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  • Capital STR Theories

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    Khyati Tiwari
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    The document compares three investment options and calculates their values and rates of return. It also analyzes the returns from investing in a levered firm versus an unlevered firm, showing that the unlevered investment provides a higher return after accounting for interest payments on personal borrowing. Key details include EBIT, debt, equity values, WACC percentages ranging from 8.77% to 9.62% for the options, and a 700 return from the unlevered firm investment versus just 700 from the levered firm.

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    Capital Str theories

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    The document compares three investment options and calculates their values and rates of return. It also analyzes the returns from investing in a levered firm versus an unlevered firm, showing that the unlevered investment provides a higher return after accounting for interest payments on personal borrowing. Key details include EBIT, debt, equity values, WACC percentages ranging from 8.77% to 9.62% for the options, and a 700 return from the unlevered firm investment versus just 700 from the levered firm.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    9 views5 pages

    Capital STR Theories

    Uploaded by

    Khyati Tiwari
    The document compares three investment options and calculates their values and rates of return. It also analyzes the returns from investing in a levered firm versus an unlevered firm, showing that the unlevered investment provides a higher return after accounting for interest payments on personal borrowing. Key details include EBIT, debt, equity values, WACC percentages ranging from 8.77% to 9.62% for the options, and a 700 return from the unlevered firm investment versus just 700 from the levered firm.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 5

    Particulars

    6% 6% Debt
    EBIT
    Interest
    EBT

    Value of Equity=EBT/Ke Value of Equity


    Value of Debt

    Value of Firm= Value of


    Equity+ Value of Debt

    Vaue of firm=Earning
    /WACC

    OR WACC=Earning/Value
    Opiton 1 Option2 Option 3
    500000 700000 200000
    200000 200000 200000
    30000 42000 12000
    170000 158000 188000

    1700000 1580000 1880000


    500000 700000 200000

    2200000 2280000 2080000

    9.09% 8.77% 9.62%


    Particulars Option 1
    EBIT 200000 200000
    WACC 10% 10%
    VALUE OF
    FIRM 2000000 2000000
    V DEBT 300000 400000
    V OF EQUITY 1700000 1600000

    EBIT 200000 200000


    INTERST 18000 24000
    EBT 182000 176000
    ke or rate
    of Return 10.71% 11.00%
    return from levered firm

    INVESTMENT (10%OF SHARE 6000

    EBIT 10000
    INTEREST 3000
    EBT 7000
    RETURN 700

    ALTERNATE ATRATEGY
    6% BORROW (HIS SHARE
    SELL SHARES
    OF DEBT IN L IN L FIRM
    FIRM 10%OF 6000
    50000 5000
    BUY SHARES IN UL FIRM 10000

    RETURN FROM UL
    EBIT 10000
    RETURN@10%
    INTERST ON PERSONAL 1000
    BORROWING 300
    EARNING 700
    CASH 1000 1700

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