Day: March 25, 2020

Meaning of Leverage The term leverage refers to an increased means of accomplishing some purpose. Leverage is used to lifting heavy objects, which may not be otherwise possible. In the financial point of view, leverage refers to the ability to use fixed cost assets or funds to increase the returns to shareholders. Generally, increases in leverage results in increased returns Read More …

It is also known as an intermediate approach. It is midway between Net Income Approach and Net Operating Income Approach. This approach resembles the Net Income Approach in arguing that capital structure and cost of capital affect the value of the firm but it discards the view that value of company will necessarily increase for all the degrees of debt-equity Read More …

This approach states that change in capital structure does not affect the value of the firm. MM approach maintains that the Overall Cost of Capital (K0) remains constant and does not change due to change in debt-equity mix.  It supports NOI approach that market value of a firm is independent of its capital structure. While NOI failed to provide a Read More …

This approach is also given by David Durand. This approach is just the opposite of Net Income Approach. According to this approach, there is no relationship between capital structure, cost of capital and values of the firm. The theory holds that change in proportion of debt in the capital structure does not change the overall cost of capital and value Read More …