Compute the market value of the firm, value of shares and the average cost of capital from the following information.

Net operating income Rs. 1,00,000

Total investment Rs. 5,00,000 Equity capitalization Rate:

(a) If the firm uses no debt 10%

(b) If the firm uses Rs. 25,000 debentures 11%

(c) If the firm uses Rs. 4,00,000 debentures 13%

Assume that Rs. 5,00,000 debentures can be raised at 6% rate of interest whereas Rs. 4,00,000 debentures can be raised at 7% rate of interest.

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