Series 79 practice questionmediumComparable Company Analysis
An investment banker selects five comparable companies with EV/EBITDA multiples of 8.0x, 9.5x, 10.2x, 11.0x, and 14.5x. The target company has LTM EBITDA of $80 million. Using the median multiple, what is the implied enterprise value of the target?
- A$1,160 million
- B$760 million
- C$880 million
- D$816 million✓ Correct answer
Explanation
Why D — $816 million
The median of the five multiples (8.0x, 9.5x, 10.2x, 11.0x, 14.5x) is 10.2x, which is the middle value. Multiplying the median EV/EBITDA of 10.2x by the target's LTM EBITDA of $80M yields an implied enterprise value of $816M. Bankers typically use the median rather than the mean to reduce the impact of outliers, as the 14.5x multiple appears to be an outlier in this set.
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