LRM

CHANAKYA NATIONAL LAW
UNIVERSITY
Calculate cost of equity, debt, preference share capital, bond, weighted
average cost of capital of TVS 2013-14, 2014-15& 2015-16 and its impact
on profitability of the company.
Financial Management
Submitted to: Submitted by:
Mr. KAMESHWAR PANDEY ABHISHEK SINGH
Roll no: 1606
Semester II
TABLE OF CONTENT
ACKNOWLEDMENT
RESEACH METHODOLOGHY
CHAPTER 1: Introduction
CHAPTER 2: Financial Management
CHAPTER 3: Cost of Capital
3.1 Cost of debt
3.2 Cost of Preference capital
3.3 Cost of Equity capital
3.4 The weighted average cost of Capital
CHAPTER 4: Balance Sheet
CHAPTER 5: TVS
CHAPTER 6: Annual Report
CHAPTER 7: Calculation of Cost of Capital of TVS
CHAPTER 8: Conclusion
BIBLIOGRAPHY
Page | 2 TERORISM IN INDIA

ACKNOWLEDMENT
Any project completed or done in isolation is unthinkable. This project, although prepared by me, is
a culmination of efforts of a lot of people. Firstly, I would like to thank our Professor of Accounting
and Audit, Mr. KameshwarPandey Sir for his valuable suggestions towards the making of this
project.
Further to that, I would also like to express my gratitude towards our seniors who were a lot of help
for the completion of this project. The contributions made by my classmates and friends are,
definitely, worth mentioning.
I would like to express my gratitude towards the library staff for their help also. I would also like to
thank the persons interviewed by me without whose support this project would not have been
completed.
Last, but far from the least, I would express my gratitude towards the Almighty for obvious reasons.
THANK YOU

RESEACH METHODOLOGHY
Method of Research
The researcher has adopted a purely doctrinal method of research. The researcher has made
extensive use of the library at the Chanakya National Law University and also the internet sources.
Aims and Objectives
The aim of the project is to present an overview of “cost of equity, debt, preference share capital,
bond, weighted average cost of capital of TVS 2013-14, 2014-15 & 2015-16 and its impact on
profitability of the company” through qualified information.
Limitation:
The presented research is confined to a time limit of one month and this research contains doctrinal
works, which are limited to library and internet sources and empirical research.

Introduction
This project deal with the calculation of cost of equity, debt, preference share capital, bond, weighted
average cost of capital of TVS. For calculating this first researcher need to understand does the cost
of capital is and how to calculate it. The researcher has also dealt with capital structure. The relative
proportion of various sources of funds used in a business is termed as financial structure. Capital
structure is a part of the financial structure and refers to the proportion of the various long-term
sources of financing. It is concerned with making the array of the sources of the funds in a proper
manner, which is in relative magnitude and proportion. The capital structure of a company is made
up of debt and equity securities that comprise a firm’s financing of its assets. It is the permanent
financing of a firm represented by long-term debt, preferred stock and net worth. So it relates to the
arrangement of capital and excludes short-term borrowings. It denotes some degree of permanency
as it excludes short-term sources of financing.Again, each component of capital structure has a
different cost to the firm. In case of companies, it is financed from various sources. In proprietary
concerns, usually, the capital employed, is wholly contributed by its owners. In this context, capital
refers to the total of funds supplied by both—owners and long-term creditors. Capital structure
maximizes the market value of a firm, i.e. in a firm having a properly designed capital structure the
aggregate value of the claims and ownership interests of the shareholders are maximized. It
minimizes the firm’s cost of capital or cost of financing. By determining a proper mix of fund
sources, a firm can keep the overall cost of capital to the lowest. There are usually two sources of
funds used by a firm: Debt and equity. A new company cannot collect sufficient funds as per their
requirements as it has yet to establish its creditworthiness in the market; consequently they have to
depend only on equity shares, which is the simple type of capital structure. After establishing its
creditworthiness in the market, its capital structure gradually becomes complex.

Financial Management
Financial Management means planning, organizing, directing and controlling the financial activities
such as procurement and utilization of funds of the enterprise. It means applying general
management principles to financial resources of the enterprise.
Scope/Elements
1. Investment decisions includes investment in fixed assets (called as capital budgeting).

