Would you rather invest in a company with $2B EV (50% debt / 50% equity) or $2B EV (100% equity), assuming both EVs grow 2x over 3 years and debt stays constant?

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IBPrep · Accepted Answer

The 50% debt company. With $1B of debt held constant, all $2B of EV growth flows to equity holders. Equity goes from $1B to $3B = 3x. The all-equity company sees equity grow from $2B to $4B = 2x. Leverage amplifies returns when EV grows.

Would you rather invest in a company with $2B EV (50% debt / 50% equity) or $2B EV (100% equity), assuming both EVs grow 2x over 3 years and debt stays constant?

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