RESEARCH REPORT ON

Linkage between Information disclosure and cost of capital: Evidence from Dhaka Stock Exchange

SUPERVISED BY
Mostafa Saidur Rahim Khan Lecturer Department of Business Administration

Stamford University, Bangladesh PREPARED BY: Md. Ahsanuzzaman ID:00405311 Batch: 21st (A) Stamford University, Bangladesh
Date of Submission:

STAMFORD UNIVERSITY BANGLADESH

CERTIFICATE
This is to certify that the internship on Linkage between Information disclosure and cost of capital: Evidence from Dhaka Stock Exchange has been submitted for the award of the degree of Bachelor of Business Administration major in Finance from Stamford University Bangladesh, carried out by Md. Ahsanuzzaman of 21 st (A) batch bearing ID: BBA 00405311, under my supervision. To the best of my Knowledge and as per his declaration, any part of this report has not been submitted for any degree before.

He has been permitted to submit the Internship report.

---------------------------Mostafa Saidur Rahim Khan Lecturer Department of Business Administration Stamford University Bangladesh

DECLARATION
I, the student of Bachelor of Business Administration batch 21st (A) bearing ID:00405311 major in Finance from Stamford University Bangladesh, would like to declare here the declaration on An Internship report on Linkage between Information disclosure and cost of capital: Evidence from Dhaka Stock Exchange in Bangladesh which I have not submitted for any other degree before.

_______________________ BBA (Major in Finance) 21st (A)Batch ID: 00405311 Stamford University Bangladesh.

Letter of Submission
DateTo Mr. Mostafa Saidur Rahim Khan Lecturer Department of Business Administration Stamford University Bangladesh Sub: Submission of Internship Report Dear Sir, It is my great pleasure to submit you my internship report on the project title of Linkage between Information disclosure and cost of capital: Evidence from Dhaka Stock Exchange. I tried my best to complete this report properly for your kind consideration. I have confident that the internship program has increased both of my practical experience and theoretical knowledge to a great extent. I will be obliged to answer any query that may arise during the evaluation of this report. So, I fervent requesting and hope that you would be kind enough to accept my report and oblige thereby. Please call me if you require further clarification. Sincerely Yours, ______________________ (Md. Ahsanuzzaman) MBA (Major in Finance) 21st (A) Batch ID:00405311 Stamford University Bangladesh.

ACKNOWLEDGEMENT
In the process of preparing this report I received genuine cooperation from number of individuals whose names are not possible to mention in this report but I would remember them with my heart felt appreciation and gratitude. First of all, I am very much grateful to God whose gave blessings me to courage and ability to prepare this report. I am very much grateful to Mr. Mostafa Saidur Rahim Khan, Lecturer, Department of Business Administration, Stamford University Bangladesh, for guiding me to complete properly my internship program. I am also highly indebted to him for his scholarly and constructive suggestion which was of much assistance to prepare this report of . ____________________ (Md. Ahsanuzzaman) MBA (Major in Finance) 21st (A) Batch ID: 00405311 Stamford University Bangladesh.

PROLOGUE Thesis and research program is a scope for acquiring knowledge after successful completion of academic curriculum. Theoretical knowledge gets a complete shape only when it is applied in a practical field. Every Organization is concerned about the competence of its executive to cope with the technological advances in industrial and commercial development in the fast-moving global environment. The capability of the executive must be enhanced so as to make them efficient and effective in the execution of their duties and responsibilities. The principal emphasis on BBA program has been given on the operation of business organization mostly in private sector. The objective of this program is to prepare students in such a manner so as to equip them with Accounting and financial skills, competence in to depth knowledge of business Administration so as to enable them to meet any challenging situation and to work with the competence in the competitive business environment. I have accomplished my thesis and research program on portfolio management in the stock market. During my 03 (Three) months research program, Ive tried my best to get knowledge about the overall operations of stock market. This program is, in fact, is at endeavor to make the students familiar with the real business situation and to prepare themselves to match their theoretical knowledge with practical field.

