Effective Research Essay

Research is a structured and systematic approach of looking for answer to questions and producing intended results. The methods used to research a particular topic should directly relate to the aims described in the topic. One should develop a clear, thoughtful, and organized study plan that tests the vital hypothesis. Describe any work concept, tools, and approaches for the anticipated studies. Discuss the possible limitations and difficulties of the anticipated procedures and alternative advances to achieve the aims. Tim Ireland (2008) adds that a tentative sequence for the project ought to be given. An overview of the conceptual framework and proposed design should be included. Study goals ought to relate to the projected hypothesis. Required statistical techniques, proposed timeline, and work plan should be included. Finally, one should be clear about the methods and investigation design used and should avoid correlative experiments. The ways of assessing and evaluating ones research is by checking for correct spelling, general neatness, parts in a reasonable and correct order with nothing missing, proper citation of borrowed material and the support of any arguments or thesis materials with evidence. One can also use rubric; it allows one to see what excellent, acceptable, good, and poor work looks like. Information from research is included in writing by putting all your gathered information together in a presentable format. One should put all his/her notes together according to the order they will come into view in their project (Albert and Podgy 1984). Another is strategy is the use of paraphrasing where one only uses the most important words, synonyms, and highlights and crosses out words (Ireland, 2008). Paraphrase: A good university should focus on equipping students with critical and analytical skills which form an integral part of what is expected of higher learning (Zein 2008).

