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CFA Level 2
Equity Investments

Valuation Adjustment Using EV/EBITDA Multiple

Very Hard Equity Valuation Applications Market-based Valuation

XYZ Corporation is examining its market-based valuation in comparison to its industry peers. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) for the last fiscal year was $150 million. XYZ trades at an enterprise value (EV) of $1.5 billion. The industry's average EV/EBITDA ratio is 10. Additionally, through a recent analysis, it was observed that XYZ has a growth rate of 5% whereas its peers average a growth rate of 7%.

If XYZ Corporation were to achieve its peers’ growth rate, what would be the potential valuation of XYZ using the industry average EV/EBITDA multiple?

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