Which of the following components is included in the enterprise value calculation?

• A. Equity value + debt + preferred stock + minority interest - cash
• B. Only equity value
• C. Only net debt
• D. Cash minus debt

Answer: (A)

The main idea being tested is what goes into the total value of a business when you’re looking at an acquisition. Enterprise value measures the price to acquire the whole company, not just the equity. To reflect all claims on the assets, you add equity value (the value to shareholders) and then include other sources of financing the buyer would assume—debt, preferred stock, and any minority interest in subsidiaries. Since cash is an asset already on the books that could be used to repay debt, you subtract cash to avoid counting it twice. Put together, the standard equation is: enterprise value = equity value + debt + preferred stock + minority interest − cash.

This is why the option that includes equity value plus debt plus preferred stock plus minority interest and subtracts cash is the best choice. The other options miss important parts of the capital structure (only equity value ignores debt and other claims), or misstate the relationship between debt and cash (net debt alone or cash minus debt don’t capture the full purchase price). For a quick check, imagine equity value of 100, debt 40, preferred stock 5, minority interest 3, and cash 10; EV would be 100 + 40 + 5 + 3 − 10 = 138.