Use the Table for the Question(s)below

question 4

Multiple Choice

Use the table for the question(s) below. Name Market Enterprise Enterprise Enterprise
Capitalization Value Price/ Value/ Value/
($ million) ($ million) P/E Book Sales EBITDA
Gannet 6350 10,163 7.36 0.73 1.4 5.04
New York Times 2423 3472 18.09 2.64 1.10 7.21
McClatchy 675 3061 9.76 1.68 1.40 5.64
Media General 326 1192 14.89 0.39 1.31 7.65
Lee Enterprises 267 1724 6.55 0.82 1.57 6.65
Average 11.33 1.25 1.35 6.44
Maximum +60% 112% +16% +22%
Minimum -40% -69% -18% -19%
The table above shows the stock prices and multiples for a number of firms in the newspaper publishing industry. Another newspaper publishing firm (not shown) had sales of $600 million, EBITDA of $84 million, excess cash of $68 million, $18 million of debt, and 120 million shares outstanding. If the average enterprise value to sales for comparable businesses is used, which of the following is the best estimate of the firm's share price?

• A)$6.45
• B)$7.20
• C)$7.17
• D)$7.53

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Definitions:

Slope

Slope is a measure of the steepness, incline, or grade of a line, often represented mathematically as the ratio of rise over run in the context of a graph.

Isocost Line

Represents all combinations of inputs that cost the same amount for a firm, illustrating budget constraints in production theory.

Price of Capital

The cost of using capital assets in production, which can include interest rates on loans or opportunity costs of using owned capital.

Price of Labor

The wage or salary paid for the services of an employee or worker; essentially the cost of hiring labor.