the cost of capital final
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THE COST OF CAPITAL
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• 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
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• 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
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• 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
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• 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
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• 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
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Source: (www.hul.co.in)
HUL
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Source: www.bajajauto.com
BAJAJ AUTO
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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)
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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
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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
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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
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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
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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
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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
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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
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THANK YOU Submitted By: Dundappa C
Sec: A
Roll No: 08