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Sir, Is this SM solution regarding Change in return part is correct ? If we calculate Income from levered company, it would be 30000�16.25% = 4875. i.e WKT 39000÷240000=16.25%. Income from levered firm going to be (30000 - 10000)�15% = 3000 Kindly Need clarification !
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Thread Starter
Madhaan SSir, my question is why we are calculating return specifically from "Income from (Shares) of Levered and unlevered firm" and why not from EBIT ? In previous ques we calculated return from EBIT. screenshot of ques attached.
Please read last line of the solution of previous illustration (Ill6) there they clearly state the diff in solutions in both the examples and how both are ok. In ill 6 they invested only a portion of the amount representing in an unlevered firm representing similar return as the investor had in the levered firm. in illustration 7: they invested full amount in unlevered firm. Both ways are correct unless a method is specifically asked in the exam
Sriram Somayajula Admin
Please read last line of the solution of previous illustration (Ill6) there they clearly state the diff in solutions in both the examples and how both are ok. In ill 6 they invested only a portion of the amount representing in an unlevered firm representing similar return as the investor had in the levered firm. in illustration 7: they invested full amount in unlevered firm. Both ways are correct unless a method is specifically asked in the exam
Thankyou so much sir. Although i read those lines, my gut feeling insisted me to clarify this.Thankyou for clarification sir.
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