Sherlock Holmes a Study in Scarlet

Sherlock Holmes different methods of solving crimes The detective genre is prominently one of the most popular forms of literature. When the detective subject arises in conversation, one is quick to think of the original and typical detective profile, imagining a man in a plaid coat, brown hat and a large magnifying glass pressed against his face, sniffing out clues and making rather large assumptions in regard to his mystery at hand. Although the description above would describe your classic, ordinary detective, Arthur Conan Doyle shows a much different perspective of the detective genre in â€Å"A Study in Scarlet†.Detective Sherlock Holmes does in fact have some very strong similarities to the characteristics shown in previous detective stories though shows a different personality and a stylized method to solving his mysteries. Doyle depicts Sherlock Holmes’s style of solving crimes through his methods, ability to observe, and his use of vocabulary. Sherlock Holmes i s undeniably one of the most interesting detective characters. Although the story line is already made to be a complex mystery, Doyle emphasizes the story more by defining and exemplifying the character of Sherlock Holmes.Sherlock has a very distinctive personality, and Doyle does an excellent job of showing his different reactions in the various situations he is presented with. When carefully analyzing Holmes character in different situations, he shows how he uses his techniques and special abilities that enable him to solve his mysteries. Doyle makes Holmes inquiry very notable by giving him and very large and witty vocabulary. Holmes is very clever and likes to show superiority above the people around him. When he speaks he makes sure to be swift, precise, and very clear about what he is trying to relate.The language he uses is large and makes others around him feel beneath him. Holmes is very clear on what his observations are and makes certain the people around him know he is i ntelligent and correct in his interpretations of the crime scene. Sherlock Holmes shows his superiority when he is observing a scene, he states to his surrounding audience that, â€Å"by his coat-sleeve, by his boots†¦ by the callosities of his forefinger and thumb† Holmes shows that his observations are quick, obvious and to his knowledge and flawless; any idiot could recognize these interpretations (Doyle).After showing his skill in recognizing the apparent, he goes on to say â€Å"That all united should fail to enlighten the competent inquirer in any case is almost inconceivable. You know that a conjurer gets no credit when once he has explained his trick; and if I show you too much of my method of working, you will come to the conclusion that I am a very ordinary individual after all† telling his coworkers and surrounding audience that his method works, it always works and others will soon learn that he is the best in the business and will continue to be so (D oyle).Holmes uses his large vocabulary to confuse and befuddle his peers, showing his superiority, making them feel small and incompetent. Holmes has a very high self-esteem and his intelligence is astounding and although he knows very well of what he is doing, he acts oblivious to his own actions. Holmes has a very powerful skill for observation in the account of any situation he is placed in. Doyle shows how intelligent Sherlock is when she describes his ability to observe scenes and details that a regular person would never perceive. He is able to analyze evidence and draw conclusions and inferences from them.When Holmes first meets Watson he is very quick to analyze him. Sherlock is introduced to Watson and asks him, â€Å"How are you†¦You have been in Afghanistan, I perceive. † And Watson replies to him in astonishment â€Å"How on earth did you know that? †(Doyle). Watson is astonished at Sherlock’s quick and accurate assumption and impeccable observa tion. Holmes has not done any research on Watson, and even though this is the first time he has ever seen or spoken to Watson in his entire life, Holmes finds observing people almost as easy as breathing.He doesn’t need to stop to think about it anymore, his observational abilities come naturally and without effort. His mind works in a different manner then normal detectives finding it easy to notice and observe the people who are brought in his presence. â€Å"Quite so. I have a kind of intuition that way. Now and again a case turns up which is a little more complex. Then I have to bustle about and see things with my own eyes. You see I have a lot of special knowledge which I apply to the problem, and which facilities matter wonderfully.Those rules of deduction laid down in that article which aroused your scorn, are invaluable to me in practical work. Observation with me is second nature† (Doyle). Holmes is a consulting detective and in this statement to Watson he sho ws his reasons and theories of working. Sherlock has a remarkable sense of observation in any type of case he is given. Whether there is a mystery to be solved for a regular citizen or for the government and law, Holmes has the ability to observe situations and easily see what the situation has in store for him.Holmes has a very strict method of working and because of his methods; he is successful at his occupation. The methods he uses are foreign to others in the detective business therefore his intelligence outshines his opponents. His powers of observation and his procedures are even influential to others because of how astonished peers seem to be of his abilities. Doyle gives Sherlock Holmes a sense of language that is very metaphorical.When Sherlock is trying to make a point, explain a thought process, or try and make his coworkers and surrounding peers feel incompetent to his knowledge, he uses a wide range of metaphors and phrases. When speaking about a murder he compares the mystery to that of a â€Å"scarlet thread of murder running through the colorless skein of life, and [their] duty is to unravel it, and isolate it, and expose every inch of it† (Doyle). Doyle gives Sherlock this very precise yet large range of metaphorical expressions when he is talking about his work.The way he describes the murder is very clear although almost brilliant. He exemplifies his methods of solving mysteries through a metaphor to try and explain to others how the murder mystery should go about being solved. Although there are many strings all raveled together in one thread, Sherlock plans to single handedly one by one remove those strings and narrow it down to one, to expose it, isolate it and execute it, all to move on to the next crime. Not only does Sherlock use his metaphors to explain his method of work but also to make others feel beneath him, as he always does.Holmes knows his capabilities and is aware of his genius mind and thought processes. When talking to Watson he says â€Å"I consider that a man's brain originally is like a little empty attic, and you have to stock it with such furniture as you choose. A fool takes in all the lumber of every sort that he comes across, so that the knowledge which might be useful to him gets crowded out, or at best is jumbled up with a lot of other things, so that he has a difficulty in laying his hands upon it.Now the skillful workman is very careful indeed as to what he takes into his brain-attic. He will have nothing but the tools which may help him in doing his work, but of these he has a large assortment, and all in the most perfect order. It is a mistake to think that that little room has elastic walls and can distend to any extent. Depend upon it – there comes a time when for every addition of knowledge you forget something that you knew before. It is of the highest importance, therefore, not to have useless facts elbowing out the useful ones† (Doyle).Holmes, in his metaphori cal terms, lets Watson see into his mind and how it works compared to others while still making him feel incompetent to his coworker. In Sherlock’s mind, he explains that he only acquires the precise and important information that he will need all his life. The information that he stores in his brain is exactly where he put it, organized and easily accessed while typical human beings, â€Å"fools† he calls them, simply gather anything and everything they can find to jumble it into their small minds.When it comes times to find the information they are seeking they have a hard time, typically because they don’t know where to find it. Holmes thinks in a different way, only gathering the information that he finds absolutely necessary and easily accessible to help him be swift, flawless, accurate, and faster than anyone else he comes in counter against. Working this way helps Holmes to solve his mysteries faster leaving his peers with astonished and dumbfounded looks on their faces. Holmes has many methods of solving crimes, although working backwards seems to be one that benefits him sufficiently.Sherlock likes to perform his work in a different manner than most others. He seems to see what others do and perform the exact opposite. Holmes exclaims â€Å"In solving a problem of this sort, the grand thing is to be able to reason backwards. That is a very useful accomplishment, and a very easy one, but people do not practice it much. In the every-day affairs of life it is more useful to reason forwards, and so the other comes to be neglected. There are fifty who can reason synthetically for one who can reason analytically† (Doyle).Most people would rather take the easy way out and reason forward like the majority of society. It is easier to reason forward than it is, of course, to reason backwards. If one were asked to say the months of the year backwards or the alphabet, a person would have a difficult time stating the months or letters i n a timely fashion. For Holmes, performing his methods backward is something he prefers to do, knowing it is not a method that a lot of people use, he figures the technique will work and of course they do work wonderfully.Doyle depicts Holmes style of solving crimes through his intelligent and seemingly flawless methods. Overall, Sherlock is able to solve the mysteries he is presented with simply due to his observation skills, analysis of the crime scene and his broad yet careful choice of words and phrases. Doyle makes Holmes inquiry very notable through the personality she has given him in the novel. His character is not only unique but also is plays a huge role in his remarkable ability to solve mysteries.

