How does Enterprise Value change when Debt-to-Equity changes?
I've been confused lately by the way experts interpret the way Enterprise Value changes when Debt-to-Equity ratio changes.
Some of them say that since D/E changes, tax shields are expected, so EV is going up.
But if you think of it this way:
D/E going up drives Beta(levered) to go up. Higher Beta leads to higher cost of equity, which also makes WACC higher. Since WACC is becoming higher, EV goes down.
This may be a simple question for some of you guys out there, can you please shed some light on it?
And a small follow-up:
Do we calculate WACC using D/E or D/V (where V = Enterprise Value, i.e. D+E), because I've seen both versions?