The major differences between net operating income and net income are as follows −
No relevance in capital structure.
Degree of leverage is irrelevant to cost of capital (assumes).
It has constant cost of capital.
Equity value is residual.
Changes perception of investor with increase in debt.
Relevance in capital structure.
Change in degree of leverage will change WACC (assumes).
Cost of debt is less than cost of equity.
Change in debt will not change perception of investors.