OBJECTIVES OF THE STUDY:

The following are the objectives of the study

To know the Global and Indian Scenario

To know the Key Players in the Industry

To know the Business Level Functions & Process of the Organization

To know the Company Profile

To do SWOT Analysis, etc. of the Company

To learn about the Organizational Culture, Values, Benefits in a Practical way

To get an exposure to the different functions of the Organization and understand

how they are performed and coordinated.

To relate various concepts studied in the first term to a real Organizational

Environment
 Research Methodology

The research methodology was subdivided and performed in the following method-

Analyzing relevant figures and date for the last financial years.
Analyzing the future outlook of the companies and its expansion plan.
Study of the complete process of the uses of Cost of Capital using literature
and discussing with the organizational guide.
Connection of the data regarding the use of Cost of Capital and financial
policies for company
On the basis of the data collected, necessary suggestions regarding the
financial structure are given.

Data Sources - Primary Data,

- Secondary Data
Data sources: Primary Data

Primary data is a data that is collected for the first time in the processing
of the analysis.

The researchers have adopted the contact through telephone for the
purpose of collecting Primary data. The researchers discuss with Team
Manager and employees of the company to get information about
competitors of SHREE.

Secondary Data

Under Secondary sources, we tapped information from internal & external sources. We
made use of Internet (such as search engine www.google.com),

www.shreecementltd.com

And miscellaneous sources (such as brochures, pamphlets) under external sources.

Analysis
 To make our research project most effective in a given time period of 40
days surveyed the information of the competitors. We undertook both
Explorative as well as Conclusive Research Design. The data has been
collected from both Primary as well as Secondary sources and we also did
the fieldwork for which utmost care has been taken to keep project
unbiased from personal opinion.

Reasearch Objectives
To understand the theory of capital and its implication in
business structure
To know about the various sources of funds in the company
To find out the cost of various components of capital and how to
minimize it
To get a good insight of the cement industry
 Introduction
The main objective of a business firm is to maximize the wealth of its shareholders in
the long-run, the Management Should only invest in those projects which give a return in
excess of cost of fund invested in the project of the business. The difficulty will arise in
determination of cost of funds, if is raised from different sources and different quantum. The
various sources of funds to the company are in the form of equity and debt. The cost of
capital is the rate of return the company has to pay to various suppliers of fund in the
company. There are main two sources of capital for a company shareholder and lender. The
cost of equity and cost of debt are the rate of return that need to be offered to those two
groups of suppliers of the capital in order to attract funds from them.

The primary function of every financial manager is to arrange adequate capital for the
firm. A business firm can raise capital from various sources such as equity and or preference
shares, debentures, retain earning etc. This capital is invested in different projects of the firm
for generating revenue. On the other hand, it is necessary for the firm to pay a minimum
return to each source of capital. Therefore, each project must earn so much of the income that
a minimum return can be paid to these sources or supplier of capital. What should be this
minimum return? The concept used to determine this minimum return is called Cost of
Capital. On the basis of it the management evaluates alternative sources of finance and select
the optimal one. In this chapter, concepts and implications of firms cast of capital,
determination of cast of difference sources of capital and overall cost of capital are being
discussed.

CONCEPT OF COST OF CAPITAL

Cost of capital is the measurement of the sacrifice made by investors in order to invest
with a view to get a fair return in future on his investments as a reward for the postponement
of his present needs. On the other hand form the point of view of the firm using the capital,
 cost of capital is the price paid to the investor for the use of capital provided by him. Thus,
cost of capital is reward for the use of capital. Author Lutz has called it BORROWING
AND LANDING RATES. The borrowing rates means the rate of interest which must be
paid to obtained and use the capital. Similarly, landing rate is the rate at which the firm
discounts its profits. It may also the opportunity cost of the funds to the firm i.e. what the
firm would earn by investing these funds elsewhere. In practice the borrowing rates used
indicate the cost of capital in preference to landing rates.

Technically and Operationally, the cost of capital define as the minimum rate of return
a firm must earn on its investment in order to satisfy investors and to maintain its market
value. I.e. it is the investors required rate of return. Cost of capital also refers to the discount
rate which is used while determining the present value of estimated future cash flows. In the
other word of John J. Hampton, The cost of capital is the rate of return in the firm
requires from investment in order to increase the value of firm in the market place. For
example if a firm borrows Rs. 5 crore at an interest of 11% P.A., then the cost of capital is
11%. Hear its the essential for the firm to invest these Rs. 5 Crore in such a way that it earn
at least Rs. 55 lacks i.e. rate of return at 11%. If the return less then this, then the rate of
dividend which the share holder are receiving till now will go down resulting in a decline in
its market value thus the cost of capital is the reward for the use capital. Solomon Ezra, has
called It the minimum required rate of return or the cut of rate for capital expenditure.

