Goyal Company Ltd. has a current operating income of Rs 4 lakh. Thefirm is a levered firm i.e., has Rs 10 lakh of 10 percent debtoutstanding. The cost of capital is estimated to be 15 percent.a)...

Goyal Company Ltd. has a current operating income of Rs 4 lakh. Thefirm is a levered firm i.e., has Rs 10 lakh of 10 percent debtoutstanding. The cost of capital is estimated to be 15 percent.a) Determine the current value of firm using traditional valuationapproach.b) Calculate the overall capitalization rate and debt to equity ratiofor the company.c) The firm is considering increasing its leverage by raising anadditional Rs 5 lakh debt and using the proceeds to retire thatamount of equity. As a result of increased financial risk, costof debt is likely to go up to 12% and cost of equity to 18%.Would you recommend this plan?d) Show the optimal capital structure in traditional approachusing graphical representation.