A company raises $100 of debt and holds the cash on its balance sheet. What happens to its enterprise value and equity value?

Say neither changes. Debt and cash both rise by $100, so they cancel in enterprise value, and shareholders hold more cash but owe the same amount more. Then cover the follow-ups: a dividend or buyback cuts equity value, a factory raises enterprise value.

Updated October 20, 2026

The numbers, step by step

Enterprise value is equity value plus debt minus cash. The company borrows $100 and then the cash is either held or spent.

Cash held: change in enterprise value+$100 debt − $100 cash

$0, no change

Paid as a dividend: change in equity value$100 of cash goes to shareholders

down $100

Paid as a dividend: enterprise value−$100 equity + $100 debt

$0, no change

Spent on a factory: enterprise value+$100 debt, cash back where it started

up $100

What the interviewer listens for

• Do you say neither value changes, and say it first?
• Do you use the bridge, with debt and cash both up $100?
• Can you explain equity value through the offsetting cash and liability?
• Can you handle the cases where the cash is spent?

Common mistakes

• Saying enterprise value rises because debt went up.The $100 of cash that came in offsets it in the bridge.
• Saying equity value falls because the company took on debt.The cash raised matches the new liability.
• Missing that the answer changes once the company spends the cash, which is the follow-up most interviewers ask.

Likely follow-ups

• What if the company issues $100 of new shares instead and holds the cash?Equity value rises by $100 and cash rises by $100, so enterprise value is again unchanged.
• Why doesn't the tax shield change the clean answer?The interview answer is about the day the money comes in. The tax saving on future interest is a small second-order effect, and distress risk pulls the other way.

More finance technicals

• Why do you add noncontrolling interest to enterprise value?
• Walk me through a precedent transactions analysis.
• How do you pick comparable companies?
• What is a football field chart, and how do you use it?
• The discount rate goes up by a point. What happens to the DCF, and which hurts more: that, or terminal growth falling by a point?

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