Maximizing enterprise value and maximizing shareholder value are linked because:
A)Enterprise value and shareholder value are the same thing
B)Shareholder value is calculated by adding debt and other non-equity financial claims to the DCF value of the firm
C)Shareholder value is calculated by subtracting debt and other non-equity financial claims from the enterprise value of the firm
D)It's obvious that they must be linked.

Question

Quizplus · Accepted Answer

Shareholder value is the residual value left for the shareholders after all the non-equity financial claims (such as debt) have been paid off. Therefore, it is calculated by subtracting these non-equity claims from the enterprise value of the firm. Maximizing enterprise value involves increasing the total value of the firm, which in turn increases the residual value left for shareholders, or shareholder value. Therefore, maximizing enterprise value and maximizing shareholder value are linked through this calculation.

Maximizing Enterprise Value and Maximizing Shareholder Value Are Linked Because