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THE COST OF CAPITAL
Definition
• 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.
Opportunity Cost of Capital
• 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.
Cost of Debt
• 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 Preference Capital
• 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 Equity 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.
HUL
Source: (www.hul.co.in)
BAJAJ AUTO
Source: www.bajajauto.com
Havells India Limited
Source: www.havellsindia.com
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)
Ultra Tech Cement
Source: www.bseindia.com
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
ACC Cements
Source: www.acccements.com
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
Mahindra & Mahindra
Source: www.bseindia.com
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
Wipro
Source: www.wiproindia.com
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
Reliance Industries

Source: www.relianceinductries.com
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
Infosys
Source: www.infosys.com
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
Hero Moto Corp
Source: www.heromotocorp.com
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

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The cost of capital final

  • 1. THE COST OF CAPITAL
  • 2. Definition • 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.
  • 3. Opportunity Cost of Capital • 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.
  • 4. Cost of Debt • 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.
  • 5. Cost of Preference Capital • 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.
  • 6. Cost of Equity 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.
  • 9. Havells India Limited Source: www.havellsindia.com 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)
  • 10. Ultra Tech Cement Source: www.bseindia.com 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
  • 11. ACC Cements Source: www.acccements.com 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
  • 12. Mahindra & Mahindra Source: www.bseindia.com 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
  • 13. Wipro Source: www.wiproindia.com 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
  • 14. Reliance Industries Source: www.relianceinductries.com 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
  • 15. Infosys Source: www.infosys.com 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
  • 16. Hero Moto Corp Source: www.heromotocorp.com 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
  • 17. THANK YOU Submitted By: Dundappa C Sec: A Roll No: 08