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A

PROJECT REPORT
ON
Cost of capitalOf
Infowiz Industries PRIVATE Limited

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF


MASTER OF BUSINESS ADMINISTRATION (FINANCE)
SESSION (2017-20)
SUBMITTED TO: SUBMITTED BY:
Asst.Prof.Bonish Narinder
B.Com
ROLL NO.-17ubc019
UNDER GUIDANCE OF
Ms.KaranDeeP
(TRAINNER)

Baddi university baddi

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ACKNOWLEDGEMENT

To test the student’s academic knowledge in practical situations of corporate world, Semester
summer internship has been included in the B.COM course. I would like to take this moment to
express my deepest gratitude to the group of people without whose help and support I would not
have been able to complete this project.

I would like to deeply thank my training mentor MS. Karna Deep his valuable insights and
constant guidance and support. I express my deep sense of gratitude to the management of
Infowyz software solution for imparting me with the required help. I would like to specially
thank my college mentor Mr.COLLEGE TEACHER NAME, for his guidelines, support and
motivation which have been a great help to me for this project.

I would also like to thank all those people who spent their valuable time in this project, and all
those people who directly or indirectly contributed in making this project a success.

Narinder
Student name

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PREFACE
I have prepared this Project on the topic “cost of capital”in “Infowiz Industries Limited”. The
project was made after analyzing the data of Infowiz Industries Ltd. This Report is prepared
during my semester training. Training is life’s greatest treasure as it is full of experience,
observation and knowledge. The training held was very gainful as it took us close to real life.
This period also provide a chance to give theoretical knowledge a practical shape and to learn
from practical results.
Thanks

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DECLARATION

I, Narinderdeclare that the project “cost of capital” in “Infowiz Industries Limited” submitted
to Baddi University Baddi in partial fulfillment of the requirement for the award of the degree
of Masters of Business Administration is a record of original project work done by me.

I further declare that this project report has not been submitted to any other university/
institution/ board for award of any degree.

Narinder

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INDEX

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CHAPTER –I
INTRODUCTION
OF
COMPANY

INFOWIZ Industry Private Limited Chandigarh Private Limited (Formerly Brilliant Software
Solutions) is an ISO 9001:2015 certified software development company founded in August
2009 and it is approved from Ministry of Corporate Affairs which deals in
University/College/School ERP Solutions, Android / iPhone Applications development, Web
designing, Web development, Discount Deals (www.INFOWIZcard.com, www.tricitydeal.com),
Bulk SMS, Voice SMS, Bulk Email, Biometric Time Attendance, Access Control, SEO/SMO,
Database Solutions, Payment Gateway Integration, E-Mail Integration, Industrial Training,
Corporate Training and Placements etc. INFOWIZ Technologies provides software solutions
using latest technologies e.g. Smart Card, NFC, Biometrics, GPS, Barcode, RFID, SMS, Auto
SMS (Short code), Android, iPhone, Web, Windows and Mobile based technologies.
INFOWIZ has wide expertise in .NET, Crystal Reports, Java, PHP, Android, iPhone, Databases
(Oracle and SQL Server), Web Designing, Networking, Web Server configurations, various
RAID Levels etc.

INFOWIZ Industry Private Limited Chandigarh has also setup its offices in USA, Delhi, Shimla
and Bathinda for its software support. INFOWIZ has its own multiple Smart Card printing,
encoding and barcode label printing machines to provide better and effective customer support
solutions.

INFOWIZ has also setup its own placement consultancy and is having numerous placement
partner companies to provide best possible placements in IT industry.

INFOWIZ Technologies has developed for the first time in northern region cloud computing

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based Cloud Campus 4.0 to facilitate knowledge and placement centric services. It is a unique
concept for effective and collaborative learning.
1. INFOWIZ deals exclusively in campus automation through Smart Campus ERP
Solutions. Therefore we have better experience in handling large group of institutions
through proper time-tested policies and procedures.
2. First Company of India who has Launched NFC Technology (The Future) for Smart
Campuses through NFC Smart Cards.
3. First Company of India who has launched Android Version of Smart Campus ERP
Solutions for Mobiles and Tablet PCs.
4. First company of India who has developed SMS Opt-In Technology so that
Institutes/Colleges can send Transactional SMS with SMS Sender ID and without SMS
Template approval.
5. First company of Punjab, Haryana, Himachal, J&K (Northern region) who launched
Smart Cards (Contact Type), Smart Cards (Contactless) in Punjab for campus
automation.
6. First company of India which has launched its INFOWIZ Smart Card as Discount Card in
more than 120 enterprises.
7. Established own multiple Smart Card Designing, Smart Card Printing, Smart Card
Lamination and Oyster Barcode Printing Units.
8. Multiple SMS Gateway Support.

