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Net Income Approach2

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23 views1 page

Net Income Approach2

Uploaded by

shoaibkhan618437
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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5/5/25, 3:25 PM Innovative UGC NET JRF Coaching

1. X Ltd. is expecting an annual EBIT of Rs. 1 lakh. The company has Rs. 4 lakhs in 10%
debentures. The cost of equity capital or capitalisation rate is 12.5%. Calculate the total value of
the firm and Overall Cost of Capital according to the Net Income Approach:
Value of Firm = Rs. 8,80,000 ; Overall Cost of Capital = 11.36 %
2. (a) A company expects a net operating income of Rs. 80,000. It has Rs. 2,00,000, 8%
Debentures. The equity capitalisation rate of the company is 10%. Calculate the value of the firm
and overall capitalisation rate according to the Net Income Approach (ignoring income-tax).
Value of Firm = Rs. 8,40,000 ; Overall Cost of Capital = 9.52 %
(b) If the debenture debt is increased to Rs. 3,00,000, what shall be the value of the firm and the
overall capitalisation rate?
Value of Firm = Rs. 8,60,000 ; Overall Cost of Capital = 9.306 %

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