Title FM Answer Test 3_key-combined (1).pdf ✅

Dheera Test Series [3] PART II Question 1. [a] Assuming no tax as per MM Approach. Calculation of Value of Firms ‘Bee Ltd.’ and ‘Cee Ltd’ according to MM Hypothesis Market Value of ‘Cee Ltd’ [Unlevered[u]] Total Value of Unlevered Firm [Vu] = [NOI/ke] = 9,00,000/0.18 = ₹ 50,00,000 Ke of Unlevered Firm [given] = 0.18 Ko of Unlevered Firm [Same as above = ke as there is no debt] = 0.18 Market Value of ‘Bee Ltd’ [Levered Firm [I]] Total Value of Levered Firm [VL] = Vu + [Debt× Nil] = ₹ 50,00,000 + [27,00,000 × nil] = ₹ 50,00,000 Computation of Equity Capitalization Rate and Weighted Average Cost of Capital [WACC] Particulars Bee Ltd. Net Operating Income [NOI] 9,00,000 Less: Interest on Debt [I] 3,24,000 Earnings of Equity Shareholders [NI] 5,76,000 Overall Capitalization Rate [ko] 0.18 Total Value of Firm [V = NOI/ko] 50,00,000 Less: Market Value of Debt 27,00,000 Market Value of Equity [S] 23,00,000 Equity Capitalization Rate [ke = NI /S] 0.2504 *Computation of WACC Bee Ltd 0.5 M 0.5 M 0.5 M 0.5 M 1 M