The following figures relate to the capital structure of ABC & Co. Particulars EBIT ₹ 10,00,000 Debentures ₹ 30,00,000 Interest on debentures 10% Cost of equity 14% You are required: (i) Compute the total market valu
CS Executive · Corporate Accounting and Financial Management · PYQS · December 2025
The following figures relate to the capital structure of ABC & Co. Particulars EBIT ₹ 10,00,000 Debentures ₹ 30,00,000 Interest on debentures 10% Cost of equity 14% You are required: (i) Compute the total market value of ABC & Co. (ii) Overall cost of capital. Ignore Taxation and assume Net Income Approach.
Answer & Explanation:
EBIT ₹ 10,00,000 Interest (Debt * Interest %) (₹ 30,00,000/- * 10%) (₹ 3,00,000) Shareholder earnings ₹ 7,00,000 Market value of equity Shareholder earnings / Cost of Equity ₹ 7,00,000 / 14% ₹ 50,00,000 Market value of debt ₹ 30,00,000 Total market value Market value of equity + Market value of debt ₹ 80,00,000 Overall cost of capital (Interest + Shareholder Earnings) / Total market value (3,00,000 + 7,00,000) / ₹ 80,00,000 12.50%
Topics: Financial Management
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