Active Athletics Inc. has an EBIT of $400,000, $150,000 in depreciatio

Active Athletics Inc. has an EBIT of $400,000, $150,000 in depreciation, $500,000 in outstanding debt, a forward-looking EV/EBITDA multiple of 6.0, and an estimated cost of capital of 14%. Use the EV/EBITDA approach to value the firm.

A) $2,800,000
B) $2,400,000
C) $1,700,000
D) $1,500,000

ANSWER

A
Explanation: A) EV = Multiple * EBITDA, then, Ve = EV – Vd
= 6 * $550,000 – $500,000 = $2,800,000.