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Which of the following describes the meaning of Enterprise Value? It is the market value of...

Which of the following describes the meaning of Enterprise Value?

  1. It is the market value of equity
  2. It is the market value of debt
  3. It is the market value of equity plus debt
  4. Answers a and b
  5. Answers b and c

Solutions

Expert Solution

Enterprise value (EV) is a measure of a company's total value

EV includes in its calculation the market capitalization of a company but also short-term and long-term debt as well as any cash on the company's balance sheet.

Formula and Calculation for EV

EV=MC+Total Debt−C

where:

MC=Market capitalization; equal to the current stockprice multiplied by the number of outstanding stock shares

Total debt=Equal to the sum of short-term andlong-term debt

C=Cash and cash equivalents; the liquid assets ofa company, but may not include marketable securities

From the give options:

Most accurate is option(C), which is it is total of market value of equity + debt

Note: we are not considering cash here as options doesn't talk about it:

Hope this finds you well, pleased do let me know if you are clear.If this what you are looking for please give a thumbs up so that it encourages me to solve more problems effectively.

jeff jeffy answered 1 year ago
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