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CFA Level 2 - Equity Valuation - Market-Based Valuation: Price and Enterprise Value Multiples
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LKJ Inc., a publicly-traded company, is considering acquiring OPQ Corp., a privately-held firm in the same industry. The following information is known: LKJ's current stock price: $120 per share LKJ's total shares outstanding: 30 million OPQ's EBITDA for the most recent fiscal year: $90 million Industry average EV/EBITDA multiple: 7x Based on this information, what is the most appropriate estimation of OPQ Corp.'s value for the potential acquisition?
a.
Determine the implied EV/EBITDA multiple for LKJ by dividing its market capitalization by its own EBITDA, then apply this multiple to OPQ's EBITDA to estimate its value, even if LKJ's multiple differs from the industry average.
b.
Calculate LKJ's market capitalization by multiplying its stock price by the total shares outstanding, then use this value as a proxy for OPQ's value, resulting in an estimated value of $3.6 billion.
c.
Estimate OPQ's enterprise value by multiplying its EBITDA by the industry average EV/EBITDA multiple of 7x, resulting in an estimated value of $630 million.
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