EV/EQUITY VALUE AKPSI ALL

1. What is Equity Value?

Equity Value represents the value of a company attributable to common shareholders. For a public company, it is calculated as share price multiplied by fully diluted shares outstanding. It reflects the value of the company’s equity ownership, including both operating assets and non-operating assets such as excess cash and investments.

2. What is Enterprise Value?

Enterprise Value represents the market value of a company’s core operations to all capital providers, including both debt and equity investors. It isolates the value of the operating business independent of capital structure. A common formula is Enterprise Value = Equity Value + Total Debt + Preferred Stock + Non-Controlling Interest – Cash and Cash Equivalents

3. Why do analysts prefer Enterprise Value when comparing companies?

Enterprise Value removes the impact of capital structure differences. Two companies with identical operations could have very different levels of debt and equity financing, which would distort comparisons if only equity value were used. Enterprise Value focuses on the value of the operating business itself, allowing more meaningful comparisons across companies.

4. Why is cash subtracted when calculating Enterprise Value?

Cash is subtracted because Enterprise Value measures the value of a company’s core operations. Excess cash is considered a non-operating asset because it is not required to generate operating revenue. Since it could theoretically be distributed to shareholders or used to pay down debt, it is excluded from Enterprise Value.

5. Why is debt added when calculating Enterprise Value?

Debt is added because Enterprise Value represents the value of the company to all capital providers. If an acquirer purchases a company, they effectively assume its debt obligations or must repay them. Therefore, debt must be included to reflect the total value of the business.

6. How do you bridge from Equity Value to Enterprise Value?

Enterprise Value = Equity Value + Total Debt + Preferred Stock + Non-Controlling Interest – Cash and Cash Equivalents. This adjustment converts the value attributable to equity holders into the value of the entire operating business available to all investors.

7. How do you calculate Equity Value for a public company?

Equity Value is calculated as share price multiplied by fully diluted shares outstanding. Fully diluted shares include basic shares outstanding plus additional shares that would be created if in-the-money options, warrants, or convertible securities were exercised.

8. What is Market Capitalization?

Market capitalization is the market value of a company’s equity. It is calculated as share price multiplied by basic shares outstanding. While market capitalization and equity value are often used interchangeably, valuation work typically uses fully diluted shares rather than basic shares.

9. What is the difference between basic shares and fully diluted shares outstanding?

Basic shares outstanding represent the number of shares currently issued and held by investors. Fully diluted shares outstanding include all shares that could exist if in-the-money options, warrants, restricted stock units, and convertible securities were exercised. Fully diluted shares provide a more accurate representation of potential ownership dilution.

10. What is the Treasury Stock Method?

The Treasury Stock Method is used to calculate the dilutive impact of options and warrants when determining fully diluted shares outstanding. It assumes that all in-the-money options are exercised and the company receives the strike price proceeds. The company then uses those proceeds to repurchase shares at the current market price. Only the net increase in shares is added to the diluted share count.

11. If options are out of the money, how do they affect diluted shares?

Out-of-the-money options are excluded from diluted share calculations. Since their strike price is higher than the current share price, exercising them would not be economically rational, so they are not considered dilutive.

12. What is net debt?

Net debt is calculated as total debt minus cash and cash equivalents. It represents the amount of debt that would remain if a company used all its available cash to repay outstanding debt. Net debt is often used in valuation because it reflects the company’s true leverage position

13. Why is net debt important in M&A?

Net debt is important because an acquirer effectively assumes the target company’s debt but also gains access to its cash. Therefore, the buyer focuses on net debt when determining the purchase price. The equity purchase price plus net debt equals enterprise value.

14. What happens to Enterprise Value if a company raises debt and holds the cash?

Enterprise Value remains unchanged. When debt increases, it raises Enterprise Value, but the cash raised from the debt issuance also increases and is subtracted in the EV formula. Because both increase by the same amount, the changes cancel out.

15. What happens to Enterprise Value if a company raises equity and holds the cash?

Enterprise Value remains largely unchanged. Equity Value increases because new shares are issued, but the company also receives cash from the equity issuance. Since cash is subtracted in the EV formula, the increase in equity and cash offset each other.

