Computation of value of the firm, Financial Management

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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

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:-

K_o = (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%

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