The-Cost-of-Capital-for-Everest-Bank-limited (2).docx - THE COST OF CAPITAL FINANCIAL MANAGEMENT 2016 The Cost of Capital for Everest Bank limited By

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THE COST OF CAPITAL, FINANCIAL MANAGEMENT 2016 1 The Cost of Capital for Everest Bank limited By Group 4 Aditi Upadhyaya poudel Amar Nath Shrestha Jasmine Shrestha Nawaraj Nepal Sophie Pradhan A term paper submitted in partial fulfillment of the requirement for the degree of Undergraduate program on Bachelor in Business Administration At Kathmandu College of Management (KCM) Siam University 2016
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THE COST OF CAPITAL, FINANCIAL MANAGEMENT 2016 2 Acknowledgement We would like to extend our deepest appreciation to our financial management teacher, Mr. Sitaram Dhakal for assigning us with such an interesting as well as educative project work on the cost of capital. This will not only help us in calculating the cost of capital but will also give us a practical and realistic approach as to how it is analyzed and interpreted in case of banks and other financial institutions. Lastly, we would appreciate the efforts of all our friends who helped us and without whom; this report would not have been a success. Thank You.
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THE COST OF CAPITAL, FINANCIAL MANAGEMENT 2016 3 Table of Contents Acknowledgement ......................................................................................................................... 2 Introduction to Everest Bank Limited ............................................................................................ 4 Cost of Capital ............................................................................................................................... 5 Cost of Debt: .............................................................................................................................. 5 Cost of Equity ............................................................................................................................ 5 Formulae under various approaches: ..................................................................................... 5 Cost of Preferred Stock .............................................................................................................. 6 Factors affecting Cost of capital .................................................................................................... 7 Level of Interest rate .................................................................................................................. 7 Tax rate ....................................................................................................................................... 7 Capital Structure Policy ............................................................................................................. 7 Dividend Policy .......................................................................................................................... 7 Investment Policy ....................................................................................................................... 8 Calculations .................................................................................................................................... 9 Interpretation/Findings ................................................................................................................. 11 Conclusion ................................................................................................................................... 12 Annexes Bibliography
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THE COST OF CAPITAL, FINANCIAL MANAGEMENT 2016 4 Introduction to Everest Bank Limited Everest Bank Limited (EBL) was founded in 1994, one of the leading bank of Nepal. The bank has 61 Branches, 84 ATM Counters, 5 extension counter and 22 Revenue Collection Counters across the country. EBL is one of the very efficient and accessible bank n Nepal[Eve16]. Punjab National Bank (PNB) is their joint venture partner who is the largest nationalized bank in India. They are holding 20% equity of Everest Bank Limited. It has been successful to place themselves as number 1 bank under CAMELS rating conducted by Karobar national daily[Eve16].EBL’s major objective is to use the latest technology for an effective change for socio-economic development.
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THE COST OF CAPITAL, FINANCIAL MANAGEMENT 2016 5 Cost of Capital Cost of Debt: The effective rate that the company pays on its current debt which can be measured in either before or after tax returns are known as cost of debt. Here, interest expense is deductible and the after tax cost is seen most often. Company uses debt financing to give an idea to the overall rate paid by the company while using various bonds, loans and other forms of debt.
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