Question

Which of the following approaches advocates that the costs of equity capital ad debt capital remain unaltered when the degree of leverage varies?

• A. Net Income Approach
• B. Net Operating Income Approach
• C. Traditional Approach
• D. Modigillani-Miller Approach
• E. Both (A) and (B) above

Answer 1

The correct option is A Net Income Approach

According to the net income approach the cost of equity capital and the cost of debt capital remain unchanged when degree of leverage varies.