Equity Value

A peer set trades at an average EV/EBITDA multiple of 9.0x. Fictional private target Larkspur Components has EBITDA of $30 million, total debt of $50 million and cash of $10 million. Applying the peer multiple, what is Larkspur's implied equity value?

1. A.$270 millionWrong. This is implied enterprise value; it has not yet been bridged to equity value.
2. B.$310 millionWrong. This adds debt instead of subtracting it.
3. C.$220 millionWrong. This subtracts cash instead of adding it.
4. D.$230 millionCorrect. $270M − $50M + $10M = $230 million.

Why: Implied EV = peer multiple × target EBITDA = 9.0x × $30M = $270M. Implied equity value = EV − debt + cash = $270M − $50M + $10M = $230 million.

Applying the precedent transaction multiple to Corvane Industries implies an enterprise value of $420 million. Corvane has total debt of $90 million and cash of $15 million. What is the implied equity value?

1. A.$495 millionWrong. This adds debt instead of subtracting it.
2. B.$420 millionWrong. This is the implied enterprise value, not equity value; the bridge has not been applied.
3. C.$345 millionCorrect. $420M − $90M + $15M = $345 million.
4. D.$315 millionWrong. This subtracts cash instead of adding it.

Why: Implied equity value = implied EV − debt + cash = $420M − $90M + $15M = $345 million.