In 2016, a year after Royal Capital Management initiated its position in Aerojet Rocketdyne Holdings, Inc....

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In 2016, a year after Royal Capital Management initiated its position in Aerojet Rocketdyne Holdings, Inc. (Aerojet) stock at $20.61 per share. Aerojet's stock was now trading at $25 per share after its most recent earnings were announced. See the current Aerojet information below (in millions): Revenue EBITDA Number of Shares Interest-bearing Debt Cash and Marketable Securities Tax rate 2016 $2,000 $180 60 $500 $200 30% Based on recent land sales, Jeremy Breindel of Royal Capital Management believed that the excess land held by Aerojet would now generate cash flow of $300 million (after all expenses including taxes) and noted that the latest update on the pension plan showed that the amount that the plan was underfunded was now $600 million. He now believed that Aerojet should be trading at $40 per share. [A] Calculate the EV/EBITDA multiple for Aerojet assuming that, besides cash, there were no excess assets or non-debt liabilities. [B] The comparable firms were now trading at Enterprise value/EBITDA multiples of 12x. After considering Jeremy Briendel's assumptions regarding Aerojet's excess assets and non-debt liabilities, what is the value per share of Aerojet if it was priced at the same multiple. [C] Based on your analysis above, is Aerojet stock trading at a higher or lower multiple than the comparable firms? [D] Briefly explain whether your analysis supports Jeremey Breindel's belief that Aerojet's stock was worth $40 per share? In 2016, a year after Royal Capital Management initiated its position in Aerojet Rocketdyne Holdings, Inc. (Aerojet) stock at $20.61 per share. Aerojet's stock was now trading at $25 per share after its most recent earnings were announced. See the current Aerojet information below (in millions): Revenue EBITDA Number of Shares Interest-bearing Debt Cash and Marketable Securities Tax rate 2016 $2,000 $180 60 $500 $200 30% Based on recent land sales, Jeremy Breindel of Royal Capital Management believed that the excess land held by Aerojet would now generate cash flow of $300 million (after all expenses including taxes) and noted that the latest update on the pension plan showed that the amount that the plan was underfunded was now $600 million. He now believed that Aerojet should be trading at $40 per share. [A] Calculate the EV/EBITDA multiple for Aerojet assuming that, besides cash, there were no excess assets or non-debt liabilities. [B] The comparable firms were now trading at Enterprise value/EBITDA multiples of 12x. After considering Jeremy Briendel's assumptions regarding Aerojet's excess assets and non-debt liabilities, what is the value per share of Aerojet if it was priced at the same multiple. [C] Based on your analysis above, is Aerojet stock trading at a higher or lower multiple than the comparable firms? [D] Briefly explain whether your analysis supports Jeremey Breindel's belief that Aerojet's stock was worth $40 per share?

Answer rating: 100% (QA)

To calculate the EVEBITDA multiple for Aerojet we need to determine the Enterprise Value EV and the EBITDA Enterprise Value EV is calculated as the market value of equity plus total debt minus cash an... View the full answer