THE COST OF CAPITAL

• Cost of funds used for financing a business.

• It depends on the mode of financing used.

• Cost of equity: If the business is financed

solely through equity.

• Cost of debt: If it is financed solely through

debt.

• Factors: Operating history, Profitability, Credit

worthiness.

Definition

• The rate of return foregone on the next best

alternative investment opportunity of

comparable risk.

• The benefits you could have received by taking

an alternative action.

• The difference in return between a chosen

investment and one that is necessarily passed

up.

Opportunity Cost of Capital

• Refers to the effective paid by a company on its debts.

• Calculated in either before or after tax returns.

• Cost of debt is one part of capital structure of the

company and also includes the cost of equity.

• Useful for giving an idea about the overall interest rate

being paid for debt financing by the company.

• Helpful in providing the investors with an idea about the

company’s riskiness.

Cost of Debt

• It is that part of cost of capital in which we calculate

the amount which is payable to

preference shareholders in the form of dividend with

fixed rate.

• It is a function of the dividend expected by the

investors.

• It is the cost incurred to pay the preference

shareholders.

Cost of Preference Capital

• A firm's cost of equity represents the

compensation that the market demands in

exchange for owning the asset and bearing

the risk of ownership.

• It refers to the cost incurred to raise equity

capital.

Cost of Equity Capital

Source: (www.hul.co.in)

HUL

Source: www.bajajauto.com

BAJAJ AUTO

Source: www.havellsindia.com

Havells India Limited

PARTICULARS 31st MARCH 2013 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 62.39 62.39

Preference capital 0.00 0.00

Total Debt (1377) (76)

Source: www.bseindia.com

Ultra Tech Cement

PARTICULARS 31st MARCH 2013 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 274.18 274.07

Preference capital 0.00 0.00

Total Debt 5935.67 5,508.93

Source: www.acccements.com

ACC Cements

PARTICULARS 31st MARCH 2011 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 187.95 187.95

Preference capital 0.00 0.00

Total Debt 85.03 506.08

Source: www.bseindia.com

Mahindra & Mahindra

PARTICULARS 31st MARCH 2013 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 295.16 294.52

Preference capital 0.00 0.00

Total Debt 3,227.07 3,174.22

Source: www.wiproindia.com

Wipro

PARTICULARS 31st MARCH 2013 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 492.60 491.70

Preference capital 0.00 0.00

Total Debt 4046.00 5243.20

Source: www.relianceinductries.com

Reliance Industries

PARTICULARS 31st MARCH 2013 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 3229.90 3271.00

Preference capital 0.00 0.00

Total Debt 54,523.00 58,627.00

Source: www.infosys.com

Infosys

PARTICULARS 31st MARCH 2013 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 39,797 33,461

Preference capital 0.00 0.00

Total Debt 46,351 38,348

Source: www.heromotocorp.com

Hero Moto Corp

PARTICULARS 31st MARCH 2013 (in Cr.)

31st MARCH 2012 (in Cr.)

Equity Share Capital 39.94 39.94

Preference capital 0.00 0.00

Total Debt 464.73 1,257.65

THANK YOU Submitted By: Dundappa C

Sec: A

Roll No: 08