Three companies have similar business profiles and are identical in every respect, except of their capital structure.
Question:
Three companies have similar business profiles and are identical in every respect, except of their capital structure. Each has an operating income of ₹4,000 and a capital of ₹20,000.
Company A is entirely financed through equity.
Company B has ₹5,000 debt, the balance being equity.
Company C has ₹10,000 debt, and the balance is equity.
The interest on debt is 12 per cent. There are no taxes.
What is the return on equity for the three companies in an MM world? What are the share prices of the three companies? Justify your answer. Company A has 500 shares.
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In an MM world ModiglianiMiller world with no taxes and perfect capital markets the capital structur...View the full answer
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Related Book For 
Corporate Finance Theory And Practice In Emerging Economies
ISBN: 9781108486965
1st Edition
Authors: Sunil Mahajan
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