COST OF CAPITAL IN

FINANCIAL MANAGEMENT
AFTERSCHO☺OL
– DEVELOPING CHANGE MAKERS
CENTRE FOR SOCIAL ENTREPRENEURSHIP
PGPSE PROGRAMME –
World’ Most Comprehensive programme in social
entrepreneurship & spiritual entrepreneurship
OPEN FOR ALL FREE FOR ALL

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 COST OF CAPITAL IN
FINANCIAL MANAGEMENT
Dr. T.K. Jain.
AFTERSCHO☺OL
Centre for social entrepreneurship
Bikaner M: 9414430763
tkjainbkn@yahoo.co.in
www.afterschool.tk, www.afterschoool.tk
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
 Jitu Global Inc. issues 10%
preference shares at a discount of
10%. What is the cost of capital?

• Let us assume that the face value is Rs.

100. Dividend will be 10.
• Cash realised is 100 – 10 = 90
• Ke (cost of capital) 10 / 90 =11%

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 Goti Global Inc. issues 20%
preference shares at a premium of
5%. What is the cost of capital?
• Let us assume that the face value is Rs.
100. Dividend will be 20
• Cash realised is 100 +5 = 105
• Ke (cost of capital) 20/105 =19%

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 Goti Global Inc. issues 20%
preference shares at a premium of
5% for 10 years. He will redeem
these at 10% premium. What is the
cost of capital?
• Let us assume that face value is 100.
• Dividend = 20
• Redemption value 110, realised value 105
• Ke = (20 + ((110 – 105) / 10)) / (average of
110 and 105)
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 solution
• Ke = (20 + ((110 – 105) / 10)) / (average of
110 and 105)
• (20 + .5)/107.5
• =19% answer.

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 Risk free rate of return = 10%,
Market Portfolio rate of return for
software companies = 15%. Kap
Softwares has beta of 1.75. What is
the cost of capital of Kap
Softwares?

• Formula = Rf (risk free rate) + beta

(Market rate – Risk free rate)
• = .10 + 1.75 (.15-.10)
•www.afterschoool.tk
=18.75% answer. AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Dhawal World Inc. has growth rate
of 15%. Current market price of his
shares are 5000. Last year he gave
Rs. 10 as dividend. What is the
cost of retained earnings of this
company as per DCF approach?
• Formulae (Projected dividend of next
year)/ (current market price) + growth rate
• =(10*1.15) / 5000 + .15 = 15.23% answer.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Vinod & Pankaj Inc. have beta of
1.1. Market rate is 14%. Risk free
rate is 8%. What is the cost of
capital of this company as per
CAPM?
• Formula = Rf (risk free rate) + beta
(Market rate – Risk free rate)
• .08 + 1.1 (.14 - .08)
• =14.6 % answer.

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Sarika Global Inc. has 15% debt of
$20 tr.18% Preference shares of
$10 Tr. And Equity of $ 90 Tr. Cost
of equity is 20%. Tax rate is 40%.
What is the overall cost of capital?
• =(.15*(1-.4)*(20/120) )
+(.18*(10/120)+(.2*(90/120))
• =18% answer.

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Ajay Ltd. Has a plan to raise debt.
He will get Rs. 100 Crore loan @
12%. He will pay 40% tax to the
government of India? What will be
his cost of debt?
• = .12 (1-.4)
• =7.20% only

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 Goutam Buchha has following
options: (suggest which is the best)
Tax rate is 50%
• Equity = $ 250 tr.@ • Equity = $ 50 tr.@
20% 25%
• Debt = $ 50 Tr. @ • Debt = $ 200 Tr. @
12% 15%
• Preference = $ 30 Tr. • Preference = $ 80 Tr.
@ 15% @ 18%

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 Solution
• 1st option:
• (.20*250/330) + .12 * (1-.
5)*(50/330)+.15*(30/330) = 17.42%

• 2nd option:
• (.25*50/330) + .15 * (1-.
5)*(200/330)+.18*(80/330) = 12.69%
• 2nd option is much better (but risky also).
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 ABOUT AFTERSCHO☺OL
Afterschoool conducts three year integrated PGPSE
(after class 12th along with IAS / CA / CS) and 18
month PGPSE (Post Graduate Programme in Social
Entrepreneurship) along with preparation for CS / CFP /
CFA /CMA / FRM. This course is also available online
also. It also conducts workshops on social
entrepreneurship in schools and colleges all over India –
start social entrepreneurship club in your institution
today with the help from afterschoool and help us in
developing society.

