With a target EV of $100 million and a debt-to-total-cap ratio of 60%, how much equity value would a 50% premium on the share price provide?

With a target EV of $100 million and a debt-to-total-cap ratio of 60%, how much equity value would a 50% premium on the share price provide?

• A. $60 million
• B. $40 million
• C. $50 million
• D. $30 million

Answer: (A)

To determine the equity value with a target enterprise value (EV) of $100 million and a debt-to-total-cap ratio of 60%, it's essential to first understand how the components of the capital structure relate to each other. The debt-to-total-cap ratio indicates that 60% of the total capitalization is represented by debt. This suggests that the remaining 40% constitutes equity. Therefore, we can derive the amount of debt and equity from the enterprise value. Given the total enterprise value of $100 million: - Debt can be calculated as 60% of the total capitalization. - Equity, being the remaining part, is hence 40% of the total. From this assumption: 1. Calculate the total capitalization (Cap) using the formula: \[ \text{Debt} = 0.60 \times \text{Cap} \] \[ \text{Equity} = 0.40 \times \text{Cap} \] Here, we also know that: \[ \text{EV} = \text{Debt} + \text{Equity} \] Setting up the equation: \[ 100 = 0.60 \times \text{

To determine the equity value with a target enterprise value (EV) of $100 million and a debt-to-total-cap ratio of 60%, it's essential to first understand how the components of the capital structure relate to each other.

The debt-to-total-cap ratio indicates that 60% of the total capitalization is represented by debt. This suggests that the remaining 40% constitutes equity. Therefore, we can derive the amount of debt and equity from the enterprise value.

Given the total enterprise value of $100 million:

• Debt can be calculated as 60% of the total capitalization.

• Equity, being the remaining part, is hence 40% of the total.

From this assumption:

1. Calculate the total capitalization (Cap) using the formula:

[

\text{Debt} = 0.60 \times \text{Cap}

]

[

\text{Equity} = 0.40 \times \text{Cap}

]

Here, we also know that:

[

\text{EV} = \text{Debt} + \text{Equity}

]

Setting up the equation:

[

100 = 0.60 \times \text{