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Net Income Approach (in Hindi)
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This lesson gives you detail explanation of BASIC ASSUMPTIONS OF CAPITAL STRUCTURE THEORY and clear the concept of NI approach of capital structure! Important for NTA NET exams

Indresh Pratap SINGH
I have done MBA and teaching since last 2 years! I work on 3 things-: 1)Building Interest, 2)Concreting knowledge base, 3)Concept wise focus

Unacademy user
please add risk & uncertainty analysis in capital budgeting
Sure Akash! I will soon give you lesson regarding this important topic! Follow me and keep regular check I will sure make you understand the topic.
  1. Theories of Capital Structure .Net income Approach (NI) .Net operating income Approach (NOI) Traditional theory of capital structure MM Approach (MODI MILLER) . Trade-off theory


  2. Relevance Impact Irrelevance Impact Net Income Approach Trade-off Theory Net Operating Income Approach MM Approach TRDITIONAL THEORY OF CAPITAL STRUCTURE


  3. Basic assumptions of all theories 1. Firms employee only debt and equity capital 2. Total assets of the firm are given 3. The firm has 100% payout ratio 4. The operating earnings of the firm are not expected to grow, it means EBIT remain same for all the years 5. Business risk remains constant 6. No corporate and personal taxes 7. We assume to be no transaction costs


  4. Net Income Approach (NI approach) It is discovered by DAVID DURAND Relevance theory of capital structure This theory says that there is relevance impact on the value of the firm and the overall cost of capital if we mix a debt in our capital structure " Greater the debt capital employed lower shall be the overall cost of the capital and more shall the be the value of the firm" Value of firm Overa ll cost


  5. Assumptions Cost of equity is always greater than cost of debt There is no corporate tax The risk perception of investors is not affected by the use of debt


  6. Degree of Leverage