Only cost of capital

COST OF CAPITAL The main objective of a business firm is to maximize the wealth of its shareholders in the long-run, the Management Should only invest in those projects which give a return in excess of cost of fund invested in the project of the business. The difficulty will arise in determination of cost of funds, if is raised from different sources and different quantum. The various sources of funds to the company are in the form of equity and debt. The cost of capital is the rate of return the company has to pay to various suppliers of fund in the company. There are main two sources of capital for a company – shareholder and lender. The cost of equity and cost of debt are the rate of return that need to be offered to those two groups of suppliers of the capital in order to attract funds from them. The primary function of every financial manager is to arrange adequate capital for the firm. A business firm can raise capital from various sources such as equity and or preference shares, debentures, retain earning etc. This capital is invested in different projects of the firm for generating revenue. On the other hand, it is necessary for the firm to pay a minimum return to each source of capital. Therefore, each project must earn so much of the income that a minimum return can be paid to these sources or supplier of capital. What should be this minimum return? The concept used to determine this minimum return is called Cost of Capital. On the basis of it the management evaluates alternative sources of finance and select the optimal one. In this chapter, concepts and implications of firms cast of capital, determination of cast of difference sources of capital and overall cost of capital are being discussed. CONCEPT OF COST OF CAPITAL Cost of capital is the measurement of the sacrifice made by investors in order to invest with a view to get a fair return in future on his investments as a reward for the postponement of his present needs. On the other hand form the point of view of the firm using the capital, cost of capital is the price paid to the investor for the use of capital provided by him. Thus, cost of capital is reward for the use of capital. Author Lutz has called it” BORROWING AND LANDING RATES”. The borrowing rates means the rate of interest which must be paid to obtained and use the capital. Similarly, landing rate is the rate at which the firn discounts its profits. It may also the opportunity cost of the funds to the firm i.e. what the firm would earn by investing these funds elsewhere. In practice the borrowing rates used indicate the cost of capital in preference to landing rates. Technically and Operationally, the cost of capital define as the minimum rate of return a firm must earn on its investment in order to satisfy investors and to maintain its market value. I.e. it is the investors required rate of return. Cost of capital also refers to the discount rate which is used while determining the present value of estimated future cash flows. In the other word of John J. Hampton, “The cost of capital is the rate of return in the firm requires from investment in order to increase the value of firm in the market place”. For example if a firm borrows Rs. 5 crore at an interest of 11% P.A., then the cost of capital is 11%. Hear it’s the essential for the firm to invest these Rs. 5 Crore in such a way that it earn at least Rs. 55 lacks i.e. rate of return at 11%. If the return less then this, then the rate of dividend which the share holder are receiving till now will go down resulting in a decline in its market value thus the cost of capital is the reward for the use capital. Solomon Ezra, has called “It the minimum required rate of return or the cut of rate for capital expenditure.” FEATURES OF COST OF CAPITAL It is not a cost in reality the cost of capital is not a cost as such, but its rate of return which it requires on the projects. MINIMUM RATE OF RETURN: Cost of capital is the minimum rate of return a firm is required in order to maintain the market value of its equity shares. REWARDS FOR RISKS Cost of capital is the reward for the business and financial risk. Business risks is the measurement of variability in profits due to changes in sales, while financial risks depends on the capital structure i.e. that equity mix of the firm. SIGNIFICANCE OF CONCEPT OF COST OF CAPITAL The cost of capital is very important concept in the financial decision making. The progressive management always likes to consider the cost of capital while taking financial decisions as it’s very relevant in the following spheres... Designing the capital structure: the cost of capital is the significant factor in designing a balanced an optimal capital structure of a firm. While designing it, the management has to consider the objective of