PRAX Ltd. is an all-equity financed company, currently valued at 2,100 lakhs, with a cost of capital of 18%. The company is contemplating a…
CA Intermediate · Financial Management and Strategic Management · PYQS · September 2025
PRAX Ltd. is an all-equity financed company, currently valued at 2,100 lakhs, with a cost of capital of 18%. The company is contemplating a strategic financial restructuring by: (i) Repurchasing 325 lakhs of equity shares. (ii) Replacing the repurchased equity with 16% debentures. The Company maintains constant Earnings Before Interest and Taxes (EBIT) and following a policy of distributing entire earnings as dividend. Corporate tax rate is 35%. What would be the market value of Equity after structure modification as per Modigliani and Miller (MM) Approach?
Suggested Answer and Working Notes:
Correct Answer: Option (A)
₹ 1,888.75 Lakh
Topics: Part-A: Financial Management
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