solve the 12th question. final answer: value of U is 30 lacs value of v is 40 lacs . This is the correct answer so don't provide any other answer.. provide step by step solution to arrive to this solution

b. If the MM ant of debt should be employed by the firm if the traditional approach is held valid? Assume that copproach is followed, what should be the equity capitalitation rate? Ke 7. Phoenix Ltd, has a cost taxes do not exist, and that the firm always maintains its capital structure at book values market value of a cost of debt and WACC of 9% and 12% respectively. The ratio of market value of debt (D) to no tax. 8. The following information is available regarding the Mid-Air Enterprises: a. Mid-Air currently has no debt b. Expected EBIT is Rs. 2400,000 (Mid-Air is in a no-growth situation) c. There are no taxes d. If Mid-Air begins to use debt, it can borrow at 8% rate. This borrowing rate is constant and it is independent of the amount of debt used. Any money raised by selling debt would be used to retire common stock, so the total assets of the company will remain constant e. The rate of return on equity, Ko is 12% Using MM Model without corporate taxes and assuming a debt of Rs.1 crore, you are required to determine (a) the firm's total market value; (b) the firms value of equity; (c) the firm's leverage cost of equity. a The woluac far twon firms X and Y in accordance with the traditional theory are given below: exist; and (ii) the equilibrium value, Ko is 12.5%. ome taxes do not 10. The net operating profit of a firm is Rs. 210,000 and the total market value of its 12% Debt is Rs. 300,000 . The equity capitalization rate of an unlevered firm of the same risk class is 16%. Find out the value of the levered firm given that the tax rate is 30% for both the firms. 11. From the following selected data, determine the value of the firms, P and Q belonging to the homogeneous risk class under (a) Net Income approach, (b) Net Operating Income approach using MM model with taxes. Particulars FirmP(Rs.)225,00075,000 FirmQ(Rs.)EBIT 225,000 Interest at 15% 75,000 For both the firms, Equity capitalization rate, KE, is 20%, and the corporate tax rate is 50%. Which of the two firms has an optimal capital structure under each of the models? 12. Companies U and L are identical in every respect, except that U is unlevered while L is levered. Company L has Rs. 2000,000 of 8% Debentures outstanding. Assume (1) that all the MM assumptions are met, (2) that the tax rate is 50%, (3) that EBIT is Rs. 600,000 and that equity capitalization rate for company U is 10%. a. What would be the value for each firm according to MM approach? b. Suppose VU=Rs.2500,000 and VL=Rs.4500,000. According to MM, do they represent equilibrium values? If not, explain the process by which equilibrium will be restored. b. If the MM ant of debt should be employed by the firm if the traditional approach is held valid? Assume that copproach is followed, what should be the equity capitalitation rate? Ke 7. Phoenix Ltd, has a cost taxes do not exist, and that the firm always maintains its capital structure at book values market value of a cost of debt and WACC of 9% and 12% respectively. The ratio of market value of debt (D) to no tax. 8. The following information is available regarding the Mid-Air Enterprises: a. Mid-Air currently has no debt b. Expected EBIT is Rs. 2400,000 (Mid-Air is in a no-growth situation) c. There are no taxes d. If Mid-Air begins to use debt, it can borrow at 8% rate. This borrowing rate is constant and it is independent of the amount of debt used. Any money raised by selling debt would be used to retire common stock, so the total assets of the company will remain constant e. The rate of return on equity, Ko is 12% Using MM Model without corporate taxes and assuming a debt of Rs.1 crore, you are required to determine (a) the firm's total market value; (b) the firms value of equity; (c) the firm's leverage cost of equity. a The woluac far twon firms X and Y in accordance with the traditional theory are given below: exist; and (ii) the equilibrium value, Ko is 12.5%. ome taxes do not 10. The net operating profit of a firm is Rs. 210,000 and the total market value of its 12% Debt is Rs. 300,000 . The equity capitalization rate of an unlevered firm of the same risk class is 16%. Find out the value of the levered firm given that the tax rate is 30% for both the firms. 11. From the following selected data, determine the value of the firms, P and Q belonging to the homogeneous risk class under (a) Net Income approach, (b) Net Operating Income approach using MM model with taxes. Particulars FirmP(Rs.)225,00075,000 FirmQ(Rs.)EBIT 225,000 Interest at 15% 75,000 For both the firms, Equity capitalization rate, KE, is 20%, and the corporate tax rate is 50%. Which of the two firms has an optimal capital structure under each of the models? 12. Companies U and L are identical in every respect, except that U is unlevered while L is levered. Company L has Rs. 2000,000 of 8% Debentures outstanding. Assume (1) that all the MM assumptions are met, (2) that the tax rate is 50%, (3) that EBIT is Rs. 600,000 and that equity capitalization rate for company U is 10%. a. What would be the value for each firm according to MM approach? b. Suppose VU=Rs.2500,000 and VL=Rs.4500,000. According to MM, do they represent equilibrium values? If not, explain the process by which equilibrium will be restored