In the described deal, what are the Combined Equity Value and the Combined Enterprise Value?

In the described deal, what are the Combined Equity Value and the Combined Enterprise Value?

• A. 350; 350
• B. 300; 450
• C. 400; 400
• D. 450; 300

Answer: (C)

The main idea here is the relationship between equity value and enterprise value. Enterprise value shows what the entire business is worth to all capital providers, while equity value is what the shareholders own. The two are linked by net debt: EV equals Equity Value plus Net Debt (where Net Debt is total debt minus cash and cash equivalents, plus any other adjustments like minority interests or preferred stock if applicable). In the described deal, both values come out to 400. That means the net debt is zero, so there are no debt or cash adjustments changing the number. When net debt is zero, enterprise value and equity value are the same, hence both are 400. If there were positive net debt, enterprise value would be higher than equity value; if there were net cash (negative net debt), enterprise value would be lower than equity value.

The main idea here is the relationship between equity value and enterprise value. Enterprise value shows what the entire business is worth to all capital providers, while equity value is what the shareholders own. The two are linked by net debt: EV equals Equity Value plus Net Debt (where Net Debt is total debt minus cash and cash equivalents, plus any other adjustments like minority interests or preferred stock if applicable).

In the described deal, both values come out to 400. That means the net debt is zero, so there are no debt or cash adjustments changing the number. When net debt is zero, enterprise value and equity value are the same, hence both are 400.

If there were positive net debt, enterprise value would be higher than equity value; if there were net cash (negative net debt), enterprise value would be lower than equity value.