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CA Intermediate · Financial Management and Strategic Management · Scope and Objectives of Financial Management

Aarav Textiles Ltd. has 4,00,000 equity shares outstanding with a market price of ₹150 per share. Its total debt (market value) is ₹2,00,00,000. Which figure represents the value of the firm's market value of equity and the firm's total value (equity plus debt) respectively?

Equity value is 4,00,000 shares times ₹150, which equals ₹6 crore. Adding market value of debt of ₹2 crore gives the total firm value of ₹8 crore. Firm value is the sum of equity and debt claims, not their difference.

  1. A₹6,00,00,000 and ₹8,00,00,000Correct
  2. B₹4,00,00,000 and ₹6,00,00,000
  3. C₹6,00,00,000 and ₹4,00,00,000
  4. D₹8,00,00,000 and ₹6,00,00,000

Explanation

Market value of equity = 4,00,000 × ₹150 = ₹6,00,00,000. Adding debt of ₹2,00,00,000 gives total value ₹8,00,00,000. Option C subtracts debt from equity, which is wrong because firm value is the sum of the claims.

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