maximizing the value of the firm and minimizing cost of capita. I comparing the various specific costs of different sources of capital, the financial manager can select the best and the most economical source of finance and can designed a sound and balanced capital structure. Capital budgeting decisions: the cost of capital sources as a very useful tool in the process of making capital budgeting decisions. Acceptance or rejection of any investment proposal depends upon the cost of capital. A proposal shall not be accepted till its rate of return is greater then the cost of capital. In various methods of discounted cash flows of capital budgeting, cost of capital measured the financial performance and determines acceptability of all investment proposals by discounting the cash flows. Comparative study of sources of financing: there are various sources of financing a project. Out of these, which source should be used at a particular point of time is to be decided by comparing cost of different sources of financing. The source which bears the minimum cost of capital would be selected. Although cost of capital is an important factor in such decisions, but equally important are the considerations of retaining control and of avoiding risks. Evaluations of financial performance of top management: cost of capital can be used to evaluate the financial performance of the top executives. Such as evaluations can be done by comparing actual profitability of the project undertaken with the actual cost of capital of funds raise o finance the project. If the actual profitability of the project is more then the actual cost of capital, the performance can be evaluated as satisfactory. Knowledge of firms expected income and inherent risks: investors can know the firms expected income and risks inherent there in by cost of capital. If a firms cost of capital is high, it means the firms present rate of earnings is less, risk is more and capital structure is imbalanced, in such situations, investors expect higher rate of return. Financing and Dividend Decisions: the concept of capital can be conveniently employed as a tool in making other important financial decisions. On the basis, decisions can be taken regarding dividend policy, capitalization of profits and selections of sources of working capital. CLASSIFICATION OF COST OF CAPITAL Historical Cost and future Cost Historical Cost represents the cost which has already been incurred for financing a project. It is calculated on the basis of the past data. Future cost refers to the expected cost of funds to be raised for financing a project. Historical costs help in predicting the future costs and provide an evaluation of the past performance when compared with standard costs. In financial decisions future costs are more relevant than historical costs. Specific Costs and Composite Cost Specific costs refer to the cost of a specific source of capital such as equity share. Preference share, debenture, retain earnings etc. Composite cost of capital refers to the combined cost of various sources of finance. In other words, it is a weighted average cost of capita. It is also termed as ‘overall costs of capital’. While evaluating a capital expenditure proposal, the composite cost of capital should be as an acceptance/ rejection criterion. When capital from more than one source is employed in the business, it is the composite cost which should be considered for decision-making and not the specific cost. But where capital from only one source is employed in the business, the specific cost of those sources of capital alone must be considered. 3. Average Cost and Marginal Cost Average cost of capital refers to the weighted average cost of capital calculated on the basis of cost of each source of capital and weights are assigned to the ratio of their share to total capital funds. Marginal cost of capital may be defined as the ‘Cost of obtaining another rupee of new capital.’ When a firm rises additional capital from only one sources (not different sources), than marginal cost is the specific or explicit cost. Marginal cost is considered more important in capital budgeting and financing decisions. Marginal cost tends to increase proportionately as the amount of debt increase. 