Preston Woods has 17,500 shares of stock outstanding along with $408,000 of interest bearing debt. The market and book values of the debt are the same. The firm has sales of $697,000 and a profit margin of 6.8 percent. The tax rate is 35 percent, the debt-equity ratio is 40 percent, and the price-earnings ratio is 11.8. The firm has $130,000 of current assets of which $41,200 is cash. What is the enterprise value

$ 926,072.80  

Explanation:

The company's market capitalization can be computed using the price-earnings ratio of 11.8.

Net income(earnings after tax)=sales* profit margin=$697,000*6.8%=

$ 47,396.00  

P/E ratio=market capitalization/net income

11.8=market capitalization/$ 47,396.00  

market capitalization=11.8*$47,396.00  

market capitalization=$ 559,272.80  

Enterprise value=market capitalization+debt-cash

enterprise value=$ 559,272.80+$408,000.00-41,200=$ 926,072.80