Course : Commerce
Paper : Fundamentals of Financial Management
Lesson : Cost of Capital
Lesson Developer : Dr. Vinay Kumar
Department/College : Commerce Department,
Aryabhatta College,
University of Delhi
Reviewer’s Name : Dr. Gurmeet Kaur
Fellow in Commerce, ILLL
Associate Professor,
Daulat Ram College,
University of Delhi
1. Learning Outcomes:
After studying this chapter the students should be able to:
Understand the concept of cost of capital;
Know different types of cost;
Calculate cost of different sources of finance;
Explain the factors affecting cost of capital;
Calculate weighted average cost of capital of the company;
Understand requirement of cost of capital.
Source: https://hbr.org/2015/04/a-refresher-on-cost-of-capital
Performance Appraisal:
Cost of capital can be used as a tool to measure the performance of top management.
Performance of the management can be judged by comparing the actual profitability of
the project undertaken by the management with cost of capital of the firm.
Source: http://accountlearning.blogspot.in/2011/07/significance-and-
components-of-cost-of.html
Ko= ke*we+kd*wd+kp*wp+ke*we
Where w is the weight assigned to each source of finance.
Numerical 2:
XYZ Ltd. Issues 15% Debentures of face value of Rs. 100 each at floatation cost of Rs. 5
per Debenture. Find out the cost of capital if the debenture is to be redeemed in 5
annual instalments of Rs.20 each starting from the end of year 1. The tax rate may be
taken at 30%.
Solution: In the given situation, the net proceeds i.e., Bo is Rs. 100- 5 = Rs.95. As the
debenture is to be amortised in 5 instalments of Rs. 20 per year, the interest at 15% will
be payable only on the reduced balances as follows:
These after-tax cash flows may be discounted at an appropriate rate , say, 12 % and
13%, to be made equal to Rs.95 i.e.,
95= 30.5/(1+ Kd)1 + 28.4/(1+ Kd)2 + 26.3/(1+ Kd)3+ 24.3/(1+ Kd)4 + 30.5/(1+ Kd)5
At kd = 12%, the right hand side of the equation gives a value of Rs.96.518
At kd = 13%, the right hand side of the equation gives a value of Rs.94.391
By interpolation between 12% and 13%, value of kd comes to 12.71%.
Conclusion: The cost of capital of debt kd increases as the net proceeds from the debt
issue decreases because the investors have paid less to get the fixed interest payment
and the principal repayment. By paying Rs.95 only and getting Rs.100, the investors
have a capital gain which accrues to them proportionately every year. The rate of
interest on the debenture is 15% and therefore the after-tax cost of debt should be
10.5% only. However, due to net proceeds of Rs.95 only, the cost of debt (after-tax)
comes to 12.71%.
(b) Short Cut Method:
Short cut method is an approximation of cost of debt. This is the simplest way to
calculate cost of capital. But this method cannot be applied if repayment of principal
amount is in instalment. It means this method is used only when entire principal is
repaid at the maturity. Cost of debt through short cut method can be obtained as
follows:
I(1-t)+ (RV-NP)/N
Kd = ----------------------
(RV-NP)/2
Where RV= Redeemable value of the debenture (debenture can be redeemed at
premium. If debenture is redeemed at premium then its redeemable value will be higher
than face value.)
NP= Net Proceeds from Issue of Debentures (Face Value-Discount on issue- underwriting
Commission or Flotation costs + Premium on Issue)
I= Interest Payment
t = Tax Rate
N= Number of Years of Debt
Numerical 3:
A company has issued 10% debenture of Rs. 100 each at 15% premium redeemable at
par after 10 years. The flotation cost is estimated to be 2%. Calculate cost of debentures
given the corporate tax rate is 40%.
