COST OF CAPITAL CAPITAL BORROWED OWNED Return on

COST OF CAPITAL

CAPITAL BORROWED OWNED

Return on Profit Sales = ---------X---------------- Capital Employed Sales Capital Employed

Capital Employed Cost Return

Capital Employed Equity Share Capital + Retained Earnings + Preference Capital + Debts(Borrowings) COST Fixed Assets + Working Capital RETURN

Capital = Debt Weighted + Preference Average Cost + Equity of Capital + Retained Earnings

Cost of Debt = Where I (1 - T) ----------D I = Annual Interest Payment T = Corporate Tax Rate D = Net Proceeds from Debts

Cost of Redeemable Debt I ( 1 - T) + (RV – NP)/N = ---------------------(RV + NP) ------2 Where I RV NP N T = = = Annual Interest Payment Redeemable Value on Maturity Net Proceeds from sale Years to Maturity Corporate Tax Rate

Cost of Preference Capital = Where D ----------NP D = Preference Dividend NP = Net Proceeds

Cost of Equity 1. Dividend Yield Method 2. Dividend Growth Model 3. Price Earning Method 4. Capital Asset Pricing Model

Cost of Equity (Dividend Yield Method) Annual Dividend per Share Cost of Equity = --------------------Market Price per Share

Cost of Equity (Dividend Growth Model) Annual Dividend per Share Growth Cost of Equity =------------------ + in Market Price per Share Dividend

Cost of Equity (Price Earning Method) Earning per Share Cost of Equity =-----------------Market per Share

Cost of Equity (Capital Asset Pricing Model) Cost of Equity = Rf + B ( Rm - Rf) Where Rf = Risk free Rate of Return Rm = Expected Market Rate of Return B = Beta Co-efficient of the Investment

Cost of Retained Earnings = Cost of Equity Capital X ( 1 - T ) Where T = Tax Rate of Individuals