Maximizing enterprise value and maximizing shareholder value are closely linked because:
A)Enterprise value and shareholder value are the same thing
B)Shareholder value is calculated by adding debt and other non-equity financial claims to the DCF value of the firm
C)Shareholder value is calculated by subtracting debt and other non-equity financial claims from the enterprise value of the firm
D)It is obvious that they must be linked

Question

Quizplus · Accepted Answer

Shareholder value is calculated by subtracting debt and other non-equity financial claims from the enterprise value of the firm. Therefore, maximizing enterprise value will lead to an increase in shareholder value as there will be a larger value to distribute among equity shareholders once debt and other financial obligations are subtracted.

Maximizing Enterprise Value and Maximizing Shareholder Value Are Closely Linked