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If you borrow $300 billion you still have $300 billion in assets. Unless something unexpected changes, Ford won't be able to realize that Enterprise value. The number of car companies will shrink, not grow, evs are just the wave over the horizon that will really hurt them. Tesla actually has a chance to drastically grow their sales.



Right - $300 billion in assets, plus $300 billion in debts means the company is worth:

  a) $600 billion
  b) $300 billion
  c) $0
If you choose anything other than c, I'd love to sell you some businesses.


(B). The company is worth $300 billion to the bondholders, and $0 to shareholders, giving a total value of $300 billion.

And that's assuming the company is being liquidated. Most companies with viable businesses are worth a lot more than their assets because the big part of the valuation is assumed future earnings.


> The company is worth $300 billion to the bondholders, and $0 to shareholders, giving a total value of $300 billion.

But if it was cash and debts instead of assets and debts, the company wouldn't be worth $300 billion to bondholders?


If you spend a dollar to buy a chocolate bar, you say the chocolate bar is worth $1 and that you spent $1.

If you give a teller $1 for 4 quarters, you don't say that you spent $1.


I borrow $10 from a friend.

I currently am worth $0 to that bondholder.

I spend one of those borrowed dollars on a chocolate bar.

Now I'm worth $1 to that bondholder??

The spending is done with a completely different person than the bondholder.


So you can create infinite value by borrowing more and more money.

I'd love to create lots of value for you by borrowing money from you. I would even consent to not destroy any of that value through making payments.

The bond is worth $300b to the bondholders, but only because it is expected to be paid back and is secured by the $300b assets. You can prove that by assuming those assets disappeared: how much is the bond (or the company) worth to the bondholders then?


Every single fair transaction has a net value of $0. If I buy a chocolate bar for $1 that's worth a dollar to me, I'm up one chocolate bar worth $1 and down a dollar. No net worth change, but it is validation the chocolate bar is worth $1.


You don't add up assets and debt. You add up equity and debt and make it match up to assets.


assets + liabilities = book_value_of_equity

The intrinsic value of a company's equity often differs from the book value of equity.

The book value debt can also differ from the market value.

Learning some financial accounting concepts should help you understand this better.




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