EXECUTIVE SUMMARY As an integral part of BBA program I was sent to Dhaka Stock Exchange to have practical exposure on investment activities. There are two stock exchanges in Bangladesh- Dhaka sock exchange and Chittagong stock exchange that are operating under the regulatory authority Security Exchange Commission. Portfolio management is the management of investment by diversifying the investment rather than investing in one. It reduces the risk of loss by diversifying the investment. In this term paper efficient portfolio has been made from the five companies. For the input of the portfolio 36 months data has been used. By using single index model portfolio has been formed at the same time nave portfolio risk and return has been calculated to judge the same result of efficient portfolio. As nave portfolio consists of all the securities of equal weight so the return under this method is much lower than what is found in the efficient portfolio. Cut off point has been calculated by using the formula, which exclude short sales, which means that in our efficient portfolio we did not allow short sales. Out of the five companies only one security has been taken to form the portfolio. This is BATC. Thus in the portfolio full weight has been imposed on the BATC. In our portfolio we considered twenty companies and most of the companies face negative return. Only BATC has a better return and as full weight has been imposed on BATC thus the efficient portfolio has a reasonable return. After forming the portfolio, performance evaluation has been made. In this section we found that.

Chapter 1 1.1 Introduction 1.2 Background of the study (why you choose it?) 1.3 Objective of the study 1.4 Scope of the Study ( things that are included) 1.5 Methodology ( model used, data source etc) 1.6 Limitation (data collection, sensitive information, time frame, information disclose etc.) Chapter 2 2.1 Introduction 2.2 Overview of (Industry) 2.3 Organizational overview (History, Vision, Mission) 2.4 Operating and financial performance Chapter 3 3.1 Introduction Chapter 4 4.1 Introduction Chapter 5 5.1 Introduction Chapter 6 Findings, Recommendation & Conclusion Bibliography Appendix Reference

TABLE OF CONTENTS Chapter 1: 1.0. Introduction 1.1. Origin of the study 1.2. Background of the study 1.3. Significance of the study 1.4. Objective of the study 1.5. Scope of the study 1.6. Methodology of the study 1.7. Conceptual framework of the report Chapter 2: 2.0. Organization Overview 2.1. Profile of Square Textiles Ltd. 2.2. Profile of Atlas Bangladesh Ltd. 2.3. Profile of Janata Insurance Ltd. 2.4. Profile of PRAN (AMCL) 2.5 Profile of Southeast Bank 2.6 Profile of ACI Ltd. Chapter 3: 3.0. Linkage between information disclosure and cost of capital 3.1. Correlation between information disclosure and cost of capital Chapter 4: 4.0.Findings and Conclusion Chapter 5: 5.0.Bibliography 5.1.References

1.0 Introduction 1.1. Origin of the study This report is originated as the course requirement of the BBA program under the coordinator of BBA program, Stamford UniversityBangladesh. Under this program students of every department of this faculty must go through an internship or thesis program of 3 months duration. As practical orientation is an integral part of the BBA degree requirement, I was sent to take real life exposure of the activities.

1.2. Background of the study This paper has been prepared based on five randomly selected listed companies in the Dhaka Stock Exchange. This paper has been prepared based on the price and dividend information of these companies and the market index of the Dhaka Stock Exchange. All information is secondary and collected from different books published by the Dhaka Stock Exchange. Based on this information basic input to the portfolio meaning return, risk for security and market, alpha, beta & standard error have been calculated. For the calculation of return of the securities, security index has been calculated to measure the proportion of investment in the security. For efficient portfolio formation single index model has been used and for the purpose of ranking the securities cut off rate without short sales has been used. Then based on this information, weight has been determined to find out the efficient portfolio. In the second part of the report performance

evaluation of the securities has been performed. For this purpose average price and standard deviation have been used to compare with past return and risk. At the same time differential return has been used to compare with the market performance.

1.3 Significance of the study: The study carries much importance in view of the fact that the economic development of Bangladesh is closely linked with the strong and healthy financial organizations, which facilitate mobilization of domestic and foreign funds on a large scale. Investment organizations are doing their jobs more competitively now a day. Attracting the people to save their money by developing various products and schemes, investing the fund in different profitable shares, etc. is the main focus of this study. This research gap induced me to undertake the study. It is hoped that the findings of the study will be useful for the readers and young learners to get knowledge about the topic. It will also add to existing stock of reports in the library section.

1.4 Objective of the study The main objective of practical orientation on stock market is to get a clear idea about investment environment, how it runs and what function it does. Again, the information of various companies totally enhance the trainee gets a chance to familiarize himself with a new knowledge. Furthermore, the orientations is very useful to detect whether the theoretical knowledge match with real life scenario or not.

1 Broad Issue: Analysing the variable, like different shares, dividends and share price, and their impact on the profitability on the investment is one of the objectives of the study. 2 Specific Issue: In addition to the principal objective, the following are some of the common but significant objectives of the study: 1. To know about the nature of the stock market. 2. To know about the scope of investment in the stock market. 3. To know about the company details. 4. To know about the procedure of securities exchange commission.

