Creative Centers Inc. has an EBIT of $200,000, $30,000 in depreciation

Creative Centers Inc. has an EBIT of $200,000, $30,000 in depreciation, $450,000 in outstanding debt, a forward-looking EV/EBITDA multiple of 7.50, and an estimated cost of capital of 10%. Use the EV/EBITDA approach to value the firm.

A) $837,500
B) $950,000
C) $1,100,000
D) $1,275,000

ANSWER

D
Explanation: D) EV = Multiple * EBITDA, then, Ve = EV – Vd
=7.5 * $230,000 = $1,725,000 – $450,000 = $1,275,000.