SERVICES
We provide Software Solutions using latest technologies or features:
NFC
Biometrics (Fingerprint with Automated Online)
Smart Card
Barcode
RFID
SMS
Short code 56767 (Auto SMS)
Android

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ions (phone)
GPS
WAP (For WAP Enabled Mobile Phones)
Multiple SMS Gateway Support
Web based Technologies (365x24x7 services)
Windows based Technologies
Mobile based Technologies
Webcam support for various operations
Parallel Internet, Intranet and Wi-Fi Support

VISION:

Technologies Pvt. Ltd. are already very flexible and scalable. Still, we always take care of specific requirements of
our clients. Our highly committed R&D team makes our software feature rich, dynamic and
future tuned everyday so that our clients always maintain the lead over their competitors. The
development of the software is being done and the purpose full customization of the package is
carried out in the INFOWIZ lab.

MISSION:
INFOWIZ is pioneer in Smart Campus ERP Solutions for Universities/Colleges/Schools
using latest technologies and features. We provide software solutions using .NET, PHP, Android,
iphone, Java technologies with three tier-architecture support. We provide back-end solutions
using MS SQL Server, Oracle, and MySQL.

QUALITY POLICY:

We have wide experience working with eminent Educationists, Managements, Directors,


Principals, Head of Departments, other Staff Members, Parents and students. Therefore we do
not sell only software Modules but an innovative system which has more importance than just
ERP software modules. Today Smart Campus solutions are a need of hour for every
University/Group of Colleges or an Institution to make edge over others and maintain a lead over
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their competitors. Our Research and Development team is committed to make your institute(s) to
maintain lead over their competitors.
More Services:

• INFOWIZ offers various industry-ready programs so that student needs not to struggle for
jobs. INFOWIZ offers 6 weeks/2 Months/6 Months training programs to make students
industry.

 INFOWIZ is pioneer in providing best placements in Industry. We offer minimum five


job interviews for each student and provide 100% Placement Assistance.

• INFOWIZ Offers Life-Time Validity Learning and Placement Card. Students undergoing
six months training will have advantage to learn free of cost anything against that training
program for life-time.

• INFOWIZ offers Part-Time/Full Time Job Offer for each student during training so that
students can earn while they learn. Student can bear their food, accommodation and other
expenses on.

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MANAGEMENT OF INFOWIZ Industry Private Limited Chandigarh
 BOARD OF DIRECTOR
 Seema Kansal
 Kamaljot Kansal
 Vikas Gupta
 Ghansham Dass
 MANAGING DIRECTOR
 Rocky Jindal
 MARKETING HEAD
 Er. Bonish Singla
 Er. Narinder
 IT Head
 Kamal Garg

 SOME OF OUR CLIENT

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PLACEMENT
Company list-

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INDUSTRIAL TRAINING

1.Six Months/Weeks Industrial Training Programs-

 Microsoft .NET

 Android

 iPhone

 Java

 PHP/MySQL

 Web Designing

 Embedded Systems

 AutoCAD

 Online Bidding (Freelancing)

 Oracle/SQL Server Administration

 Software Testing and Quality Assurance

 Hardware & Networking

 CCNA

 MCITP

 SEO

 CATIA

 Pro-E

 Solid Works

 Human Resource
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 Marketing

 Finance

 (FREE Spoken English/Personality Development/IELTS Classes on daily basis with


Industrial Training + Job Offer).

 One-to-one Project and Project will be made Live and to make it Live, INFOWIZ will
provide sub-domain and hosting worth Rs. 3000 absolutely free to each student for
web based Project. To host mobile apps, INFOWIZ will provide free Google Play
account (For Android Mobile Apps) and Apple iTunes Connect Account (Apple App
Store) for iPhone Apps.

