What happens to the enterprise value (EV) if a company issues equity and uses theproceeds to repay debt?a. The EV goes up2b. The EV remains the samec. The EV goes downd. It depends
Question
What happens to the enterprise value (EV) if a company issues equity and uses theproceeds to repay debt?a. The EV goes up2b. The EV remains the samec. The EV goes downd. It depends
Solution
The Enterprise Value (EV) of a company is calculated as the market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents.
If a company issues equity and uses the proceeds to repay debt, the increase in equity (through the issuance of new shares) is offset by the decrease in debt. Therefore, the overall enterprise value of the company remains the same.
So, the answer is: b. The EV remains the same.
Similar Questions
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