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www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
COST OF CAPITAL IN FINANCIAL MANAGEMENT
AFTERSCHO☺OL – DEVELOPING CHANGE MAKERS
CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME –
World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship
OPEN FOR ALL FREE FOR ALL
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
COST OF CAPITAL IN FINANCIAL MANAGEMENT
Dr. T.K. Jain.
AFTERSCHO☺OLCentre for social entrepreneurship
Bikaner M: 9414430763
www.afterschool.tk, www.afterschoool.tk
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Jitu Global Inc. issues 10% preference shares at a discount of 10%. What is the cost of capital?
• Let us assume that the face value is Rs. 100. Dividend will be 10.
• Cash realised is 100 – 10 = 90
• Ke (cost of capital) 10 / 90 =11%
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Goti Global Inc. issues 20% preference shares at a premium of
5%. What is the cost of capital?
• Let us assume that the face value is Rs. 100. Dividend will be 20
• Cash realised is 100 +5 = 105
• Ke (cost of capital) 20/105 =19%
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Goti Global Inc. issues 20% preference shares at a premium of
5% for 10 years. He will redeem these at 10% premium. What is the
cost of capital?
• Let us assume that face value is 100.
• Dividend = 20
• Redemption value 110, realised value 105
• Ke = (20 + ((110 – 105) / 10)) / (average of 110 and 105)
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
solution
• Ke = (20 + ((110 – 105) / 10)) / (average of 110 and 105)
• (20 + .5)/107.5
• =19% answer.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Risk free rate of return = 10%, Market Portfolio rate of return for software companies = 15%. Kap
Softwares has beta of 1.75. What is the cost of capital of Kap
Softwares?
• Formula = Rf (risk free rate) + beta (Market rate – Risk free rate)
• = .10 + 1.75 (.15-.10)
• =18.75% answer.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Dhawal World Inc. has growth rate of 15%. Current market price of his shares are 5000. Last year he gave
Rs. 10 as dividend. What is the cost of retained earnings of this
company as per DCF approach?
• Formulae (Projected dividend of next year)/ (current market price) + growth rate
• =(10*1.15) / 5000 + .15 = 15.23% answer.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Vinod & Pankaj Inc. have beta of 1.1. Market rate is 14%. Risk free
rate is 8%. What is the cost of capital of this company as per
CAPM? • Formula = Rf (risk free rate) + beta
(Market rate – Risk free rate)
• .08 + 1.1 (.14 - .08)
• =14.6 % answer.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Sarika Global Inc. has 15% debt of $20 tr.18% Preference shares of
$10 Tr. And Equity of $ 90 Tr. Cost of equity is 20%. Tax rate is 40%.
What is the overall cost of capital?
• =(.15*(1-.4)*(20/120) )+(.18*(10/120)+(.2*(90/120))
• =18% answer.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Ajay Ltd. Has a plan to raise debt. He will get Rs. 100 Crore loan @ 12%. He will pay 40% tax to the
government of India? What will be his cost of debt?
• = .12 (1-.4)
• =7.20% only
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Goutam Buchha has following options: (suggest which is the best)
Tax rate is 50% • Equity = $ 250 tr.@
20%• Debt = $ 50 Tr. @
12%• Preference = $ 30 Tr.
@ 15%
• Equity = $ 50 tr.@ 25%
• Debt = $ 200 Tr. @ 15%
• Preference = $ 80 Tr. @ 18%
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Solution
• 1st option:
• (.20*250/330) + .12 * (1-.5)*(50/330)+.15*(30/330) = 17.42%
• 2nd option:
• (.25*50/330) + .15 * (1-.5)*(200/330)+.18*(80/330) = 12.69%
• 2nd option is much better (but risky also).
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
ABOUT AFTERSCHO☺OL
Afterschoool conducts three year integrated PGPSE (after class 12th along with IAS / CA / CS) and 18 month PGPSE (Post Graduate Programme in Social Entrepreneurship) along with preparation for CS / CFP / CFA /CMA / FRM. This course is also available online also. It also conducts workshops on social entrepreneurship in schools and colleges all over India – start social entrepreneurship club in your institution today with the help from afterschoool and help us in developing society.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Why such a programme?