16. What happens to Enterprise Value if a company uses cash to repay debt?

Enterprise Value remains unchanged because both debt and cash decrease by the same amount. Since EV adds debt and subtracts cash, the reduction in both cancels out.

17. What happens to Equity Value if Enterprise Value increases while net debt stays constant?

Equity Value increases by the same amount. This is because Equity Value equals Enterprise Value minus net debt and other senior claims. If net debt remains constant, any increase in Enterprise Value flows directly to equity holders.

18. Can Enterprise Value ever be negative?

Yes, Enterprise Value can be negative if a company’s cash balance exceeds its market capitalization plus debt and other adjustments. In this case, the market is effectively valuing the operating business at less than zero.

19. Why is Enterprise Value paired with EBIT or EBITDA in valuation multiples?

EBIT and EBITDA represent operating income available to all capital providers before interest payments. Because Enterprise Value represents the value of the business to both debt and equity investors, these operating metrics align properly with EV-based valuation multiples.

20. Why is Equity Value paired with Net Income in valuation multiples?

Net income represents earnings available only to equity holders after interest payments to debt holders. Because Equity Value reflects value attributable only to shareholders, it must be paired with metrics that also belong solely to equity investors

21. What types of debt are typically included in Enterprise Value?

Debt included in Enterprise Value typically includes short-term debt, long-term debt, notes payable, bonds, capital lease obligations, and any other interest-bearing debt. The goal is to capture all obligations that represent financing provided by creditors.

22. What types of assets are considered non-operating assets?

Non-operating assets include excess cash, marketable securities, investments in other companies, idle land or unused real estate, idle equipment, and assets held for sale. These assets do not directly contribute to generating operating revenue, so they are excluded when calculating Enterprise Value.

23. Why is non-controlling interest added when calculating Enterprise Value?

Non-controlling interest represents the portion of a subsidiary that the parent company does not own but still consolidates in its financial statements. Because operating metrics like revenue and EBITDA include 100% of the subsidiary’s results, non-controlling interest must be added to Enterprise Value to reflect the value attributable to outside shareholders.

24. Why is preferred stock added when calculating Enterprise Value?

Preferred stock is added because it represents a claim on the company’s assets and earnings that is senior to common equity. Since Enterprise Value represents the value of the company available to all capital providers, preferred shareholders must be included.

25. Why is Enterprise Value often described as the theoretical takeover price of a company?

Enterprise Value reflects the total value of the company’s operating business that an acquirer would effectively purchase. When acquiring a company, the buyer purchases the equity but also assumes the company’s debt while gaining control of its cash balance.

26. Why might two companies with identical Enterprise Values have different Equity Values?

Two companies can have identical Enterprise Values but different capital structures. A company with more debt will have a lower Equity Value because a larger portion of the firm’s total value belongs to creditors rather than shareholders.

27. Why is Equity Value considered a residual value?

Equity holders are residual claimants on the company’s assets and earnings. After debt holders and other senior claimants receive their required payments, the remaining value belongs to shareholders.

28. Why is the cost of equity generally higher than the cost of debt?

Debt holders have a senior claim on the company’s assets and cash flows, meaning they are paid before equity holders. Because equity investors bear greater risk as residual claimants, they require a higher expected return.

29. Why can a company generate equity internally but not debt?

Equity can grow internally through retained earnings when a company generates profits and reinvests them in the business. Debt must always be raised externally because it represents borrowed capital from lenders.

30. Why is Enterprise Value often used when comparing companies across industries?

Enterprise Value removes the effects of differences in capital structure. Because it reflects the value of the company’s operating assets regardless of how they are financed, it allows analysts to compare companies more consistently.

31. You pick up a wallet with $1,000 in it. What are the Firm Value, Enterprise Value, and Equity Value of the wallet?

The wallet contains $1,000 but does not generate any operating cash flows, so the Enterprise Value is $0. Firm Value and Equity Value are both $1,000 because the wallet contains $1,000 of assets with no liabilities.

