What is the effect on Enterprise Value when a company raises additional debt?

When a company raises additional debt, the effect on Enterprise Value is generally that it remains the same in theory, assuming that no other factors are at play. Enterprise Value is calculated as the market capitalization of a company plus total debt minus cash and cash equivalents. When a company takes on more debt, its total debt increases, but this is often balanced by a corresponding increase in cash on hand, assuming the debt is utilized effectively.

In a perfect market scenario, the additional debt does not change the overall value of the enterprise itself. Instead, it may change the capital structure, potentially impacting other financial metrics but not altering the intrinsic value of the enterprise. It's important to note that in practice, the dynamics of risk and investor expectations can sometimes influence perceived value, but under standard valuation principles, the Enterprise Value remains unchanged on a fundamental level.

This theoretical understanding supports the notion that while debt does incur obligations and financial risk, it does not inherently change the total value of a company's operations when calculated through the enterprise value formula.