Gross Profit approach
Net Operating Income approach
Net Income approach
Modigliani and Miller approach
Answer is Right!
Answer is Wrong!
The correct answer is: A. Gross Profit approach
The other options are all approaches to capital structure.
- Net Operating Income approach is a method of determining the amount of debt a company can afford to take on based on its net operating income.
- Net Income approach is a method of determining the amount of debt a company can afford to take on based on its net income.
- Modigliani and Miller approach is a theory that states that the capital structure of a company does not affect its value.
Gross profit is a measure of a company’s profitability before interest and taxes are taken into account. It is calculated by taking the company’s revenue and subtracting the cost of goods sold. Gross profit is not an appropriate measure for determining a company’s capital structure because it does not take into account the company’s other expenses, such as operating expenses and interest expense.