Investment in current assets are also a part of investment decisions called as working capital
decisions.
2. Financial decisions - They relate to the raising of finance from various resources which will
depend upon decision on type of source, period of financing, cost of financing and the returns
thereby.
3. Dividend decision - The finance manager has to take decision with regards to the net profit
distribution. Net profits are generally divided into two:
a. Dividend for shareholders- Dividend and the rate of it has to be decided.
b. Retained profits- Amount of retained profits has to be finalized which will depend
upon expansion and diversification plans of the enterprise.
Objectives of Financial Management
The financial management is generally concerned with procurement, allocation and control of
financial resources of a concern. The objectives can be-
1. To ensure regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders which will depend upon the earning capacity,
market price of the share, expectations of the shareholders.
3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in
maximum possible way at least cost.
4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate
rate of return can be achieved.
5. To plan a sound capital structure-There should be sound and fair composition of capital so
that a balance is maintained between debt and equity capital.
Functions of Financial Management

1. Estimation of capital requirements: A finance manager has to make estimation with regards
to capital requirements of the company. This will depend upon expected costs and profits and
future programmes and policies of a concern. Estimations have to be made in an adequate
manner which increases earning capacity of enterprise.
2. Determination of capital composition: Once the estimation have been made, the capital
structure have to be decided. This involves short- term and long- term debt equity analysis.
This will depend upon the proportion of equity capital a company is possessing and
additional funds which have to be raised from outside parties.
3. Choice of sources of funds: For additional funds to be procured, a company has many
choices like-
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.
Choice of factor will depend on relative merits and demerits of each source and period of
financing.
4. Investment of funds: The finance manager has to decide to allocate funds into profitable
ventures so that there is safety on investment and regular returns is possible.
5. Disposal of surplus: The net profits decision have to be made by the finance manager. This
can be done in two ways:
a. Dividend declaration - It includes identifying the rate of dividends and other benefits
like bonus.
b. Retained profits - The volume has to be decided which will depend upon expansional,
innovational, diversification plans of the company.
6. Management of cash: Finance manager has to make decisions with regards to cash
management. Cash is required for many purposes like payment of wages and salaries,
payment of electricity and water bills, payment to creditors, meeting current liabilities,
maintainance of enough stock, purchase of raw materials, etc.
7. Financial controls: The finance manager has not only to plan, procure and utilize the funds
but he also has to exercise control over finances. This can be done through many techniques
like ratio analysis, financial forecasting, cost and profit control, etc.

Cost of Capital
In economics and accounting, the cost of capital is the cost of a company's funds
(both debt and equity), or, from an investor's point of view "the required rate of return on a portfolio
company's existing securities".1It is used to evaluate new projects of a company. It is the minimum
return that investors expect for providing capital to the company, thus setting a benchmark that a
new project has to meet.
For an investment to be worthwhile, the expected return on capital has to be higher than the cost
of capital. Given a number of competing investment opportunities, investors are expected to put their
capital to work in order to maximize the return. In other words, the cost of capital is the rate of return
that capital could be expected to earn in the best alternative investment of equivalent risk; this is
the opportunity cost of capital. If a project is of similar risk to a company's average business
activities it is reasonable to use the company's average cost of capital as a basis for the evaluation.
However, for projects outside the core business of the company, the current cost of capital may not
be the appropriate yardstick to use, as the risks of the businesses are not the same.2
A company's securities typically include both debt and equity, one must therefore calculate both the
cost of debt and the cost of equity to determine a company's cost of capital. Importantly, both cost of
debt and equity must be forward looking, and reflect the expectations of risk and return in the future.
This means, for instance, that the past cost of debt is not a good indicator of the actual forward
looking cost of debt.
Once cost of debt and cost of equity have been determined, their blend, the weighted average cost of
capital (WACC), can be calculated. This WACC can then be used as a discount rate for a project's
projected free cash flows to firm.
3.1 Cost of debt

Cost of debt refers to the effective rate a company pays on its current debt. In most cases, this phrase
refers to after-tax cost of debt, but it also refers to a company's cost of debt before taking taxes into
1
Brealey, Myers, Allen. "Principles of Corporate Finance", McGraw Hill, Chapter 10
2
Fernandes, Nuno. 2014, Finance for Executives: A Practical Guide for Managers, p. 17.

account. The difference in cost of debt before and after taxes lies in the fact that interest expenses are
deductible. Cost of debt is one part of a company's capital structure, which also includes the cost of
equity. A company may use various bonds, loans and other forms of debt, so this measure is useful
for giving an idea as to the overall rate being paid by the company to use debt financing. The
measure can also give investors an idea of the riskiness of the company compared to others, because
riskier companies generally have a higher cost of debt. To calculate its cost of debt, a company needs
to figure out the total amount of interest it is paying on each of its debts for the year. Then, it divides
this number by the total of all of its debt. The quotient is its cost of debt.
The formula can be written as:
Value of Debt =
Annual Dividend + (Redeemable Value - Sale value) / Number of years for redemption
(Redeemable Value + Sale value) / 2
Or
Kd = D +(RV - SV) / N
(RV + SV) / 2
3.2 Cost of Preference capital