2.INFOWIZ Edge

 Industrial Training and Certificates from Software/Electronics Company not just from an
institute

 Free Interview Preparation, Spoken English and Personality Development Programmers.

 Opportunity to get placed in INFOWIZ and numerous other companies.

 Life-Time Validity Learning and Placement Card.

 Part-Time/Full-Time Job Offer for each student during Training.

 INFOWIZ Cloud Campus advantage not only during training, even after completion of
training for life time.

 One-to-one PC and Corporate Environment.

 Learn from Developers/Industry experts rather than Trainers/Teachers.

 Direct interaction with Developers/Industry Experts.

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 Industrial training programmers are designed to make students industry-ready.

 Large Display LEDs in each Class-Room/Lab, Wi-Fi Labs.

 Guest Lectures/Seminars by Industry Experts.

 Every Student is provided with “Live Projects” mentored by Software/ Electronics/Industry


Experts.

 100% Placement assistance.

INFOWIZ Cloud Campus Advantages

 Each Student will have Unique User ID and Password to Login to INFOWIZ Cloud

 Campus 4.0 anytime…anywhere…

 View Numerous Technical, Personality Development Videos anytime…anyhere…

 Students will be able to download e-Books, e-Journals, Class Notes, Important Links and
other study material.

 INFOWIZ Smart Campus is a step towards not only 100% placements but also better job
offers even after placements.

 Student Profile, Instant Technical Updates, Class Notes, Project Report Submitted,
Attendance, Performance, Notice-Board, Class Timings etc. Everything online.

 Communication with industry experts, Technologists through cloud Campus


anytime…anywhere….

 Regular SMSes and E-mail for Related Job Offers.

 Access through PCs, Laptops, Tablet PCs, Mobiles via internet.

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CHAPTER –I
RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

 To study the cost of capital of Infowiz Limited.

 To study the factors affecting Cost of capital of Infowiz Limited.

 To study the amount of debt of Infowiz Limited.

 To study the amount of Equity of Infowiz Limited.

 To analyze the data of Infowiz Limited.

 To Compute Cost of capital of Infowiz Limited.

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 Research Methodology
About Research:

Research is a diligent enquiry and careful search for new knowledge through systematic,
scientific and analytical approach in any branch of knowledge. Research constant search and
research are the guiding factors of research which helps to discover new facts. The search for
new knowledge also helps to accept, reject or modify existing facts or knowledge. It is
systematic effort to gain knowledge, truth or board principal in a verifiable and objective way.
According to Slessinger and Stevenson (1930), social science research aims to extend, collect or
verify knowledge whether that knowledge aids in the construction of a theory or in the practice
of an art.
Young (1988) describes social research as the systematic methods of discovered new facts or
verifying old facts, their sequences in the relationship, casual explanation and the natural which
govern them.
Mere compilation of facts will never constitute research. As known (1973) aptly point out the
compilation is like a police constable statements of the seen deeply and penetrate into the
research of occurrence and relationship. Thus, research as young points out does not simply
demand a search for fact but thinking to of the issues and problems involved in every step of
research uses studies and principles thereof to unravel the facts intangible while craft a men
condemn such process.

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 ABOUT METHODOLOGY:-

Methodology is a term misused for method or technique. Methodology has got an important
epistemological meaning. Allen (1978) describes methodology in a vivid fashion. It become first
an approach to word enquiry and then involves into particular methods or techniques in the
applied use it is concerned with selecting specific techniques for collecting data and analyzing it.
In the theoretical use it concerned with the philosophical fields of enquiry that can use to
conceptual the problem under study. These are two different methodology stances. Disciplined
research is oriented towards in research knowledge in a scientific discipline whereas policy
research denotes to another methodology that is philosophical committed and severs as a guide to
social action. Quit often methodology is used in the applier sense undermining its theoretical,
perspective, through both are the sides of a coin.
Dhondyal (1994) defines Research Methodology as a procedure design to extent to which it is
planned and evaluated before conducted the enquiry and extend to which the methods for making
decision is evaluated.

