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Firms A and B are similar except that A is unlevered while B has Rs 200000 of 5% debentures outstanding Assume that the tax rate is 40%. NOI is Rs40000 and the cost of equity is

Firms A and B are similar except that A is unlevered, while B has Rs. 200000 of 5% debentures outstanding. Assume that the tax rate is 40%. NOI is Rs.40000 and the cost of equity is 10% (i) Calculate the value of the firm, if the MM assumptions are met (ii) Suppose VB = Rs.360000. According to MM do these represent equilibrium value? How will equilibrium be set? Explain.
 

May 29 2020 View more View Less

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