K.M.C. Ltd. Expects annual net income (EBIT) of Rs.2,00,000 and equity capitalization rate of 10%. The company

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K.M.C. Ltd. Expects annual net income (EBIT) of Rs.2,00,000 and equity capitalization rate of 10%. The company has Rs.6,00,000; 8% Debentures. There is no corporate income tax.

(A) Calculate the value of the firm and overall (weighted average) cost of capital according to the NI Theory.

(B) What will be the effect on the value of the firm and overall cost of capital, if:

(i) the firm decides to raise the amount of debentures by Rs.4,00,000 and uses the proceeds to repurchase equity shares.

(ii) the firm decides to redeem the debentures of Rs. 4,00,000 by issue of equity shares.

Related Book For answer-question

Income Tax Fundamentals 2013

ISBN: 9781285586618

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill

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Posted Date: Feb 19, 2024 01:13 AM

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K.M.C. Ltd. Expects annual net income (EBIT) of Rs.2,00,000 and equity capitalization rate of 10%. The company

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A According to the Net Income NI Theory 1 Calculate the value of the firm V EBITX 1Tax rate V Equity ... View the full answer

Income Tax Fundamentals 2013

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