--%>

Describe Net income approach

Briefly describe Net income approach? Named who recommended this theory?

E

Expert

Verified

Net income (or NI) approach as this is as well termed as traditional approach. This is an approach in that both, equity and cost of debt are independent of capital structure. The constituents that are involved in it are steady and don’t depend on how much debt the firm is using. This theory was recommended by David Durand. In this alter in financial leverage leads to alter in entire cost of capital as well as whole value of firm. If financial leverage rises, weighted average cost reduces and value of firm and market price of equity raises. If this reduces then weighted average cost of capital raises and value of firm and market price of equity reduces. The suppositions that can be made according to this approach is that there are no taxes involved in this and the employ of debt does not alter the risk factor for the investors and will continue the same throughout.

   Related Questions in Business Economics

  • Q : What is the basic principle of

    What is the basic principle of comparative advantage?

  • Q : Technological advances in producing

    When given resources can now produce additional goods than was previously probable, then there have been a: (1) Stock market boom. (2) Competitive spurt which shrinks entrepreneurial gain. (3) Concavity reversal in the production possibilities frontier. (4) Bigger rel

  • Q : What do you mean by Graphs What do you

    What do you mean by Graphs?

  • Q : Slope of a straight line is the ratio

    Explain the slope of a straight line is the ratio of the vertical change to horizontal change between any two points on the line?

  • Q : Competition is the essential despot of

    Evaluate and explain the statements: “Competition is the essential despot of the market economy”.

  • Q : Enterprise is dictated primarily by

    “The legal form an enterprise assumes is dictated primarily by the financial requirements of its particular line of production.”  Do you agree?

  • Q : Problem related to market circular flows

    In output markets, the simple circular flow model, households replace their _________ for _________. Can someone help me in determining the right answer from the given options. (1) Resources | income. (2) Labor | g

  • Q : Gains from Exchange- Practice and

    When a world famous concert pianist is as well the world's fastest short order cook, he would most likely gain the most financially through devoting: (i) Full time to frying burgers (ii) Full time to piano practice and concerts. (iii) Half-time cooking and half-time p

  • Q : Human Resource Management problems

    Question Write a report on a local firm that faces Human Resource Management problems. Pick two major problems and provide solutions to it. The company selected must

  • Q : Society material wants are scarce

    Explain the foundation of economics where society’s material wants are scarce resources?