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The correct answer is A
Option (a) >>>>>>>>> Cost of equity is Constant.
a- Constant
A
Net income approach suggested by the Durand. According to this approach, the capital structure decision is relevant to the valuation of the firm. In other words, a change in the capital structure leads to a corresponding change in the overall cost of capital as well as the total value of the firm.
According to this approach, use more debt finance to reduce the overall cost of capital and increase the value of firm.
Net income approach is based on the following three important assumptions:
1. There are no corporate taxes.
2. The cost debt is less than the cost of equity.
3. The use of debt does not change the risk perception of the investor.
A----------Remain Constant
Answer is A.cost of equity is fixed and continuous
Answer is A
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