Solution:
Cost of Debenture
Net Proceeds= Face Value +Premium on Issue- Flotation Costs
NP = (100+15)-(1-.02) =Rs. 112.7
I(1-t)+ (RV-NP)/N
Kd = ----------------------
(RV-NP)/2
= Rs. 10(1-.4) + (100-112.7)/10
-----------------------------------
(100+112.7)/2
= 4.73/106.35 = 4.44%
5.2: Cost of Preference Shares:
Preference shares enjoy the advantages of both debt and equity capital. As the name
suggest these share holder are paid first while declaring the dividend. There is a fixed
rate of preference dividend and the dividend gets accumulated in case company is not
able to pay in a particular year. But Preference share holder cannot take any legal action
against the company for non payment of dividend. Although there is no legal binding on
firm to pay dividend to preference share, but nothing can be paid to equity shareholder
until payment is made to preference shares and their dues are cleared. Moreover if
dividend on preference shares remains in arrear than preference shareholder gets the
right to participate in the management. Though the failure to pay dividend to preference
shares does not result in bankruptcy it may result in damage to credit standing of the
company in the market. Company will find it difficult to raise fresh fund through issue of
shares. Also market value of the firm will be adversely affected. The dividend paid to
preference share is not tax deductible as it is not an expense. Preference dividend is
always paid out of profit.
There are two types of preference share
(a) Irredeemable Preference Shares
(b) Redeemable Preference Shares
Numerical 5:
Sanchit Ltd. issues 15% Preference Shares of the face value of Rs.1000 each at a
flotation cost of 4%. Find the cost of capital of Preference Share if
where n is taken as 10
PD = 150
Pn = 1100
At kp = 16 %, the right hand side of the equation may be written as:
= 150 (PVAF (16%,10)) + 1100 (PVAF (16%,10))
Conclusion: The cost of capital is same at 15.63% as it was when the preference shares
were treated as irredeemable. However, if the preference shares are redeemable at par
i.e., Rs.1000, the kp comes to 15.83%. This increase in cost of capital from 15.63% to
15.83% arises because of premium of Rs. 40 payable at the time of redemption. This
premium is a gain to shareholders but reflect a cost to the company as indicated by the
increase in cost of capital.
(b)Short Cut Method:
Kp = PD+ (RV-NP)/N
-----------------------
(RV-NP)/2
Where
RV= Redeemable value of the Preference (Preference can be redeemed at premium. If
Preference is redeemed at premium then its redeemable value will be higher than
face value.)
NP= Net proceeds from issue of Preference shares (Face value-discount on issue-
underwriting commission or flotation costs+ premium on issue)
PD= Preference Dividend
N= Number of years of debt
Numerical 6:
Y Ltd. Issue preference shares of face value of Rs.100 each carrying 15% dividend and
company realized Rs. 95 per share. These shares are repayable after 5 year at 10%
premium. Calculate cost of preference shares if the tax rate applicable to the company is
40%. Use short cut method.
Solution:
Cost of preference share using short cut method
Kp = PD+ (RV-NP)/N
-------------------
(RV-NP)/2
= Rs. 15+(110-95)/5
------------------------ = 18/102.5 =17.56%
(110+95)/2
5.3: Cost of Equity Shares:
Generally it is argued whether equity share involve any cost or not as there is not legal
binding to pay any dividend to the equity shareholders even for years. There is no
specific rate of dividend like preference share. But it is wrong to believe that equity
shares are free of any cost. Equity shares involve an opportunity cost. The equity
shareholder supplies the fund in expectation of dividend and capital appreciation of their
share price in the market. Therefore the cost of equity (ke) can be defined as minimum
rate of return that a company must earn to leave the market price of shares unchanged.
Thus it is the rate which equates the present value of expected stream of dividend and
net sale proceed realised when share is sold with the current market value of share.
