The value of a firm less the Net Present Value of its debt equals the stock market value of its equity

Question

Quizplus · Accepted Answer

This statement is true and represents the basic formula for calculating the equity value of a company using the discounted cash flow (DCF) approach. It is calculated by subtracting the net present value (NPV) of a company's total debt from the company's overall enterprise value (EV). The remainder represents the equity value of the company, which can then be divided by the total number of outstanding shares to determine the stock market value per share.

The Value of a Firm Less the Net Present Value