[amp_mcq option1=”Under Traditional Approach, overall cost of capital remains same” option2=”Under NI Approach, overall cost of capital remains same” option3=”Under NOI Approach, overall cost of capital remains same” option4=”None of the above” correct=”option4″]<\/p>\n
The correct answer is D. None of the above.<\/p>\n
Under the traditional approach, the overall cost of capital is the weighted average of the cost of debt and the cost of equity. The cost of debt is the interest rate that a company pays on its loans, and the cost of equity is the return that investors expect to earn on their investment in the company. The weights are determined by the relative proportions of debt and equity in the company’s capital structure.<\/p>\n
Under the NI approach, the overall cost of capital is the return that a company must earn on its assets in order to satisfy its investors. This approach takes into account the fact that a company’s assets are financed by both debt and equity, and that the cost of debt is lower than the cost of equity.<\/p>\n
Under the NOI approach, the overall cost of capital is the return that a company must earn on its net operating income in order to satisfy its investors. This approach takes into account the fact that a company’s net operating income is not affected by its capital structure, and that the cost of debt is lower than the cost of equity.<\/p>\n
Therefore, the overall cost of capital is not the same under the traditional approach, the NI approach, and the NOI approach.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”Under Traditional Approach, overall cost of capital remains same” option2=”Under NI Approach, overall cost of capital remains same” option3=”Under NOI Approach, overall cost of capital remains same” option4=”None of the above” correct=”option4″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"class_list":["post-46934","post","type-post","status-publish","format-standard","hentry","category-financial-management","no-featured-image-padding"],"yoast_head":"\n