Category: FINANCIAL MANAGEMENT

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 …

Who gave the theory of the Net Income Approach? David Durant gave the theory of Net Income. What is the crux of argument of the Net Income Approach ? According to this approach, the value of a company is affected by its capital structure and cost of capital. According to this approach, the increase in the proportion of debt capital Read More …

Capital structure Theories describe the relationship between capital structure, cost of capital and the value of the firm. CAPITAL STRUCTURE Capital structure is the mix of long-term sources and it includes equity capital, preference shares and long-term debt capital. The capital structure must be decided in a way that it protects the owner’s interest by assuming an optimal return continuously. Read More …