Why do I pay for debt if I am acquiring a firm?
I have always failed to understand the true meaning of enterprise value. What I do know is how to construct a DCF, find out all the free cash flows, terminal cash flow, discount them and end up with an “Enterprise value”. I get confused when people tell me that this number inherits debt, and more confused when they say this is what I would pay for the company. I also get confused when they differentiate it to equity value.
Can someone please be a savior, consider me an amateur, and break it down for me in some simplified explanation?
Also, what is the difference between getting an enterprise value that way, and doing this:
Enterprise Value = Market Cap + Debt - Cash?