The cost of preference share capital is apparently the dividend which is committed and paid by the
company. This cost is not relevant for project evaluation because this is not the cost at which further
capital can be obtained. To find out the cost of acquiring the marginal cost, we will be finding the
yield on the preference share based on the current market value of the preference share. The
preference share is issued at a stated rate of dividend on the face value of the share. Although the
dividend is not mandatory and it does not create legal obligation like debt, it has the preference of
payment over equity for dividend payment and distribution of assets at the time of liquidation.
Therefore, without paying the dividend to preference shares, they cannot pay anything to equity
shares. In that scenario, management normally tries to pay a regular dividend to the preference
shareholders.
Broadly, preference shares can be of two types – Redeemable and Irredeemable.
COST OF REDEEMABLE PREFERENCE SHARES

Redeemable Preference Shares: A company may issue this type of shares on the condition that the
company will repay the amount of share capital to the holders of this category ofshares after the
fixed period or even earlier at the discretion of the company.
Cost of Redeemable preference shares =
Annual Dividend + (Redeemable Value - Sale value) / Number of years for redemption
(Redeemable Value + Sale value) / 2
Or
Kp = D +(RV - SV) / N
(RV + SV) / 2
COST OF IRREDEEMABLE PREFERENCE SHARES
Irredeemable preference shares are those shares issuing by which the company has no obligation to
pay back the principal amount of the shares during its lifetime. The only liability of the company is to
pay the annual dividends. The cost of irredeemable preference shares is:
Kp (cost of pref. share) = Annual dividend of preference shares

Market price of the preference stock
Cumulative preference shares:

In case of cumulative preference shares, the market price of the preference stock will be
increased by such amount of dividend in arrears. Cumulative preference shares are those shares
whose dividends will get accumulated if they are not paid periodically. All the arrears of cumulative
preference shares must be paid before paying anything to the equity share holders.
Non-cumulative preference shares:

These are preference shares whose dividends do not get carried forward to the next year if
they are not paid during a year.
If the company issues new preference shares, the cost of preference capital would be:
Kp = Annual dividend / Net proceeds after floatation costs, if any.

If the floatation costs are expressed as percentage, the formula will take the following shape:
Kp = Annual dividend/Net proceeds(1-floatation costs)
3.3 Cost of Equity capital

In finance, the cost of equity is the return (often expressed as a rate of return) a firm theoretically
pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing
their capital. Firms need to acquire capital from others to operate and grow. Individuals and
organizations who are willing to provide their funds to others naturally desire to be rewarded. While
a firm's present cost of debt is relatively easy to determine from observation of interest rates in the
capital markets, its current cost of equity is unobservable and must be estimated. Finance theory and
practice offers various models for estimating a particular firm's cost of equity such as the capital
asset pricing model, or CAPM. Another method is derived from the Gordon Model, which is
a discounted cash flow model based on dividend returns and eventual capital return from the sale of
the investment. Another simple method is the Bond Yield Plus Risk Premium (BYPRP), where a
subjective risk premium is added to the firm's long-term debt interest rate. Moreover, a firm's overall
cost of capital, which consists of the two types of capital costs, can be estimated using the weighted
average cost of capital model.
The cost of equity is the return that stockholders require for their investment in a company. The
traditional formula for cost of equity (COE) is the dividend capitalization model:
Cost of Equity = (Dividend per share( for next year) / Current Market Value) + growth of dividend
CAPM Method
On this basis, the most commonly accepted method for calculating cost of equity comes from the
Nobel Prize-winning capital asset pricing model (CAPM): The cost of equity is expressed
formulaically below:
Re = rf + (rm – rf) * β
Where:

 Re = the required rate of return on equity
 rf = the risk free rate
 rm – rf = the market risk premium
 β = beta coefficient = unsystematic risk
But what does this mean?
 Rf – Risk-free rate - This is the amount obtained from investing in securities considered free
from credit risk, such as government bonds from developed countries. The interest rate
of U.S. Treasury Bills is frequently used as a proxy for the risk-free rate.
 ß – Beta - This measures how much a company's share price reacts against the market as a
whole. A beta of one, for instance, indicates that the company moves in line with the market.
If the beta is in excess of one, the share is exaggerating the market's movements; less than
one means the share is more stable. Occasionally, a company may have a negative beta (e.g.
a gold-mining company), which means the share price moves in the opposite direction to the
broader market. (Learn more in Beta: Know The Risk.)
For public companies, you can find database services that publish betas. Few services do a
better job of estimating betas than BARRA. While you might not be able to afford to subscribe
to the beta estimation service, this site describes the process by which they come up with
"fundamental" betas. Bloomberg and Ibbotson are other valuable sources of industry betas.
 (Rm – Rf) = Equity Market Risk Premium (EMRP) - The equity market risk premium (EMRP)
represents the returns investors expect to compensate them for taking extra risk by investing
in the stock market over and above the risk-free rate. In other words, it is the difference
between the risk-free rate and the market rate. It is a highly contentious figure. Many
commentators argue that it has gone up due to the notion that holding shares has become
more risky.
The EMRP frequently cited is based on the historical average annual excess return obtained
from investing in the stock market above the risk-free rate. The average may either be
calculated using an arithmetic mean or a geometric mean. The geometric mean provides an
annually compounded rate of excess return and will in most cases be lower than the
arithmetic mean. Both methods are popular, but the arithmetic average has gained
widespread acceptance.
Once the cost of equity is calculated, adjustments can be made to take account of risk factors specific
to the company, which may increase or decrease a company's risk profile. Such factors include the

size of the company, pending lawsuits, concentration of customer base and dependence on key
employees. Adjustments are entirely a matter of investor judgment, and they vary from company to
company.
3.4 The weighted average cost of Capital
The weighted cost of capital (WACC) is used in finance to measure a firm's cost of capital. WACC is
not dictated by management. Rather, it represents the minimum return that a company must earn on
an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will
invest elsewhere.3
The total capital for a firm is the value of its equity (for a firm without
outstanding warrants and options, this is the same as the company's market capitalization) plus the
cost of its debt (the cost of debt should be continually updated as the cost of debt changes as a result
of interest rate changes). Notice that the "equity" in the debt to equity ratio is the market value of all
equity, not the shareholders' equity on the balance sheet. To calculate the firm's weighted cost of
capital, we must first calculate the costs of the individual financing sources: Cost of Debt, Cost of
Preference Capital, and Cost of Equity Cap.
Calculation of WACC is an iterative procedure which requires estimation of the fair market value of
equity capital.
To calculate WACC, multiply the cost of each capital component by its proportional weight and take
the sum of the results. The method for calculating WACC can be expressed in the following formula:
WACC = (E/V) * Re + (D/V) * Rd * (1-Tc)
Where:
Re = Cost of Equity
Rd = Cost of debt
E = Market value of firm’s equity
V= E + D
E/V = percentage of financing that is equity
3
Fernandes, Nuno. 2014, Finance for Executives: A Practical Guide for Managers, p. 32.

D/V = percentage of financing that is debt
Tc = Corporate tax rate
Uses of Weighted Average Cost of Capital (WACC)
Securities analysts frequently use WACC when assessing the value of investments and when
determining which ones to pursue. For example, in discounted cash flow analysis, one may apply
WACC as the discount rate for future cash flows in order to derive a business's net present value.
WACC may also be used as a hurdle rate against which to gauge ROIC performance. WACC is also
essential in order to perform economic value added (EVA) calculations.
Limitations of Weighted Average Cost of Capital (WACC)
The WACC formula seems easier to calculate than it really is. Because certain elements of the
formula, like cost of equity, are not consistent values, various parties may report them differently for
different reasons. As such, while WACC can often help lend valuable insight into a company, one
should always use it along with other metrics when determining whether or not to invest in a
company.

Balance Sheet
A balance sheet lays out the ending balances in a company’s asset, liability, and equity accounts as
of the date stated on the report. The most common use of the balance sheet is as the basis for ratio
analysis, to determine the liquidity of a business. Liquidity is essentially the ability to pay one’s
debts in a timely manner. The information listed on the report must match the following formula:
Total assets = Total liabilities + Equity
The balance sheet is one of the key elements in the financial statements, of which the other
documents are the income statement and the statement of cash flows. A statement of retained
earnings may sometimes be attached.
The format of the balance sheet is not mandated by accounting standards, but rather by customary
usage. The two most common formats are the vertical balance sheet (where all line items are
presented down the left side of the page) and the horizontal balance sheet (where asset line items are
listed down the first column and liabilities and equity line items are listed in a later column). The
vertical format is easier to use when information is being presented for multiple periods.4
The balance sheet presents a company’s financial position at the end of a specified date. Some
describe the balance sheet as a “snapshot” of the company’s financial position at a point (a moment
or an instant) in time. For example, the amounts reported on a balance sheet dated December 31,
2015 reflect that instant when all the transactions through December 31 have been recorded.
Because the balance sheet informs the reader of a company’s financial position as of one moment in
time, it allows someone—like a creditor—to see what acompany owns as well as what it owes to
other parties as of the date indicated in the heading. This is valuable information to the banker who
wants to determine whether or not a company qualifies for additional credit or loans. Others who
would be interested in the balance sheet include current investors, potential investors, company
management, suppliers, some customers, competitors, government agencies, and labor unions.5
4
www.accountingcoach.com/balance-sheet/explanation
5
http://www.accountingcoach.com/balance-sheet/explanation

