The correct answer is A. Rs. 2,50,000.
The NOI approach to valuation is based on the assumption that the value of a firm is equal to the present value of its future net operating income (NOI). The NOI is calculated by taking the firm’s EBIT and subtracting its interest expense. The present value of the NOI is then calculated by discounting it back to the present using the firm’s overall capitalization rate.
In this case, the firm’s EBIT is Rs. 50,000, its interest expense is Rs. 20,000, and its overall capitalization rate is 20%. The present value of the NOI is therefore:
= Rs. 50,000 / (1 + 0.20)^1 + Rs. 50,000 / (1 + 0.20)^2 + Rs. 50,000 / (1 + 0.20)^3 + Rs. 50,000 / (1 + 0.20)^4
= Rs. 2,50,000
Therefore, the market value of the firm under the NOI approach is Rs. 2,50,000.
Option B is incorrect because it is the market value of the debt. Option C is incorrect because it is the EBIT of the firm. Option D is incorrect because it is the present value of the firm’s interest expense.