32. A company raises $500 of debt. What happens to Firm Value, Enterprise Value, and Equity Value?

Firm Value increases by $500 because the company now has $500 of additional capital. Enterprise Value remains unchanged because both debt and cash increase by $500, which offset each other in the Enterprise Value calculation. Equity Value also remains unchanged because the company simply raised financing without changing the value of its operations.

33. A company raises $500 of equity and immediately uses the cash to purchase $500 of inventory. What happens to Firm Value, Enterprise Value, and Equity Value?

Firm Value increases by $500 because the company has acquired additional operating assets. Enterprise Value also increases by $500 because inventory is an operating asset. Equity Value remains unchanged because the inventory purchase was financed with newly issued equity rather than generating additional value for shareholders.

34. What happens to Enterprise Value if a company raises debt and holds the cash?

Enterprise Value remains unchanged. When the company raises debt, both debt and cash increase by the same amount. Since debt is added and cash is subtracted in the Enterprise Value calculation, the two changes offset each other.

35. What happens to Enterprise Value if a company raises equity and holds the cash?

Enterprise Value remains unchanged. Equity Value increases because new shares are issued, but the company also receives cash from investors. Since cash is subtracted in the Enterprise Value formula, the increase in equity and the increase in cash offset each other.

36. What happens to Enterprise Value if a company uses cash to repay debt?

Enterprise Value remains unchanged. Debt decreases and cash also decreases by the same amount. Because debt is added and cash is subtracted in the Enterprise Value formula, the two changes offset each other.

37. What happens to Equity Value if a company pays a dividend?

Equity Value decreases because cash leaves the company and is distributed to shareholders. Since the company has fewer assets after the dividend payment, the value attributable to equity holders declines.

38. What happens to Enterprise Value if a company pays a dividend?

Enterprise Value remains unchanged. Cash decreases when the dividend is paid, which would increase Enterprise Value, but Equity Value also decreases by the same amount. These changes offset each other in the Enterprise Value calculation.

39. What happens to Enterprise Value if a company repurchases shares using cash?

Enterprise Value remains unchanged. Equity Value decreases due to the share repurchase, but cash also decreases by the same amount. Because cash is subtracted in the Enterprise Value calculation, the two effects offset each other.

40. What happens to Enterprise Value if a company issues debt and uses the proceeds to repurchase shares?

Enterprise Value remains unchanged. Debt increases, which increases Enterprise Value, but Equity Value decreases due to the share repurchase. These two changes offset each other, leaving Enterprise Value roughly the same

41. A company issues $200 of new debt and uses the proceeds to purchase equipment. What happens to Enterprise Value?

Enterprise Value increases by $200. Debt increases by $200, and the cash raised is immediately converted into an operating asset (equipment). Because operating assets increase while cash does not remain on the balance sheet, Enterprise Value increases by the value of the equipment.

42. A company sells a non-operating asset and receives $300 in cash. What happens to Enterprise Value?

Enterprise Value remains unchanged. The company replaces one non-operating asset with another. The increase in cash is offset because cash is subtracted when calculating Enterprise Value

43. A company converts $100 of convertible debt into equity. What happens to Enterprise Value?

Enterprise Value remains unchanged. Debt decreases by $100 while Equity Value increases by $100 due to the conversion. Because Enterprise Value reflects the value of the underlying operations rather than how they are financed, the change in capital structure does not affect it.

44. A company issues preferred stock and holds the cash raised. What happens to Enterprise Value?

Enterprise Value remains unchanged. Preferred stock increases, which would increase Enterprise Value, but cash also increases by the same amount. Because cash is subtracted in the Enterprise Value formula, the two changes offset each other.

45. A company sells inventory for cash at its book value. What happens to Enterprise Value?

Enterprise Value remains unchanged. Inventory is an operating asset, and when it is sold the company receives cash of equal value. The decrease in inventory and increase in cash offset each other.

46. A company writes off $50 of inventory. What happens to Enterprise Value?

Enterprise Value decreases by $50. Inventory is an operating asset, so reducing the value of inventory lowers the value of the company’s operating assets and therefore reduces Enterprise Value.

47. A company issues debt and uses the proceeds to pay a dividend. What happens to Enterprise Value?

Enterprise Value remains unchanged. Debt increases, which raises Enterprise Value, but cash decreases when the dividend is paid. Because cash is subtracted in the Enterprise Value calculation, the two effects offset each other

48. A company raises equity and uses the proceeds to repay debt. What happens to Enterprise Value?

Enterprise Value remains unchanged. Equity Value increases while debt decreases by the same amount. Because Enterprise Value includes both debt and equity claims, the shift between financing sources does not change the value of the underlying business.

49. A company raises debt and immediately distributes the cash to shareholders through a dividend. What happens to Equity Value?

Equity Value remains unchanged initially. Although cash leaves the company through the dividend, the company has also taken on an equal amount of debt, which offsets the reduction in assets.

50. A company receives $100 of cash from customers before delivering the product. What happens to Enterprise Value?

Enterprise Value remains unchanged. Cash increases, but the company also records deferred revenue, which represents an obligation to deliver goods or services in the future. The increase in cash is offset by the increase in operating liabilities.

51. What are dilutive securities?

Dilutive securities are financial instruments that can increase the number of shares outstanding if exercised or converted. Common examples include stock options, warrants, restricted stock units, and convertible securities. These instruments can increase the share count and reduce earnings per share.

52. Why do analysts focus on dilution when valuing a company’s equity?

Dilution increases the number of shares representing ownership in the company. If more shares exist, the same equity value is spread across more investors, which lowers the value attributable to each individual share.

53. What is the purpose of calculating Fully Diluted Shares Outstanding?

Fully Diluted Shares Outstanding captures the total number of shares that could exist if all dilutive securities were exercised. This provides a more accurate measure of ownership and is used when calculating Equity Value.

54. What types of securities are typically included when calculating Fully Diluted Shares Outstanding?

Fully diluted shares typically include basic shares outstanding plus shares created from in-the-money stock options, warrants, restricted stock units, and convertible securities that can be converted into common stock.

55. Why are only in-the-money options included in dilution calculations?

Only in-the-money options are included because they would be economically rational for the holder to exercise. If the strike price is below the current share price, exercising the option generates a profit.

56. Why are out-of-the-money options excluded from dilution?

Out-of-the-money options have strike prices above the current share price. Exercising them would result in a loss for the holder, so they are unlikely to be exercised and therefore are excluded from diluted share calculations.

57. What does the Treasury Stock Method assume happens when options are exercised?

The Treasury Stock Method assumes that when options are exercised, the company receives cash equal to the strike price of those options. The company then uses that cash to repurchase shares at the current market price.

58. Why does the Treasury Stock Method assume share repurchases?

The assumption reflects the idea that the company could use the proceeds from option exercises to repurchase shares in the market. This partially offsets the dilution created by issuing new shares from option exercises.

59. What is the net dilution under the Treasury Stock Method?

Net dilution equals the number of shares issued when options are exercised minus the number of shares the company could repurchase using the proceeds from those exercises.

60. If a company has options with a strike price equal to the current share price, are they dilutive?

No. If the strike price equals the share price, exercising the option does not generate profit for the holder, so these options are typically excluded from diluted share calculations.

61. How does an increase in share price affect dilution from options?

An increase in share price increases dilution because more options become in the money. As more options become profitable to exercise, more potential shares are included in the diluted share count.

62. How does a decrease in share price affect dilution from options?

A decrease in share price reduces dilution because fewer options remain in the money. If the share price falls below the strike price of certain options, those options are excluded from the diluted share calculation.

63. Why is dilution particularly important for high-growth companies?

High-growth companies often use stock-based compensation extensively. Large option grants and equity compensation programs can create significant potential dilution, which must be considered when valuing equity.

64. Why might dilution significantly affect valuation multiples?

Valuation multiples that rely on share price or earnings per share can change significantly when dilution increases the share count. A higher share count spreads earnings across more shares and affects per-share metrics.

65. A company has 100 basic shares outstanding and a share price of $50. It has 20 options with a strike price of $20 and 10 options with a strike price of $60. What are Fully Diluted Shares Outstanding?

Only the $20 options are in the money. Exercising them generates $400 of proceeds (20 × $20). Using the Treasury Stock Method, the company repurchases shares at $50 per share, allowing it to repurchase 8 shares. Net new shares are 20 − 8 = 12. The $60 options are out of the money and excluded. Fully Diluted Shares Outstanding equals 112 shares.

66. A company has 100 basic shares outstanding and a share price of $40. It has 10 options with a strike price of $20 and 10 warrants with a strike price of $30. What are Fully Diluted Shares Outstanding?

Both the options and warrants are in the money. Exercising them generates proceeds of $200 (10 × $20) plus $300 (10 × $30), totaling $500. Using the Treasury Stock Method, the company repurchases $500 ÷ $40 = 12.5 shares. Total securities exercised equal 20, so net new shares are 20 − 12.5 = 7.5. Fully Diluted Shares Outstanding equals 107.5 shares

67. A company has 200 basic shares outstanding and a share price of $25. It has 20 options with a strike price of $10 and 20 options with a strike price of $30. What is the total dilution in shares?

Only the $10 options are in the money. Exercising the 20 options generates $200 of proceeds (20 × $10). Using the Treasury Stock Method, the company repurchases $200 ÷ $25 = 8 shares. Net dilution equals 20 − 8 = 12 shares.

68. A company has 150 basic shares outstanding and a share price of $30. It has 20 options with a strike price of $10 and 20 options with a strike price of $25. What are Fully Diluted Shares Outstanding?

Both option tranches are in the money. Exercising them generates proceeds of $200 (20 × $10) plus $500 (20 × $25), totaling $700. Using the Treasury Stock Method, the company repurchases $700 ÷ $30 ≈ 23.33 shares. Total options equal 40, so net dilution equals 40 − 23.33 ≈ 16.67 shares. Fully Diluted Shares Outstanding equals 166.67 shares.

69. What is capital structure?

Capital structure refers to the mix of debt and equity that a company uses to finance its assets and operations. It determines how the firm raises capital and how the risks and returns of the business are distributed between creditors and shareholders.

70. What is the debt-to-equity ratio?

The debt-to-equity ratio measures the proportion of financing that comes from debt relative to equity. Debt-to-Equity = Total Debt ÷ Total Equity. It is commonly used to evaluate how leveraged a company is.

71. A company has $400 of debt and $600 of equity. What is its debt-to-equity ratio?

Debt-to-equity ratio = Debt ÷ Equity = 400 ÷ 600 = 0.67x

72. A company has EBIT of $200 and interest expense of $50. What is its interest coverage ratio?

Interest Coverage = EBIT ÷ Interest Expense = 200 ÷ 50 = 4.0x

73. A company has EBIT of $400 and $1,000 of debt with a 5% interest rate. If the company adds $500 of additional debt at the same interest rate and uses the proceeds to repurchase equity, what is the new interest coverage ratio?

Original interest = 1,000 × 5% = 50 New debt total = 1,500 New interest expense = 1,500 × 5% = 75 Interest Coverage = EBIT ÷ Interest = 400 ÷ 75 = 5.33x

74. A company has $600 of debt at a 6% interest rate and a 25% tax rate. What is the annual tax shield from the debt?

Interest Expense = 600 × 6% = 36 Tax Shield = Interest × Tax Rate = 36 × 25% = $9

75. A company has $800 of assets financed with $300 of debt and $500 of equity. If the company raises $200 of new debt and uses the cash to repurchase equity, what is the new debt-to-equity ratio?

New debt = 300 + 200 = 500. Equity decreases by the share repurchase amount: New equity = 500 − 200 = 300 Debt-to-equity ratio = 500 ÷ 300 = 1.67x

76. A company has $700 of debt at a 5% interest rate and a 30% tax rate. What is the after-tax cost of the company’s interest payments in dollars?

Interest Expense = 700 × 5% = 35 After-tax cost = Interest × (1 − Tax Rate) = 35 × (1 − 0.30) = 35 × 0.70 = $24.5

77. A company has EBIT of $250 and interest expense of $50. By what percentage could EBIT decline before the company cannot cover interest payments?

Minimum EBIT required = interest expense = 50 Decline allowed = 250 − 50 = 200 Percentage decline = 200 ÷ 250 = 80%

78. A company has 100 shares outstanding, and its current share price is $10.00. It also has 10 options outstanding at an exercise price of $5.00 each. What is its Diluted Equity Value?

Its Basic Equity Value is 100 × $10.00 = $1,000. Since the options are in the money, 10 new shares are created. The company receives 10 × $5.00 = $50 in proceeds. It uses that $50 to repurchase shares at the current share price of $10.00, so it can buy back 5 shares. The diluted share count is 105, and the Diluted Equity Value is 105 × $10.00 = $1,050.

79. A company has 1 million shares outstanding, and its current share price is $100.00. It also has $10 million of convertible bonds, with a par value of $1,000 and a conversion price of $50.00. What are its diluted shares outstanding and Diluted Equity Value?

Because the current share price is above the conversion price, the convertible bonds can convert into shares. The new shares created equal $10 million ÷ $50.00 = 200,000 shares. You do not use the Treasury Stock Method for convertibles because investors do not pay the company again upon conversion. So the diluted share count is 1.2 million, and the Diluted Equity Value is 1.2 million × $100.00 = $120 million.

80. A company has 10,000 shares outstanding and a current share price of $20.00. It has 100 options outstanding at an exercise price of $10.00. It also has 50 Restricted Stock Units outstanding. Finally, it has 100 convertible bonds outstanding at a conversion price of $10.00 and par value of $100. What is its Diluted Equity Value?

The 100 options are in the money, so 100 new shares are created. The company receives 100 × $10.00 = $1,000 of proceeds, which it uses to repurchase $1,000 ÷ $20.00 = 50 shares. So the options create 50 net new shares. The 50 RSUs are added directly, bringing the incremental share count to 100. The convertible bonds create $100 ÷ $10.00 = 10 new shares per bond, and with 100 bonds outstanding, that adds 1,000 shares. Total incremental shares are 1,100, so diluted shares outstanding are 11,100. Diluted Equity Value is 11,100 × $20.00 = $222,000.

81. This same company also has Cash of $10,000, Debt of $30,000, and Noncontrolling Interests of $15,000. What is its Enterprise Value?

Starting from the Diluted Equity Value of $222,000, Enterprise Value equals Diluted Equity Value minus Cash plus Debt plus Noncontrolling Interests. So Enterprise Value = $222,000 − $10,000 + $30,000 + $15,000 = $257,000.

82. A company issues $100 of Common Stock and does nothing with it. How do Equity Value and Enterprise Value change?

Equity Value increases by $100 because Common Shareholders’ Equity increases by $100. Enterprise Value stays the same because the extra cash is a non-operating asset and offsets the increase in Equity Value in the EV bridge.

83. A company issues $200 in Common Shares, and it uses $100 from the proceeds to pay Dividends to the common shareholders. How do EV and EqV change?

Common Shareholders’ Equity increases by the net amount of $100, so Equity Value increases by $100. Enterprise Value stays the same because neither the extra cash nor the dividend affects Net Operating Assets. The remaining extra cash offsets the increase in Equity Value.

84. A company issues $200 in Common Shares and uses $100 from the proceeds to acquire another business. How do Equity Value and Enterprise Value change?

Equity Value increases by $200 because Common Shareholders’ Equity rises by the full amount of the stock issuance. Of the $200 raised, $100 remains as cash and $100 is used to acquire operating assets. Because Net Operating Assets rise by $100, Enterprise Value increases by $100.

