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Capital Structure Theories- Net Income Approach (in Hindi)
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Heena Malhotra
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Unacademy user
please upload a video on thermodynamics and electrochemistry as soon as possible.
Mam, please send me the last example of NI. When 10% increase in kd and ratio will be 60:40........then 10% result I can not understand.
And Mam please provide me your referral code for subscription.
hello ma'am,i want to buy your financial management notes.is it possible to buy?
Heena Malhotra
5 months ago
Hi, you can download pdf from unacademy app only. You will get option above the video.
Ankita kush
5 months ago
ok ma'am thanks
  1. Capital Structure Decision By Heena Malhotra


  2. The following approaches explain the relationship between cost of capital, capital structure and value of the firm: Net Income (NI) Approach Traditional Approach Net Operating Income Capital Structure Relevance Theory Capital Structure Theories Capital Structure Irrelevance Theory (NOI) Approach Modigliani-Miller (MM) Approach By Heena Malhotra


  3. However, the following assumptions are made to understand this relationship. There are only two kinds of funds used by a firm ie. debt and equity The total assets of the firm are given. The degree of average can be changed by selling debt to purchase shares or selling shares to retire debt. Taxes are not considered. The payout ratio is 100%. The firm's total financing remains constant. Business risk is constant over time. .The firm has perpetual life. By Heena Malhotra


  4. EBIT alue of the frm Overallcost of capital/Weighted average costof capital E(Cost fdebt x weight of debt)+(Cst of equity x weightofequity By Heena Malhotra


  5. Net Income (NI) Approach o According to this approach, capital structure decision is relevant to the value of the firm. o An increase in financial leverage will lead to decline in the weighted average cost of capital (WACC), while the value of the firm as well as market price of ordinary share will increase. o Conversely, a decrease in the leverage will cause an increase in the overall cost of capital and a consequent decline in the value as well as market price of equity shares. By Heena Malhotra


  6. Net Income (NI) Approach o Ke and Kd are assumed not to change with leverage. As debt increases, it causes weighted average cost of capital (WACC) to decrease. By Heena Malhotra


  7. Capital Structure Decision By Heena Malhotra


  8. Net Income (NI) Approach o According to this approach, capital structure decision is relevant to the value of the firm. o An increase in financial leverage will lead to decline in the weighted average cost of capital (WACC), while the value of the firm as well as market price of ordinary share will increase. o Conversely, a decrease in the leverage will cause an increase in the overall cost of capital and a consequent decline in the value as well as market price of equity shares. By Heena Malhotra


  9. Net Income (NI) Approach o Ke and Kd are assumed not to change with leverage. As debt increases, it causes weighted average cost of capital (WACC) to decrease. By Heena Malhotra


  10. The value of the firm on the basis of Net Income Approach can be ascertained as follows: Value of Firm (V) SD Where, V Value of the firm S Market value of equity D Market value of debt NI Market value of equity (S) Ke Where, NI Earnings available for equity shareholders K. Equity Capitalisation rate By Heena Malhotra


  11. EBIT Overa cost of capitalWeighted average costof capital t eight fCcot fepity weightof eputy alue of the firm By Heena Malhotra


  12. Net Income (NI) Approach Traditional Approach Net Operating Income Capital Structure Relevance Theory Capital Structure Theories Capital Structure Irrelevance (NOI) Approach Theory Modigliani-Miller (MM) Approach By Heena Malhotra


  13. Net Operating Income Approach (NOi) o V-EBIT/Ko O S V-D O Ke-Earning available to equity/Shareholder's Value By Heena Malhotra