Q1 XYZ Id expects a net income of Rs. 50,000. The company has 10% of 54000000 Debentures. The equity capitalization rate of the company as 10%, (a) Calculate the value of the firm and overall capitalization rate according to the net income approach ignoring income tax). (b) Itae debenture debt is increased to Rs. 7.50,000 and interest of debt is change to 9% What is the value of the film and overall capitalization rate?l
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Your question is not clear and appears to be incorrect. Recheck your question and please be a little specific so that we can provide you with some meaningful help.
As the interest in debentures is way more than the profit in both cases which will lead to losses and as a result there will not be any earnings available for shareholders.
Which will result in no use of capitalization rate as there are no profits which can be capitalized as a result overall capitalization rate can not be calculated as it is the ratio of Net Income before Interest and Taxes to the Capitalised value of the firm.
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Your question is not clear and appears to be incorrect. Recheck your question and please be a little specific so that we can provide you with some meaningful help.
As the interest in debentures is way more than the profit in both cases which will lead to losses and as a result there will not be any earnings available for shareholders.
Which will result in no use of capitalization rate as there are no profits which can be capitalized as a result overall capitalization rate can not be calculated as it is the ratio of Net Income before Interest and Taxes to the Capitalised value of the firm.
Looking forward to hear from you again!
Regards