How to calculate market value of a company?



Solution

The solution is given below −

Company X is unlevered, which means, interest on debt is 0.

Company y is levered, which means, interest on debt is 7000 (175000*4%)

Market value


Company X Company Y

Rs Rs
Net operating income 45000 45000
Interest on debt 0 7000

45000 38000
Profit before taxes 45000 38000
Taxes (40%) 18000 15200

27000 22800
Capitalization rate (12%) 0.12 0.12
Market value equity 225000 190000
Market value of debt 0 175000
Total value 225000 365000
Updated on: 2020-09-28T11:12:40+05:30

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