3. There are two firms which are identical in all respects except in terms of their capital structure
as can be observed from the details given below:
R Ltd.
S Ltd.
Levered
Unlevered
EBIT (Rs.)
2,00,000
2,00,000
Debt (Rs.)
6,00,000
0
Rate of Debt
1506
Ке
20%
15%
Calculate the values of two firms and illustrate using MM approach how an investor holding 10%
shares of R Lid will be benefitted by switching over his investment from R Ltd. to S Ltd. Why?
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