Question

If a company has employed a total capital of Rs.1,000 lac
(provided equally by 10% debt and 5 lac equity shares of Rs.100 each),
as cost of equity is 14% and it is subjected to corporate tax @ 40%. The
projected free cashflows to all investors of the firm for 5 years are given
in the table below:
Year End
2
4
(in lae)
200 500 150
Compute:
i) Valuation of firm
ii) Valuation from the prospective of equity holders.
Assume 10% of debt is repayable at the year-end 5 and interest is
payable at the end of every year.
300
600​

Answer 1

it's profit is 20%

loss= infinitely....

Answer 2

Answer:

If a company has employed a total capital of Rs.1,000 lac

(provided equally by 10% debt and 5 lac equity shares of Rs.100 each),

as cost of equity is 14% and it is subjected to corporate tax @ 40%. The

projected free cashflows to all investors of the firm for 5 years are given

in the table below:

Year End

2

4

(in lae)

200 500 150

Compute:

i) Valuation of firm

ii) Valuation from the prospective of equity holders.

Assume 10% of debt is repayable at the year-end 5 and interest is

payable at the end of every year.

300

600