3- What amount of a firm’s cash should be included in the enterprise value? -somewhere between...
3- What amount of a firm’s cash should be included in the
enterprise value?
-somewhere between 25 and 50 percent at the user’s discretion
-only the amount necessary to maintain a constant EV/EBITDA ratio
-only the amount needed to run the business
-none of the cash should be included
-the average cash balance over the past three years
Homework Answers
Answer 3:-
The correct option is fourth. None of the cash should be included
Enterprise value = market value of common stock +market value of preferred equity + market value of debt + minority value - cash and investments
Hence we saw that the cash is subtracted in the calculation of enterprise value.
the other options are incorrect and not valid.
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