Narrow Identities and Violence

Personal identity of individual includes many feature of the individual such as race, religion, profession, personal interests, ethnicity, and language among other attributes. Yet all over the world we see individuals and groups defining themselves in narrow and exclusive terms. We take the view that, in day to day life, the different aspects of personality remain latent. Social and economic context present a background against which individuals choose to retain these different possibilities or to commit to one of these possibilities and to renounce the others. Religious Indentity and violence There are few topics that challenge the capabilities of historians more than religion and violence. When the two subjects are combined, the challenge is only increased. How do historians, discuss the often extreme, or alien manifestations of religious belief?And how should we explain religiously motivated violence—or violence that seems to be inspired by religious beliefs or authorities? Religious and violence opens up a very territories for our consideration. This is the assumption that religious violence is really not fundamentally about religion that other interests, claims, or identities of an economic, ethnic, political, or even psychological nature are at stake. With this assumption it seems to imply that religion can be reduced to something else.I certainly endorse the idea that in most situations in medieval and early modern ages, religious violence is â€Å"really† about religion. This may be less true of more recent times. I wonder, however, how consistently useful it is to think of religion as a social identity in medieval and early modern ages. Situations certainly existed in which people assigned religious labels to one another and/or thought of themselves as part of a religious group, most obviously in religious borderlands or in regions where multiple religious groups lived alongside one another. But the insight first provided by Wilfred Cantwell Smith and subsequently refined by a number of historians, namely that it was only over the course of the late Middle Ages, and especially in the wake of the Reformation, that the concept of â€Å"religion† took on something approaching its modern sense of an organized set of beliefs and practices about the divine rather than an attitude of piety toward the gods, is an important one to keep in mind. And while it is certainly true that many forms of religious violence in late medieval or early modern Europe were directed against neighbors assigned some fixed label such as â€Å"Jews,† â€Å"Dalits,† incidents of religious violence may have been especially likely to occur at moments when new beliefs were spreading into an area and the religious situation was far too fluid to be neatly defined. So when public scenes of disrespect to the consecrated host sparked violent Catholic retaliation in France around 1560, the violence was motivated by outrage against those so depraved as to attack God's body, but the clash cannot be usefully analyzed as one between two groups with fixed social identities. The violence was all about rival beliefs and their public manifestation and defense—a clear matter of â€Å"religion† as a symbolic system. To go from there to speaking of religion as an irreducible identity is a linguistic step it probably isn't useful to take.

Supply chain management at Zara Essay Example | Topics and Well Written Essays - 1500 words

Supply chain management at Zara - Essay Example Supply chain management is the management of the network used to acquire raw materials, production and distribution to the customers. It can be said to be the process of attaining raw materials, production, storage and supply to the end users. Every business or company has to employ a good purchasing and supply chain management if it has to succeed in its production. Supply chain management is important to Zara because it helps in recognizing the number of suppliers that can be accessed by the company, their location, the distribution centers, management of inventory and warehousing facilities. It also helps in determining the strategy to be used in integration of information within the supply chain. Zara opened its first store in Spain in 1975 and since then its stores gave grown into giants and are distributed all over the world. It holds about 1000 stores which have been successful. Zara’s success is contributed by its unique style in fashions and accessories as well as its supply chain management.... Zara has been chosen for this analysis because of its success despite the stiff competition that is evident in the clothing industry. Sourcing Strategies and supply chain configurations For the management of supply chain to be successful, it requires a change from the management of individual activities to the integration of all the activities in the supply chain process. There are two crucial departments in the supply chain: the purchasing department and the marketing department. It is the work of the purchasing department to place orders for the company and to let the requirements of the company known to the supply chain manager (Venus 2010). The work of the marketing department is to distribute the finished goods to the customers. In doing so it interacts with the customers, gets view concerning the products and makes recommendation to the supply chain. In its attempt to respond to the demand of the customers, it gets in touch with the available retailers and distributors in their locality. The partners in the supply chain share information with one another through process integration. This involves collaboration between the suppliers and the buyers and the internal processes of production. For this integration to be effective there should be free flow of information among the key components (Christopher 1992). In the fashion industry, the chain of supply is complex especially for the retailers. It is rather long with many parties involved. In order to achieve a rapid response, proper management of the supply chain is required which will help in reducing the lead time and which can use other approaches to fasten the whole process. According to Daly & Towers (2008), there has been

