27 CSP)       Manu Ltd and Sanu Ltd are identical, but Manu Ltd does not use any debts but in Sanu has 9% debentures of Rs.8 Lacs. Both have EBIT of Rs.2,60,000 p.a. and the capitalization rate is 10% Assume corporate tax rate 30%. Calculate value of firm according to MM hypothesis.

Solution:

Particulars	Manu Ltd	Sanu Ltd
EBIT	2,60,000	2,60,000
Tax %	30%	30%
Debt	nil	8,00,000
Value	= EBIT (1-t) / KE = 2,60,000 (1-0.30) / 10% = 18,20,000	=Vu + Dt =18,20,000 + (8,00,000 * 30%) = 20,60,000