Alpha Ltd is expecting an annual earnings before interest and tax of ₹ 1.5 Lakhs. The company has 10% debentures of ₹ 4 lakhs and cost of Equity capital is 12%. Calculate the total value of the firm and the overall cost of capital of the firm according to Net Income Approach. Also comment what will happen to the value of the firm and the overall cost of capital if debt is increased in the capital structure.

Answer rating: 100% (QA)

K e 12 10 Debentures of 4 lakhs EBIT 15 lakhs Corporate Tax is assumed at 30 EBIT 1... View the full answer