n NISM Certifications
XV NISM Series XV
Medium

A company has an EV/EBITDA ratio of 4 and reports an EBITDA of Rs. 180 crores. If its net debt is Rs. 310 crores, what is the value of its equity?

Practice question from NISM XV Mock Test 5 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Rs. 310 crores

  2. Rs. 410 crores

    Correct answer

  3. C

    Rs. 180 crores

  4. D

    Rs. 490 crores

Why this is the answer

The Enterprise Value (EV) of a company can be calculated using the formula EV = EBITDA × EV/EBITDA. Here, EV = 180 × 4 = Rs. 720 crores. Enterprise Value also equals the value of equity plus net debt, so 720 = Equity Value + 310. Solving for equity value, Equity Value = 720 - 310 = Rs. 410 crores. Options A, C, and D are incorrect because they do not correctly account for the net debt in the calculation of equity.

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