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Question 3 Compute the market value of the firm, value of shares and the average...

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Question 3 Compute the market value of the firm, value of shares and the average cost of capital from the following information Net operating income Total Investment K 100,000 K 500,000 Equity capitalization Rate: (a) If the firm uses no debt 10% (b) If the firm uses K 25,000 debentures 11% (C) If the firm uses K 400,000 debentures 13% Assume that K500.000 debentures can be raised at 6% rate of interest whereas K400, 000 debentures can be raised at 7% rate of interest. [25 Marks] Question 3 Compute the market value of the firm, value of shares and the average cost of capital from the following information Net operating income Total Investment K 100,000 K 500,000 Equity capitalization Rate: (a) If the firm uses no debt 10% (b) If the firm uses K 25,000 debentures 11% (C) If the firm uses K 400,000 debentures 13% Assume that K500.000 debentures can be raised at 6% rate of interest whereas K400, 000 debentures can be raised at 7% rate of interest. [25 Marks]

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