A firm has enterprise value of $500 and debt of $200. If equity value equals enterprise value minus debt, what is the market value of equity?

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Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

A firm has enterprise value of $500 and debt of $200. If equity value equals enterprise value minus debt, what is the market value of equity?

Explanation:
Enterprise value represents the total value of the firm to all capital providers. In a simple framework, EV equals the market value of equity plus the market value of debt. So, equity value = EV minus debt. With an enterprise value of 500 and debt of 200, the market value of equity is 500 − 200 = 300. This shows how the firm’s value is split between debt and equity, with debt subtracted from the total to leave the equity stake.

Enterprise value represents the total value of the firm to all capital providers. In a simple framework, EV equals the market value of equity plus the market value of debt. So, equity value = EV minus debt. With an enterprise value of 500 and debt of 200, the market value of equity is 500 − 200 = 300. This shows how the firm’s value is split between debt and equity, with debt subtracted from the total to leave the equity stake.

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