The cost of capital is very important concept in the financial decision making. The
progressive management always likes to consider the cost of capital while taking financial
decisions as its very relevant in the following spheres...

1. Designing the capital structure: the cost of capital is the significant factor in designing
a balanced an optimal capital structure of a firm. While designing it, the management has to
consider the objective of maximizing the value of the firm and minimizing cost of capital. I
comparing the various specific costs of different sources of capital, the financial manager can
select the best and the most economical source of finance and can designed a sound and
balanced capital structure.
2. Capital budgeting decisions: the cost of capital sources as a very useful tool in the
process of making capital budgeting decisions. Acceptance or rejection of any investment
proposal depends upon the cost of capital. A proposal shall not be accepted till its rate of
return is greater then the cost of capital. In various methods of discounted cash flows of
 capital budgeting, cost of capital measured the financial performance and determines
acceptability of all investment proposals by discounting the cash flows.
3. Comparative study of sources of financing: there are various sources of financing a
project. Out of these, which source should be used at a particular point of time is to be
decided by comparing cost of different sources of financing. The source which bears the
minimum cost of capital would be selected. Although cost of capital is an important factor in
such decisions, but equally important are the considerations of retaining control and of
avoiding risks.

4. Evaluations of financial performance of top management: cost of capital can be used

to evaluate the financial performance of the top executives. Such as evaluations can be done
by comparing actual profitability of the project undertaken with the actual cost of capital of
funds raise o finance the project. If the actual profitability of the project is more than the
actual cost of capital, the performance can be evaluated as satisfactory.
5. Knowledge of firms expected income and inherent risks: investors can know the firms
expected income and risks inherent there in by cost of capital. If a firms cost of capital is
high, it means the firms present rate of earnings is less, risk is more and capital structure is
imbalanced, in such situations, investors expect higher rate of return.
6. Financing and Dividend Decisions: the concept of capital can be conveniently
employed as a tool in making other important financial decisions. On the basis, decisions can
be taken regarding dividend policy, capitalization of profits and selections of sources of
working capital.
 LIMITATIONS

The weighted Average cost approach also has some weaknesses, important among them
are as follows :

1. Unsuitable in case of Excessive Low-cost Debts : Short term loan can represent an
important sources of fund for firm experiencing financial difficulties. When a firm relies on
Zero cost (in the form of payables) or low cost short term debt, the inclusion of such debts in
the calculation of cost of capital will result in a low WACC. If the firm accepts low-return
projects on the basic of this low WACC, the firm will be in a high financing risk.
2. Unsuitable in Case of Low Profits : If a firm is experiencing a period of low profits,
not earning profit as compared to other firms in the industry, WACC will be inaccurate and of
limited value.
3. Difficulty in Assigning Weights : The main difficulty in calculating the WACC is to
assign weight to different components of capital structure. Normally, there are two type of
weights- (i) book value weights and (ii) market value weight. These two type of weights give
different results. Hence, the problem is which type of weight should be assigned. Though,
market value is more appropriate than book value, but the market value of each component of
capital of a company is not readily available. When the securities of the company are
unlisted, the problem becomes more intricate.
4. Selection of Capital Structure : The selection of capital structure to be used for
determining the WACC is also not easy job. Three types of capital structure are there i.e.
current capital structure, marginal capital structure and optimal capital structure. Which of
these capital structure be selected. Generally, current capital structure is regarded as the
optimal structure, but it is not always correct.
 Bibliography

1) Fundament of Financial management by Brigham & Huston.

2) Analysis Financial Management by Robert C. Higgins
3) Prowess Online Database
4) www.cmaindia.org
5) http://www.wikipedia.com
6) http://www.investopedia.com
7) http://www.moneypore.com
8) http://www.moneycontrol.com
9) Times of India (News Paper)
10) Economic times (News paper)
11) Financial management by Ravi M Kishor (Book)
12) Financial management by M. Pandey (Book)
13) Financial management by M R Agarwal(Book)