The following is the data regarding two companies X and Y belonging to the same equivalent risk
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Question:
The following is the data regarding two companies X and Y belonging to the same equivalent risk class:
Particulars | Company X | Company Y |
---|---|---|
No. of ordinary shares | 90,000 | 1,50,000 |
Mkt price per share | Rs. 1.20 | Rs. 1.00 |
6% debentures | Rs. 60,000 | |
Profit before interest | Rs. 18,000 | Rs. 18,000 |
Prices in Indian Rupees
All profits after debenture interest are distributed as profits. Explain how under Modigliani & Miller's approach, an investor holding 10% of shares in Company X will be better off switching his holding to Company Y.
Related Book For
Financial Accounting IFRS
ISBN: 978-1118285909
2nd edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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