1.5. Scope of the study The study covers all the best possible ways of fuming an efficient portfolio. In my report I have tried at my level best to describe each and every function elaborately.

1.6. Methodology of the study 1 Data collection: For conducting the study I used the following Method Collection of primary data: Some study-related data are collected from designing questionnaires, personal interview, and from related instruments. Collection of secondary data: to prepare the report, I used many data and literary information for which I had depended on secondary sources. Secondary Sources include 1 Annual reports of the selected five companies 2 Different journals and magazines and 3 Other related books. Along with these, Observation is another method that was given emphasis in the study.

1.7 Conceptual Framework of the Report To get ready my report, in the very beginning will discuss about the company profiles, activities and operation. Then in next chapter I will

discuss all the necessary calculations to form an efficient portfolio. Then I will show what I find from my analysis and my discussion. And then I will give my recommendation for the research on which I think the share is strong enough to build an efficient portfolio. And at the end appendices and bibliography will be given as require. 2.0. Organizations Overview 2.1.PROFILE OF SQUARE TEXTILES LTD. Corporate history: 1 Establishment: 1994 2 Year of operation: 1997 3 Stock exchange listings: 2002 4 Business line: Manufacturing and marketing of yarn 5 Authorized capital: Tk. 1000 million 6 Paid up capital: Tk. 304.79 million 7 No. Of employees: 1454 persons

Vision: Our conception of business germinates from our vision, which sees it as a means to the well being of the investors, stakeholders, employees and members of the society at large by creating new wealth in the form of goods and services that go to satisfy the wants of all of them without disturbing or damaging the socio- ecological economic balance of the mother earth and the process of human civilization leading to peaceful existence of all the living beings. Mission: Our mission is realization of vision through maximum production of goods and services strictly on ethical and moral standards at minimum costs to the society ensuring optimum benefits to the shareholders and other stakeholders. Objective: 1 To strive hard to optimize profit through conduction of transparent business operations.

2 3 4 5

To create more jobs with minimum investments. To be competitive in the internal as well as external markets. To maximize export earning with minimum imported inputs. To reduce the income gap between top and bottom categories of employees.

Last five years operational results: 2005 (Thousands) Turnover 2390979 Gross profit 543160 Net profit 397812 before tax Net profit 255494 after tax Shareholders 1513511 equity Total assets 2585177 Total current 1391410 assets Total current 989212 liabilities Current ratio 1.41 No of shares 30479900 outstanding Earning per 8.38 share Price 9.75 earnings ratio Dividend 3 (cash) Dividend 8:1 (stock) 2004 (Thousands) 2459201 375498 229759 198690 1349457 2537295 1357092 1187839 1.14 27709000 7.17 19.29 3 10:1 2003 (Thousands) 2102670 365615 181253 167894 1233894 2501397 1284065 1267503 1.01 25190000 6.06 6.46 3 10:1 2002 (Thousands) 1789018 288737 87204 81453 1146608 2382055 1055413 1214172 0.87 25190000 2.94 8.33 3.20 ___ 3 ___ 2001(Thousands) 2076925 400234 174723 174723 1140724 2613633 1182235 1418293 0.83 25190000 6.31 ___

WACC of Square Textiles Ltd.

Square textile: Total loan: 197314717 Total equity: 1513511233 Tax rate: 15.05% Total interest: 67966406 Interest rate: 34.44% Dividend: 30, 1B: 10 (2004), 30, 50% (2005), 55% (2006) G (growth rate) = Div (2006) Div (2005) Div (2005) =55-50 50 = .10 Ke (cost of equity) = Do (1 + g) Po =55(1+.10) 74.9 = .8077 WACC (weighted average cost of capital) = Kd ( 1 Tc ) * Total Debt +Ke * Total equity D+E D +E =. 3444(1-.1505) * 197314717 + .8077 * 1513511233 1513511233+197314717 1513511233+197314717 =.7482

