When a company or firms rasing fund from different different source that

Cost of capital tells the relationship between financial leverage cost of capital and values of firm

Divided into two parts

Relivance theory irrelevance theory

Traditional approach net operating approach

Net income approach modi gilani approach

Assumptions :

Only two approach debt and equity not preffrence share capital

Tax not considered

Business risk constant

Firm life would be conciderd as perpetual

Earnings will be distributed between the equity share holder

Kd=cost of debt

Ke=cost of equity

1. Net income approach

Assumptions
Kd always less than cost of equity
Kd<ke
And kd and ke will remain constant at all level of cost of debt and cost of equity
When cost of equity will good the value of the firm increses