From the following selected data, determine the value of the firm, value of Equity, cost of equity and verify your calculations with overall cost of capital of the firm under Net Operating Income approach. ​​​​​EBIT ​​​ ​OMR​225,000
​​​​​15% Debt ​​​OMR ​500,000
​​​​​Overall Cost of Capital ​​​25.7142%
Valuation of Total Value of Firm and Overall cost of Capital (WACC) under NOI Approach

15% Debt of OMR 500,000
Step-1 Total Market Value of the firm (V)

Total value of the firm = EBIT / Ko = 225000/0.257142
875003
EBIT = 225000

Ko = overall cost of capital = 25.7142% = 0.257142

Step-2 Total value of Equity ( E)

total Value of firm = Value of Equity + Value of Debt

V = E + D…..Therefore, E = V-D

= Step 1 - Debt

So, 875003 - 500000 = 375003
375003

Step-3 Calculate Cost of Equity (Ke)

cost of Equity = (EBIT - I)/E = (225000-75000)/375003 = 0.4
40%
EBIT = 225000

I = Interest = 500000 * 15% = 75,000

E = Step 2 = 375003

Step-4 Calculation of Overall Cost of capital (Ko)(WACC)

WACC = Ke(E/V) + Kd (D/V)

= (0.4)(375003/875003) + (0.15)(500000/875003)

(0.4)(0.4285) + (0.15)(0.5714)

0.1714 + 0.08571 = 0.25711
25.711%