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How to calculate market value of a company?
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%)
|Company X||Company Y|
|Net operating income||45000||45000|
|Interest on debt||0||7000|
|Profit before taxes||45000||38000|
|Capitalization rate (12%)||0.12||0.12|
|Market value equity||225000||190000|
|Market value of debt||0||175000|
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