Presentation on

Capital Structure
By:
Arun Mohan Yadav
 Contents
• Meaning
• Assumptions
• Reasons
 NET Income Approach
This approach has been suggested by Durand.
According to this approach, a firm can
minimize the overall cost of capital and
increase the value of the firm as well as market
price of equity shares by using debts financing
to the maximum possible extent.
 Assumptions
1. The cost of debts is less than the cost of
equity. In other words , debts is always
cheaper to equity.
2. There are no corporate tax.
3. The risk perception of investors is not
changed by the use of debts.
 Reasons
1.Interest rates are usually lower than dividend
rates.
2. Interest is a deductible expense for computing
taxable income while dividend is not.