Series 79 practice questionmediumEnterprise Value vs Equity Value
Which of the following adjustments is most appropriate when calculating per-share equity value from enterprise value?
- AAdd back capital expenditures
- BSubtract depreciation and amortization
- CAdd minority interest
- DSubtract net debt and divide by diluted shares outstanding✓ Correct answer
Explanation
Why D — Subtract net debt and divide by diluted shares outstanding
To derive per-share equity value, subtract net debt (total debt minus cash) from enterprise value and divide by diluted shares. Neglecting dilution or net debt leads to mispricing equity, a frequent exam trap.
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