In practice it is a difficult task to measure the cost of capital. The cost of equity can be
calculated with the following equation:
MP0= D1/(1+ke)1+ D2/(1+ke)2...............Dn/(1+ke)n+Pn/(1+ke)n
Where MP0= current market price of equity share
D= dividend payment for different year
Ke = D1/ MP
=Rs. 5/ 90
= 5.55%
(i) Market Price of the equity share can be obtained with the help of same formula as
follows:
Ke =D1/MP +g
MP = D1/Ke-g
= Rs. 2/ .08-.04
= Rs. 50
(d) Price Earning (P/E) Approach:
In this approach price of the equity share depends upon the earnings of the company
Earnings include both retained earnings and dividend paid to shareholders. Therefore
this approach assumes that investor capitalize stream of all future earnings of the firm to
calculate the price of the share. The cost of equity can be obtained in this approach
using the following formula
Ke= E/NP
Where Ke= Cost of Equity
E= Earnings per Share
NP= Net Proceeds from Equity Share
Alternatively
Ke = EPS/ MP0
or = 1
-------------
P/E ratio
Where E= total earning available to equity shareholder
MPo = current market value of equity share
Note: In case of new equity issue net proceeds from the equity share will
replace current market value per share. So the formula will be
Numerical 10:
Following information is provided for X Ltd.
Current market price= Rs.100
Current earning = Rs. 40,00,000
Shares outstanding =2,00,000
Additional fund needed= Rs. 6,00,000
Flotation cost = Rs. 10 per share or 10%
The X Ltd can sell share at a discount of 10%. Find out the cost of equity assuming that
company’s earnings are stable.
Solution:
As stated above the cost of equity can be obtained with the help of following formula
Ke = EPS/NP
EPS= Total earnings / number of equity shares outstanding
=40,00,000/ 2,00,000
= Rs. 20 per share
NP = Net proceeds from issue of equity shares
= 100 – discount - flotation cost
Similarly if a firm is using more than two sources of fund then equation can be extended
in similar fashion.
Assignment of the Weights:
As discussed in the previous part, weighted average cost of capital or overall cost of
capital can be obtained by addition of the product of individual cost of each component
with their respective weights. Therefore we need weight of each source of finance in
overall capital structure in order to calculate WACC. There are four types of weights
which can be used. These are:
1) Historical Weight
Historical weights can be of two types;
i) Book Value Weight; ii) Market Value Weight
2) Target Weight
3) Marginal Weights
Book Value Weights:
Book value means the amount recorded in the books of accounts of the firm. So book
value weight of individual source of finance is the respective proportion of source in
overall capitalization. For instance; book value of equity share can be obtained as:
No. of Equity Share* Face Value or Equity Share Recorded in the Books of
Account
Book value of preference share and debt can also be obtained in the similar fashion.
Advantages of Book Value Weights:
i) Easy to calculate and use as these are available from the records.
ii) WACC based on book value weight provide more stable cost of capital as book value
weights doesn’t change on day today basis.
iii) Stable cost of capital can be used for accepting or rejecting more than one project.
Market Value weight:
Market value of different source of finance especially Equity Shares can be obtained by
multiplying market price of equity share with total number of equity shares of the firm.
For instance if total number of equity share is 100000 shares and market price of one
equity share is Rs. 12, then total market value of equity shares will be 100000*12= Rs.
12,00,000. Market value of equity share may be different than the book value of the
firm. One should remember here is that the market value of debt will remain equal to
the book value of debt as the debt or loan is not traded on stock market.
There are certain advantages of using market value weight in place of book value
weights. These advantages are:
i) WACC based on MV weight approximate the current or actual cost of capital
ii) Banks and financial institutions lend their money on the basis of actual cost of
capital of the projects.
iii) Since projects are taken at current cost so WACC based on market weight will be
more suitable while accepting or rejecting a proposal.
Though cost of capital based on market weights presents true cost of capital but it has
some limitations too.
i) The market value of the shares fluctuate on day to day basis, so it is not possible
to calculate stable cost of capital which can be used at two different point of time.
ii) Market value of share may not represent true value of share at a time as market
value of share is influenced by many factors viz. bearish and bullish conditions ,
insider trading , slow done in the market, etc. Therefore cost based on market
value will be of no use in financial management.
iii) Market value of some securities may not be easily available all the times.
