Question: Alpha Ltd is expecting an annual earnings before interest and tax of 1.5 Lakhs. The company has 10% debentures of 4 lakhs and

Alpha Ltd is expecting an annual earnings before interest and tax of ₹ 1.5 Lakhs. The company has 10% debentures of ₹ 4 lakhs and cost of Equity capital is 12%. Calculate the total value of the firm and the overall cost of capital of the firm according to Net Income Approach. Also comment what will happen to the value of the firm and the overall cost of capital if debt is increased in the capital structure.

Step by Step Solution

★★★★★

3.32 Rating (155 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

To calculate the total value of the firm and the overall cost of capital using the Net Income Approach well follow these steps Step 1 Understanding th... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Corporate Finance Questions!

(a) Berlan plc has annual earnings before interest and tax of 15 million. These earnings are expected to remain constant. The market price of the company's ordinary shares is 86 pence per share cum...

1. Alpha Ltd is expecting annual earnings before interest and tax of 1.5 Lakhs. The company has 10% debentures of 4 lakhs and cost of Equity capital is 12%. Calculate the total value of the firm...

The Winter Wear Company has expected earnings before interest and taxes of $3,800, an unlevered cost of capital of 15.4 percent and a tax rate of 35 percent. The company also has $2,600 of debt with...

XYZ is an unlevered firm, and its expected earnings before interest and taxes is $1.2 million each year. Its tax rate is 40%, and current market value is $10 million. Its stock has a beta of 1, and...

Q11 Financial risk refers to the extra risk stockholders bear as a result of the use of debt as compared with the risk they would bear if no debt were used. True False Q12 A firm's capital structure...

FIRE 623 Graded Case Assignment - Mid-Atlantic Container Corporation 100 points Due December 4, 2019 at 7:00 pm 1) Assess the current financial health and recent financial performance of the company....

please complete 1 2 and 3. ( there is no additional information). thanks Chapter 6 1. What is the auditors' opinion on the company's internal controls? 2. Does the management mention anything about...

Landmark Facility Solutions In September 2014, Tim Harris, CEO and president of Broadway Industries, a facility-services company based in Newark, New Jersey, sat in his office considering whether he...

please help with questions 1 - 6. please see project 4 attachments. Thanks C E G H K Details of McCormick Plant Proposal As you know from Project 4, McCormick & Company is considering a project that...

It is late March, 2018 and Ms. Phillipa Patos, vice president of resource allocation and capital budgeting at Eastern Products Company (EPC), is preparing his annual recommendations for costs of...

A three-dimensional cam for generating a function of two variables is shown in Figure DP5.7(a). Both x and y may be controlled using a position control system [31].The control of x may be achieved...

Pre Satellite Corporation earned $12 million for the fiscal year ending yesterday. The firm also paid out 40 percent of its earnings as dividends yesterday. The firm will continue to pay out 40...

he 3 0 - year Fixed Rate mortgage is mostly a function of Group of answer choices 5 - year T - note 1 0 - year T - note 2 0 - year T - bond 3 0 - year T - bond 3 - month SOFR 3 - month T - bill 2 -...

The income statements for Home Depot, Inc. (HD) spanning the period 2014-2016 are found below: 2014 2015 2016 Earnings before interest and taxes $7,316,000 $9,700,000 $9,425,000 Interest expense...

Information for 2019 follows for Forest Glen Corporation: Retained earnings, January 1, 2019..............................................................$ 1,980,000 Sales...

Your client and her husband agreed to split the following lifetime cash gifts: Total Gifts to Son Total Gifts to Daughter 2014 $90,000 $70,000 2021 $80,000 $100,000 How much of your client's...

Perth International anticipates a 5.98 percent increase in the year-one income of its subsidiaries in year-two. It has information that the current 4.22 percent, 8.37 per cent, 13.46 per cent and...

Tax Form: 8949 (available at irs.gov); this form should be completed for Brian and Amandas capital gains and losses from investments. In next weeks assignment, the results should be entered in...

4 of 5. According to FAR 7.104d, the planner shall coordinate the acquisition plan or strategy with: The administrator The Head of Contracting Activity The Contracting Officer's activity's contract...

need fast answer Alpha Ltd, a parent entity, acquired a voting interest of 40% in Beta Ltd on 1 July 2017 for a cash consideration of $3,200,000. The acquisition gave Alpha Ltd significant influence...

Gil bulube les el hidan God Question 3 20 pts JONT PRODUCTION OPERATIONS (20 marts Alpha Li, Ben Lid and Canna Lid estered into an agreement to form a birt perman on 13 2018 to mandature retium...

Alpha Led purchased 40% of the issued voting shares of Beta Ltd on 1 July 2019 for $75,600. The equity of Beta Ltd at the acquisition date was: Share capital $ 140,000 Retained earnings 27,000 At the...

During November 2019, Alpha (Pty) Ltd started with research for the development of a patent for the manufacturing of a medical screening machine that can detect levels of chemicals caused by...

Alpha Ltd, a parent entity, acquired a voting interest of 35% in Beta Ltd on 1 July 2017 for a cash consideration of $3,500,000. The acquisition gave Alpha Ltd significant influence over Beta Ltd's...

Answer the question 2 of the part B?????????????????????????? MAA716 Assignment Q3 MAA716 Financial Accounting ASSIGNMENT - QUESTION 3 TRIMESTER 2, 2015 IMPORTANT DATES; SUBMISSION INFORMATION...