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Standard XII

Accountancy

Cash Flow from Financing Activities

Given followi...

Question

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.