Net Income (NI) Approach is a vital Capital Structure theory that is important in Finance. We at Helpmeinhomework.com have some of the most expert tutors with minimum 5 years of experience and the necessary qualifications to help you with all the solutions and queries related to your Net Income Approach Ni Homework Help projects.
Exploring the concept of Net Income Approach (NI)?
Net Income theory is an approach that states that there is relevance of the capital structure decision to the valuation of a firm. In other words, the value of a firm is related to the capital structure. This means that a firm can increase or decrease its value by reducing or increasing the proportion of debt in the overall mix of financing. David Durand introduced this approach.
The NI approach states that increase in Financial Leverage is associated with reduction in the weighted average capital cost and an increase in the firm value and the market price of equity shares. Likewise, reduction in Financial Leverage is related to an increase in the weighted average capital cost and a reduction in firm value and the market cost of equity shares.
NI approach assumes:
- No taxes are there
- Risk perception of investors is not changed by the use of debt
- Cost of equity is greater than the cost of debt
- The firm’s entire capital requirement are constant and given
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Why Is Net Income Approach (NI) Important for students to understand?
This is one of the most vital Capital Structure theories. The relationship between the firm value, Leverage and capital cost, as mentioned in this theory, is the simplest in explanation and approach.
As per the NI approach, the Financial Leverage is a variable that is important to a firm’s capital structure. The firm, with a wise mix of equity and debt, can evolve an optimal capital structure where the firm will have the highest value with the lowest overall capital cost. The market price for each share of that structure would be the highest. We have brilliant professors who can offer you complete Net Income Approach Ni Homework Help.
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