2.2. Profile of Atlas Bangladesh Ltd. Background: The Company was established in 1966 under the private management by the then West Pakistani entrepreneur established The Company in 1966 under private management. It was nationalized and placed under the management of Bangladesh Steel & Engineering Corporation (BSEC) in 1972 and converted into a Public Limited Company in 1987 when 49% of its share was sold to general public and 51% is retained with BSEC. Amount of authorized capital of the company is TK.10.00 Crore and Paidup Capital is TK.6.00 Crore. Mission of the company is to develop communication system by producing Motorcycle and Mishuk (Tri-wheeler) and widen its activities aiming at creating job opportunities, adapt latest technology, provide fast and accurate customer service to ensure steady return on stockholder equity. At present it is meeting about forty percent of domestic demand. Strategies: The Company is looking forward to replace the existing assembly lines with most modern and automatic ones. It has planned to manufacture motorcycle components progressively through development of linkage between Atlas Bangladesh Ltd. and other engineering industries in the country. Name of the Members of the Board of Directors of the enterprise: Sl. Name 1 Mr. Mohammad Abu Jafar Chairman, BSEC. Telephone: 88-02-8114616, 8112808. 2 Dr. Mohammad Ayub Mia Addl. Secretary, Ministry of Industries. Telephone: 88-02-9563561 3 Mr. Mahfuzur Rahman Designation Chairman Director Director

4 5 6 7 8 9

Director (Planning & Development), BSEC 88-02-9116340, 9138336 Mr. Md. Fazlul Bari Director Director (Production & Engineering) 88-02-9115148, 9118349 Mr. M Akbar Ali Director Telephone: 88-02-9551917 & 88-02-9336671 Mr. Md. Mojibur Rahman Director Telephone: 88-081-63447 Mr. Md. Saiful Islam Director Telephone: 88-01711533749 Mrs. Nasima Akter Director Telephone: 88-081-63447 Mr. Md. Shamsul Haque Farajee Director Managing Director, Atlas Bangladesh Ltd. Telephone: 88-02-9803172

Manpower: Officer 44 Products: Motorcycle (ranging from 50cc to 125cc) & Three- wheeler (Mishuk). Staff 52 Worker 93 Total 189

Performance of last 5(five) years: (Figure in Nos.) Financial Year 2000- 200101 02 8, 581 12, 015 (Tri- 159 316 200203 13, 244 424 200304 16, 864 114 200405 22, 002 190

Motorcycle Mishuk wheeler) Motorcycle Mishuk wheeler)

7, 513 11, 983 13, 359 16, 531 22, 185 (Tri- 497 317 420 121 190

Atlas: Total loan: 7184296 Total Interest: 182582 Interest Rate: 2.55% Total equity: 394805178 Tax rate: 26.99% Dividend: 120%, 1B: 3 (2004), 100,50%B (2005), 85%, 1B:3 (2006) G (growth rate) = Div (2006) Div (2005) Div (2005) = 85-50 50 = .70 Ke (cost of equity) = Do (1 + g) Po = 85(1+.70) 190 = .7605

WACC (weighted average cost of capital) = Kd ( 1 Tc ) * Total Debt +Ke * Total equity D+E D +E

= .0255*(1-.2699)* 718426 +.7605* 394805178 7184296+394805178 394805178+7184296

= .7472

2.3. Profile of Janata Insurance Co. Ltd. Janata Insurance Company Limited (JICL) incorporated as a public limited company under the COMPANIES ACT 1994 on 23 September 1986. It commenced business on 6 November 1986 with a view to running all types of general insurance business except life pursuant to the Insurance Act 1938 and other related laws and regulations. Authorized capital of the company is Tk 100 million that remained unchanged, while the paid up capital increased from the initial amount of Tk 30 million to Tk 60 million in December 2000. The capital is divided into ordinary shares Tk 100 each. The company was enlisted with both Dhaka and Chittagong STOCK EXCHANGE in 1994. Managed by a 13-member board of directors with the managing director as the chief executive, the company has its head office at Dhaka and 37 branches all over Bangladesh. It underwrites risks involved in trade and properties and thus provides their security through insurance and reinsurance services. Major risk underwriting businesses of the company cover fire insurance, marine insurance, motor insurance and miscellaneous areas. In accordance to the Re-Insurance Treaty, the company re-insures the risks undertaken with the SADHARAN BIMA CORPORATION (SBC). It sponsored a leasing and financing company jointly with the UNITED COMMERCIAL BANK and some private individuals.

In 1998, the net premium incomes of the company were Tk 118.34 million and the net claims paid by it were Tk 12.99 million. It earned underwriting profits almost each year of its operations except 1996. The company earns incomes each year also from its investments in National Investment Bond, shares and debentures and other investments including FDR and short-term deposit accounts. It maintains two special reserve funds namely, reserves for exceptional losses and reserves for un-expired losses. The pre-tax profits of the company were Tk 20.70 million in 1998. In that year, the assets of the company were valued at Tk 337.40 million. Board of Directors: Chairman Vice Director chairman M A Hasem Managing Deputy Executive Vice Assistant vice director managing vice presidents presidents director president Md. Rashed Ali Mir Mahmud Ali Md. Islam Saiful

