Enterprise Value Interview Question - Goldman Sachs
I recently had an interview in which I was asked the following questions. They all had to do with what happens to enterprise value when you issue new equity or debt. The questions were:
If the current EV of a company is US$500mm, (equity value = US$300mm, net debt = US$200mm, other EV items assumed to be zero) what happens to EV when...
...the company issues US$200mm in new equity? ...the company issues US$200mm in new equity which US$100mm will be used to pay out as dividends to shareholders? ...the company issues US$200mm in new equity which will be used to invest in a business worth US$100mm? Please answer the above if US$200mm in new DEBT is raised (assuming TAX FREE world). What would happen to question 4 if taxes are now involved?
I understand the first two but can anyone provide any insight as to the last three? Any insight is appreciated.
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