Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
0Activity
0 of .
Results for:
No results containing your search query
P. 1
AFM Theories

AFM Theories

Ratings: (0)|Views: 7 |Likes:
Published by Chirag Karunakar

More info:

Published by: Chirag Karunakar on Aug 10, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PPTX, PDF, TXT or read online from Scribd
See more
See less

08/10/2012

pdf

text

original

 
Kartik Venkateshwaran - Venkatesh Chary -Chirag Karunakar -Sneha Shenoy - Annie Nadar -Ruchi Bhattu -Priya Mani -Preeti Singh -
1
 
Net Income Approach
Capital Structure decision is relevant to the valuationof the firm.
In other words, a change in the financial leverage willlead to a corresponding change in the overall cost of capital as well as the total value of the firm.
If therefore the degree of financial leverage asmeasured by the ratio of debt to equity is increased,the WACC will decline, while the value of the firm as well as the market price of share will increase and vice versa.
2
 
Assumption in Net Income
Approach
First there are no taxes.
Second the cost of debt is less than the cost of equity.
Third the use of debt does not change the risk perceptionof investor.
3

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->