M Sabur Belal Ahmed

Md. Abu Musa Chowdhury Md. Humayun Kabir Md. Moniruzzaman

Aziz al Kaiser Aklima Begum

Tabassum Kaiser Syeda

Shaireen Aziz Savera H Mahmood Zannatul Ferdous Zeena Sultana Hasem Fahima Akhter Aziz Al Masud

2.4. Profile Of Pran

Pran in Bangladesh are blessed with a climate ideally suited to agriculture, especially fruits and vegetables rich in taste and flavor, sweet, mellow and juicy. Our deltaic plan is among the most fertile in the world created and drained by the mighty rivers. Our comparative advantage as an economy lies in agriculture. We believe the way to economic prosperity is through agri and agro-business. Pran is the largest grower and processor of fruits and vegetables in the country. Operations: During the year under review Agricultural Marketing Co Ltd. Made a gross sales of Tk. 94 crores in comparison to Tk. 84 crores during the previous year. The cost of principal raw materials i.e. sugar &packing materials like

resin, tetra pack foils etc increased abnormally. The cost of sugar increased from an average price of Tk. 30 per kg to Tk. 45. On the other hand it is difficult to increase the selling price of finished products correspondingly in order not to lose market share. In spite of this adverse development we earned Tk. 3.29 Crore operating profit & Tk. 2.90 Crore net profit after deducting workers profit participation fund &corporate tax. Corporate directory: Chairman Managing Director Deputy ManagingDirector Director Director Director Executive Director ED & Company secretary Five-year financial statistics: Particulars Authorised capital Paid up capital Share premium Turnover (gross) Turnover (net) Gross margin Profit before tax Tangible fixed assets Cumulative surplus Shareholders Equity 2001- 02 5000008 0000 40000 7892377 1688318 264844 167 2865971 3025327 253 2002- 03 5000008 0000 40000 8396397 5271019 604246 150 3447551 5471429 3914 2003- 04 5000008 0000 40000 868255 775132 200780 41653 327236 169815 309015 2004- 05 500000 80000 40000 888312 797683 204813 42535 316813 189238 330038 2005- 06 500000 80000 40000 939529 867001 199232 31228 300381 196888 337688 LT Col Mahtabuddin Ahmed Maj Gen Amjad Khan Chowdhury Mr. Ahsan Khan Chowdhury Mrs. Sabiha Amjad Barrister Akhter Imam Mr. Nathendre Nath Paul Mr. Md. Eleash Mridha Mr. Chowdhury Atiur Rasul

Dividend proposed Return on paid up capital Book value per share Earning per share Market value per share Price earning ratio

25% 54.26% 337.81 54.26 366 6.75

24% 55.48% 367.39 55.48 412 7.43

24% 50.39% 386.27 50.39 323.50 10.39

26% 50.96% 412.55 50.96 519.25 10.19

26% 36.18% 422.11 36.18 386 10.67

PRAN(AMCL): Total loan: 44209923 Total Interest: 4471647 Interest Rate: 10.11% Total Equity: 337687792 Tax rate: 7.30% Dividend: 22% (2004), 26% (2005), 26% (2006) G (growth rate) = Div (2006) Div (2005) Div (2005) =0 Ke (cost of equity) = Do (1 + g) Po = 26 (1+ 0) 363.25 = .0715

WACC (weighted average cost of capital) = Kd ( 1 Tc ) * Total Debt +Ke * Total equity D+E D +E

= .1011 ( 1 - .0730) * 44209923 44209923+337687792

+ .0715 * 337687792 44209923+337687792

= .074

2.5. Profile of Southeast Bank: Southeast Bank has a long and relishing heritage. It is a second-generation bank, which was established in 1995 with the vision to stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy. It was incorporated on March 12, 1995 as a public limited company. Certificate of commencement of business of the bank issued by Bangladesh Bank on March 23, 1995. The authorized capital of the bank is Tk. 2500 million. Its paid up capital and reserve reached Tk. 1300.14 million as on 31st December 2003. The ethos of harmony and co-operation is widely practiced in the bank. Resultantly, the public and private face of the bank is one and identical. Transparency in decision making, monitoring mechanism and full disclosure to shareholders and regulatory authorities are essential aspects of banks corporate governance and they create intense pressure to rationalize banks service and search for new competitive advantage. Vision: To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy. Missions:

1 2 3 4 5 6 7 8

High quality financial services with the help of the latest technology Fast and accurate customer service. Balanced growth strategy High standard business ethics Steady return on shareholders equity Innovative banking at a competitive price Attract and retain quality human resource Deep commitment to the society and the growth of national economy