4. Explicit Cost and Implicit Cost Explicit cost refers to the discount rate which equates the present value of cash outflows or value of investment. Thus, the explicit cost of capital is the internal rate of return which a firm pays for procuring the finances. If a firm takes interest free loan, its explicit cost will be zero percent as no cash outflow in the form of interest are involved. On the other hand, the implicit cost represents the rate of return which can be earned by investing the funds in the alternative investments. In other words, the opportunity cost of the funds is the implicit cost. Port field has defined the implicit cost as “the rate of return with the best investment opportunity for the firm and its shareholders that will be forgone if the project presently under consideration by the firm were accepted.” Thus implicit cost arises only when funds are invested somewhere, otherwise not. For example, the implicit cost of retained earnings is the rate of return which the shareholder could have earn by investing these funds, if the company would have distributed these earning to them as dividends. Therefore, explicit cost will arise only when funds are raised whereas implicit cost arises when they are used. Assumption of Cost of Capital While computing the cost of capital, the following assumptions are made: The cost can be either explicit or implicit. The financial and business risks are not affected by investing in new investment proposals. The firm’s capital structure remains unchanged. Cost of each source of capital is determined on an after tax basis. Costs of previously obtained capital are not relevant for computing the cost of capital to be raised from specific source. Computation of specific costs A firm can raise funds from different sources such as loan, equity shares, preference shares, retained earnings etc. All these sources are called components of capital. The cost of capital of these different sources is called specific cost of capital. Computation of specific cost of capital helps in determining the overall cost of capital for the firm and in evaluating the decision to raise funds from a particular source. The computation procedure of specific costs is explained in the pages that follow – COST OF DEBT CAPITAL Cost of Debt is the effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; however, because interest expense is deductible, the after-tax cost is seen most often. This is one part of the company's capital structure, which also includes the cost of equity. Much theoretical work characterizes the choice between debt and equity, in a trade-off context: Firms choose their optimal debt ratio by balancing the benefits and costs. Traditionally, tax savings that occur because interest is deductible while equity payout is not have been modelled as a primary benefit of debt. Large firms with tangible assets and few growth options tend to use a relatively large amount of debt. Firms with high corporate tax rates also tend to have higher debt ratios and use more debt incrementally. A company will use various bonds, loans and other forms of debt, so this measure is useful for giving an idea as to the overall rate being paid by the company to use debt financing. The measure can also give investors an idea as to the riskiness of the company compared to others, because riskier companies generally have a higher cost of debt. Example-: If a company issues 12% debentures worth Rs. 5 lacs of Rs. 100 each at par, then it must be earn at least Rs.60000(12% of Rs. 5 lacs) per year on this investment to maintain the income available to the shareholders unchanged. If the company earns less than this interest rate (12%) than the income available to the shareholders will be reduced and the market value of the share will go down. Therefore, the cost of debt capital is the contractual interest rate adjusted further for the tax liability of the firm. But, to know the real cost of debt, the relation of the interest rate is to be established with the actual amount realised or net proceeds from the issue of debentures. To get the after-tax rate, you simply multiply the before-tax rate by one minus the marginal tax rate. Cost of Debt = (before-tax rate x (1-marginal tax)) The before tax rate of interest can be calculated as below: = Interest Expense of the company ---------------------------------------- X 100 Total Debt Net Proceeds: At par = Par value – Floatation cost At premium = Par value + Premium – Floatation cost At Discount = Par value – Discount – Floatation cost COST OF PREFERENCE SHARE CAPITAL Preference share is another source of Capital for a company. Preference Shares are the shares that have a preferential right over the dividends of the company over the common shares. A preference shareholder enjoys priority in terms of repayment vis-à-vis equity shares in case a company goes into liquidation. Preference shareholders, however, do not have ownership rights in the company. In the companies under observation only India Cement has preference shares issued. Cost of Preference Capital = Preference Dividend/Market Value of Preference Shree Cement has not paid any dividend to the Preference Shareholders. Thus the Cost of Preference Capital is 0 (Zero). COST OF EQUITY SHARE CAPITAL The computation of cost of equity share capital is relatively difficult because nether the rate of dividend