Enterprise Value Technical Questions
Hello - I've been asked a series of enterprise value technical questions. I think I understand the first 2, but I'm struggling with the third.
1. A $5B enterprise value company raises $2B in debt, what happens to the TEV?
My answer: Nothing, the net debt remains the same, so TEV does as well.
2. A $5B enterprise value company raises $2B in debt and uses it to issue a special dividend, what happens to the TEV?
My answer: Nothing, net debt goes up, but equity goes down. TEV remains the same.
3. A $5B enterprise value company (consisting of all equity) raises $2B in debt to invest in a project that yields $3B in NPV (discounted at WACC), what happens to the TEV?
My answer: This is where I'm struggling. I know the TEV goes up, but I'm not sure to what. My guess was $10B. Is this correct?
EV does not change after raising debt
EV goes up after spending $2bn to put into project and equity goes up $3bn as the project increases the value of the firm.
TEV goes up $5bn like you said
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