Final answer:
If a company chooses to repurchase shares, its equity value decreases while its enterprise value remains unchanged. If a company chooses to repay debt, its equity value is not directly affected but its enterprise value decreases.
Step-by-step explanation:
When a company has excess cash, it has the option to either repurchase shares or repay debt. If the company chooses to repurchase shares, its equity value will decrease because the number of shares outstanding will be reduced. However, its enterprise value will remain unchanged because the company's debt is not affected by the stock repurchase.
On the other hand, if the company chooses to repay debt, its equity value will not be directly affected. However, its enterprise value will decrease because the company has reduced its debt obligations, which lowers the overall value of the company.
Overall, the choice between repurchasing shares and repaying debt depends on the company's financial goals and priorities.