Enterprise value is computed as
A)Price per share × Shares outstanding - Cash
B)Market capitalization + Market value of interest-bearing debt - Cash
C)Market capitalization - Market value of interest-bearing debt
D)Price per share × Number of shares outstanding
E)Market capitalization + Market value of all debt - Cash

Question

Quizplus · Accepted Answer

Enterprise value is the total value of a company's operations, including both debt and equity. It is calculated as the market capitalization (share price times outstanding shares) plus the market value of interest-bearing debt, minus any cash and cash equivalents. Option B reflects this definition and calculation. Option A only subtracts cash, leaving out interest-bearing debt. Option C subtracts the market value of interest-bearing debt from the market capitalization, which only gives us equity value. Option D is only market capitalization. Option E includes all types of debt (including non-interest bearing debt), which is incorrect as we should only account for interest-bearing debt.

Enterprise Value Is Computed as