Why is enterprise value considered more significant than equity value in acquisitions?

• A. It accounts for final shareholder dividends
• B. It reflects total payment required by acquirers
• C. It is always higher than equity value
• D. It includes liabilities for both parties

Answer: (B)

Enterprise value is considered more significant than equity value in acquisitions because it reflects the total payment required by acquirers to buy a company. When an acquirer looks at a potential acquisition, they need to consider not just the equity or stock price of the target company, but also any debt that the company has.

Enterprise value represents the entire value of a business, incorporating both equity and debt, minus any cash on the balance sheet. This provides a clearer picture of what it would really cost to acquire the company because it shows the total enterprise value that an acquirer would have to assume, including debt obligations. Thus, focusing on enterprise value gives acquirers a more comprehensive understanding of the financial commitment required in the acquisition process.

In contrast, equity value only captures the value of the company's shares and does not consider the liabilities that an acquirer will incur. Therefore, while equity value is relevant, it does not present the full picture needed for evaluating an acquisition opportunity effectively.