,262,000 = 151,153,000.
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