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RESEARCH DESIGN:-

1. Exploratory:
Exploratory research is a research conducted for a problem that has not been clearly defined.
It often relies on Secondary research such as reviewing available literature, data, or
qualitative approaches such as informal discussions through Focus groups, pilot studies etc.
The purpose of research is to gain familiarity with a phenomenon or acquire new Insight into
it to formulate a more precise problem.

2. Types :
Primary and secondary data is used in the project.
Primary Sources: It is original work of research on which research is based.
Secondary Sources: It is collected from the sources like: Internet, company’s profile.

3. Sources :
Books, internet and company’s profile.

4. Period of study :
I have completed my project on the topiccost of capitalin training for period of 45 days.

5. Limitations of the study :


1. Shortage of time period.
2. Lack of proper data.
3. Difficulty to analyze Data.

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CHAPTER –III
Introduction to Cost of capital
Meaning of Cost of Capital:-

The Cost of Capital is the minimum rate expected by its investors. The capital used by the firm
may be in the form of debt, preference capital, retained earnings and equity share capital. The
concept of cost of capital is very important concept in financial management. A decision to
invest in a particular project depends upon the cost of capital of a firm or the cut off rate which is
the minimum rate expected by its investors which will maintain the market value of shares at its
present level. Hence to achieve the objective if wealth maximization, a firm must earn a rate of
return more than its cost of capital.

Definition of cost of capital:-


According toSolomon Ezra,“Cost of Capital is the minimum required rate of earnings or the cut
off rate of capital expenditures”.

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 Features of cost of capital:-

I. Cost of capital is not a cost as much.


II. It is the minimum rate of return expected by shareholders.
III. It comprises of three components:-
a. The expected normal rate of return at zero risk level.
b. The premium for business risk.
c. The premium for financial risk.

Symbolically cost of capital may be represented as:-

K= r0+b+f

Where, k= cost of capital


r0 = Normal rate of return at zero risk level
b= premium for business risk
f= premium for financial risk

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 Significance of cost of capital:-

1. As an Acceptance Criterion in Capital budgeting:-


“Capital budgeting decisions can be made by considering the cost of capital”. According
to the present value method of capital budgeting, if the present value of expected returns
from investment is greater than or equal to the cost of investments, the project may be
accepted; otherwise the project may be rejected. The present value of expected returns is
calculated by discounting the expected cash inflows at cut-off rate. Hence, the concept of
cost of capital is very useful in capital budgeting decision.

2. As a determinant of Capital Mix in Capital Structure Decisions:-


There should be a proper mix of debt and equity capital in financing a firm’s assets.
While designing an optimal capital structure, the management has to keep in mind the
objective of maximizing the value of the firm and minimizing the cost of capital.

3. As a basis for evaluating the Financial Performance:-


The actual profitability of the project is compared to the projected overall cost of capital
and the actual cost of capital of funds raised to Finance the project. If the actual
profitability of the project is more than the projected and the actual cost of capital, the
performance may be said to satisfactory.

4. As a basis for taking other financial decisions:-


The cost of capital is also used to take other financial decisions such as dividend policy,
capitalization of profits, working capital.
 Problems in determination of cost of capital:-

1. Conceptual controversies regarding the relationship between the cost of capital and
capital structure:-
Different theories have been propounded by different authors explaining the
relationship between the cost of capital and capital structure and the value of the firm.
This has resulted into various conceptual difficulties. According to the net income

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approach and traditional approach both the cost of capital and value of firm have direct
relationship with level of financing. On the other hand, Net income approach and MM
approach prove that cost of capital is not affected by changes in capital structure and it is
irrelevant in determination of value of firm.

2. Historic cost and future cost:-


Another problem in the determination of cost of capital arises on the account of the
difference in opinion as regards the concept of cost itself. It is argued that historic costs
are book costs and are related to past which makes them irrelevant in decision making
process. In their opinion, future estimated costs are more relevant in decision making.

3. Problems in computation of cost of equity:-


The computation of cost of equity capital depends upon the expected rate of return by
investors. But the quantification of the expectations of equity shareholders is very
difficult task because there are many factors affecting the valuation of a firm.

4. Problems in computation of retained earnings:-


It is sometimes argued that retained earnings do not involve any cost. But in reality, it is
the opportunity cost of dividends foregone by Its shareholders. Since different
shareholders have different opportunities for investing so it sometimes becomes difficult
to compute the cost of retained earnings.

