ABC Ltd. has a net operating income of Rs. 2,00,000 on investment of Rs. 10,00,000 in assets. It can raise debt at a 16% rate of interest. Assume that taxes do not exist.
(a) Using NI approach and an equity capitalisation rate of 18%, compute the total value of firm and the weighted average cost of capital if the firm has (i) no debt (ii) Rs. 3,00,000 debt and (iii) Rs. 6,00,000 debt.
(b) Using the NOI approach and an overall capitalisation rate of 12%, compute the total value of the firm, value of share and the cost of equity if the firm has (i) no debt (ii) Rs. 3,00,000 debt and (iii) Rs. 6,00,000 debt.