Pure play method-very tricky Q

CFA Level II
#1

Q: Once where it required me to de-lever a company beta and lever it back up to using a given Debt/Enterprise Ratio(instead of Debt/Equity ratio). Could somebody please explain how this is done? A: I got this answer, but I don’t know if it correct or not. However, I can see how someone could interpret EV as the “total capital,” in which case you’d have the debt-to-capital ratio. Extracting D/E then is super-easy. You already know the amount of debt in the capital structure! So if debt-to-capital is 0.2, you know debt is 20% while equity is 80%. D/E = 0.2/0.8 = 0.25. Again, I am assuming EV in this context is the same as total capital.

What I know Enterprise value= the market value of debt and equity minus the value of cah and investment.

I’m getting confuse, any help

#2

I think you are right. There is no need for the adjustement of cash & cash equivalents if not presented in the item. Thus, consider EV as total capital.

#3

Thx, any one else could confirm that to me.

#4

Yes - my understanding is EV = MV of debt + MV of Equity. I am not sure where you have read the adjustment that you mention. If you could provide a page number and the CFA volume that would complete the circle. However, I don’t think the adjustment is required. Thanks

#5

U can refer to the CFAI Volum 4 page 23, under 3.3.2 Relative valuation models.

in addition, http://www.investopedia.com/terms/e/enterprisevalue.asp