Question 3. 3. (TCO F) Hagar Enterprises (HA) has a new technology for recording heavy metal bands in the studio. The firm is privately held and there is no public market for its common stock. Hagar's 2012 EBIT was $1.5 million. The firm's year-end 2012 accumulated-depreciation balance was $1.2 million; at the end of 2011, the accumulated depreciation-balance was $700,000. At the end of 2012, Hagar had total liabilities of $2.7 million, which included a $2 million loan balance, and the firm's total shareholders' equity balance was $3.3 million. The CEO has asked you to determine the value of Hagar Enterprises' equity. You have found a public company that provides similar digital technology solutions to the recording industry, named SoundBytes Corporation (SI). SoundBytes' share price is $75 and the firm has 400,000 shares outstanding. SI also has $10 million in bonds outstanding, and its current EBITDA is $16 million. Make sure to provide all calculations in your answers to each of the following questions:
Required:
(a) Calculate Soundbytes' enterprise value and its EBITDA multiple.
(b) Calculate Hagar Enterprise's EBITDA.
(c) After completing (a) and (b) above, use SI's EBITDA multiple to determine Hagar Enterprise's implied Enterprise Value and its estimated equity value.