5. Problems in assigning weights:-


For determining the weighted average cost of capital, weights have to be assigned to the
specific cost of individual sources of finance. The choice of using the book value or
market value of source posses another problem in the determination of cost of capital.

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CHAPTER – IV
DATA ANALYSIS

Computation of cost of capital

Computation of overall cost of capitalof a firm involves:


A. Computation of cost of specific source of finance, and
B. Computation of weighted average cost of capital

A. Computation of cost of specific source of finance:-

Computation of each specific source of finance is discussed as below:-

Part-1 Cost of debt(Kdb)

Part-2 Cost of preference share capital (Kp)

Part-3 Cost of equity share capital (Ke)

Part-4 Cost of retained earnings (Kr)

The detailed calculations of each source are explained as below:-

1. Cost of debt:-
The cost of debt is the rate of interest payable on debt.
\
Case A:-If debts are issued at par then,

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By a way of formula before tax cost of debt can be calculated as:-

i. Kdb= I/P*100

Where, Kdb= before tax cost of debt

I= Interest
P= Principal
100isexpressed for percentage.

ii. By a way of formula After tax cost of debt can be calculated as:-

Kda= I/NP (1-t) *100

Where, Kda=after tax cost of debt

t = Rate of Tax

Case B:- If debts are issued at premium or discount.

Note: - The above shown is the calculation of debt at par, but if company issues debt at premium
or discount then we should consider P as the amount of net proceeds received from the issue not
the principal that is face value of securities. The formula may be changed to:-

Kdb= I/NP*100 (where NP= Net Proceeds).

Where, NP is calculated after adding premium and deducting discount.

Case C:-If redeemable debts are issued:-

Note: -The Company may also issue redeemable debts which are redeemed during the life time
of a firm. The following formulas are used to calculate cost of redeemable debt:-

1). Cost of redeemable debt before tax:-

Kdb = I+1/n (RV-NP) / ½ (RV+NP)*100

Where,

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I= Annual Interest.
n= No. of years in which debt is to be redeemed.
RV = Redeemable value of debt.
NP = Net proceeds of Debentures.

2). Cost of redeemable debt after tax:-

Kda = I (1-t) +1/n (RV-NP) / ½ (RV+NP)*100

Where, t= tax rate.

But the Infowiz limited only issues non- redeemable debt so we don’t need to do calculations
with above mentioned formulas for Infowiz Limited Company.

2. Cost of Preference Capital:-


The cost of preference capital is function of dividend expected by its investors. Dividends
are regularly paid to preference shareholders except when there are no profits to pay
dividends. The cost of preference capital can be calculated as:-

Case A:-If preference shares are issued at par then,

Kp=D/P*100
Where,
Kp= Cost of preference capital.
D= Annual Preference Dividend.
P= Preference share capital (proceeds).

Case B:- Ifpreference shares are issued at premium or discount.

Further, if preference shares are issued at premium or discount or when cost of flotation are
incurred to issue preference shares , the nominal or par value has to be adjusted according to find
out the net proceeds from the issue of preference shares.

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Kp=D/NP*100

Where, NP= Net proceeds after adding premium and deducting discount.

It should be noted that as dividends are not allowed to be deducted in computation of tax, no
adjustment for taxes is required.

Case C:-If redeemable preference shares are issued:-

Sometimes Redeemable preference shares are issued which can be cancelled or redeemed on
maturity date. The cost of Redeemable preference shares can be calculated as:-

Kp = D+ MV-NP/n / ½ (MV+NP)

Where,

Kp= Cost of preference capital.


D= Annual Preference Dividend
n= No. of years in which Preference shares is to be redeemed.
MV = Maturity value of Preference shares.
NP = Net proceeds of Preference shares.

3). Cost of Equity share Capital:-


The cost of equity capital is function of the expected return
by its investors. The cost of equity is not out of the pocket cost as equity shareholders are not
paid dividend at a fixed rate every year. Moreover payment of dividend is not a legal binding. It
may or may not be paid. But it does not mean that equity share capital is a cost free capital.
Shareholders invest money in shares on the expectation of getting dividend and company must
earn this minimum rate so that market price of the shares remains unchanged. The cost of equity
share capital can be computed in following ways:-

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1) Dividend Yield Method:-

Ke=D/NP*100
Or

Ke=D/MP*100

Where,
Ke= Costof Equity share Capital.
D= Expected dividend per share.
NP = Net proceeds per share.
MP= Market proceeds per share.

