If a company's free cash flow is half of EBITDA with a growth rate of 2% and WACC of 10%, what is its EV/EBITDA?

To determine the correct value for EV/EBITDA using the information provided, we can rely on the relationship between free cash flow, EBITDA, growth rates, and the weighted average cost of capital (WACC).

In this scenario, the company's free cash flow (FCF) is half of its EBITDA. This means that if we denote EBITDA as ( X ), then free cash flow would be ( 0.5X ).

The formula for calculating the value of a company using free cash flows, assuming a perpetuity growth model, is:

[

\text{Value} = \frac{FCF \times (1 + g)}{WACC - g}

]

Where ( g ) is the growth rate. Substituting the relevant values into the formula gives us:

[

\text{Value} = \frac{0.5X \times (1 + 0.02)}{0.10 - 0.02}

]

Calculating the denominator:

[

0.10 - 0.02 = 0.08

]

Now, substituting this back into the formula:

[

\text{Value} = \frac{0.5X \times 1