OBJECTIVES OF THE STUDY

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 The following are the objectives of the study

 ✔ To know the Global and Indian Scenario

 ✔ To know the Key Players in the Industry

 ✔ To know the Business Level Functions & Process of the Organization

 ✔ To know the Company Profile

 ✔ To do SWOT Analysis, etc. of the Company

 ✔ To learn about the Organizational Culture, Values, Benefits in a Practical way

 ✔ To get an exposure to the different functions of the Organization and understand

 how they are performed and coordinated.

 ✔ To relate various concepts studied in the first term to a real Organizational
 Environment

Secondary Data Under Secondary sources. necessary suggestions regarding the financial structure are given.  Study of the complete process of the uses of Cost of Capital using literature and discussing with the organizational guide.Primary Data.com And miscellaneous sources (such as brochures. Data Sources .com). www. pamphlets) under external sources. we tapped information from internal & external sources.  Connection of the data regarding the use of Cost of Capital and financial policies for company  On the basis of the data collected.  Analyzing the future outlook of the companies and its expansion plan. The researchers discuss with Team Manager and employees of the company to get information about competitors of SHREE. . The researchers have adopted the contact through telephone for the purpose of collecting Primary data.shreecementltd. Analysis . We made use of Internet (such as search engine www. Research Methodology The research methodology was subdivided and performed in the following method-  Analyzing relevant figures and date for the last financial years.google.Secondary Data Data sources: Primary Data Primary data is a data that is collected for the first time in the processing of the analysis.

To make our research project most effective in a given time period of 40 days surveyed the information of the competitors. Reasearch Objectives  To understand the theory of capital and its implication in business structure  To know about the various sources of funds in the company  To find out the cost of various components of capital and how to minimize it  To get a good insight of the cement industry . The data has been collected from both Primary as well as Secondary sources and we also did the fieldwork for which utmost care has been taken to keep project unbiased from personal opinion. We undertook both Explorative as well as Conclusive Research Design.

On the other hand. The difficulty will arise in determination of cost of funds. A business firm can raise capital from various sources such as equity and or preference shares. . retain earning etc. In this chapter. 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. Therefore. it is necessary for the firm to pay a minimum return to each source of capital. 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 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. This capital is invested in different projects of the firm for generating revenue. debentures. The primary function of every financial manager is to arrange adequate capital for the firm. concepts and implications of firms cast of capital. On the basis of it the management evaluates alternative sources of finance and select the optimal one. Introduction The main objective of a business firm is to maximize the wealth of its shareholders in the long-run. The various sources of funds to the company are in the form of equity and debt. On the other hand form the point of view of the firm using the capital. The cost of capital is the rate of return the company has to pay to various suppliers of fund in the company. What should be this minimum return? The concept used to determine this minimum return is called Cost of Capital. There are main two sources of capital for a company – shareholder and lender. if is raised from different sources and different quantum. each project must earn so much of the income that a minimum return can be paid to these sources or supplier of capital. determination of cast of difference sources of capital and overall cost of capital are being discussed.

Hear it’s the essential for the firm to invest these Rs.. Technically and Operationally. Hampton. rate of return at 11%. “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”.. I comparing the various specific costs of different sources of capital. the management has to consider the objective of maximizing the value of the firm and minimizing cost of capital. In practice the borrowing rates used indicate the cost of capital in preference to landing rates. Similarly. landing rate is the rate at which the firm discounts its profits. The borrowing rates means the rate of interest which must be paid to obtained and use the capital. 55 lacks i. Designing the capital structure: the cost of capital is the significant factor in designing a balanced an optimal capital structure of a firm.” The cost of capital is very important concept in the financial decision making. Capital budgeting decisions: the cost of capital sources as a very useful tool in the process of making capital budgeting decisions.. In various methods of discounted cash flows of . has called “It the minimum required rate of return or the cut of rate for capital expenditure. cost of capital is the price paid to the investor for the use of capital provided by him. 5 Crore in such a way that it earn at least Rs. then the cost of capital is 11%. Solomon Ezra. 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. While designing it. The progressive management always likes to consider the cost of capital while taking financial decisions as it’s very relevant in the following spheres. 2. what the firm would earn by investing these funds elsewhere. In the other word of John J. cost of capital is reward for the use of capital.e. I. For example if a firm borrows Rs.e. It may also the opportunity cost of the funds to the firm i. Author Lutz has called it” BORROWING AND LANDING RATES”. 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. the financial manager can select the best and the most economical source of finance and can designed a sound and balanced capital structure. If the return less then this. Thus.e. 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. it is the investors required rate of return.A. 5 crore at an interest of 11% P. 1. Cost of capital also refers to the discount rate which is used while determining the present value of estimated future cash flows.

Evaluations of financial performance of top management: cost of capital can be used to evaluate the financial performance of the top executives. risk is more and capital structure is imbalanced. but equally important are the considerations of retaining control and of avoiding risks. decisions can be taken regarding dividend policy. . Although cost of capital is an important factor in such decisions. capital budgeting. If the actual profitability of the project is more than the actual cost of capital. the performance can be evaluated as satisfactory. cost of capital measured the financial performance and determines acceptability of all investment proposals by discounting the cash flows. If a firms cost of capital is high. 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. On the basis. which source should be used at a particular point of time is to be decided by comparing cost of different sources of financing. Out of these. in such situations. 4. The source which bears the minimum cost of capital would be selected. it means the firms present rate of earnings is less. capitalization of profits and selections of sources of working capital. Comparative study of sources of financing: there are various sources of financing a project. 3. Financing and Dividend Decisions: the concept of capital can be conveniently employed as a tool in making other important financial decisions. 6. Knowledge of firms expected income and inherent risks: investors can know the firms expected income and risks inherent there in by cost of capital. 5. investors expect higher rate of return.

When the securities of the company are unlisted. current capital structure. These two type of weights give different results. but it is not always correct. marginal capital structure and optimal capital structure. the firm will be in a high financing risk. the inclusion of such debts in the calculation of cost of capital will result in a low WACC. . LIMITATIONS The weighted Average cost approach also has some weaknesses. the problem becomes more intricate.(i) book value weights and (ii) market value weight. Three types of capital structure are there i. When a firm relies on Zero cost (in the form of payables) or low cost short term debt. market value is more appropriate than book value. Normally. 2. Unsuitable in Case of Low Profits : If a firm is experiencing a period of low profits.e. but the market value of each component of capital of a company is not readily available. Hence. Which of these capital structure be selected. Generally. Selection of Capital Structure : The selection of capital structure to be used for determining the WACC is also not easy job. the problem is which type of weight should be assigned. 3. current capital structure is regarded as the optimal structure. important among them are as follows : 1. WACC will be inaccurate and of limited value. there are two type of weights. Though. Difficulty in Assigning Weights : The main difficulty in calculating the WACC is to assign weight to different components of capital structure. 4. Unsuitable in case of Excessive Low-cost Debts : Short term loan can represent an important sources of fund for firm experiencing financial difficulties. not earning profit as compared to other firms in the industry. If the firm accepts low-return projects on the basic of this low WACC.

moneycontrol. Higgins 3) Prowess Online Database 4) www.com 9) Times of India (News Paper) 10) Economic times (News paper) 11) Financial management by Ravi M Kishor (Book) 12) Financial management by M.moneypore.wikipedia.com 6) http://www.com 8) http://www. 2) Analysis Financial Management by Robert C.cmaindia.investopedia. Pandey (Book) 13) Financial management by M R Agarwal(Book) .com 7) http://www.org 5) http://www. Bibliography 1) Fundament of Financial management by Brigham & Huston.