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S. Ltd. and T. Ltd. are in the same risk class and are identical in all respects except that company
S uses debt while company T does not use debt. The levered firm has 9 , 00 , 000 debentures
carrying 10% rate of interest. Both the firms earn 20% operating profit on their total assets of 15
lakhs. The company is in the tax bracket of 35% and capitalisation rate of 15% on all equity
shares. You are required to compute the value of S Ltd. and T Ltd. using Net Income approach.
[B.Com. (H.), D.U., 2012]

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  • 1. S. Ltd. and T. Ltd. are in the same risk class and are identical in all respects except that company S uses debt while company T does not use debt. The levered firm has 9 , 00 , 000 debentures carrying 10% rate of interest. Both the firms earn 20% operating profit on their total assets of 15 lakhs. The company is in the tax bracket of 35% and capitalisation rate of 15% on all equity shares. You are required to compute the value of S Ltd. and T Ltd. using Net Income approach. [B.Com. (H.), D.U., 2012]