Cash 100,000 debt 60,000 tax rate 10% discount rate 6% enterprise value 500,000 perpetual growth rate 4% given the data in the above table, calculate market capitalization of this hypothetical company.
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The market capitalization of the company amounts to 540,000
Explanation:
The market capitalization of the company is computed using the Enterprise value formula as:
Enterprise value (EV) = Market Capitalization + Total Debt - Cash
So, for computing the Market Capitalization, the formula would be:
Market Capitalization = Enterprise value - Total Debt + Cash
where
Enterprise value (EV) is 500,000
Total debt is 60,000
Cash is 100,000
Putting the values above:
Market Capitalization = 500,000 - 60,000 + 100,000
Market Capitalization = 440,000 + 100,000
Market Capitalization = 540,000
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