Tough technical question

How would Equity Value and enterprise value be affected by a $200 million equity raise and a $15 million dividend payment?

My answer was that EV would remain unchanged as equity value increases by 185m (+200m - 15m) but cash increase by 185m as well (cash from financing is up 200m - 15m). Is this correct?

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Comments (3)

  • Intern in IB - Gen
Nov 25, 2021 - 8:53pm

Yes. EV is value of net operating assets to all investors. Cap raises and dividend payments are financing related, not operating. Therefore, EV stays the same. EqV is the value of total net assets but just to common shareholders. Cash goes up by $185 like you note, so total assets and EqV also increase by those amounts.

  • Analyst 1 in IB - Cov
Nov 25, 2021 - 8:58pm

Yes think you're right, to step it out more:

First, on the equity raise - the $200m increase in cash will offset the $200m increase in equity, so your EV remains unchanged while equity value increases by $200m

Second, on the dividend - the $15m dividend (assuming cash) will be paid out to equity holders which reflects a decrease in cash (CFF) of $15m, while the stock price should go down after ex-div to reflect the payment 

Nov 26, 2021 - 2:56am

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