n NISM Certifications
XV NISM Series XV
Medium

The average EV/EBIT ratio in an industry is 8.0x. PQR Ltd. reports EBIT of Rs. 100 crores and has net cash of Rs. 65 crores. What is the closest fair value of the company’s equity?

Practice question from NISM XV Mock Test 7 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. Rs. 865 crores

    Correct answer

  2. B

    Rs. 735 crores

  3. C

    Rs. 1060 crores

  4. D

    Rs. 625 crores

Why this is the answer

EV = EBIT × EV/EBIT = 100 × 8 = 800 crores. EV = Equity + Debt − Cash; assuming no debt: 800 = Equity − 65 → Equity = 865 crores. This gives a fair estimate of the company’s equity value using industry multiples.

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