TVS
TVS Motor Company is the third largest two-wheeler manufacturer in India, with a revenue of over
13,000 Cr ($2 billion) in 2016-17. It is the flagship company of the Rs. 40,000 Cr ($6 billion, in
2014-15) TVS Group. The company has an annual sales of 3 million units and an annual capacity of
over 4 million vehicles. TVS Motor Company is also the 2nd largest exporter in India with exports to
over 60 Countries.
TVS Motor Company Ltd (TVS Motor), member of the TVS Group, is the largest company of the
group in terms of size and turnover, with more than 3 crore (3 million) customers riding a TVS bike.
TVS was established by Mr TV SundaramIyengar. He began with delhi first bus service in 1911 and
founded T.V.SundaramIyengar and Sons Limited, a company in the transportation business with a
large fleet of trucks and buses under the name of Southern Roadways Limited. When he died in 1955,
his sons took the company ahead with several forays in the automobile sector, including finance,
insurance, manufacture of two-wheelers, tyres and components. The group has managed to run 97
companies that account for a combined turnover of nearly $6 billion.
Sundaram Clayton was founded in 1962 in collaboration with Clayton Dewandre Holdings, United
Kingdom. It manufactured brakes, exhausts, compressors and various other automotive parts. The
company set up a plant at Hosur in 1978, to manufacture mopeds as part of their new division. In
1980, TVS 50, India's first two-seater moped rolled out of the factory at Hosur in Tamil Nadu,
Southern India. A technical collaboration with the Japanese auto giant Suzuki Ltd. resulted in the
joint-venture between Sundaram Clayton Ltd and Suzuki Motor Corporation, in 1982. Commercial
production of motorcycles began in 1984.
TVS and Suzuki shared a 19-year-long relationship that was aimed at technology transfer, to enable
design and manufacture of two-wheelers specifically for the Indian market. Re-christened TVS-
Suzuki, the company brought out several models such as the Suzuki Supra, Suzuki Samurai, Suzuki
Shogun and Suzuki Shaolin. In 2001, after separating ways with Suzuki, the company was renamed
TVS Motor, relinquishing its rights to use the Suzuki name. There was also a 30-
month moratorium period during which Suzuki promised not to enter the Indian market with
competing two-wheelers.
Recent Launches include RTR 200, TVS Victor and TVS XL 100. TVS has recently won 4 top awards
at J.D. Power Asia Pacific Awards 2016, 3 top awards at J.D. Power Asia Pacific Awards 2015 &
Two-Wheeler Manufacturer of the Year at NDTV Car & Bike Awards (2014–15)

In early 2015, TVS Racing became the first Indian factory team to take part in the Dakar Rally,
which is the longest and most dangerous rally in the world. TVS Racing partnered with French
motorcycle manufacturer Sherco for the Dakar rally, and named the team Sherco TVS Rally Factory
Team . TVS Racing also won the Raid de Himalaya and the FOX Hill Super Cross held at Sri Lanka.
In three decades of its racing history, the team has won more than 90% of the races.
In 2016 TVS started manufacturing the BMW G310R, a model co-developed with BMW Motorrad.
TVS Motor was the first Indian company to deploy a catalytic converter in a 100 cc motorcycle and
the first to indigenously produce a four stroke 150cc motorcycle. The list of firsts from TVS: "India’s
first 2-seater moped – TVS 50", "India’s first indigenous scooterette - TVS Scooty", "India’s first
Digital Ignition - TVS Champ", "India’s first fully indigenous motorcycle - Victor", "First Indian
company to launch ABS in a motorcycle - Apache RTR Series", "The first scooter with Body-Balance
Technology – TVS Wego","The clutchless motorcycle=Jive", "Indonesia’s first dual-tone exhaust
noise technology – Tormax" & "India's first oil-cooled chamber construct with Ram-Air assist- TVS
Apache RTR 200 4V"