Business Cycles and Concepts Research Paper Example | Topics and Well Written Essays - 750 words

Business Cycles and Concepts - Research Paper Example Hence, the rate of unemployment can be referred to as the number of people who are actively looking for work divided by the workforce. Changes in the rate of unemployment mostly depend on the inflows made up of unemployed persons who are beginning to look for jobs, of employed persons who lose their work and look for new ones and of people who stop looking for employment. Related terms are the labor force, the rate of participation as well as the rate of employment. The labor force is referred to as the number of persons employed plus the number of people unemployed, although looking for jobs. The non-labor force entails those who are not currently searching for jobs, people who are institutionalized like in psychiatric wards or prisons, children, stay-at home spouses, and those serving in the military. The rate of participation on the other hand is the number of people currently in the labor force divided by the population of working age group that are not institutionalized. Hence t he rate of employment referred to as the number of persons currently employed divided by the working age population (Timmons, 2008). The rate of unemployment is South Africa has increased in the third quarter of 2012 to 25.50 percent from 24.90 percent in the 2012 second quarter. The rate of unemployment in South Africa is reported by the Statistics South Africa. ... The graph of the trend of rate of unemployment in South Africa According to studies, the reason for high rates of unemployment is more of internal than external. This is what Hart, chief economist at Investment Solutions, said in Johannesburg while speaking at a Johannesburg Chamber of Commerce and Industry breakfast. Hart compared the rate of unemployment in South Africa to that of Brazil. Both the countries began decreasing in 2002, then the global financial crisis in 2008. Many jobs were created between 2008 and 2002. Although the rate of unemployment in Brazil decreased, the same could not be said for South Africa. Hart asserted that the rates of unemployment means that the country needs to look at it as a priority of the nation. This is because job creation appeared to be one of the lowest policy priorities. He continued to say that the countries who have the same unemployment levels with South Africa are Spain and Greece who at that time were in deep crisis. Small businesses ma de difference in these countries including Brazil. Therefore South African policies need to be changed and more than three million small businesses need to be created to cater for the ever increasing rates of unemployment (Timmons, 2008). References Timmons, J. (2008). Causes and Effects of Unemployment Rates. London:

Church History Seven Churches in Bible Essay Example | Topics and Well Written Essays - 1750 words

Church History Seven Churches in Bible - Essay Example According to their belief whatever is mentioned in the bible is the word of God (Kwintessential, nd). According to the concept of Dever (nd), the Church plays an important part in the development of the Christian culture and religion. In his review he pointed out the fact that the principleadopted by the church is a vitalfactor of Christian truth. According to his opinion It is the most noticeable part of Christian theology as well, and it is vitally connected with every other part of the Christian culture. (Dever, nd).In this paper, the main objective is to discuss about the initial stages of the development of Christian culture and religion. The main objective of this paper is to analyze the initial stages of the development of the Christian culture across the globe, how it able to spread all over and what are the impact of this concept and thought process in the society. Research Questions: This is mainly a research paper which has the focus on the Christian religion and culture a cross the globe. In present world the Christian religion is the largest and has its presence all over the globe in all the countries. But the situation was not like that in the initial stage. The research questions of this paper are as follows: 1. How the Christian religions develop across the globe with the time? 2. Over the years of the development, what are the problems that the people who believe in this religion and culture have to face and how they able to combat those. 3. How the seven churches mentioned in the bible able to spread the thought of Christ in the society? 4. What according to the modern age people are the key behind the success of the religion? Background: Development of the Topic: The church is the backbone of the development of the Christian religion over the world. At the beginning there were lots of objection from the people who were the ruling authority of the society. But despite their objection the thought process started to gain popularity all across the globe. According to the analysis of Patheos Library (nd), Christianity developed from the thought process of Judaism in the 1st Century C.E. The concept of Christian religion is entirely based on the life, teaching ideology death, and resurrection of the Jesus Christ. According to the review of the Patheos Library, there are several branches of the Christianity, each of the branches has variety in their beliefs and practices, but most importantly the basic principle was always the same. There are three major classes or branches available in the Christian religion; these are Roman Catholicism, Eastern Orthodoxy, and Protestantism. There are several sub-categories also in all these three branches. The tradition belief of the Christian community is there is one and only God in the world, they used to believe that the Jesus was the divine and he was send by the all mighty to save this world. Having faith in Christ is the basic thought process of the religion. The basic text where the e ntire concept and the thought process of Christ were noted is the Bible. It includes both the Hebrew Scriptures  and the New Testament. The Hebrew Scriptures is also known as the Old Testament. The basic concept of the Christian is mainly based on worship, fellowship, study of the God, and also by the engagement with rest of the

Diversification of Firms Essay Example | Topics and Well Written Essays - 2000 words

Diversification of Firms - Essay Example The needs of the customers constantly changes and the firms are often challenged to keep pace with the changes. In order to reduce these risks, a firm needs to diversify its portfolio of stocks (Solnik, 1995, p.89). In the current market, firms should not only focus on how to produce their goods and services and avail them to the clients in the market. Rather, the market dynamics require the firms to develop corporate strategies and respond to these market forces will providing balance to the objectives and goals of the firm (Thinking Made Easier, 2011). In response to the changing market trends, some firms have opted to diversify their operations. Diversification is a business strategy that has experienced significant growth in the recent past. Diversification involves the production and delivery of new products and service. It is mainly aimed at ‘increasing market profitability, smoother earnings, and greater capital markets and accumulating diverse expertise in diverse envir onments’ (Thinking Made Easier, 2011). However, it may be noted that these objectives of diversification are not often met. Diversification is a way of hiding from the inability by a firm to acquire and maintain competitive advantage over its competitors producing similar products. This paper asserts that diversification is not an effective strategy in the current market by focusing on the challenges associated with this business strategy. Types of diversification Diversification in business organizations can be considered in terms of the business processes or in terms of the products ad services involved. In the first respect, there are three types of diversification namely: vertical integration, horizontal diversification, and geographical diversification (Kotelnikov, 2011). Vertical integration refers to bringing together two or more businesses that are at different production stages to add on to the value chain (The Economist, 2009). Horizontal diversification involves ex tending operations to new business industries to produce new products in order to reduce the risks that are specific to a given industry sector (The Investor, 2009). On the other hand, geographic diversification involves moving into new markets to make use of the opportunities in these regions (Kotelnikov, 2011). In terms of the product, diversification can be grouped as related or unrelated (Kotelnikov, 2011). Related diversification occurs when a firm extends its operations to produce products and services that are still in the same production line as the existing products and services. On the other hand, unrelated diversification is a situation in which the firms extend to produce products and services in a completely different production line (Thinking Made Easier, 2011). Objectives of diversification Business organizations diversify their operations with certain fundamental objectives. Firstly, diversification is aimed at improving the implementation of the organizational proce sses and strategies (Kotelnikov, 2011). It enables the management of organizations to create some value for the shareholders of the organization. In this way, diversification is also aimed at improving the organizational structure and enhancing the structural position of each business unit in the organization (Kotelnikov,

The effects of interest rate liberalization to the risk of commercial Literature review

