Metadex Ltd. is a clean-tech start-up focused on affordable solar energy solutions for urban households. Founded by two engineers, Amit and Sumit, in 2021, the company developed a new solar panel design that is highly ef

Metadex Ltd. is a clean-tech start-up focused on affordable solar energy solutions for urban households. Founded by two engineers, Amit and Sumit, in 2021, the company developed a new solar panel design that is highly efficient and affordable. The journey begins with Amit, an engineer working in a traditional energy company. For years, Amit had seen the damaging environmental impact of fossil fuels and the inefficiency of the power grid. Concerned about climate change and driven by the desire to make a difference, he started researching alternative energy solutions. Solar energy stood out as an abundant and clean source of power that remained underutilized, especially in underserved communities. In 2020, Amit quit his job and partnered with his college friend-Sumit, an expert in renewable energy policy and a software engineer. Their vision is to revolutionize the energy industry by making solar power accessible to middle-income families across the globe. Starting the company was tough. The team faced numerous challenges, including high upfront costs for solar panels, stiff competition from larger energy companies, and difficulties in navigating government regulations. They initially struggled to secure funding, as many investors were sceptical of renewable energy start-up, thinking the market was oversaturated or too slow to provide returns. Early-stage solar hardware companies often require significant capital for research, development, and manufacturing, making it a tough sell to investors looking for faster returns. The company navigated through the initial stages of challenges. They developed a robust marketing plan to target eco-conscious communities, partnering with influencers in the sustainability space and running ads on social media. The team scaled their operations by working with local solar panel manufacturers, reducing costs, and creating jobs in the communities they served. Currently in the expansion process, Metadex needed around ₹15 lacs to scale up production and penetrate further in the market. Amit and Sumit decided to explore alternative fundraising options that would allow them to keep control of their company and align with their long-term vision. The firm's condensed Balance sheet for the current year is as follows: Liabilities Amount (₹) Assets Amount (₹) Equity Share Capital (₹10) 8,00,000 Fixed Assets 9,00,000 Reserves & surplus 2,00,000 Current Assets 6,00,000 10% Debentures of ₹100 each 4,00,000 Current Liabilities 1,00,000 Total 15,00,000 Total 15,00,000 Currently Earnings Before Interest and Tax (EBIT) = ₹8,00,000. Tax Rate 50%. Current Market Price per equity share ₹25, market value of debt equals its book value and cost of equity is 14%. The financial advisors of Metadex Ltd. is assigned the task to calculate : the value of the firm and overall cost of capital before infusion of funds. the Economic Value Added and Market Value Added. The company has proposed to issue 8% 5000 Preference shares of ₹100 each and for the balance ₹10 lacs, it is considering two alternatives. Alternative 1: Raise 90% of funds required by issuing equity shares at current market price and the remaining by issuing 8% redeemable Debentures of ₹100 at par. Alternative 2: Raise 80% of the funds by issuing 9% Debentures of ₹100 at par and redeemable at a premium of 10% after 10 years and the balance by issuing Equity shares at 33.3333% premium. Again, the financial advisor is asked to : Calculate the Earnings Per Share and Financial Leverage.