- Trending Categories
- Data Structure
- Networking
- RDBMS
- Operating System
- Java
- iOS
- HTML
- CSS
- Android
- Python
- C Programming
- C++
- C#
- MongoDB
- MySQL
- Javascript
- PHP

- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who

# Calculate market equity using below data according to the M-M Approach.

Company X | Company Y | |
---|---|---|

Rs | Rs | |

Net operating income | 20000 | 20000 |

Cost of debt | 0 | 2500 |

Net income | 20000 | 17500 |

Cost of equity | 0.08 | 0.10 |

Market value of shares | 250000 | 175000 |

Market value of debt | 0 | 50000 |

Total value of firm | 250000 | 225000 |

Cost of capital (Avg) | 0.95 | 0.08 |

Debt equity ratio | 0 | 0.8 |

**Assumptions: 1) no corporate tax 2) equilibrium value is 12%.**

## Solution

The solution is explained below −

Company X | Company Y | |
---|---|---|

Rs | Rs | |

Net operating income | 20000 | 20000 |

(-) | ||

Cost of debt | 0 | 2500 |

Net income | 20000 | 17500 |

Equilibrium cost of equity (12.5%) | 0.125 | 0.125 |

Value of firm | 160000 | 140000 |

Market value of debt | 0 | 50000 |

Market value if equity | 160000 | 90000 |

- Related Questions & Answers
- Calculate the value of (m)1/n in JavaScript
- How to calculate cost of equity and market value of a firm?
- Python Program to calculate n+nm+nmm.......+n(m times).
- Count of numbers satisfying m + sum(m) + sum(sum(m)) = N in C++
- Calculate n + nn + nnn + ? + n(m times) in Python
- M-Coloring Problem
- m-ary tree
- Find the Number of subarrays having sum of the form k^m, m >= 0 using C++
- What are the key assumptions of Modigliani-Miller (M&M) Theorem?
- Sum of even numbers from n to m regardless if n<m or n>m JavaScript
- Find a positive number M such that gcd(N^M,N&M) is maximum in Python
- Calculate n + nn + nnn + … + n(m times) in Python program
- Calculate n + nn + nnn + u + n(m times) in Python Program
- Month ("M", "m") Format Specifier in C#
- Construct PDA for L = {0n1m2(n+m) | m,n >=1}

Advertisements