EV Q
EV Question. I recognize increasing debt and just having it as cash doesn't increase EV based off the EV formula (1)it does if debt is used to purchase assets I believe rather than just have as excess cash; hope someone could answer this as well).
2) However, I was wondering since equity value is going to be market cap and debt is often used as book value by increasing debt, yes it is offset by excess cash, but unless you have excessive leverage wouldn't it be decrease the WACC and thereby increase the market cap and therefore actually increase EV (increase in equity value due to increase of debt decreasing WACC)? Just curious why this though process is wrong. Thanks. Is it possible that this idea implies using the debt raised for something operational as opposed to just building excess cash on the bs?
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