Management executives: President director and managing Syed Abu Naser Bukhtear Ahmed

Deputy managing director

M.A. Muhith

Senior executive presidents

vice Syed imtiaz hasib Md. Mosharraf Hossain Mahbubur Rashid A.K. Qureshi Executive vice presidents M.M.A Moquit A.H.M Wali Khan Enamul Hoque Shabbir Ahmed Imtiaz Chowdhury Khaled Saifullah Muhammad Shajaha Mohammad Gofran Senior vice presidents Md. Ali Ahmed Md. Mubin ul Khalique Shabuddin Md. Jafar A.S.M Bulbul Akram H. Khan Khandakar Fajhim Uddin Ahmed Ahmad Tabsir Chowdhury Md. Altafur Rahman

Shahid Hossain

Vice presidents

Md. Sawkat Hossain Mustafizur Rahman Kazi Mahmood Karim Md. Sams Tabrez A.F.M. Sariful Islam Mohammad mahmud Hasan M. Kamal Hossain

Five years Financial Highlights: (In million) Particulars Authorized capital Paid up capital Reserve fund Equity fund Deposit Advance Investment Import business Export business Gurantee business Total income Total expenditure Operating profit Net profit after tax Fixed aseets Total assets Earning per 2003 2500 677.16 622.99 1300.14 20118.82 15548.11 2581.66 16270.80 3033.79 3391.19 2772.52 2107.36 665.16 256.06 288.02 23142.35 45.38 2002 2500 399.30 571.66 970.96 16598.45 13027.13 2282.08 12817.01 2263.45 2502.48 1936.54 1443.98 492.56 253.56 48.81 18882.48 69.85 2001 500 363 394.20 757.20 12630.25 9178.03 1727.44 12187.37 2675.05 1854.50 1748.18 1256.05 492.13 270.74 36.26 14468.66 82.04 2000 500 330 235.28 565.28 10309.70 7061.87 1369.92 11239.14 1319.51 1306.24 1259.03 921.70 337.33 172.84 71.13 11710.56 57.61 1999 500 300 145.70 445.70 7512.49 5051.88 971.81 8228.50 704.47 907.18 862.86 661.02 201.84 85.48 78.37 8336017 56.99

share Dividend(cash) 20% 20% Dividend(stock) 20%(5: 1) 10% (10: 1) ROE 19.69% 26.11% ROA 1.11% 1.34% Non performing 2.09% 1.99% loans as % of total loans Capital 9.20% 8.23% Adequacy ratio

30% 10% (10:1) 35.76% 1.87% 2.78% 8.77%

25% 10% (10:1) 30.58% 1.48% 2.95% 8.40%

15% ___ 19.18% 1.03% 3.75% 9.52%

Southeast Bank: Total loan: 4275371862 Total equity: 1257606617 Tax rate: 53.89% Total interest: 1729415702 Interest rate: 40.45% Dividend: 20%, 20B:100 (2004), 30% (2005), 50% (2006) G (growth rate) = Div (2006) Div (2005) Div (2005) = 50-30 30 = .6667 Ke (cost of equity) = Do (1 + g) Po = 50(1+.6667) 320.75

= .2598

WACC (weighted average cost of capital) = Kd ( 1 Tc ) * Total Debt +Ke * Total equity D+E D +E = .4045(1-.45)* 4275371862 1257606617+425371862 +.2598* 1257606617 425371862

= 1.33 2.6. Profile of ACI Ltd.: Mission: ACIs mission is to enrich the quality of life of people through responsible application of knowledge, skills and technology. ACI is committed to the pursuit of excellence through world-class product, innovative processes and empowered employees to provide the highest level of satisfaction to its customers. Values: 1 Quality 2 Customer focus 3 Fairness 4 Transparency 5 Continuous improvement Vision: To realize the mission ACI will: 1 Endeavor to attain a position of leadership in each category of its businesses 2 Attain a high level of productivity in all its operations through effective and efficient use of resources, adoption of appropriate technology and alignment with our core competencies 3 Develop its employees by encouraging employment and rewarding innovation 4 Promote an environment for learning and personal growth of its employees

5 Provide product and services of high and consistent quality, ensuring value for money to its customers 6 Encourage and assist in the qualitative improvement of the services of its suppliers and distributors 7 Establish harmonious relationship with the community and promote greater environmental responsibility within its sphere of influence