Calculation of Cost of Capital of TVS
2013-2014 :
Calculation of cost of Equity :-
Total no. of shares = 40,00,000 i.e. 40 lakhs
Total amount of share = Paid up share capital + Reserve fund & other funds
= 2896.96 + 3637.27+1517.69 ( in lakhs)
= 8051.92
Cost of each share = Total amount of share / Total no. of share
= 8051.92 / 40
= Rs 201.298
Dividend per year = 429.03 (in lakhs)
= 429.03 / 40
= Rs10.72
Growth of dividend for year 2013-14 = (429.03 - 421.3) / 421.3
= 1.83%
Growth of dividend for year 2014-15 = (433.28 – 429.03) / 429.03
= 1%
= 1.15%
Average of growth of dividend previous year = 1.32%
Therefore, growth of dividend (g) = 1.32%
Cost of Equity for year 2013-14 = (Dividend per share( for next year) / Current Market Value) +
growth of dividend(g)
= (10.72/ 201.298) + 0.0132
= 0.0664 or 6.64%

Comment- In finance, the cost of equity is the return (often expressed as a rate of return) a firm
theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake
by investing their capital. The cost of equity of the company is 6.64% which is lower than its cost of
debt which is 17.78% which is quiet high. The higher the cost of capital the more company will be in
risk.
Calculation of cost of Debt:-
Total amount of debt = long term loans + short term loans + redeemable debenture
= 9326.01 + 14127.12 + 400.52 (in lakhs)
= 23853.65 (in lakhs)
Interest paid = 4259.74 (in lakhs)
Cost of Debt = Interest paid / Total amount of debt
= 4259.74 / 23853.65
= 17.85 %
Comment-In this scenario the cost of debt is 17.85% which is more than its cost of equity. There
should be a balance between cost of equity and cost of debt. One cannot rely only on a particular
source. In this case the firm should try to lower its cost of debt.
Calculation of Weighted Average Cost of Capital (WACC) :-
WACC = (E/V) * Re + (D/V) * Rd * (1-Tc)

Where:
Re = Cost of Equity
Rd = Cost of debt
D = Market value of firm’s debt
V= E + D
Re = 0.0664
Rd = 0.1785
E = 8051.92
D = 23853.65
V= E + D = 31905.57
E/V = 8051.92/31905.57 = 0.2523
D/V = 23853.65/31905.57 = 0.7476
Tc = 30% or 0.30
Weighted Average Cost of Capital = (E/V) * Re + (D/V) * Rd * (1-Tc)
= (0.2523*0.0664) + (0.7476)*0.1785*(1-0.30)
= 0.0167 +0.093
= 0.1101
Or 11.01%
Comment-The WACC of the firm is 11.01%. The firm should minimize WACC by minimizing or
reducing cost of debt. The cost of debt is higher as compared to that of cost of capital. Companies
can raise capital with either debt or equity. Debt usually costs less than equity due to tax advantages,

especially when rates are low.
2014-2015:
= 2978.53+ 7097.72+ (in lakhs)
= 10076.25

= 10076.25/ 40
= Rs 251.906
Dividend per year = 433.28(in lakhs)
= 433.28/ 40
= Rs10.83
= 1.83%
= 1%
= 1.15%
Cost of Equity for year 2013-14 = (Dividend per share(for next year) / Current Market Value) +
= (10.83/ 251.906) + 0.0132
= 0.05619 or 5.619%
Comment- The cost of equity is 5.619% which is lower than the previous which beneficial for the
company. Lower the cost of the equity the better it would be for the company. The cost of debt is
9.81%. The cost of debt is higher than the cost of equity. Debt usually costs less than equity due to
tax advantages, especially when rates are low. However in this case it is just reverse. The firm should
think of floatation additional equity capital and redeem the debt as earlier . The cost of debt is
expectedly high. Presently banks are offering loans as comparatively lower rates.

= 13698.29 + 25070.25 + 334.20 (in lakhs)
= 39102.74 (in lakhs)
= 3837.52 / 39102.74
= 0.0981 or 9.81 %
Comment- The cost of debt is 9.81% which is lower as compared to previous year. In 2013-14 the
cost of debt was 17.28%. In year 2013-14 total amount has increased and interest paid has
decreased.The lower the cost the better it for the company. It shows that company is now in better
position than previous in regards to cost of debt. However the company should redeem the debt as
earliest as possible . The cost of debt is comparatively lower rates.
Calculation of Weighted Average Cost of Capital (WACC):-
WACC = (E/V) * Re + (D/V) * Rd * (1-Tc)
Where:
Re = Cost of Equity
Rd = Cost of debt
V= E + D
Re = 0.05619

Rd = 0.0981
E = 10076.25
D = 39102.74
V= E + D = 49179
E/V = 0.2048
D/V = 0.7951
Tc = 30% or 0.30
= (0.2048*0.05619) + (0.7951)*0.0981*(1-0.30)
= 0.0115 +0.0467
= 0.0582
Or 5.82%
Comment-WACC for the year 2013-14 was 11.01%. For the year 2014-15 WACC is 5.82% which
is lower than previous year which was 11.01%. This is due to the lower cost of equity and lower cost
of debt in 2014-15. This show that the company is better position in year 2014-15 as compared to
previous year as cost of equity and cost of debt is lower in this year.

2015-2016:
= 4111.38+ 8731.40 (in lakhs)
= 12842.78
= 12842.78/ 40
= Rs 321.069
Dividend per year = 433.28(in lakhs)
= 438.27/ 40
= Rs10.95
= 1.83%
= 1%
= 1.15%
Cost of Equity for year 2013-14 = (Dividend per share(for next year) / Current Market Value) +
= (10.95/ 321.069) + 0.0132
= 0.03412 or 3.412%
Comment-The cost of equity is lowest in the year 2015-16 that is 3.412%. The cost of equity is
5.619% in 2014-15 which is lower than the previous which beneficial for the company. Lower the

cost of the equity the better it would be for the company. The cost of debt is 9.81% in year 2013-14.
Cost of equity in year 2015-16 is lowest. The cost of debt is higher than the cost of equity. It can be
said that the firm had taken additional floating equity as the cost of equity has lowered.
= 13698.29 + 25070.25 + 334.20 (in lakhs)
= 39102.74 (in lakhs)
= 5190.40 / 39102.74
= 0.1327 or 13.27 %
Comment-The cost of debt for year 2015-16 is 13.27%. The cost of debt is 9.81% which is lower
as compared to previous year. In 2013-14 the cost of debt was 17.28%. In year 2013-14 total amount
has increased and interest paid has decreased. There is increase in cost of debt in the year 2015-16
although it is less than figure of 2013-14. The lower the cost the better it is for the company.
Although cost of debt has lowered still it is quiet high. Therefore the company should redeem the
debts. Presently the bank are offering loans as comparatively lower rates.
Calculation of Weighted Average Cost of Capital (WACC):-
WACC = (E/V) * Re + (D/V) * Rd * (1-Tc)

Where:
Re = Cost of Equity
Rd = Cost of debt
V= E + D
Re = 0.03412
Rd = 0.1327
E = 12842.78
D = 39102.74
V= E + D = 51945.52
E/V = 0.2472
D/V = 0.7527
Tc = 30% or 0.30
= (0.2472*0.03412) + (0.7527)*0.1327*(1-0.30)
= 0.0084 +0.0699
= 0.0783
Or 7.83%
Comment-WACC for the year 2015-16 is 7.83%. WACC for the year 2013-14 was 11.01%. For
the year 2014-15 WACC was 5.82% which is lower than previous year which was 11.01%. This is
due to the lower cost of equity and lower cost of debt in 2014-15. But there is increase in WACC in

the year 2015-16. The company should lower its cost of debt and cost of equity in order to lower
WACC. Lower the cost of capital the better the company will be in position.
Conclusion
Weighted average cost of capital is a weighted average of cost of equity, debt and preference
shares and the weights are the percentage of capital sourced from each component respectively in
market value terms. It is better known as Overall ‘WACC’ i.e. the overall cost of capital for the
company as a whole. The advantages of using such a WACC are its simplicity, easiness, and
enabling prompt decision making. The disadvantages are its limited scope of application and its rigid
assumptions coming in the way of evaluation of new projects.An optimal capital structure is the best