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 Why such a programme?
• To promote people to take up entrepreneurship
and help develop the society
• To enable people to take up franchising and
other such options to start a business / social
development project
• To enable people to take up social development
as their mission
• To enable people to promote spirituality and
positive thinking in the world

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 Who are our supporters?
• Afterschoolians, our past beneficiaries,
entrepreneurs and social entrepreneurs
are supporting us.
• You can also support us – not necessarily
by money – but by being promotor of our
concept and our ideas.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

 About AFTERSCHO☺OL PGPSE – the
best programme for developing great
entrepreneurs
• Most flexible, adaptive but rigorous programme
• Available in distance learning mode
• Case study focused- latest cases
• Industry oriented practical curriculum
• Designed to make you entrepreneurs – not just
an employee
• Option to take up part time job – so earn while
you learn
• The only absolutely free course on internet
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 Workshops from
AFTERSCHO☺OL
• IIF, Delhi
• CIPS, Jaipur
• ICSI Hyderabad Branch
• Gyan Vihar, Jaipur
• Apex Institute of Management, Jaipur
• Aravali Institute of Management, Jodhpur
• Xavier Institute of Management, Bhubaneshwar
• Pacific Institute, Udaipur
• Engineering College, Hyderabad

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 Flexible Specialisations:
• Spiritualising business and society
• Rural development and transformation
• HRD and Education, Social Development
• NGO and voluntary work
• Investment analysis,microfinance and inclusion
• Retail sector, BPO, KPO
• Accounting & Information system (with CA / CS /CMA)
• Hospital management and Health care
• Hospitality sector and culture and heritage
• Other sectors of high growth, high technology and social
relevance

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 Salient features:
• The only programme of its kind (in the whole world)
• No publicity and low profile course
• For those who want to achieve success in life – not just a
degree
• Flexible – you may stay for a month and continue the rest of
the education by distance mode. / you may attend weekend
classes
• Scholarships for those from poor economic background
• Latest and constantly changing curriculum – keeping pace
with the time
• Placement for those who are interested
• Admissions open throughout the year
• Latest and most advanced technologies, books and study
material

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 Components
• Pedagogy curriculum and approach based on IIM Ahmedabad and ISB
Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad)
• Meditation, spiritualisation, and self development
• EsGotitial softwares for business
• Business plan, Research projects
• Participation in conferences / seminars
• Workshops on leadership, team building etc.
• Written submissions of research projects/articles / papers
• Interview of entrepreneurs, writing biographies of entrepreneurs
• Editing of journals / newsletters
• Consultancy / research projects
• Assignments, communication skill workshops
• Participation in conferences and seminars
• Group discussions, mock interviews, self development diaryng
• Mind Power Training & writing workshop (by Dr. T.K.Jain)

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 Pedagogy
• Case analysis,
• Articles from Harvard Business Review
• Quiz, seminars, workshops, games,
• Visits to entrepreneurs and industrial visits
• PreGotitations, Latest audio-visuals
• Group discussions and group projects
• Periodic self assessment
• Mentoring and counselling
• Study exchange programme (with institutions out of
India)
• Rural development / Social welfare projects
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 Branches
• AFTERSCHO☺OL will shortly open its
branches in important cities in India
including Delhi, Kota, Mumbai, Gurgaon
and other important cities.
Afterschooolians will be responsible for
managing and developing these branches
– and for promoting social entrepreneurs.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

 Case Studies
• We want to write case studies on social
entrepreneurs, first generation
entrepreneurs, ethical entrepreneurs.
Please help us in this process. Help us to
be in touch with entrepreneurs, so that we
may develop entrepreneurs.

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Basic values at AFTERSCHO☺OL
• Share to learn more
• Interact to develop yourself
• Fear is your worst enemy
• Make mistakes to learn
• Study & discuss in a group
• Criticism is the healthy route to mutual support
and help
• Ask fundamental questions : why, when, how &
where?
• Embrace change – and compete with yourself
only
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 www.afterschoool.tk
social entrepreneurship for better
society

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS