After a company issues 200 million dollars in new shares, what happens to Equity Value and Enterprise Value in the initial step?

After a company issues 200 million dollars in new shares, what happens to Equity Value and Enterprise Value in the initial step?

• A. Equity Value increases by 200m; Enterprise Value stays the same.
• B. Equity Value increases by 200m; Enterprise Value increases by 200m.
• C. Equity Value decreases by 200m; Enterprise Value stays the same.
• D. Equity Value stays the same; Enterprise Value decreases by 200m.

Answer: (A)

When a company issues new shares and raises 200 million, the immediate impact is on equity value: it increases by 200 million because there are now more shares and the market value of those shares adds to the total equity. Enterprise value, however, stays the same in this initial step. This happens because Enterprise Value is influenced by cash on the balance sheet. The 200 million raised adds cash on the asset side, and since EV is calculated as Equity Value plus net debt (and other adjustments) minus cash, the 200 million cash increase offsets the 200 million increase in equity. Net debt and other components don’t change, so the overall Enterprise Value remains unchanged.

When a company issues new shares and raises 200 million, the immediate impact is on equity value: it increases by 200 million because there are now more shares and the market value of those shares adds to the total equity. Enterprise value, however, stays the same in this initial step. This happens because Enterprise Value is influenced by cash on the balance sheet. The 200 million raised adds cash on the asset side, and since EV is calculated as Equity Value plus net debt (and other adjustments) minus cash, the 200 million cash increase offsets the 200 million increase in equity. Net debt and other components don’t change, so the overall Enterprise Value remains unchanged.