Corporate governance: ACI board of directors is committed to meeting the highest standard of corporate governance and disclosure. The directors are conscious of their responsibilities in supervision and direction of the affairs of the company in conformity with the practices of sound corporate governance. In fulfillment of those responsibilities the directors have set for themselves the principles that will be followed in their own involvement in the oversight function and in setting up clear guidelines for the executive management. Executive management: Mr. M Mohibuz Zaman Chief operating officer Dr. F H Ansary Executive Director Mr. Azmal Hossain Executive Director Company Secretary: Ms. Sheema Abed Rahman Auditors: Rahman Rahman Huq Financial consultant: Mr. M Sekander Ali

Principal Bankers: Standard Chartered Bank The Hongkong Shanghai Banking corporation Ltd. Commercial Bank of Ceylon Ltd. Citibank NA Arab Bangladesh Bank Ltd. Mutual Trust Bank Ltd. Mercantile Bank Ltd.

Five years comparative statistics:

Particulars Taka in Thousands Authorised capital Issued and paid up capital Turnover 2001 500000 161700 2002 500000 161700 205291 4 630666 163603 109181 109946 0 192222 590384 60638 1.2 .5 18.5% 2.7 23 10.7 2003 500000 161700 223956 5 639354 92968 84941 139640 0 216094 667512 64680 1.2 .5 12.7% 2.3 16 10.4 2004 500000 161700 255777 2 740378 141390 89516 134233 6 181380 861487 68723 1.2 .5 10.4% 2.4 12 14.1 2005 500000 161700 3088715 957176 169075 112271 1537156 12952 905935 72765 1 .6 12.4% 3 11 238.5

163740 8 Gross profit 453334 Profit before tax 136715 Profit after tax Current assets Net current assets Shareowners equity Dividend Current ratio Quick ratio Return on equity Inventory turnover Debtors turnover Working capital turnover 91715 816321 206401 547186 60638 1.3 .6 16.8% 2.5 24 7.9

Fixed assets turnover Net asset per share Market price per share Earnings per share Dividend per share Dividend payout ratio Effective dividend rate

7.7 33.8 55.3 5.67 3.75 88.2% 6.8%

8.8 36.5 54.2 6.75 3.75 66.1% 6.9%

7.3 41.3 66.7 5.25 4 55.6% 6%

3.8 53.3 94.4 5.54 4.25 75.8% 4.5%

4.2 56 69.6 6.94 4.50 76.7% 6.5%

ACI: Total Loan: 846979658 Total Interest: 83396936 Interest Rate: 9.84% Total Equity: 905935269 Tax Rate:33.59% Dividend: 40% (2004), 42.50% (2005), 45% (2006) G (growth rate) = Div (2006) Div (2005) Div (2005)

= 45 42.50 42.50 = .0588 Ke (cost of equity) = Do (1 + g) Po

= 45(1+ .0588) 70.20 = .6787

WACC (weighted average cost of capital) = Kd ( 1 Tc ) * Total Debt +Ke * Total equity D+E D +E

= .0984 (1 - .3359) *

846979658 + .6787 * 905935269 905935269+846979658 846979658+905935269

= .3823

Company Janata Insurance Atlas Pran Square Textile Southeast Bank ACI

Cost of Capital .1723 .0255 .1011 .3444 .4045 .0984

Average Return .0087 .0014 .00028 .0223 .0189 .0331

Average Risk .1646 .1229 .0616 .0790 .1218 .0533

Disclosure Index 5.71 5.43 5.43 6.0 4.57 6.57

Summary of the calculation:

3.0. Linkage between information disclosure and cost of capital

We have developed an asset pricing model in which both public and private information affect asset returns. Because the return investors demand determines a firm's cost of equity capital, our analysis provides the linkage between a firm's information structure and its cost of capital. We have demonstrated that investors demand a higher return to hold stocks with greater private information. This higher return reflects the fact that private information increases the risk to uninformed investors of holding the stock because informed investors are better able to shift their portfolio weights to incorporate new information. Private information thus induces a form of systematic risk, and in equilibrium investors require compensation for bearing this risk. An important implication of our research is that firms can influence their cost of capital by affecting the precision and quantity of information available to investors. This can be accomplished by a firm's selection of its accounting standards, as well as through its corporate disclosure policies. Attracting an active analyst following for a company can also reduce a Companys cost of capital, at least to the extent that analysts provide credible information about the company. Yet another way to influence its information structure is through the firm's choice of where to list their securities for trading. Because investors learn from prices, the microstructure of where a firm's securities trade can influence how well and how quickly new information is impounded in the stock price. These factors suggest that a firm's cost of capital is determined, at least partially, by corporate decisions unrelated to its product market decisions. These findings suggest an important role for the accuracy of accounting information in asset pricing. Here greater precision will directly lower a company's cost of capital because it will reduce the riskiness of the asset to the uninformed. This finding is consistent with the extensive accounting literature documenting the effects of accounting treatments on stock prices. .