So, the use of market value weight or book value weight depends on various factors
such as philosophy of the management, timing of the project, conditions of stock
markets, etc.
2. Marginal Weights:
Marginal weights are used when a firm is raising the finance for a particular project. So,
the marginal weights mean the proportion in which the firm wants to raise additional
fund from different sources. In other word, the proportions in which additional funds are
raised to finance the investment proposal are known as marginal weights. The WACC
calculated on the basis of these weights are also called incremental cost of capital.
Though marginal weights seem to be theoretically sound as we are comparing additional
cost with the additional revenue from the project but there are some shortcomings of the
marginal weight system. Marginal weights are not suitable if the company is planning for
long term investment decisions. A particular source may be cheaper in present scenario
but may prove to be wrong in the future.
Target Weights:
Target weight present the proportion in which a company intend to finance it long term
financial capital requirements. Thus target weight means the proportion of debt and
equity in the long term capital structure of the company. Though in the short run the
concept of optimal capital structure may be irrelevant but in the long run every firm
strive for the minimum cost through optimal capital structure.. If company is already
working under optimal capital structure then target weights will be equal to historical
weights of the company.
Calculation of Weighted Average Cost of Capital:
Numerical 12:
The following information is given in the Balance Sheet of a company;
Equity Share Capital (Face Value of Rs. 10) Rs.8,00,000
Preference Share Capital (Face Value of 100 each) Rs. 4,00,000
10% Debentures (Face Value of Rs. 100 each) Rs. 8,00,000
...............................
Total Rs. 20,00,000
Other Information;
Equity shares are currently selling at Rs. 20 per share. The company paid a dividend of
Rs. 2 per share last year. The dividend is expected to grow @ 5% p.a. The preference
shares and debentures are traded in the market at Rs. 90 and 70 per share respectively.
The tax rate applicable to the company is 40%.
Find out weighted average cost of capital using:
(i) Book Value Weight
(ii) Market Value Weight
Solution:
Calculation of specific cost of capital of each source
Kd = I(1-t)/MP
= Rs. 10(1-.4)/70 = 8.57%
Kp = PD/MP
= Rs. 15/90
= 16.67%
Ke = D1/MP +g
= Rs. 2(1+5%)/ 20 +5%
= 10.5%+5%
= 15.5%
(i) Calculation of WACC Based on Book Value Weights:
Source of Capital Book Weight (w) Cost of W×COC
Value(Rs.) Capital(k)
(Total of book value/
respective book or (COC)
value)
Equity Share 8,00,000 0.4 .155 0.062
Capital
15% Preference 4,00,000 0.2 .1667 0.0333
Share Capital
10% Debentures 8,00,000 0.4 .857 0.3428
Total 1.0 .1295
So, WACC is (.1295×100) =12.95%
(ii) Calculation of WACC based on Book Value Weights:
Source of Capital Market Weight (w) Cost of W×COC
Value(Rs.) Capital(k)
(Total of Book Value/
or (COC)
Respective Book Value)
Equity Share 16,00,000 0.635 15.5 9.84
Capital (Rs.20
×8,000 Shares)
15% Preference 3,60,000 0.142 16.67 2.36
Share Capital
(Rs. 90 × 4,000
Share)
10% Debentures 5,60,000 0.222 8.57 1.902
(Rs. 70× 8,000
Shares)
Total 25,20,000 1.0 14.10
So, WACC is 14.10%.
Numerical 13:
The following information is available from the balance sheet of ABC Ltd.