is predetermined nor the payment of dividend is legally binding, therefore, some financial experts hold the opinion the p.s capital does not carry any cost but this is not true. When additional equity shares are issued, the new equity share holders get propranate share in future dividend and undistributed profits of the company. If reduces the earning per shares of existing share holders resulting in a fall in marker price of shares. Therefore, at the time of issue of new equity shares, it is the duty of the management to see that the company must earn at least so much income that the market price of its existing share remains unchanged. This expected minimum rate of return is the cast o equity share capital. Thus, cost of equity share capital may be define as the minimum rate of return that a firm must earn on the equity financed portion of a investment- project in order to leave unchanged the market price of its shares. The cost of equity can be computed by any of the following method: Dividend yield method: Ke = DPSP*100 Ke= cost of equity capital Dps= current cash dividend per share Mp=current market price per share Earning yield method: Ke= EPSp*100 Eps= earning per share Dividing yield plus growth in dividend method: While computing cost of capital under dividend yield(d ratio)method, it had been assumed that present rate of dividend will remain the same in future also. But, if the management estimates that companies present dividend will increased continuously for the year to come, then adjustment for this increase is essential to compute the cost of capital. The growth rate in dividend is assumed to be equal to the growth rate in earning per share. For example if the EPS increase at the rate of 10% per year, the DPS and market price per share would show an increase at the rate of 10%. Therefore, under this method, cost of equity capital is computed by adjusting the present rate of dividend on the basis of expected future increase in company’s earning. Ke= DPSP*100+G G= Growth rate in dividend. Realised yield method: In case where future dividend and market price are uncertain, it is very difficult to estimate the rate of return on investment. In order to overcome this difficulty, the average rate of return actually realise in the past few year by the investors is used to determine the cost of capital. Under this method, the realised yield is discounted at the present value factor, and then compare with value of investment this method is based on these assumptions. The company’s risk doe not change i.e. dividend and growth rate are stable. The alternative investment opportunities, elsewhere for the investor, yield the return which is equal to realised yields in the company, and The market of equity share of the company does not fluctuate widely. Cost of newly issued equity shares when new equity share are issued by a company, it is not possible to realise the market price per share, because the company has to incur some expenses on new issue, including underwriting commission, brokerage etc. so, the amount of net proceeds is calculated by deducting the issue expenses form the expected market value or issue price. To ascertain the cost of capital, dividend per share or EPS is divided by the amount of net proceeds. Any of the following formulae may be used for this purpose: Ke= DPSP*100 Or Ke= EPSP*100 Or Ke=DPSP*100+G COST OF RETAIN EARNINGS OR INTERNAL EQUITY Generally, company’s do not distribute the entire profits by way of dividend among their share holders. A part of such profit is retained for future expansion and development. Thus year by year, companies create sufficient fund for the financing through internal sources. But , nether the company pays any cost nor incur any expenditure for such funds. Therefore, it is assumed to cost free capital that is not true. Though retain earnings like retained earnings like equity funds have no explicit cost but do have opportunity cost. The opportunity cost of retained earnings is the income forgone by the share holders. It is equal to the income what a share holders could have earns otherwise by investing the same in an alternative investment, if the company would have distributed the earnings by way of dividend instead of retaining in the business. Therefore , every share holders expects from the company that much of income on retained earnings for which he is deprived of the income arising o its alternative investment. Thus, income forgone or sacrificed is the cost of retain earnings which the share holders expects from the company. WEIGHTED AVERAGE COST OF CAPITAL Once the specific cost of capital of the long-term sources i.e. the debt, the preference share capital, the equity share capital and the retained earnings have been ascertained, the next step is to calculate the overall cost of capital