How to calculate cost of equity and market value of a firm?

Banking & FinanceFinance ManagementGrowth & Empowerment

Solution

The solution is as follows −

Debt ratioEquityDebtCost of debtWACCInterest Expenses (I)Market value of a company (V)Market value of Equity (E)Net operating income (EBIT – I)Cost of equity (Ke)










0.003500000010%11.5%03625000362500362500010%
0.20280000070000010%11.5%70000362500029250035550008.07%
0.451925000157500010%11.5%157500362500020500034675005.65%
0.702450000245000010%11.5%245000362500011750033800003.24%
1.000350000010%11.5%35000036250001250032750000.35%

Equity = book value * (1-debt ratio)

Debt = book value * debt ratio

Interest (I) = debt * cost of borrowed

Market value of a company (V) = EBIT/WACC

Market value of equity (E) = V – I

Cost of equity = E/V

raja
Published on 28-Sep-2020 14:50:28
Advertisements