Given following data calculate cost of capital under Net Income (NI) Approach
(1) EBIT is Rs. 20 Lakhs.
(2) 4,00,000 shares of Rs. 10 each & market capitalisation is $16 %$
(3) 25,000, $14 %$ debentures of Rs. 150 each.

16 %

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14 %

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15 %

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15.42 %

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Solution

The correct option is D $15.42 %$
First calculate net earnings available to equity shareholders deducting interest on debt i.e. NI then calculate market value of equity i.e. $\frac{N I}{K_{e}}$ where $k_{e}$ = market capitalization rate then value of firm V = S + B lastly $K_{e}$ = $\frac{E B I T}{V}$ .

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Given following data calculate cost of capital under Net Income (NI) Approach (1) EBIT is Rs. 20 Lakhs.(2) 4,00,000 shares of Rs. 10 each & market capitalisation is 16% (3) 25,000, 14% debentures of Rs. 150 each.

The correct option is D 15.42%First calculate net earnings available to equity shareholders deducting interest on debt i.e. NI then calculate market value of equity i.e. NIKe where ke = market capitalization rate then value of firm V = S + B lastly Ke = EBITV.

Given following data calculate cost of capital under Net Income (NI) Approach
(1) EBIT is Rs. 20 Lakhs.
(2) 4,00,000 shares of Rs. 10 each & market capitalisation is $16 %$
(3) 25,000, $14 %$ debentures of Rs. 150 each.