2). Dividend Yield plus Growth in Dividend Method:-

Ke=D/NP*100 + G
Where, G= Growth Rate.

3). Earning YieldMethod:-

Ke= EPS/NP*100

Where, EPS= Earnings per share

Or, Where the cost of existing capital is to be calculated:-

Ke= EPS/MP*100

Where, MP= Market price per share

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EPS= Net profit after Interest, Tax, and Preference Dividend/ No. of equity shares

4). If Previous Year Dividend Given:-

Ke= D0(1+g)/ P*100+ G

Or

Ke= D0(1+g)/NP*100+ G

Or
Ke= D0(1+g)/MP*100+ G

Calculations of cost of specific source of finance for Infowiz company for the Financial year
2014 as follows:-

1. Cost of debt:-

a) Calculation of before tax cost of debt for Infowiz company for the Financial year 2014
as follows:-

Kdb= I/P*100

Putting the values in formula as follows:-


(In crore) = 2367/ 89141*100 =2.6%

Interpretation:-

We can infer from the above calculations that company is paying 2.6% rate of interest on debt to
its investors before deducting tax rate.

The above calculations are made because debts are issued at par of Infowiz Company Limited.
If debts were issued at premium or discount then calculations are to be made with the formula for
issuing debt at premium or discount.

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b) Calculation of after tax cost of debt for Infowiz company for the Financial year 2014 as
follows:-

Kda= I/NP (1-t) *100

Putting the values in formula as follows:-


(In crore) = 2367/ 89141(1-0.6749)*100 =0.86%

Interpretation:-

We can infer from the above calculations that company is paying 0.86% rate of interest on debt
to its investors after deducting tax rate.

2. Cost of Preference Capital:-


The Infowiz company does not issue preference capital so any of the calculations of
preference capital can’t be calculated.

3). Cost of Equity share Capital:-

1) Dividend Yield Method:-

Ke=D/NP*100

Putting the values in formula as follows:-


(In crore) = 2944/3236*100 = 90.9%

Interpretation:-

We can infer from the above calculations that company is paying 90.9% rate of dividend to its
investors.

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2). Dividend Yield plus Growth in Dividend Method:-

No adequate information is given of Infowiz limited, so no calculations can be made.

3). Earning YieldMethod:-

Ke= EPS/NP*100

Putting the values in formula as follows:-


(In crore) = 70.21/ 3236*100 =2.16%

Interpretation:-

We can infer from the above calculations that company is paying 2.16% rate of dividend to its
investors by way of earning yield method.

4). If Previous Year Dividend Given:-

No adequate information is given of Infowiz limited, so no calculations can be made.

B.Computation of weighted average cost of capital:-


Weighted average cost of
capital is the average costs of all the individual sources of financing. Once the specific cost
of individual sources of individual is determined, we can compute the weighted average cost
of capital. Weighted average cost of capital is also called composite cost of capital, overall
cost of capital or average cost of capital.

Methods to compute weights for weighted average cost of capital:-


There are two ways to calculate weighted average cost of capital which can be:-

a. On the basis of book values.


b. On the basis of market values.

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Steps to be followed for calculating weighted average cost of capital:-

Step-1:- Calculate specific cost of capital for given different sources of finance.

Step-2:- Calculate weighted average cost of capital with the help of following formula:-

Kw= ∑WX/ ∑W

Where, Kw = Weighted average cost of capital

X= cost of specific source of finance’

W= Proportion of sources of Finance (weights)

Calculations ofweighted average cost of capital for Infowiz Limited company for the Financial
year 2014 as follows:-

Sources of Finance Amt. (in cr.) Weights (in %) W Cost (X) WX


Debt 89141 103.6 0.86 89.096
Equity share 3236 3.50 2.16 7.56
Total 92377 107.1 3.02 96.656

Calculation of weights is done on the basis of book values calculated for each source of finance
as shown below:-

In case of debt: - 92377/89141*100

In case of equity: - 92377/3236*100

Kw= ∑WX/ ∑W

Putting the values in formula as follows:-


96.656/107.1= 0.90%

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Interpretation:-
0.90% is the cost of weighted average cost of capital of Infowiz company or
overall cost of capital for all sources of Infowiz limited is 0.90%.

