Cash100,000Debt60,000Tax Rate10%Discount Rate6%Enterprise Value500,000Perpetual Growth Rate4%Given the data in the above table, calculate market capitalization of this hypothetical company. $540,000$460,000$100,000$400,000
Question
Cash100,000Debt60,000Tax Rate10%Discount Rate6%Enterprise Value500,000Perpetual Growth Rate4%Given the data in the above table, calculate market capitalization of this hypothetical company. 460,000400,000
Solution
To calculate the market capitalization of a company, we need to add the company's debt to its enterprise value and then subtract its cash.
Here's the step-by-step calculation:
- Add the company's debt to its enterprise value: 60,000 (Debt) + 500,000 (Enterprise Value) = 560,000
- Subtract the company's cash from the result: 560,000 - 100,000 (Cash) = 460,000
So, the market capitalization of this hypothetical company is $460,000.
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