CORPORATE FINANCE

NAME=YASHRAJ.
CLASS=BBA 3RD SEMESTER
DATE=17/11/23
TOPIC=COST OF CAPITAL ANALYSIS
EXPLANATION OF COST OF CAPITAL
Cost of capital is the minimum rate of return or profit a
company must earn before generating value. It's calculated
by a business's accounting department to determine
financial risk and whether an investment is justified.1

IMPORTANCE OF COST OF CAPITAL

Businesses and financial analysts use the cost of capital
to determine if funds are being invested effectively. If the
return on an investment is greater than the cost of capital,
that investment will end up being a net benefit to the
company's balance sheets. Conversely, an investment
whose returns are equal to or lower than the cost of
capital indicate that the money is not being spent wisely.

The cost of capital can determine a company's valuation.

Since a company with a high cost of capital can expect
lower proceeds in the long run, investors are likely to see
less value in owning a share of that company's equity.

FINANCIAL FEASIBILITY
Financial feasibility describes whether your project is finan
cially viable. The financial feasibility report includes the co
st or
benefit analysis of the project. It also estimates the expect
ed return on investment (ROI) and indicates financial risk.
SOURCES OF CAPITAL AND
ASSOCIATED COSTS

AMBUJA CEMENTS LTD. is a 42 years old company,

incorporated on 20 Oct 1981. It is classified as Public
Listed Indian Non-Government Company. Its authorized
share capital is ₹81,53,50,00,000.00 (₹8,153.50 Cr ) and its
main line of business is manufacture Non-metallic Mineral
Products. AMBUJA CEMENTS LTD. Annual General
Meeting (AGM) was last held on 20 Jul 2023 and as per
records its balance sheet was last filed on 31 Mar 2023.
AMBUJA CEMENTS LTD. Unique Corporate Identification
Number (CIN) is L26942GJ1981PLC004717 and its
registration number is 4717. It is registered at ROC-
Ahmedabad.

COST OF EQUITY
The cost of equity is the rate of return expected by equity
investors or shareholders. It involves the equities and
securities held by investors. A company's cost of equity
symbolizes the compensation or value that market demand
in exchange for owning assets and bearing the risk of
ownership. There are various models to calculate this
value, but the most common ones are the Capital Asset
Pricing Model (CAPM) and the Dividend Capitalization
Model.
COST OF DEBT
The cost of debt refers to the amount of interest a
company must pay on its borrowings, essentially the debt
held by debt holders of a company. It is a key aspect of a
firm's financial analysis. To calculate the cost of debt, a
company needs to determine the total interest to be paid
on all its debt for the year. This figure is then divided by
the total debt of the company, resulting in the cost of debt.

COST OF EQUITY FOR AMBUJA CEMENTS LTD as of

September 2023 CALCULATED BY CAPM (CAPITAL
ASSET PRICING MODEL) IS 10.80%

Cost of Equity=Rf + Beta x ERP

=7.22%+0.80 X 4.47%

=10.80%

COST OF DEBT For Ambuja Cements Ltd. as of Sep. 2023,

Ambuja Cement LTD. interest expense was ₹2266.4 Crores.
Its total Book Value of Debt (D) is ₹7451.7 Crores.
Cost of Debt = 2266.4 / 7451.7
= 30.4145%.
COST ANALYSIS OF AMBUJA
CEMENTS

Ambuja Cement (now part of Adani group conglomerate) is

a large cement player with capacity of 31.5 MT across
North INDIA (35%), South INDIA (24%), West INDIA (~20%),
East INDIA (21%) in India.