Equity share capital (Rs. 10 per share) Rs. 10,00,000
Retained earnings Rs. 2,50,000
Preference shares (Rs. 100 per share) Rs. 5,00,000
6 -.52
= --------- =5.20%
105.2
Cost of Preference Shares:
Kp= PD+(RV-NP)/N Rs.15+(115-95)/15
-----------------------= --------------------
(RV+NP)/2 (115+95)/2
16.333
= -------- = 15.55%
105
Cost of Equity Capital:
Ke = D1/NP + g
=Rs. 3/23 + 5%
=18.04%
Cost of Retained Earnings = D1/NP + g
= Rs. 2/ 25 + 5%
= 13%
(Flotation cost is ignored while calculating retained earnings)
taking capacity and other factors. Thus, the risk and return analysis is of utmost
importance for individual and firms both. The risk and return of various securities can be
shown with the help of a diagram:
Figure 1: Risk Return Trade-off
As it can be seen from the above figure, government securities provides the least return
because it involve least possible risk or sometimes called risk free securities. If investor
is ready to bear additional risk he will be expecting higher return or risk premium for the
additional risk taken. Since equity shareholders are paid at last after paying to lender,
government and preference shareholder, thus the equity share capital appear on the top
of the list implying the most risky capital. As equity shareholders are ready to bear the
highest risk they are compensated for the same as the return is highest in case of equity
capital. Risk and return of other securities can also be seen in the diagram.
Source: https://www.extension.iastate.edu/agdm/wholefarm/html/c5-92.html
3. Business Risk: It is related to the operating profits of the firms with regards to sales
revenue. This is firm specific risk. Every project has its bearing on the business risk of a
firm. If the firm choose to accept risky projects, then overall risk of the firm will
increase. It will in turn affect future cash inflows of the firm.
4. Other Factors: Other factors that affect the cost of capital is the liquidity and
marketability of the investment. Investors would assign less risk premium for highly
liquid and marketable securities and investments than the less marketable securities.
Summary:
The term cost of capital means the cost of the funds being raised by the firm. It
should not be confused with cost in raising the fund.
Cost of capital is the concept of vital importance in the field of financing decision
making. Long term capital decisions are based on the cost of capital concept.
Cost of capital plays an important role in deciding the debt component in overall
capital structure of the firm. Debt is cheap source of fund as interest payment on
debt is tax deductible. But debt also increases the financial risk of the firm as it a
fixed charge on the earning of the firm.
Cost of capital can be used as a tool to measure the performance of top
management. Performance of the management can be judged by comparing the
actual profitability of the project undertaken by the management with cost of
capital of the firm.
Cost of capital can be used as a tool to measure the performance of top
management. Performance of the management can be judged by comparing the
actual profitability of the project undertaken by the management with cost of
capital of the firm.
Explicit cost of capital is the actual payment made by the firm to procure the
fund. Implicit cost of capital is the notional cost of capital. It is also called
opportunity cost of capital. Implicit cost of capital does not involve any outflow of
fund.
Specific cost is the cost of each source of fund used. For example if firm is using
three sources viz. equity shares, debentures and long term loan then respective
cost of these three will be termed as specific cost.
When the specific cost of each source of finance is combined together it becomes
combined cost or overall cost of capital. It is also known as composite cost or
weighted average cost of capital (WACC).
Every firm needs to measure its cost of capital accurately and carefully because
all long term investment decisions are taken on the basis of the cost of capital. If
it is not calculated properly than some projects which are not profitable may be
accepted thereby leading to loss of wealth of shareholders.
Debt is one of important component of the overall cost of the firm. It plays an
important role. The debt component can significantly increase or decrease the
overall cost of capital (ko) of the firm thereby deciding the fortune of the firm.
Preference shares enjoy the advantages of both debt and equity capital. As the
name suggest these share holder are paid first while declaring the dividend.
Equity shares involve an opportunity cost. The equity shareholder supplies the
fund in expectation of dividend and capital appreciation of their share price in the
market. Therefore the cost of equity (ke) can be defined as minimum rate of
return that a company must earn to leave the market price of shares unchanged.
Dividend plus growth model take into account the growth expected in the
dividends in the future.
