the firm under the NI Approach. 4. X Ltd. and Y Ltd. are identical except that the former uses debt while the latter does not. The levered firm has issued 10% Debentures of Rs.900,000. Both the firms earn EBIT of 20% on total assets of Rs.1500,000. Assuming tax rate of 50% and capitalization rate of 15% for an all-equity firm, (i) Compute the value of the two firms using NI approach; (ii) Compute the value of the two firms using approach; (iii) Calculate the overall cost of capital for both firms using NOtapproach. MM MM 5. A company's current operating income is Rs. 400,000 . The firm has Rs. 1000,000 of 10% debt outstanding. Its cost of equity capital is estimated to be 15%. a. Determine the current value of the firm, using traditional valuation approach; b. Calculate the firm's overall capitalization rate; c. The firm is considering to increase its leverage by raising an additional Rs. 500,000 debt and using the proceeds to retire that amount of equity. As a result of increased financial risk, KD, is likely to go up to 12% and KE to 18% Would you recommend the plan