--%>
Assignment Help - homework help

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 : Parking meters may yield little or no

    Explain: “Even though parking meters may yield little or no net revenue, because of the rationing function they perform nevertheless be retained”

    		•
  • Q : Allocative Mechanisms-market based

    The market-based economic system: (1) Appears to be ‘natural’ as it has existed in all societies. (2) Has dominated the economic relationships in United States since from the year1492. (3) Guided resource allocation in middle ages. (4) Is

    		•
  • Q : Demand forecasting techniqes

    simultaneous method in demand forecasting?

    		•
  • Q : Briefly state the pros and cons of

    Briefly state the pros and cons of Proprietorship?

    		•
  • Q : Importance of rationally optimal

    Economic scarcity is pervasive, that makes choices essential. Therefore, rationally optimal decisions hinge upon tradeoffs which essentially reflect: (i) cooperation to minimize human greed. (ii) opportunity costs. (iii) competitive social behavior. (

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

    What do you mean by Graphs?

    		•
  • Q : Illustrate Qualification in

    Illustrate Qualification in International Trade?

    		•
  • Q : Principle of comparative advantage When

    When Gene can make three pairs of cowboy boots per week or one saddle whereas Roy can make either two pairs of boots or two saddles, Gene will form boots whereas Roy makes saddles according to the: (i) Law of Occam’s Razor. (ii) Principle of comparative advantag

    		•
  • Q : Scientific method how does it relate to

    What is the scientific method and how does it relate to theoretical economics?  What is the difference between a hypothesis and an economic law or principle?

    		•
  • Q : Explanation of theory of pricing for

    The theory of pricing for particular goods explained in Adam Smith’s Wealth of Nations is most consistent along with: (1) mercantilist doctrine. (2) Richard Cantillon’s distinction between “value in

    		•