The effects of interest rate liberalization to the risk of commercial banks in china - Literature review Example Under such method levying of extra charges of loan is not allowed. Researchers say during 1974-1978 Development Plans, the government of different countries felt the need to review the interest rate in order to encourage the savings through the bank and to create disincentive to eradicate the speculation and uneconomic use of savings by the borrowers. During 1980 the interest rate policy was used to achieve the following objectives. Firstly interest rate policy was aimed to keep the general level of interest rate positive so that savings can be encouraged and contribute to the maintenance of financial stability in real terms. Secondly it was framed to allow greater flexibility and greater competition amongst the banks and non banking financing institution in order to enhance the effective and efficient allocation of financial resources. Thirdly the policy was objected to reduce the differential and to maximize the lending’s of banks. After 1974 a review on the interest rate li beralization was done during 1980 which allowed commercials banks to get a better room to complete and to have a better flexibility to meet the need of the customers (Ngugi and Kabubo, March 1998, pp. - 9-10). As per to Feyzioglu, Porter and Takas (2009); interest rate liberalization provide with many benefits. ... On contrary interest rate liberalization also exert a negative impact on the financial sector (Feyzioglu, Porter and Takas, 2009). Again according to Shih (2011), interest rate liberalization reduces the cost of governance for central bankers. He added that interest rate liberalization gets affected with short term political incentives. But in long term liberalization of lending interest rates reduces the need for central bank official to ration the credit (Shih, September 2011, pp. – 437-438). The Current Researches on the Interest Rate Liberalization The researchers Bekaert, Harvey and Lundblad (April 2001) demonstrated that interest liberalization increase growth. They observed that the interest rate liberalization lead to a percent increase in the annual per capita GDP growth. They also added that they did find this growth to be statistically significant. Based on the researches the interest liberalization was also economically important. They examined the same by using a classic growth framework of regression for certain developing countries. They assumed that the human capital variables move from 25th percentile to the median of all countries in consideration. They also moved the size of the government sector and population growth from 75th percentile to the cross sectional median. Then a positive impact on growth was calculated given the changes in these four variables. Next a comparison with liberalization was made. The liberalization indicator added 1.1%. This liberalization contributed 40% of the total growth increment. Researchers also made a keen observation on channels where liberalization had an impact on increased

An Analysis of Marketing Procedures Being Used By Leading Fast Food Literature review

An Analysis of Marketing Procedures Being Used By Leading Fast Food Franchises - Literature review Example sations are highly focused on executing exceptional marketing strategies concerning their diverse range of fast-food products to a large number of global consumers (Christian & Gereffi, 2010). Based in a similar context, Hooley Graham (2008) further observed that the emerging competition among the leading fast-food chain retailers has been a consequence of the extensive marketing activities performed by the global organisations. Moreover, the fast-food retail organisations have also exhibited a trend to incorporate different exceptional marketing strategies by promoting authentic as well as contemporary culinary innovation, cultural tastes, desires as well as demands of the local communities where they operate in the international context (Hooley Graham, 2008). In the similar context, Lichtenberg (2012) has also stated that the global fast-food industry has been playing a crucial role in channelising the effective of internationalisation in various economies, especially, the developi ng economies by accomplishing a rapid expansion in the various international markets. The organisations have also been implementing extensive expansion initiatives allowing franchises in different nations. The franchise units of the leading fast-food brands have been considerably focused on identifying the tastes and preferences of the local consumers executing effective strategies of delivering products to the customer as per their expectations (Lichtenberg, 2012). On the contrary, brands which are observed to be struggling in the global fast-food chain tend to focus extensively on the authentic culinary culture of the local community. These growing brands are also observed to be significantly influenced by the local or regional as well as state-level laws along with the socio-cultural... This essay approves that according to the present day context, the leading fast-food organisations tend to follow the emerging trend of global fast-food markets through executing various complex marketing strategies. The rapid expansion of the business units into different business locations is also a widely used marketing strategy for the global fast-food marketers. With this concern, the globally reputed fast-food chains have been focusing on increasing their business units through franchisees, in particular into different markets which has certainly enabled these brands to achieve larger market share as well as gain competitive advantages in the growing fast-food industry This report makes a conclusion that the demand for fast-food companies has substantially increased in the market segments worldwide where not only children but young people also are observed to decipher their incessantly increasing preferences for fast-food products. It is in this context that the increased demand for fast-food products has intensified the market competition among fast-food companies. In this perspective, fast-food companies are required to adopt enhanced marketing strategies with the objective of improving their performances substantially as well as to acquire a better competitive market position and thus obtain the benefits of sustainable growth. These marketing strategies shall also enable the struggling fast-food franchises in building better brand image within the targeted market segments and therefore obtain competitive benefits over its other existing rivals

