Jorge Zaldys, CFA, is researching the relative valuation of two companies in the aerospace/defense industry, NCI Heavy Industries (NCI) and Relay Group International (RGI). He has gathered relevant information on the companies in the following table.

Relative Valuation

Information	RGI	NCI
EBITDA	100	100
Interest Expense	0	20
Earnings Before Tax	100	80
Tax (40%)	40	32
Net Income	60	48
Cash and Short-term Investments	40	20
MV of Debt	0	400
BV of Debt	0	350
Price per Share	10	20
Shares Outstanding	100	30

Question 4.A Calculate RGI and NCI's Enterprise Value.

	a.	1,000 / 1,000
	b.	1,000 / 600
	c.	960 / 1,000
	d.	960 / 980

Question 4.B

Calculate RGI and NCIs earnings per share.

	a.	60, 48
	b.	0.6, 1.6
	c.	1, 33.33
	d.	10, 3.33

Question 4.C

Calculate RGIs EV/EBITDA ratio and P/E ratio.

	a.	10, 12.5
	b.	9.6, 16.67
	c.	10, 16.67
	d.	9.6, 12.5

Question 4.D

Calculate NCIs EV/EBITDA ratio and P/E ratio.

	a.	10, 12.5
	b.	9.8, 16.67
	c.	10, 16.67
	d.	9.8, 12.5

Question 4.E

Since RGIs P/E ratio is significantly higher than NCI, highly likely RGI is overvalued.

True

False