X Ltd and Y Ltd Comparative Analysis

X Ltd and Y Ltd are identical companies in all aspects except for their capital structures. X Ltd utilizes debt in its capital structure by issuing $10\%$ debentures worth Rs$.9,00,000,$ whereas Y Ltd is an all$-$equity firm. Both companies earn an EBIT $($Earnings Before Interest and Taxes$)$ of $20\%$ on total assets valued at Rs$.15,00,000.$ The corporate tax rate is $50\%,$ and the equity capitalization rate is $15\%.$

Discussion Questions:

$1.$ Compute the Firm Values using Net Income $($NI$)$ Approach

$$ Calculate the value of X Ltd $($levered firm$)$ and Y Ltd $($unlevered firm$)$ using the Net Income $($NI$)$ approach of Capital Structure Theory.

$$ Consider the impact of debt on the value of X Ltd under this approach.

$2.$ Compute the Firm Values using Net Operating Income $($NOI$)$ Approach

$$ Determine the values of X Ltd and Y Ltd using the Net Operating Income $($NOI$)$ approach of Capital Structure Theory.

$$ Analyze how the presence of debt influences the valuation of X Ltd under this methodology.

Instructions for Analysis:

$$ Use the given financial data to perform calculations and comparisons between X Ltd and Y Ltd$.$

$$ Demonstrate a clear understanding of the NI and NOI approaches to firm valuation under different capital structures.

$$ Provide explanations and interpretations of the computed values to highlight the impact of debt on firm value.