Ownership as such does not matter relative to the conditions of Essay

Ownership as such does not matter relative to the conditions of competition and regulation - Essay Example From the path that different nations have followed with regards to their individual privatization drives, the most notable point that comes forth is that there should be the creation of a regulatory agency beforehand to oversee the process. It has also been shown that effective introduction of competition within market sectors (that means both within existing state-owned firms and the firms that have been handed to private entities as part of privatization) has ensured rapid acceleration of the economy. Any such that regulatory agency must be free from any outside influence by the government and must prove as an interface to investors and must also work towards monitoring and managing the concerns of the producers and consumers alike. In other words, a regulatory agency, if it has to be successful, must treat state-owned and private entities alike, which is the reason it has to remain free of any form of influence. It is also deemed appropriate to mention the need of a regulatory agency, which is created out of the fact that any form of transformation of an economy cannot happen in an instant and requires a substantial period of time, during which there needs to be a watchdog that can always be on the lookout of discrepancies and initiate the requisite actions. Experiences from previous attempts at privatization have suggested that the economy has better progressed when there has been the introduction of effective competition wherever possible. The government would have to consider the pros and cons of introducing such competition, most importantly on the costs. At the micro level, the implications on the purchasing powers of consumers and the costs incurred for procuring raw materials etc. need to be considered thoroughly. PART 2: TREND OF PRIVATIZATION When it comes to the type of ownership and its influence on the competition (with regards to the cost of production), Pollitt has mentioned that there has been no notable difference in the cost of production as part of a study conducted by him on countries such as the UK, USA, Canada, France, Greece and Germany. This may seem to be what was originally expected among theorists, but this has been the case in almost the entire developed world1.Another point that needs special mention here is that the pattern of privatization has been so varied among countries that there are no specific set of parameters that may be used to judge its effectiveness, thus leading researchers to follow different paths towards studying the phenomena. It is in this regard that privatization is studied in close relationship with various factors and concepts such as ownership, competition and regulation. In fact, Zhang has pointed to the fact the distortion in the results of studies on privatization were due t o the fact that all such studies had been concentrating on the type of ownership alone. Thus, other factors such as the competition within the market and the role played by regulatory agencies were not given any significance.Over the years, the trend and pattern of privatization has heavily relied upon how resources should be regulated and has also been dependent on the manner in which they should be organized and utilized appropriately. According to Vickers &

Critically evaluates the process of global harmonisation of financial Essay

Critically evaluates the process of global harmonisation of financial reporting - Essay Example The information furnished by financial statements are aimed at different stakeholders like shareholders, management, regulatory bodies, suppliers, creditors, lenders, competitors, researchers, and the society at large. The International Financial Reporting Standards (also known as IFRS) was conceptualised and developed by the International Accounting Standards Board (IASB) in 2001. After one year of inception of IASB, the member states of European Union (EU) committed to adapt IFRS standards for all listed corporations under their jurisdiction. Such regulatory enforcements were due to come into effect from 2005. In 2003, the first IFRS was officially issued and by this time almost 19 countries were required to comply with global reporting standards. Nearly 70 countries have since then mandated IFRS for listed companies and further 23 countries have either allowed listed companies to voluntarily adopt IFRS or have mandated IFRS in listed entities (Ramanna and Sletten, 2009, pp.1-5). In the year 1985, Piper and Samuels, defined ‘harmonisation’ as the process of bringing the current international accounting standards into some sort of agreement so that the financial statements of different entities from different nations are prepared as per a common set of principles of disclosures and measurements (Samuels and Piper, 1985). Harmonisation of financial reporting would increase the level of agreement related to presentation of information disclosure in practicing accounting standards between countries. The process of harmonisation will ensure development of a single global community irrespective of the diversity of stakeholders. The process will increase awareness among investors in capital markets and also develop a sense of responsibility in publicly traded firms regarding appropriate financial disclosures (Roberts et al., 1998). Harmonisation of financial reporting will facilitate undisputed international transactions by minimising exchange