of the firm. The capital raised from various sources is invested in different projects. The profitability of these projects is evaluated by comparing the expected rate of return with overall cost of capital of the firm. The overall cost of capital is the weighted average of the costs of the various sources of the funds, weights being the proportion of each source of funds in the total capital structure. Thus, weighted average as the name implies, is an average of the cost of specific sources of capital employed in the business properly weighted by the proportion they held in firm’s capital structure. It is also termed as ‘Composite Cost of Capital’ or ‘Overall Cost of Capital’ or ‘Average Cost of Capital’. WEIGHTED AVERAGE, How to calculate? Though, the concept of weighted average cost of capital is very simple. Yet there are many problems in its calculation. Its computation requires: Assignment of Weights: First of all, weights have to be assigned to each source of capital for calculating the weighted average cost of capital. Weight can be either ‘book value weight’ or ‘market value weight’. Book value weights are the relative proportion of various sources of capital to the total capital structure of a firm. The book value weight can be easily calculated by taking the relevant information from the capital structure as given in the balance sheet of the firm. Market value weights may be calculated on the basic on the market value of different sources of capital i.e. the proportion of each source at its market value. In order to calculate the market value weights, the firm has to find out the current market price of each security in each category. Theoretically, the use of market value weights for calculating the weighted average cost of capital is more appealing due to the following reasons: The market values of securities are closely approximate to the actual amount to be received from the proceeds of such securities. The cost of each specific source of finance is calculated according to the prevailing market price. But, the assignment of the weight on the basic of market value is operationally inconvenient as the market value of securities may frequently fluctuate. Moreover, sometimes, no market value is available for the particular type of security, specially in case of retained earnings can indirectly be estimated by Gitman’s method. According to him, retained earnings are treated as equity capital for calculating cost of specific sources of funds. The market value of equity share may be considered as the combined market value of both equity shares and retained earnings or individual market value (equity shares and retained earnings) may also be determined by allocating each of percentage share of the total market value to their respective percentage share of the total values. For example:- the capital structure of a company consists of 40,000 equity shares of Rs. 10 each ad retained earning of Rs. 1,00,000. if the market price of company’s equity share is Rs. 18, than total market value of equity shares and retained earnings would be Rs. 7,20,000 (40,000* 18) which can be allocated between equity capital and retained earnings as follows- Market Value of Equity Capital = 7,20,000*4,00,000/5,00,000 =Rs. 5,76,000. Market Value of Retained Earnings= 7,20,000*1,00,000/5,00,000 =Rs. 1,44,000. Computation of Specific Cost of Each Source : After assigning the weight; specific costs of each source of capital, as explained earlier, are to be calculated. In financial decisions, all costs are ‘after tax’ costs. Therefore, if any source has ‘before tax’ cost, it has to be converted in to ‘after tax’ cost. Computation of Weighted Cost of Capital : After ascertaining the weights and cost of each source of capital, the weighted average cost is calculated by multiplying the cost of each source by its appropriate weights and weighted cost of all the sources is added. This total of weighted costs is the weighted average cost of capital. The following formula may be used for this purpose : Kw = ∑XW/∑W Here; Kw = Weighted average cost of capital X = After tax cost of different sources of capital W = Weights assigned to a particular source of capital Example : Following information is available with regard to the capital structure of ABC Limited : Sources of Funds Amount(Rs.) After tax cost of Capital E.S. Capital3,50,000 .12 Retained Earning2,00,000 .10 P.S. Capital1,50,000 .13 Debentures3,00,000 .09 You are required to calculate the weighted average cost of capital. Computation of Weighted Average Cost of Capital Source(1)Amount Rs.