A CASE PRESENTATION ON

BLADES INC. ON ASSESSMENT

OF COST OF CAPITAL

Presented by
•PULKIT PURI
•RAGHAV GUPTA
•PRASHANT MANI
•PAVAN KUMAR
•RAMESH K.
 INTRODUCTION

• Blades Inc. a U.S. based Roller Blades

Manufacturing Firm
• Comparatively smaller scale of operation

• Has expansion plans by establishing subsidiary

in Thailand
• The effect on overall cost of capital vis-à-vis the
capital structure
IMPACT ON COST OF CAPITAL AS
COMPARED TO OTHER U.S.
PLAYERS
COMPANY TYPE
FACTORS IMPACTING
COST OF CAPITAL SMALL LARGE

PREFERENTIAL TREATMENT FROM

NO YES
CREDITORS

GREATER ACCESS TO
NO YES
INTERNATIONAL CAPITAL MARKET

INTERNATIONAL DIVERSIFICATION YES YES

EXPOSURE TO EXCHANGE RATE

YES YES
RISK
EXPOSURE TO COUNTRY RISK YES YES
AFFECT ON REQUIRED RATE
OF RETURN AS PER CAPM
IN US AS WELL AS THIALAND’S
MARKETS
WHERE β= 1.8
ONLY IN US MARKET
WHER β= 2
Ke = Rf + β (Rm- Rf)

Rf = 5%
Ke = Rf + β (Rm- Rf)
Rm = 12%
Rf = 5%

Rm = 12%.
Thus,
Thus,
Ke = 5 + 1.8 ( 12-5)
Ke = 5 + 2 ( 12-5)
Ke = 17.6%
Ke = 19%
AFFECT ON COST OF CAPITAL IN
CASE OF FUNDS BORROWED
FROM THAILAND

FACTORS MOVEMENT OF IMPACT ON COST

IMPACTING FACTORS OF CAPITAL
HIGH INCREASE
INTEREST RATE
LOW DECREASE
ECONOMIC HIGH INCREASE / HIGH
UNCERTAINTY LOW DECREASE / LOW
POSSIBILITY OF USING DEBT
IN THE CAPITAL STRUCTURE
• Debt from Thailand will increase debt

• Retained earnings transferred to U.S.

increase exchange rate risk
• Cost of Transfer

• Exposure to country risk

THANK YOU