85. What if the company uses that same $100 from new Common Stock to acquire an asset rather than an entire company?

The answer is the same as in the acquisition example. Equity Value rises by $200 because of the stock issuance, while Enterprise Value rises by $100 because the company uses $100 of the proceeds to acquire an operating asset, which increases Net Operating Assets by $100.

86. A company with an Equity Value of $1,000 and Enterprise Value of $1,200 issues $100 of Common Stock. What happens to both metrics?

Equity Value increases to $1,100 because Common Shareholders’ Equity rises by $100. Enterprise Value stays at $1,200 because Net Operating Assets don’t change and the company also receives $100 of cash, which is subtracted in the EV bridge and offsets the increase in Equity Value.

87. A company with an Equity Value of $1,000 and Enterprise Value of $1,200 repays $100 of Debt using cash. What happens to both metrics?

Equity Value stays at $1,000 because Common Shareholders’ Equity does not change. Enterprise Value also stays at $1,200 because Net Operating Assets don’t change and debt decreases by $100 and cash decreases by $100, which offset each other in the EV bridge

88. A company with an Equity Value of $1,000 and Enterprise Value of $1,200 repurchases $100 of Shares using cash. What happens to both metrics?

Equity Value falls to $900 because Common Shareholders’ Equity decreases by $100 when the company repurchases its own shares. Enterprise Value stays at $1,200 because Net Operating Assets stay the same and cash also decreases by $100, offsetting the lower Equity Value.

89. A company with an Equity Value of $1,000 and Enterprise Value of $1,200 pays $100 in Dividends. What happens to both metrics?

Equity Value falls to $900 because dividends reduce Common Shareholders’ Equity. Enterprise Value stays at $1,200 because Net Operating Assets stay the same and cash decreases by $100, offsetting the decline in Equity Value.

90. A company has EBITDA of $800 and trades at 9x EV/EBITDA. It has $1,200 of debt and $200 of cash. There are 100 basic shares outstanding and 20 options with a strike price of $20. The current share price is $40. What is the fully diluted share price implied by the valuation?

Enterprise Value = 9 × 800 = 7,200 Net Debt = 1,200 − 200 = 1,000 Equity Value = 7,200 − 1,000 = 6,200 TSM dilution: Option proceeds = 20 × 20 = 400 Shares repurchased = 400 ÷ 40 = 10 Net new shares = 20 − 10 = 10 Fully diluted shares = 100 + 10 = 110 Share Price = 6,200 ÷ 110 = $56.36

91. A company generates $1,000 of EBITDA and trades at 8x EV/EBITDA. It has $2,000 of debt and $500 of cash. There are 200 shares outstanding. If the company repays $500 of debt using cash, what is the new share price assuming EV stays constant?

Enterprise Value = 8 × 1,000 = 8,000 Original Net Debt = 2,000 − 500 = 1,500 Equity Value = 8,000 − 1,500 = 6,500 After repayment: Debt = 1,500 Cash = 0 New Net Debt = 1,500 Equity Value unchanged = 6,500 Share Price = 6,500 ÷ 200 = $32.50

92. A company has EBITDA of $1,200 and trades at 10x EV/EBITDA. Net debt is $3,000. The company issues $1,000 of new equity and holds the cash. What happens to Enterprise Value and Equity Value?

Enterprise Value remains $12,000 because issuing equity increases cash equally. Original Equity Value: EV − Net Debt = 12,000 − 3,000 = 9,000 Equity issued = +1,000 New Equity Value = 10,000 Enterprise Value remains $12,000.

93. A company has Enterprise Value of $15,000 and EBITDA of $1,500. Net debt is $4,000. If EBITDA grows by 20% and the EV/EBITDA multiple stays constant, what is the new share price if there are 300 shares outstanding?

Original multiple: 15,000 ÷ 1,500 = 10x New EBITDA = 1,500 × 1.20 = 1,800 New Enterprise Value: 10 × 1,800 = 18,000 Equity Value: 18,000 − 4,000 = 14,000 Share Price: 14,000 ÷ 300 = $46.67

94. A company has 200 shares outstanding and a share price of $30. It has 50 options with a strike price of $10. What is the fully diluted Equity Value?

Equity Value (basic): 200 × 30 = 6,000 TSM dilution: Option proceeds = 50 × 10 = 500 Shares repurchased = 500 ÷ 30 = 16.67 Net new shares = 50 − 16.67 = 33.33. Fully diluted shares: 200 + 33.33 = 233.33 Equity Value: 233.33 × 30 = $7,000

95. A company has EBITDA of $900 and trades at 7x EV/EBITDA. Net debt is $2,000. There are 150 fully diluted shares outstanding. What is the share price?

Enterprise Value: 7 × 900 = 6,300 Equity Value: 6,300 − 2,000 = 4,300 Share Price: 4,300 ÷ 150 = $28.67

96. A company has Enterprise Value of $20,000 and net debt of $5,000. If EBITDA increases by 25% and the EV/EBITDA multiple remains constant, how much does Equity Value increase?

Original EBITDA multiple unknown but irrelevant. EV increases proportionally with EBITDA. New EV = 20,000 × 1.25 = 25,000 Original Equity Value: 20,000 − 5,000 = 15,000 New Equity Value: 25,000 − 5,000 = 20,000 Increase in Equity Value = $5,000

97. A company has 100 basic shares outstanding at a share price of $25, 10 options with a strike price of $15, 10 convertible notes with a par value of $5, $50 of debt, and $20 of non-operational cash. What is fully diluted Enterprise Value?

The 10 options are in the money, producing proceeds of $150. The firm buys back 6 shares ($150/$25), raising FDSO to 104. Each convertible note has a par value of $5, meaning each note is worth 0.2 shares ($5/$25). 0.2 shares per note 10 notes means 2 new shares—raising FDSO to 106. FDSO of 106 Share price of $25 = $2650 EqV. The firm has $50 of debt, but remember, the convertible notes were worth $50, meaning this was all of their debt. Since it was converted, it no longer exists as debt. Therefore, you only subtract the $20 of cash to arise at a fully diluted EV = $2630

98. A company has 10,000 shares outstanding and a current share price of $20.00. It has 100 options at an exercise price of $10.00, 50 RSUs, and 100 convertible bonds with a conversion price of $10.00 and par value of $100. It also has Cash of $10,000, Debt of $30,000, and Noncontrolling Interests of $15,000. What are its Diluted Equity Value and Enterprise Value?

From the dilution calculation, the options create 50 net new shares, the RSUs add 50 shares, and the convertible bonds add 1,000 shares. So diluted shares outstanding equal 11,100. Diluted Equity Value = 11,100 × $20.00 = $222,000 Enterprise Value = Diluted Equity Value − Cash + Debt + Noncontrolling Interests = 222,000 − 10,000 + 30,000 + 15,000 = $257,000.

99. A company has 100 shares outstanding at $10.00 and 10 options at $5.00. If it also has $200 of Debt, $50 of Cash, and $25 of Preferred Stock, what is its Enterprise Value on a diluted basis?

First calculate Diluted Equity Value. The options are in the money, so 10 new shares are created. The company receives 10 × $5.00 = $50 and repurchases $50 ÷ $10.00 = 5 shares. Net new shares = 5, so diluted shares = 105. Diluted Equity Value = 105 × $10.00 = $1,050 Enterprise Value = Diluted Equity Value + Debt + Preferred − Cash = 1,050 + 200 + 25 − 50 = $1,225.

100. A company has 1 million shares outstanding at $100.00 and $10 million of convertible bonds with a par value of $1,000 and a conversion price of $50.00. It also has $20 million of Debt, $5 million of Cash, and $3 million of Noncontrolling Interests. What are its diluted shares outstanding, Diluted Equity Value, and Enterprise Value?

The convertible bonds create $10 million ÷ $50.00 = 200,000 new shares, Diluted shares outstanding = 1.0 million + 0.2 million = 1.2 million shares Diluted Equity Value = 1.2 million × $100.00 = $120 million Enterprise Value = Diluted Equity Value − Cash + Debt + Noncontrolling Interests = 120 − 5 + 20 + 3 = $138 million.