How Does a Firm's Enterprise Value Change If the Firm

question 19

Multiple Choice

How does a firm's enterprise value change if the firm issues equity and uses the proceeds to repay debt?

• A) No change
• B) Decreases
• C) Increases
• D) Indeterminate
• E) None of the above.

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Definitions:

Required Rate of Return

The minimum return that investors expect to earn from their investment in a particular asset, considering the risk associated with it.

Dividend

A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits.

Historical Constant Growth

A growth rate that assumes a constant rate of increase over time, often used in financial forecasting.

Present Value

Present value is a financial concept that involves determining the current worth of a future sum of money or stream of cash flows given a specific rate of return.