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Punjab Fertilizers Punjab Fertilisers expects a constant EBIT of INR 9,00,000. Punjab Fertilisers currently financed by 10% debt and 90% equity. Haryana Chemicals is the

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Punjab Fertilizers Punjab Fertilisers expects a constant EBIT of INR 9,00,000. Punjab Fertilisers currently financed by 10% debt and 90% equity. Haryana Chemicals is the closest competitor of Punjab Fertilizers and is fully equity financed with cost of equity of 17%. Both the firms can borrow at 10% if required. If the corporate tax rate is 35%, what is the current value of the Haryana Chemicals and Punjab Fertilizers? What is the value of Punjab Fertilizers if it increases the debt to 50% and uses the debt proceeds to pay off equity? Explain the reasons for increase in value. 3

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