Economics · Capital Structure Theories
Given below are two statements: One is labeled as Assertion (A) and the other is labeled as Reason (R). Assertion (A): According to the Net Operating Income (NOI) approach, the total value of the firm remains constant irrespective of changes in capital structure. Reason (R): The weighted average cost of capital (WACC) remains unchanged because the increase in the cost of equity offsets the benefit of using cheaper debt. Choose the correct answer from the options given below:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1A is false but R is true
- 2A is true but R is false
- 3Both A and R are true but R is NOT the correct explanation of A
- 4Both A and R are true and R is the correct explanation of A✓
Correct answer
Both A and R are true and R is the correct explanation of A
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