This document discusses the net operating income approach for valuing a company. The net operating income approach suggests that changes in a company's capital structure do not affect its market value. It assumes the market value of the firm as a whole remains constant, the overall cost of capital remains constant at different debt-equity mixes, and there is no corporate tax rate. The document then provides a question asking to prove the net operating income approach for a company that raises additional debt.

1. Net operating income approach
• Suggested by Durand. Acc to this approach change in Capital structure does not effect
Market Value of the company.
Assumptions:
• Market capitalise Value of firm as a whole
• Overall COC remains constant at every level of Debt Equity Mix
• No corporate tax rate
Ques 2: X Ltd has EBIT of Rs 10lac. The company has 40 lac 10% deb. Overall capitalization rate is
12.5%. Company decides to raise sum of Rs 10 lac through debt @10% .Prove NOI Approach