Calculations of cost of specific source of finance for Infowiz company for the Financial year
2015 as follows:-

1. Cost of debt:-

c) Calculation of before tax cost of debt for Infowiz company for the Financial year 2015
as follows:-

Kdb= I/P*100

Putting the values in formula as follows:-


(In crore) = 3026/ 85481*100 =3.53%

Interpretation:-

We can infer from the above calculations that company is paying 3.53% rate of interest on debt
to its investors before deducting tax rate in 2015.

The above calculations are made because debts are issued at par of Infowiz Company Limited.
If debts were issued at premium or discount then calculations are to be made with the formula for
issuing debt at premium or discount.

b). Calculation of after tax cost of debt for Infowiz company for the financial year 2014as
follows:-

Kda= I/NP (1-t) *100

Putting the values in formula as follows:-


(In crore) = 3026/ 85481(1-0.5834)*100 =1.48%

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Interpretation:-

We can infer from the above calculations that company is paying 1.48 % rate of interest on debt
to its investors after deducting tax rate in 2015.

2. Cost of Preference Capital:-


The Infowiz company does not issue preference capital so any of the calculations of
preference capital can’t be calculated.

3. Cost of Equity share Capital:-

1). Dividend Yield Method:-

Ke=D/NP*100

Putting the values in formula as follows:-


(In crore) = 2793/3232*100 = 86.4%

Interpretation:-

We can infer from the above calculations that company is paying 86.4%rate of dividend to its
investorsin 2015.

2). Dividend Yield plus Growth in Dividend Method:-

No adequate information is given of Infowiz limited, so no calculations can be made.

3). Earning YieldMethod:-

Ke= EPS/NP*100

Putting the values in formula as follows:-

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(In crore) = 68.02/ 3232*100 =2.10%

Interpretation:-

We can infer from the above calculations that company is paying 2.10% rate of dividend to its
investors by way of earning yield methodin 2015.

4). If Previous Year Dividend Given:-

No adequate information is given of Infowiz limited, so no calculations can be made.

Calculations ofweighted average cost of capital for Infowiz Limited company for the Financial
year 2015 as follows:-

Sources of Finance Amt. (in cr.) Weights (in %) W Cost (X) WX


Debt 85481 96.3 3.53 339.9
Equity share 3232 3.62 1.48 5.35
Total 88713 99.9 5.01 345.25

Calculation of weights is done on the basis of book values calculated for each source of finance
as shown below:-

In case of debt: -88713 /85481*100

In case of equity: -88713/3232*100

Kw= ∑WX/ ∑W

Putting the values in formula as follows:-


345.25/99.9 =3.45%

Interpretation:-
3.45% is the cost of weighted average cost of capital of Infowiz Company or overall cost of
capital for all sources of Infowiz limited is 3.45%.

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Suggestions

 The company should issue equity share capital as to maintain its market value of shares.
 Accurate measure of cost of capital should be made to determine the profitability.
 A company can lower its weighted average cost by cutting down its costs from individual
sources of finance.
 Issue of more and more debt would cause more risk to the company.
 There should be balance between all the sources of finance issued by company.

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Bibliography

1. NeetiGupta,Shashi.K Gupta& Sharma. R.K “Financial Management” Kalyani Publishers


2. H.S. Grewal. “Analysis of Financial Statements” Sultan Chand Publishers

WEBSITE:
https://en.wikipedia.org/wiki/Infowiz_Industries
http://www.moneycontrol.com/financials/Infowizindustries/balance-sheetVI/RI
http://www.moneycontrol.com/financials/Infowizindustries/profit-loss/RI#RI

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ANNEXURE

Data Required to Prepare Cost of capital of Infowiz limited company:-

Profit and Loss Account of Infowiz Industries Ltd.