• To promote people to take up entrepreneurship and help develop the society
• To enable people to take up franchising and other such options to start a business / social development project
• To enable people to take up social development as their mission
• To enable people to promote spirituality and positive thinking in the world
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Who are our supporters?
• Afterschoolians, our past beneficiaries, entrepreneurs and social entrepreneurs are supporting us.
• You can also support us – not necessarily by money – but by being promotor of our concept and our ideas.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
About AFTERSCHO☺OL PGPSE – the best programme for developing great
entrepreneurs• Most flexible, adaptive but rigorous programme• Available in distance learning mode• Case study focused- latest cases • Industry oriented practical curriculum• Designed to make you entrepreneurs – not just
an employee• Option to take up part time job – so earn while
you learn • The only absolutely free course on internet
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Workshops from AFTERSCHO☺OL
• IIF, Delhi• CIPS, Jaipur• ICSI Hyderabad Branch• Gyan Vihar, Jaipur• Apex Institute of Management, Jaipur• Aravali Institute of Management, Jodhpur• Xavier Institute of Management, Bhubaneshwar • Pacific Institute, Udaipur• Engineering College, Hyderabad
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Flexible Specialisations:
• Spiritualising business and society• Rural development and transformation• HRD and Education, Social Development• NGO and voluntary work• Investment analysis,microfinance and inclusion • Retail sector, BPO, KPO• Accounting & Information system (with CA / CS /CMA)• Hospital management and Health care• Hospitality sector and culture and heritage• Other sectors of high growth, high technology and social
relevance
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Salient features:• The only programme of its kind (in the whole world)• No publicity and low profile course• For those who want to achieve success in life – not just a
degree• Flexible – you may stay for a month and continue the rest of
the education by distance mode. / you may attend weekend classes
• Scholarships for those from poor economic background• Latest and constantly changing curriculum – keeping pace
with the time• Placement for those who are interested• Admissions open throughout the year • Latest and most advanced technologies, books and study
material
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Components • Pedagogy curriculum and approach based on IIM Ahmedabad and ISB
Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad)• Meditation, spiritualisation, and self development • EsGotitial softwares for business• Business plan, Research projects• Participation in conferences / seminars• Workshops on leadership, team building etc. • Written submissions of research projects/articles / papers• Interview of entrepreneurs, writing biographies of entrepreneurs• Editing of journals / newsletters• Consultancy / research projects • Assignments, communication skill workshops• Participation in conferences and seminars• Group discussions, mock interviews, self development diaryng • Mind Power Training & writing workshop (by Dr. T.K.Jain)
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Pedagogy
• Case analysis,• Articles from Harvard Business Review • Quiz, seminars, workshops, games, • Visits to entrepreneurs and industrial visits• PreGotitations, Latest audio-visuals• Group discussions and group projects• Periodic self assessment• Mentoring and counselling• Study exchange programme (with institutions out of
India)• Rural development / Social welfare projects
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Branches
• AFTERSCHO☺OL will shortly open its branches in important cities in India including Delhi, Kota, Mumbai, Gurgaon and other important cities. Afterschooolians will be responsible for managing and developing these branches – and for promoting social entrepreneurs.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Case Studies
• We want to write case studies on social entrepreneurs, first generation entrepreneurs, ethical entrepreneurs. Please help us in this process. Help us to be in touch with entrepreneurs, so that we may develop entrepreneurs.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Basic values at AFTERSCHO☺OL
• Share to learn more• Interact to develop yourself• Fear is your worst enemy• Make mistakes to learn • Study & discuss in a group• Criticism is the healthy route to mutual support
and help • Ask fundamental questions : why, when, how &
where?• Embrace change – and compete with yourself
only
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
www.afterschoool.tk social entrepreneurship for better
society