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A firm has a currentmarketvalueofINR250 crores. The current cost of equity is 15%and the tax rate...

A firm has a currentmarketvalueofINR250 crores. The current cost of equity is 15%and the tax rate is 20 percent. If the firm has announced to issue a per- petual debt of INR 50 crores at 6% interest rate to change the capital structure of the firm, what is the market value of the firm after this announcement?

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Expert Solution

Market value after announcement=Original Value+Debt*tax rate
=250+50*20%
=260.0000 crores

jeff jeffy answered 2 years ago
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