Why is EBITDA multiple used for valuation rather than sales or earnings?
What will be an ideal response?
Answer: In most settings, EBITDA multiple is more reliable than sales or earnings multiple because it accounts for the firm's operating efficiency and is not affected by leverage differences between firms.
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Chilé Products Ltd. Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had expected to sell 65,000 bottles but actually bottled and sold 80,000 bottles. The standard direct materials cost for each bottle is $.24 comprised of .60 ounces at a cost of $.40 per ounce. During 2012, 52,000 ounces of material were purchased out of which 46,000 ounces were used at a cost of
$.37 per ounce. Refer to the Chilé Products Ltd. information above. The direct materials price variance for 2012 was: A) $1,560 F. B) $1,560 U. C) $1,380 F. D) $1,380 U.
Which of the following actions would be likely to shorten the cash conversion cycle?
A. Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days. B. Change the credit terms offered to customers from 3/10, net 30 to 1/10, net 50. C. Begin to take discounts on inventory purchases; we buy on terms of 2/10, net 30. D. Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days. E. Change the credit terms offered to customers from 2/10, net 30 to 1/10, net 60.
The rule for project acceptance under the internal rate of return method is that:
A. IRR should be greater than zero. B. IRR should be less than zero. C. IRR should be less than the hurdle rate. D. IRR should be greater than the hurdle rate. E. IRR should equal the hurdle rate.
If a firm undertakes a project with ordinary cash flows and estimates that the firm has a positive NPV, then the IRR will be:
A) less than the cost of capital. B) greater than the cost of capital. C) greater than the cost of the project. D) cannot be determined from this information