Financial management

X Ltd. has Rs.10,00,000 in 10% debentures. The equity capitalization rate is 12%. The company is expecting an annual earnings before interest and taxes of Rs.25,00,000.You are required to:(i) Calculate the value of the firm and overall cost of capital using NI approach.(ignore tax)(ii) Re-calculate the value of the firm and overall cost of capital if the company decides to: (a) Raise Rs.25,00,000 by issue of 10% debentures and use the proceeds to redeem some of the equity shares (b) Raise Rs.25,00,000 by issue of equity shares and use the proceeds to redeem some of the debentures.

Sample Solution

ACED ESSAYS