Describes net operating income approach to capital structure, Financial Management

Assignment Help:

Q. Describes Net Operating Income Approach to Capital Structure?

NOI (Net Operating Income Approach):- This is another speculation of capital structure which is propounded by 'Durand' and is just opposite to Net Income Approach. The real meaning of this approach is that the capital structure decision of a firm is irrelevant. Any alter in leverage will not lead to any change in total value of the firm. It signifies that the overall cost of capital would remain same whether the debt-equity mix is 50:50 or 30: 70 or 60:40. Therefore the total value of the firm the market price of shares and the overall cost of capital is independent of the degree of leverage.

Assumptions of NOI Approach:-

(i) The cost of debt is lesser than the cost of equity

(ii) There are no corporate or personal income taxes.

(iii)The business risk stays constant at every level of debt & equity.


Related Discussions:- Describes net operating income approach to capital structure

Accounting entity - accounting principle, Accounting Entity - Accounting Pr...

Accounting Entity - Accounting Principle For accounting reasons it is suppose that business has separate existence and its entity is different from that of its owner(s). In si

Accounting period - accounting principle, Accounting Period - Accounting Pr...

Accounting Period - Accounting Principle Accounting period refers to span of time at the end of that and for which the financial statement are prepared to throw light on the r

What is control risk, What is Control risk That material misstatement c...

What is Control risk That material misstatement could take place and not be detected, or prevented on a timely basis, by accounting and internal control systems. All audits

Define floating rate notes, Define Floating Rate Notes Floating-rate n...

Define Floating Rate Notes Floating-rate notes (FRNs) are commonly medium-term bonds along with their coupon payments indexed to some reference rate.  Common reference rates a

Monetary approach to the Exchange Rate, a The Monetary Approach to the ER. ...

a The Monetary Approach to the ER. All else equal, an increase in the interest rate in Canada is associated, in the long run, with higher prices in Canada and an appreciated exchan

Alternative dividend policies, The managing directors of three profitable l...

The managing directors of three profitable listed companies discussed their companies'' dividend policies at a business lunch. Company A; has deliberately paid no dividends for th

Give new marketing strategy, a) B2C businesses provide goods and services t...

a) B2C businesses provide goods and services to the general public, i.e. consumers. HMV sell music, books and DVDs (via Waterstones) to private individuals and can therefore be cla

Discounted pay back period (dpbp), Discounted Pay Back Period (DPBP) : ...

Discounted Pay Back Period (DPBP) : The discounted payback period is the number of periods taken in recovering the investment outlay on the present value basis.  Discounted pa

Capital structure, Modi Wires and Cable Ltd intends to finance its INR 20 m...

Modi Wires and Cable Ltd intends to finance its INR 20 million modernization plan for which it is trying to decide between debt and external equity. The management feels that the e

Functional silo, It is a phrase referring to the tendency of departments to...

It is a phrase referring to the tendency of departments to become isolated from one another in a functionally structured company.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd