Math, asked by singhritika260797, 9 months ago

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 15% __

Ke 20% 15%

Calculate the values of two firms and illustrate using MM approach how an investor holding 10%

shares of R Ltd. will be benefitted by switching over his investment from R Ltd. to S Ltd. Why?​

Answers

Answered by lodhiyal16
0

Answer:

Step-by-step explanation:

                         Computation of market value of the company                          

Net operating Income (EBIT)             800000                       800000

Less:  Interest on debt                        200000                       360000

Earning available to equity                 600000                        440000

                                                                                                                   

                                                               15%                                  18%      

Market value  of shares  (Earnings/ cost of equity)  

                                                          600000/ 0.15                   440000/0.18

Market value of Debt                           4000000                       2444444

market value of firm                               2000000                      3000000

                                                                                                                                 

                                                              6000000                                 5444444

 

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