The overall capitalisation rate and the cost of debt remain constant for all degrees of financial…

David Durand's Net Operating Income (NOI) Approach to capital structure theory advocates that the overall capitalisation rate of the firm (k_o) and the cost of debt (k_d) remain constant across all degrees of financial leverage. As a firm increases cheaper debt in its capital structure, its financial risk rises and the cost of equity (k_e) increases linearly, exactly offsetting the benefit of cheaper debt and leaving k_o constant.