Question

A company’s current operating income is Rs. 6,00,000. The firm has Rs. 15,00,000 of 10%
debt outstanding. It’s cost of equity is 12%.
i. Find the current value of the firm, using traditional approach.
ii. Calculate the overall capitalization rate.
iii. The firm is planning to increase its leverage by raising an additional Rs. 6,00,000 debt
and using the proceeds to retire that amount of equity. As a result of increased
financial risk, Kd is likely to go up to 12% and Ke to 15%. Suggest, is the plan
feasible?

Answer 1

Answer:

Explanation:

ncome is Rs. 6,00,000. The firm has Rs. 15,00,000 of 10%

debt outstanding. It’s cost of equity is 12%.

i. Find the current value of the firm, using traditional approach.

ii. Calculate the overall capitalization rate.

iii. The firm is planning to increase its leverage by raising an additional Rs. 6,00,000 debt

and using the proceeds to retire that amount of equity. As a result of increased

financial risk, Kd is likely tncome is Rs. 6,00,000. The firm has Rs. 15,00,000 of 10%

debt outstanding. It’s cost of equity is 12%.

i. Find the current value of the firm, using traditional approach.

ii. Calculate the overall capitalization rate.

iii. The firm is planning to increase its leverage by raising an additional Rs. 6,00,000 debt

and using the proceeds to retire that amount of equity. As a result of increased

financial risk, Kd is likely t

Answer 2

Answer:

I don't the answer sorry