life cycle of a firm may also influence its cost of capital. In particular, it seems reasonable that investors will better know a firm with a long operating history. Attracting an active analyst following for a company can also reduce a company's cost of capital, at least to the extent that analysts provide credible information about the company. Yet another way to influence its information structure is through the firm's choice of where to list their securities for trading. Because investors learn from prices, the microstructure of where a firm's securities trades can influence how well and how quickly new information is impounded in the stock price. These factors suggest that a firm's cost of capital is determined, at least partially, by corporate decisions unrelated to its product market decisions.

Our findings here raise a number of issues for further study. If, as our analysis suggests, the quality of information affects asset pricing, then how information is provided to the markets is clearly important. Recently, the SEC has considered allowing individual investors access to IPO electronic road shows, has proposed tighter restrictions on what companies can disclose privately to analysts, and has pondered whether internet investment chat rooms are positive or negative influences for stock prices. While addressing each of these topics is beyond our focus here, the framework we develop does provide a way to consider how particular market practices affect equilibrium asset pricing. Our results also raise interesting questions about security market design and the cost of capital. In particular, how transparency of trades and orders influence the informative ness of stock prices, or even how the speed of the trading system affects information flows to investors, seem important directions for future research.

3.1. Correlation between information disclosure and cost of capital

Disclosure Index 5.71 5.43 5.43 6 4.57 6.57 Correlation Cost of capital 0.1723 0.0255 0.1011 0.3444 0.4045 0.1011 -0.40726

Greater information will directly lower a company's cost of capital because it will reduce the riskiness of the asset to the uninformed and vice versa. Thats why; we can see that there is a negative correlation between disclosure index and cost of capital. The effect of disclosure level on the cost of equity capital is a matter of considerable interest and importance to the financial reporting community.

However, the association between disclosure level and cost of equity capital is not well established and has been difficult to quantify. In this paper examine the association between disclosure level and the cost of equity capital by regressing firm-specific estimates of cost of equity capital on market beta, firm size and a self-constructed measure of disclosure level. My measure of disclosure level is based on the amount of voluntary disclosure provided in the last five years annual reports of a sample of 7 firms. For firms that attract a low analyst following, the results indicate that greater disclosure is associated with a lower cost of equity capital. The magnitude of the effect is such that a one-unit difference in the disclosure measure is associated with a difference of fewer units in the cost of equity capital, after controlling for market beta and firm size. For firms with a high analyst following, however, I find no evidence of an association between my measure of disclosure level and cost of equity capital perhaps because the disclosure measure is limited to the annual report and accordingly may not provide a powerful proxy for overall disclosure level when analysts play a significant role in the communication process.

5 Conclusion The primary focus of this paper has been to demonstrate possible linkages between intangible assets and a firm's cost of capital. We highlight the accounting bias towards recognized intangible assets, which present only a fraction of a firm's overall intangible assets that also include internally generated intangible assets. By addressing the efficient market hypothesis, this paper has attempted to draw managerial and academic attention to possible implications of intangible assets on a firm's cost of capital. Accounting-driven information distorts the market perception of the true impact of intangible assets. Market values of equity may not fully incorporate intangible assets. As the cost of capital is a weighted average, the market-driven weight of equity may be incorrect due to inadequate assessment of a firm's intangible assets. An inaccurate cost of capital wills not only results in flawed corporate financial decisions; it will also result in incorrect estimations of a firm or project's value. Information asymmetry has been linked to increased cost of capitals and intangible asset-

Intensive companies. In this context, we refer to research that demonstrates a negative correlation between disclosure of information and the cost of capital. Based on our findings, we have put forward suggestions for possible managerial actions. We assume that a firm may be able to manage its cost of capital by means of intangible assets. Optimizing and leveraging the potential of intangible assets may result in higher and less volatile cash flows and reduced business risk. As part of managing the cost of capital, we also see managerial implications by means of enhanced disclosure and transparency that could result in lower information asymmetry and perceived risk.

BIBLIOGRAPHY
1. Modern Portfolio Theory & Investment Analysis By Edwin J. Elton & Martin J. Gruber 2. Economic Trend Published by Bangladesh Bank 3. Monthly Review Published by DSE 4. Investments By Frank k. Reilly