NET OPERATING INCOME
This theory is propounded by Durand. This is just opposite of Net Income Theory. Whereas Net Income Theory states that, a firm can minimize the overall cost of capita and increase the value of the firm by using debt financing as debt is a cheaper source of finance.
But to the contrary, Net Operating Income Theory states that, the market value of the firm and the overall cost of capital are not affected by the change in capital structure, means to say that whether the debt – equity ratio in total capitalization is 50:50 or 20:80or whatever the overall cost of capital and market value of firm remains constant.
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