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Compute the value of the two firms using NI approach

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Question - Briefly explain any five factors which influence the planning of capital structure in abusiness enterprise. M Ltd. and N Ltd. are identical in all respects except that the former uses 10% Debt of Rs. 5,00,000 while the latter is unlevered. The earnings before interest and taxes (EBIT) of both the firms are equal that is 2,00,000. Assuming tax rate of 50% and equity capitalisation rate (Ke) of 20% for an all-equity firm

a) Compute the value of the two firms using NI approach.

b) Compute the value of the two firms using NOI approach.

c) Calculate the overall cost of capital (Ko) and Ke for both the firms using NOI approach.

Reference no: EM133021685

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