Reference no: EM131188169
Compute the market value of the firm, value of shares and the average cost of capital from the following information.
Net operating income Rs. 250,000
Total investment Rs. 500,000
Equity capitalization Rate:
(a) If the firm uses no debt 9%
(b) If the firm uses Rs. 25,000 debentures 12%
(c) If the firm uses Rs.400,000 debentures 14%
Assume that Rs. 500,000 debentures can be raised at 6% rate of interest whereas
Rs. 400,000 debentures can be raised at 7% rate of interest.
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