Q. Computation of Value of the Firm?
Computation of Value of the Firm (V) & Overall Cost of Capital:-
NI = EBIT - Interest
= 50,000 - 20,000 = 30,000
10
Interest = 2, 00,000 x 100/ NI= 20,000
Value of Equity (S) =NI / K = 30,000 / 12.5 % = 30,000 /12.5 e X 100 = 2, 40,000
Value of Debt = 2, 00,000
Value of Equity = 2, 40,000
Value of the Firm = S + B = 2, 40,000 + 2, 00,000 = 4, 40,000
Calculation of Overall Cost of Capital:-
Ko = (EBIT / V) X 100 = (50,000 / 4, 40,000) X 100 = 11.36%
Value of the Firm = 4, 40,000
Overall Cost of Capital = 11.36%