(2)Weights(3)After tax Cost(4)Weighted Cost(5)= (3) * (4)E.S. Capital3,50,000.35.12.0420Retained Earning2,00,000.20.10.0200P.S. Capital1,50,000.10.13.0195Debentures3,00,000.09.09.0270Total10,00,0001.00.1085Weighted Average Cost of Capital (WACC) .10850 or 10.85% CALCULATION OF COST OF CAPITAL OF SHREE CEMENT LTD. Cost of Debt Capital: For the year 2009-10: Total Debt Capital = Term loan from Banks + Debts = 131570.37+30000 = 161570.37 lacs Total Interest Paid = 13065.36 lacs Tax Rate = 30% Interest Expense of the company Kd (before tax) = -------------------------------------------- X 100 Total Debt Kd (before tax) = 13065.36 ................................................. X 100 161570.37 =8.08 % Kd (after tax) =Interest Rate Before Tax – Tax Rate ( 30%.) Kd (after tax) =8.08% - 30%= 5.65 % For the year 2008-09: Total Debt Capital = Term loan from Banks + Debts = 105716.94+000 = 105716.94 lacs Total Interest Paid = 9355.94 Tax Rate = 30% Interest Expense of the company Kd (before tax) = -------------------------------------------- X 100 Total Debt 9355.94 Kd (before tax) = ---------------------- X 100 105716.94 = 8.85 % Kd (after tax) =Interest Rate Before Tax – Tax Rate ( 30%.) Kd (after tax) =8.85% - 30%= 6.20 % For the year 2007-08 Total Debt Capital = Term loan from Banks + Debts = 112573.18+800 = 113373.18 lacs Total Interest Paid = 9636.72 lacs Tax Rate = 30% 9636.72 Kd (before tax) = ---------------------- X 100 113373.18 =8.50% Kd (after tax) =8.50% - 30% = 5.95% For the year 2006-07 Total Debt Capital = Term loan from Banks + Debts = 83427.02+1400= 84827.02lacs Total Interest Paid = 6573.02lacs Tax Rate = 30% 6573.02 Kd (before tax) = ---------------------- X 100 84827.02 =7.25% Kd (after tax) = 7.25% - 30% = 5.42% COMPARATIVE CALCULATION OF Kd FOR FOUR YEAR Particular2009-102008-092007-082006-07Total Debts (Term loan from Bank+ Debts)131570.37+30000=161570.37105716.94+000=105716.94112573.18+800=113373.1883427.02+1400=84824.02Total Interest paid 13065.369355.949636.726573.86Interest Rate (Before Tax)8.08%8.85%8.50%7.75%Interest Rate (After Tax)= Interest Rate Before Tax – Tax Rate 30%.5.65%6.20%5.95%5.42% COST OF EQUITY CAPITAL: EQUITY SHARE CAPITAL Particular2009-102008-092007-082006-07No. of Shares (In lacs)348.37348.37348.37348.73DPS Given131086Market Price (at the end of March)2300.05710.501079.40921.85Earning per equity share of rs. 10(in Rs.)194.07165.9174.7450.81Final dividend on equity share (in lacs)4528.843483.722786.98Not givenMarket Capitalisation (in Lacs)801268.41247516.88376033.01321146.96 Dividend yield plus growth in dividend method:- Ke = DPSP*100 + G Dps = Current cash dividend per share = 13Rs. Mp = Current market price per share = 2300.05 Rs. G = Growth rate = 10% 13 Ke = -------------------- X 100+ 10% 2300.05 =10.56% Earning yield method:- Ke= EPSp*100 Eps = earning per share = 194.07 Rs. Mp = Market prise = 2300.05 Rs. 194.07 Ke = -------------------- X 100 2300.05 =8.43% Dividend per share method:- Ke = Proposed final dividend on Equity Share / No. of Equity Share Final dividend on Equity Share = 4528.84 Lacs No. of Equity Share = 348.37 Lacs 4528.84 Ke = -------------------- = 13 348.37 COST OF EQUITY SHARE CAPITAL (KE) Particular2008-09Dividend Per share method 13Earning Yeild Method 8.43Dividend yield plus growth method10.56 WEIGHTED AVERAGE COST OF CAPITAL (WACC) WACC = (We * Ke) + (Wd * Kd) Where………...We = Weight of equity Wd = Weight of Debt. Ke = Cost of Equity Share capital Kd = Cost of Debt. capital WACC = ( 0.8322 * 10.56) +( 0.1678 *05.65 )= 9.74% WACC OF SHREE CEMENT LIMITED (2008-2009) Source(1)Amount Rs.(2)Weights(3)After tax Cost(4)Weighted Cost(5)= (3) * (4)E.S. Capital801268.41.832210.568.79Debentures161570.37.1678 05.65 0.95Total962838.781.009.74Weighted Average Cost of Capital (WACC) 9.74% MERITS OF WEIGHTED AVERAGE COST OF CAPITAL The WACC is widely used approach in determining the required return on a firm’s investments. It offers a number of advantages including the followings- Straight forward and logical : It is the straightforward and logical approach to a difficult problem. It depicts the overall cost of capital as the some of the cost of the individual components of the capital structure. It employs a direct and reasonable methodology and is easily calculated and understood. Responsiveness to Changing Condition : Since, it is based upon individual debt and equity components, the weighted average cost of capital reflects each element in the capital structure. Small changes in the capital structure of the firm will be noted by small changes in overall cost of capital of the firm. Accurate when Profits are Normal : During the period of normal profits, the weighted average cost of capital is more accurate as a cut-off rate in selecting the capital budgeting proposals. It is because the weighted average cost recognises the relatively low debt cost and the need to continue to achieve the higher return on the equity financed assets. Ideal Creation for Capital Expenditure Proposals : With the help of weighted average cost