Globalizing the Cost of Capital

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ACKNOWLEDGEMENT

I would like to take this chance for thanking my research facilitator, friends & family for support they provided & their belief in me as well as guidance they provided without which I would have never been able to do this research.



DECLARATION

I, (Your name), would like to declare that all contents included in this thesis/dissertation stand for my individual work without any aid, & this thesis/dissertation has not been submitted for any examination at academic as well as professional level previously. It is also representing my very own views & not essentially which are associated with university.

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ABSTRACT

This study discuss the problem of estimating cost of capital for the companies having operations in various countries, mentioned in the case study titled; “Globalizing the Cost of Capital and Capital Budgeting at AES” by Mihir Desai. This paper will analyze the cost of capital differences and determinants of cost of capital among the different countries. The increased importance of the trend towards efficient "World Markets" with global competition clearly indicates that firms must use all measures to be competitive and maximize returns. The determination of optimal cost of capital and related capital structure has important competitive implications for U.S. and foreign firms and are critical to firm valuation, capital budgeting decisions and long run corporate profits. If corporate capital costs are significantly different across nations, business advantages (or disadvantages) may provide additional profits (or costs) to firms incorporated in different countries. The question of optimal corporate capital structure has been a controversy since the publication of by Mcdigliani & Miller (1958) that suggested, under certain conditions and with no taxes, the value and cost of capital of a firm is independent of its financial structure. Those companies situated in nations with capital cost benefits may gain an increasing competitive advantage over firms in other nations in the evolving global economy. The methodology used for the purpose of this research is based on the secondary data. This research is more or less based on the literature review & the conclusions are drawn on the basis of actual resources listed in the references. This study discuss the problem of estimating cost of capital for the companies having operations in various countries, mentioned in the case study titled; “Globalizing the Cost of Capital and Capital Budgeting at AES” by Mihir Desai.

Table of contents

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 01: INTRODUCTION1

Background of the Study1

Rationale of the Study2

Aims and objectives of the Study3

CHAPTER 02: DESCRIPTION OF THE PROBLEM AND SCOPE OF THE STUDY5

Description of the problem5

Scope of theSstudy7

CHAPTER 03: PROBLEM STATEMENT AND PLAN OF THE ANALYSIS9

Problem Statement9

Plan of the Analysis10

Research Design12

Search Technique13

Secondary Research14

CHAPTER04: ANALYSIS AND FINDINGS16

Effects of International Factors16

Effects of Local Factors19

Organization Own Factors25

CHAPTE05: PROPOSED SOLUTION TO THE PROBLEM AND RECOMMENDATIONS31

REFERENCES35

CHAPTER 01: INTRODUCTION

Background of the Study

The increased importance of the trend towards efficient "World Markets" with global competition clearly indicates that firms must use all measures to be competitive and maximize returns. The determination of optimal cost of capital and related capital structure has important competitive implications ...