A company has a market cap of $500M, total debt of $200M, cash of $50M, and 10 million shares outstanding. It also has 1 million in-the-money stock options with an exercise price of $20. The current stock price is $50. What is the diluted Enterprise Value?
A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
First, calculate basic EV: $500M + $200M - $50M = $650M. For the options, use the treasury stock method: proceeds from options = 1M * $20 = $20M. Shares repurchased = $20M / $50 = 0.4M. Net new shares = 1M - 0.4M = 0.6M. Diluted market cap = $50 * (10M + 0.6M) = $530M. Diluted EV = $530M + $200M - $50M = $680M. Alternatively, add the dilutive effect directly: basic EV $650M + (net new shares * stock price) = $650M + 0.6M * $50 = $680M.
WHAT INTERVIEWERS LISTEN FOR
- ✓Treasury stock method for options
- ✓Calculate net new shares
- ✓Diluted market cap then EV
COMMON MISTAKES
- ✗Ignoring options dilution
- ✗Adding options proceeds to EV incorrectly
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