In Price- Earnings approach price of the equity share depends upon the earnings
of the company Earnings include both retained earnings and dividend paid to
shareholders. Therefore this approach assumes that investor capitalize stream of
all future earnings of the firm to calculate the price of the share.
Weighted average cost of capital or overall cost of capital is the sum of product of
weight of each source of fund with their respective cost. The cost of capital of
each component should be calculated on an after tax basis.
Risk can be defined as variability in the return from expected return from that
security. It means higher the volatility or fluctuations in the return from the
security results in higher risk. If the security provides stable return over period of
time, it is known to be risk free or less risky security for instance interest on bank
deposits or interest on government securities.
The expected rate depends on various factors viz. risk characteristics of the firm,
risk perception of the investor and overall business environment.
Glossary:
Net Proceeds: Net proceeds mean the amount recovered at the time of sale of
any share or security. While calculating net proceeds adjustment has to be made
for discount and premium on issue of security as well as any flotation cost on
issue of securities.
Capital Budgeting Decisions: Capital budgeting decisions basically include
decisions regarding investment in the long term assets of the firm.
Maturity: It means any future date when any security is to be repaid.
Flotation Costs: Flotation costs include those costs which are incurred in issuing
the security. These costs may include underwriting commissions,
P/E: It is an abbreviation of price earning or price earnings ratio. It means
“amount of investment required to earn a rupees in the stock market.” It should
not be confused with EPS viz earning per share which mean amount earned on
one share.
Trading on Equity: Use of debt in capital structure to produce gain to the
residual owners i.e. equity shareholders.
Break Even Sales: It is the sales level where there is no profit and no loss to the
company. Thus, break even sales is the minimum amount of sales needed for
making a profit. If total sales are more than break even sales, it will result into
profit.
Operating Risk (Business Risk): Basel II defines operating risk as “risk of loss
resulting from inadequate or failed internal processes, people and systems or
from external events.” Thus business risk occurs because of failed internal
management or market conditions which are beyond company control.
Financial Risk: Financial risk is the risk caused because of existence of fixed
financial payments like interest on debentures or loans. It occurs because of debt
content in capital structure. Higher amount of debt content in capital structure
will results in higher financial risk.
Optimum Capital Structure: It is a capital structure or range of capital
structure which results in maximum earning to equity shareholders (EPS). It
results because of best mix of debt and equity capital in the overall capital
structure of the firm.
Exercises:
I. Objective Type Questions:
A. State whether the following statements are true or false.
a. Cost of debt is same as the cost of coupon interest rate.
b. Financial risk cannot be controlled by the firm.
c. Government securities involve the highest degree of risk.
d. Since company is not obliged to pay dividend, cost of equity is nil.
e. Retained earnings have no cost as these are internal funds.
f. WACC based on market value weight and book value weight will always be same.
g. Cost of debt requires tax adjustment.
B. Fill in the Blanks:
a. Combined or overall cost of all the sources of finance is also called ……………………
b. ……………………….is the minimum rate of return that should be earned on equity
capital.
c. Cost of retained earnings is ………………………… form of capital cost.
d. Cost of capital can be used as a ………………….for evaluating investment proposals.
e. Cost of debt capital can be obtained either on ………………………or after tax basis.
f. Short cut method of calculating cost of Preference Share capital can be used in
…………………….. Preference shares only.
Answers to Objective Type Questions:
A. a. False; b. falls; c. False; d. False; e. False; f. False; g. True.
B. a. WACC; b. Cost of equity capital; c. Implicit; d. Yardstick/ standard/cut off
rate; e. before-tax basis; f. Irredeemable.
II. Short Answer Type Questions:
a. Define cost of capital.
b. Explain implicit and explicit cost of capital
c. What are basic assumptions for measurement of cost of capital?
d. Write a short not on the following:
Target Weight
WACC
Cost of Retained Earnings
e. State different approaches to the computation of cost of equity capital.
