Is Enterprise Value influenced by a company's capital structure?

Enterprise Value (EV) is a measure used to assess a company's total value, taking into account its capital structure by including both debt and equity. The formula for calculating EV generally considers market capitalization, total debt, minority interest, and cash and cash equivalents.

The correct response indicates that Enterprise Value is neutral in regard to capital structure. This is because, while it incorporates both equity and debt in its valuation, it is designed to provide a consistent framework for comparing companies regardless of how they are financed. Essentially, EV aims to reflect what it would cost to acquire a company outright, encompassing all of its financing sources.

In contrast to the correct choice, other options indicate varying levels of influence that capital structure supposedly has on EV. The notion that it changes with debt and equity contradicts the intent of the EV metric, which standardizes valuation across different financial setups. Dividends do not impact EV because they are considered a distribution of profits rather than a direct contributor to a company's total enterprise value. Lastly, saying EV only reflects the market value of equity neglects the entirety of what EV represents, which must also account for debt obligations that a buyer would need to assume.