The managers of Corine’s Candies like to use the EBITDA multiple to value the firm. EBITDA was approximately $10 million in 2012. Use the market value of equity from Practice Problem 36 and a debt value of $20 million to find the total enterprise value (TEV). Next, calculate the EBITDA multiple. Suppose the industry-average EBITDA multiple for candy producers is 8.65. Is the market valuing Corine’s Candies Inc. more or less highly than its competitors?
At the end of 2011, Corine’s Candies Inc. had total shareholders’ equity of $13.8 million. In 2012, the company had net income of $5.2 million and paid out half this amount in dividends, resulting in shareholders’ equity at the end of 2012 of $16.4 million. Use the average amount of shareholders’ equity to determine Corine’s ROE for 2012.