As a treasury analyst at Murie Chemicals Ltd$.($MCL$),$ you are trying to value a potential target company

Isotopic Labs Ltd$.($ILL$),$ a privately held company. The capital structure ratio $($D$/$E$)$ currently for MCL

Ltd$.$ is $60\%,$ and ILL is $35\%.$ The treasury analyst looked for comparable cos$.$ in the market, Table

below summarizes the information on the comparable cos$.$

The corporate tax rate is $30\%.$ The slope of the security market line $($SML Line$)$ is $6\%.$ The beta of

debt is negligible. The yield to maturity of the government bond is $4\%$ p$.$a$.$

The FCFF projections are Rs$.280$ million for Year $1,$ growing at $5\%$ per annum from Year $1$ to Year

$4($i$.$e$.1-2,2-3,3-4).$ At and beyond four years, the retention ratio will be $20\%$ and the return on invested

capital $($or return on assets$)$ is $10\%.$ The retention ratio and return on assets will continue to be the same

every year till perpetuity from Year $4$ onwards. The existing debt outstanding is Rs$.4000$ million

$($considered a perpetual debt$).$ The bond rating is B$.$ The direct and indirect expected cost of bankruptcy

is assumed to be $40\%$ of the unlevered firm value.

$2\mathrm{.}1$ What is the cost of capital $($as if the firm was unlevered; R$0)$ for ILL Ltd$.?$

$2\mathrm{.}2$ What is the value of unlevered firm ILL Ltd$.?$

$2\mathrm{.}3$ What is the present value of interest $-$tax shields for ILL Ltd$.?$

$2\mathrm{.}4$ What is the present value of bankruptcy cost for ILL Ltd$.?$

$2\mathrm{.}5$ What is the value of the levered firm ILL Ltd$.$ today in Rs million using the static $-$tradeoff model?

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