Question

A firm has EBIT of 50,000. Market value of debt is 80,000 and overall capitalization rate is 20%. Market value of firm under NOI Approach is ______________.

• A. $Rs.2,50,000$
• B. $Rs.1,70,000$
• C. $Rs.30,000$
• D. $Rs.1,30,000$

Answer 1

The correct option is B $Rs.1,70,000$

EBIT = $Rs.50,000$

WACC = $20$%

Market value of equity = $Rs.50,000$ / $20$% = $Rs.2,50,000$

Market value of debt = $Rs.80,000$

Therefore, Market value of equity = $Rs.2,50,000$ - $Rs.80,000$ = $Rs.1,70,000$.