of capital, the finance manager decides the cut-off rate for taking decisions relating to capital expenditure proposals. This cut-off rate determines the miimum limit for accepting an investment proposal. If an investment proposal is accepted below this limit, the firm incur a loss. Therefore, this cut-off rate is always decided above the weighted average cost of capital. LIMITATION OF WEIGHTED AVERAGE COST OF CAPITAL The weighted Average cost approach also has some weaknesses, important among them are as follows : Unsuitable in case of Excessive Low-cost Debts : Short term loan can represent an important sources of fund for firm experiencing financial difficulties. When a firm relies on Zero cost (in the form of payables) or low cost short term debt, the inclusion of such debts in the calculation of cost of capital will result in a low WACC. If the firm accepts low-return projects on the basic of this low WACC, the firm will be in a high financing risk. Unsuitable in Case of Low Profits : If a firm is experiencing a period of low profits, not earning profit as compared to other firms in the industry, WACC will be inaccurate and of limited value. Difficulty in Assigning Weights : The main difficulty in calculating the WACC is to assign weight to different components of capital structure. Normally, there are two type of weights- (i) book value weights and (ii) market value weight. These two type of weights give different results. Hence, the problem is which type of weight should be assigned. Though, market value is more appropriate than book value, but the market value of each component of capital of a company is not readily available. When the securities of the company are unlisted, the problem becomes more intricate. Selection of Capital Structure : The selection of capital structure to be used for determining the WACC is also not easy job. Three types of capital structure are there i.e. current capital structure, marginal capital structure and optimal capital structure. Which of these capital structure be selected. Generally, current capital structure is regarded as the optimal structure, but it is not always correct. Research Methodology The research methodology was subdivided and performed in the following method- Analyzing relevant figures and date for the last financial years. Analyzing the future outlook of the companies and its expansion plan. Study of the complete process of the uses of Cost of Capital using literature and discussing with the organizational guide. Connection of the data regarding the use of Cost of Capital and financial policies for Shree Cement. On the basis of the data collected, necessary suggestions regarding the financial structure are given. Preparing a questionnaire for the customers to know the image of the company in the market. On the basis of the questionnaire necessary suggestion are given. DATA SOURCNG While performing this project both Primary as well as Secondary Data sources were use. Primary Data:- Major source of data for the project were the pass years’ financial statement and information gather from my guide questionnaire also played a vital role. Secondary Data:- It included information provided by the company workers. I adopted a holistic approach and toiled to collect the information about the company other than Shree Cement through secondary sources such as internet, newspaper, magazines, research papers , online data basis ect.. questionnaire The information provided by you (customer) is for the research work and will be kept confidential. With your help we will be able to improve customer service level. 1.Name:- 2. Occupation: - 3. Income Group : - a. Up to Rs.50,000 [ ] b. Rs. 50,000-1, 50,000 [ ] c. Rs. 1,50,000-3,00,000 [ ] d. Above Rs. 3, 00,000 [ ] 4. Which cement brand do you prefer? a. Shree Cement [ ] b. Ambuja cement[ ]c.ACC Ltd. [ ] d. J.K. Laxmi Cement [ ] e. Birla White Cement [ ] 5. What influenced you to buy this particular brand? a. Durability [ ] b. Sustainability [ ]c. Low price [ ] d. Strength ness [ ] e. Advertising [ ] 6. What is your opinion about the quality of Shree Cement? a. Excellent [ ] b.Very good [ ]c.Good [ ] d. Average [ ] e. Poor [ ] 7. How would you rank Shree Cement the basis of its brand image? a. Excellent [ ] b.Very good [ ]c.Good [ ] d. Average [ ] e. Poor [ ] 8. What is the status of availability of the grand in you area? a. Always [ ] b. Mostly [ ]c.Sometimes [ ] d. Rarely [ ] e. Never [ ] 9. What promotional tools should company adopt to promote their product? a. Banners [ ] b. News Paper [ ]c. Holdings [ ] d. Wall painting [ ] e. Promotional offers [ ] 10. Brief recommends your views for the improvement of the brand? Ans: - ………………………………………………………………………………………………………………………………………………………………………………………………………………

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