III. Long Answer Type Questions:
a. What is WACC? Explain the procedure to calculate weighted average cost of capital
taking an example.
b. What are the advantages and disadvantage of using market value and book value
weight in calculation of WACC?
c. Differentiate between specific cost of capital and weighted average cost of capital
giving suitable examples.
d. Differentiate between marginal and target weights. Which one is better and why?
IV. Numerical Questions:
(a)A company has issued 10% debenture (irredeemable) for 2,00,000 Rs. The c ompany
faces 50% tax bracket. Find the cost of debt if the debt is issued at
I. Par
II. Discount of 20%
III. Premium of 10%
Answer (i)5%,(ii)6.25%,(iii)4.5%
(b)A company is planning to raise Rs. 10 lakh by the issue of 15% debentures of Rs. 100
each at 10% discount. The underwriting expense is expected to be 4%. Find out the
cost of debenture in each of the following cases:
I. If denatures are irredeemable
II. If debenture are redeemable at the end of 10 th year at 15% premium. Use
short cut method.
Assume tax rate of 50% in both cases.
Answer (i)8.68%, (ii) 10.28%
(c)A company issued 2000 8% preference shares of Rs. 100 each at a premium of 10%.
These shares are redeemable after 5 years at a premium of Rs. 10 per share. The cost
of issue is Rs. 2 per share. Find out the cost of preference share capital assuming tax
rate of 50%.
Answer Kp= 6.84%
(d)A company has declared a dividend of Rs 5 per share last year and the expected
growth rate in dividend is 8%. Find out the cost of equity capital if the price of the
shares of the company is (i) Rs. 40 and (ii) Rs.50
Answer(i)21.5%, (ii)18.8%
(e)ABC Ltd. Is planning to raise Rs. 1 lakh by issue of 10% preference share of Rs. 10
each at 10% discount. The underwriting expensed is expected to be 2%. Find out the
cost of preference share capital in each of the following cases:
I. If preference shares are irredeemable
II. If preference shares are redeemable at the end of 10 th year at 15%
premium.
References:
A. Work Cited and Suggested Readings:
1. Khan, M.Y., & Jain, P.K. (2011). Financial Management – Text, Problems and
Cases(Sixth edition):TMH
2. Chandra, Prasanna (2008). Financial Management – Theory and Practice(seventh
edition): TMH
3. Pandey, I.M.,(2010). Financial Management, Vikas Publications
4. Van Horne, James C., John Wachowicz, Fundamentals of Financial Management
,Pearson education.
5. Ross, Stephen A., Westerfield, Randolph and Jeffery Jaffe, Corporate Finance,TMH
6. Srivastava, Rajiv and Anil Mishra, Financial Management, Oxford University Press.
7. Singh, Preeti. Financial Management, Ane Books Pvt. Ltd.
8. Brealey, Richard A.,& Stewart C. Myers, Corporate Finance, Capital Investment
and Valuation, MGH
9. Singh, S. & Kaur, R., (2012) Basic Financial Management, Mayur Paperbacks.
B. Web Links:
1. Visit the link http://www.accountingtools.com/cost-of-capital to gain an
understanding on the concept of cost of capital.
2. Visit the link http://www.janhar.com/images/PDF/mar11.pdf to know the
significant of cost of capital in Investment decision making.
3. Visit the link http://web.utk.edu/~jwachowi/mcquiz/mc15.html to take a quiz on
the concept of cost of capital.
C. Video Links:
1. Visit the link http://www.investopedia.com/video/play/cost-capital/ to understand
the concept of cost of capital.
2. Visit the link https://www.youtube.com/watch?v=EQZGqlemTv0 to understand
the concept of cost of equity.
3. Visit the link https://www.youtube.com/watch?v=Vdq2jsZwgoo to gain an insight
into the concept of cost of preferred stock and debt.
4. https://www.youtube.com/watch?v=eqklo5TwW14
5. https://www.youtube.com/watch?v=JKJglPkAJ5o
6. https://www.youtube.com/watch?v=46oLXwClvkw