Enterprise & Equity Value
Common interview trap: 'If a company has $100m of cash and uses it to pay down $100m of debt, what happens to enterprise value?' What's the right answer?
Model answer
Enterprise value is UNCHANGED. Debt drops by $100m and cash drops by $100m, so net debt (debt minus cash) is unchanged, and equity value is unaffected because nothing of value left the firm - one…
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