Series 79 practice questionhardEnterprise Value vs Equity Value
Which of the following adjustments must be made to equity value to arrive at enterprise value if a company has a significant pension liability reported as a non-current liability?
- ASubtract pension liability
- BAdd pension liability to equity value
- CExclude pension liabilities because they are not always cash-settled
- DAdd only the unfunded pension liability✓ Correct answer
Explanation
Why D — Add only the unfunded pension liability
Enterprise value includes claims on the business such as debt and unfunded pension liabilities. Only the unfunded pension liability should be added to equity value to calculate enterprise value. Funded pension liabilities are offset by plan assets and thus excluded.
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