CS Executive · Corporate Accounting and Financial Management · Capital Structure
Under the NOI approach, Veda Ltd has EBIT of Rs 6,00,000 and overall capitalisation rate Ko of 12%. It has 10% debentures of Rs 20,00,000. What is the value of equity?
Equity value is Rs 30,00,000. Under NOI, total firm value is EBIT divided by the overall rate: Rs 6,00,000 by 12% equals Rs 50,00,000. Deducting debt of Rs 20,00,000 gives the market value of equity.
- ARs 30,00,000Correct
- BRs 50,00,000
- CRs 70,00,000
- DRs 40,00,000
Explanation
Firm value V = EBIT/Ko = 6,00,000/0.12 = Rs 50,00,000. Equity = V - Debt = 50,00,000 - 20,00,000 = Rs 30,00,000. Rs 50,00,000 is the total firm value, and Rs 70,00,000 wrongly adds debt.
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