debt-to-equity ratio for a firm that maximizes its value. The optimal capital structure for a company
is one that offers a balance between the ideal debt-to-equity range and minimizes the firm's cost of
capital.
Companies can raise capital with either debt or equity. Each strategy has its own advantages and
disadvantages. Debt usually costs less than equity due to tax advantages, especially when rates are
low. However, debt also obligates the company to pay out a portion of future earnings, even when
earnings are declining. By contrast, equity does not need to be paid back; however, equity comes
with an exchange of ownership. Most companies use a mix of both debt and equity to raise capital.
This mix is referred to as the capital structure. It is the goal of most public companies to operate at an
optimal capital structure to maximize profits.
According to the cost of equity, cost of debt and WACC of TVS for the year 2013-14, 2014-15 and
2015-16 we can say that the company should lower its cost of capital. The cost of equity in 2013-14
was 6.69%. The cost of equity is lowest in the year 2015-16 that is 3.412%. The cost of equity is
5.619% in 2014-15 which is lower than the previous which beneficial for the company. The
company should think of floating additional capital. The cost of debt for year 2015-16 is 13.27%.
The cost of debt is 9.81% which is lower as compared to previous year. In 2013-14 the cost of debt
was 17.28%. In year 2013-14 total amount has increased and interest paid has decreased. There is
increase in cost of debt in the year 2015-16 although it is less than figure of 2013-14. The lower the
cost the better it is for the company. Although cost of debt has lowered still it is quiet high. Therefore
the company should redeem the debts. Presently the bank are offering loans as comparatively lower
rates. WACC for the year 2015-16 is 7.83%. WACC for the year 2013-14 was 11.01%. For the year
2014-15 WACC was 5.82% which is lower than previous year which was 11.01%. This is due to the
lower cost of equity and lower cost of debt in 2014-15. But there is increase in WACC in the year
2015-16. The company should lower its cost of debt and cost of equity in order to lower WACC.
Lower the cost of capital the better the company will be in position. Therefore we can conclude that
the firm should think of floating additional equity capital and redeem the debt.

BIBLIOGRAPHY
BOOKS
Brealey, Myers, Allen. "Principles of Corporate Finance"
Kohok, Advanced Financial Management, Everest Publishing House
I.M Pandey, Financial Management
Inamdar, S.M. Everst ,Cases in Financial Management
WEBSITES-
www.accountingcoach.com/balance-sheet/explanation
www.investopedia.com
www.bnkbazar.com
www.businessdictionary.com
www.TVS.com

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CHANAKYA NATIONAL LAW

Submitted to: Submitted by:

Mr. KAMESHWAR PANDEY ABHISHEK SINGH

Roll no: 1606

Page | 2 TERORISM IN INDIA

Page | 3 TERORISM IN INDIA

Aims and Objectives

Page | 4 TERORISM IN INDIA

Page | 5 TERORISM IN INDIA

1. Investment decisions includes investment in fixed assets (called as capital budgeting).

Objectives of Financial Management

1. To ensure regular and adequate supply of funds to the concern.

Functions of Financial Management

Page | 6 TERORISM IN INDIA

Page | 7 TERORISM IN INDIA

3.1 Cost of debt

Page | 9 TERORISM IN INDIA

The formula can be written as:

3.2 Cost of Preference capital

COST OF REDEEMABLE PREFERENCE SHARES

Page | 10 TERORISM IN INDIA

Cost of Redeemable preference shares =

COST OF IRREDEEMABLE PREFERENCE SHARES

Kp (cost of pref. share) = Annual dividend of preference shares

Cumulative preference shares:

Non-cumulative preference shares:

Kp = Annual dividend / Net proceeds after floatation costs, if any.

Page | 11 TERORISM IN INDIA

Kp = Annual dividend/Net proceeds(1-floatation costs)

3.3 Cost of Equity capital

Page | 12 TERORISM IN INDIA

But what does this mean?

Page | 13 TERORISM IN INDIA

3.4 The weighted average cost of Capital

WACC = (E/V) * Re + (D/V) * Rd * (1-Tc)

E = Market value of firm’s equity

E/V = percentage of financing that is equity

Page | 14 TERORISM IN INDIA

Tc = Corporate tax rate

Uses of Weighted Average Cost of Capital (WACC)

Limitations of Weighted Average Cost of Capital (WACC)

Page | 15 TERORISM IN INDIA

Total assets = Total liabilities + Equity

Page | 16 TERORISM IN INDIA

Page | 17 TERORISM IN INDIA

Page | 18 TERORISM IN INDIA

Total no. of shares = 40,00,000 i.e. 40 lakhs

= 2896.96 + 3637.27+1517.69 ( in lakhs)

Cost of each share = Total amount of share / Total no. of share

Dividend per year = 429.03 (in lakhs)

Growth of dividend for year 2013-14 = (429.03 - 421.3) / 421.3

Growth of dividend for year 2014-15 = (433.28 – 429.03) / 429.03

Growth of dividend for year 2015-16 = (438.27 – 433.28) / 433.28

Average of growth of dividend previous year = 1.32%

Therefore, growth of dividend (g) = 1.32%

= (10.72/ 201.298) + 0.0132

Page | 19 TERORISM IN INDIA

Calculation of cost of Debt:-

= 9326.01 + 14127.12 + 400.52 (in lakhs)

= 23853.65 (in lakhs)

Interest paid = 4259.74 (in lakhs)

Cost of Debt = Interest paid / Total amount of debt

Calculation of Weighted Average Cost of Capital (WACC) :-