Profit & Loss account of Infowiz ------------------- in Rs. Cr. -------------------


Industries

Mar '18 Mar '17

12 months 12 months

Income
Sales Turnover 340,814.00 401,302.00
Excise Duty 11,738.00 11,185.00
Net Sales 329,076.00 390,117.00
Other Income 8,721.00 8,936.00
Stock Adjustments -1,943.00 -412.00
Total Income 335,854.00 398,641.00
Expenditure
Raw Materials 267,834.00 334,283.00
Power & Fuel Cost 12,299.00 10,153.00
Employee Cost 3,686.00 3,370.00
Other Manufacturing Expenses 2,692.00 1,985.00
Miscellaneous Expenses 9,020.00 9,037.00
Total Expenses 295,531.00 358,828.00

Mar '15 Mar '14


12 mths 12 mths
Operating Profit 31,602.00 30,877.00
PBDIT 40,323.00 39,813.00
Interest 2,367.00 3,206.00
PBDT 37,956.00 36,607.00
Depreciation 8,488.00 8,789.00
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Profit Before Tax 29,468.00 27,818.00
PBT (Post Extra-ord Items) 29,468.00 27,818.00
Tax 6,749.00 5,834.00
Reported Net Profit 22,719.00 21,984.00
Total Value Addition 27,697.00 24,545.00
Equity Dividend 2,944.00 2,793.00
Corporate Dividend Tax 615.00 475.00
Per share data (annualised)
Shares in issue (lakhs) 32,356.89 32,319.02
Earnings Per Share (Rs) 70.21 68.02
Equity Dividend (%) 100.00 95.00
Book Value (Rs)

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Balance Sheet ofInfowiz Industries Ltd.

Balance Sheet of Infowiz Industries ------------------- in Rs. Cr. -------------------

Mar 18 Mar 17
12 mths 12 mths
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Trade Payables 54,470.00 57,862.00
Other Current Liabilities 19,063.00 10,767.00
Short Term Provisions 4,854.00 4,167.00
Total Current Liabilities 91,301.00 95,566.00
Total Capital And Liabilities 397,785.00 367,583.00
ASSETS
NON-CURRENT ASSETS
Tangible Assets 79,778.00 80,368.00
Intangible Assets 34,785.00 29,038.00
Capital Work-In-Progress 65,178.00 32,673.00
Intangible Assets Under Development 10,575.00 9,043.00
Fixed Assets 190,316.00 151,122.00
Non-Current Investments 62,058.00 52,692.00
Long Term Loans And Advances 29,259.00 28,436.00
Total Non-Current Assets 281,633.00 232,250.00
CURRENT ASSETS
Current Investments 50,515.00 33,370.00
Inventories 36,551.00 42,932.00
Trade Receivables 4,661.00 10,664.00
Cash And Cash Equivalents 11,571.00 36,624.00
Short Term Loans And Advances 12,307.00 11,277.00
OtherCurrentAssets 547.00 466.00
Total Current Assets 116,152.00 135,333.00
Total Assets 397,785.00 367,583.00
OTHER ADDITIONAL INFORMATION
CONTINGENT LIABILITIES, COMMITMENTS
Contingent Liabilities 80,641.00 75,955.00
CIF VALUE OF IMPORTS
Raw Materials 241,456.00 302,630.00
Stores, Spares And Loose Tools 3,217.00 3,719.00
Capital Goods 9,788.00 4,218.00
EXPENDITURE IN FOREIGN EXCHANGE
Expenditure In Foreign Currency 7,785.00 8,222.00
REMITTANCES IN FOREIGN CURRENCIES FOR DIVIDENDS
Dividend Remittance In Foreign Currency 622.00 524.00
EARNINGS IN FOREIGN EXCHANGE
FOB Value Of Goods 209,169.00 261,118.00
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Other Earnings 229.00 248.00
BONUS DETAILS
Bonus Equity Share Capital 2,108.56 2,108.56
NON-CURRENT INVESTMENTS
Non-Current Investments Quoted Market
16,950.00 18,039.00
Value
Non-Current Investments Unquoted Book
45,920.00 34,781.00
Value
CURRENT INVESTMENTS
Current Investments Quoted Market Value 19,158.00 21,655.00
Current Investments Unquoted Book Value 32,165.00 12,780.00 -

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