Good Girl Gone Bad and Date Chris Brown Essay Example for Free

Good Girl Gone Bad and Date Chris Brown Essay Rihanna used to be one of my favourite singers back in the days. She started to change not only her image, but her music. I did some research and looked up what made her change this much. Her songs used to be what made her change this much. Her songs used to be much more sex-free. My research shows that Rihanna could have had experiences, or just wanted a change in her. I asked myself, How has Rihanna changed throughout her career?, and I could come up with many assumptions, but I want to make sure my assumptions are correct. I want to talk about her relationship with Chris Brown, her album A Girl Like Me and her album Good Girl Gone Bad. Rihanna started to date Chris Brown, an American entertainer. On February 8, 2009, Rihanna and her boyfriend Chris Brown had an argument that twisted into physical abuse. Rihanna was injured severely with facial injuries. Chris Brown turned himself in to the Los Angeles Police Department in Wilshire. On March 5, 2009, Chris Brown was charged with felony assault and because of making criminal threats. On June 22, 2009, he pleaded guilty and accepted to do community labor, five years probation and domestic violence counselling. He released a video online to apologize for what he had caused and is deeply saddened by it. He repeatedly apologized to Rihanna and accepts full responsibility for his actions. Right after this commotion, Rihanna had her fourth album, Rated R, which was released in November 2009 and was expressed as a very dark and mature impression due to earlier events. Her debut single, Russian Roulette, was a success. It is a mid-tempo pop song that contains famous RB ballad characteristics. According to the lyrics, the song is about a violent romantic relationship that ended unexpectedly. That song received positive reviews about her vocal performance and the song lyrics. Her third global single, Rude Boy, was released and recognized as the biggest worldwide success from the whole album. The song is about a girl who is getting attention from the guys, and they want her. They are probably just teasing her and cat-calling her, but Rihanna is much more like show me what you got. Its about a womans sexual freedom. Rihannas second album, A Girl Like Me, which was released in April 2006. It sold 115,000 copies in its first week and was certified Platinum. It alternates between the sunny dancehall/pop, hip-hop, club, adult music. The songs in this album were hardly about getting back at a guy or having an intercourse. Her songs were simply songs just to dance to, about someone losing her trust, love and compassion. Her lead single in that album, SOS, was number one on the Billboard Hot 100. It was her first single to top the charts of United States. Her second single, Unfaithful, was a major worldwide hit. Songs like these were what everyone used to listen to, and not only people who have had an abusive relationship, or had their heart broken. Rihannas third studio album Good Girl Gone Bad was released in 2007. She wanted to start in a fresh track with the help of some music producers. She changed her image then to a more rebellious image. She dyed her hair black and cut it short. We figured Good Girl Gone Bad was the perfect title because it showed people Im my own person now. Not doing what anyone wants me to do. Im not the innocent Rihanna anymore. Im taking a lot more risks and chances. I felt when I cut my hair, it shows people I\m not trying to look or be anybody else, Rihanna tells MTV News. During an interview on UK radio station, Capital FM, Rihanna explained the meaning and reasoning behind the album title: Bad is not sleazy. Bad has its own term to every individual and in my case it just means Ive gotten a little rebellious on the album, broken out of my shell and Im taking risks Michael Jackson Bad kind of way.

Effect of Microsofts Monopolistic Approach

Effect of Microsofts Monopolistic Approach The Effect of Microsofts Monopolistic Approach to Software Bundling on Innovation and Competition.   Contents (Jump to) Chapter 1 Introduction Chapter 2 – Literature Review 2.1 Monopolist or Fierce Competitor 2.2 Bundling, Innovative or Stifling Competition 2.2.1   Bundling Examples in Other Industries 2.3 The Case Against Microsoft Chapter 3 – Analysis 3.1 Bundling, Competitive or Market Restrictive? 3.2 Strategies to Gain Market Share 3.3 Microsoft and The European Union Chapter 4 – Conclusion Bibliography Chapter 1 Introduction When mentioning Microsoft, one’s thoughts naturally turn to computers, as the two are inexorably tied together. And while they both need each other, software was the latter development in this marriage of needs. Based upon digits, computers utilize this foundation as the basis for their computations (Berdayes, 2000, p. 76). A digit is a â€Å"†¦ numeral †¦ that represents an integer †¦Ã¢â‚¬  and includes †¦ any one of the decimal characters ‘0’ through ‘9’ †¦Ã¢â‚¬  as well as â€Å"†¦ either of the binary characters ‘0’ or ‘1’ †¦Ã¢â‚¬  (Atis, 2005). Computers utilize digits under the ‘base-2 number system’, which is also termed as the ‘binary number system’ (Berdayes, 2000, p. 3). The base-2 system is utilized in computers as it implements easier with present day technology. A base-10 system could be used, however its cost in terms of technology innovation woul d make computers prohibitively expensive (Berdayes, 2000, pp. 53-56). Via the utilization of binary digits as opposed to decimal digits, bits thus have only two values, ‘0 and 1’ (Barfield and Caudell, 2001, p. 344, 368). The preceding is important in understanding the relationship of numbers to computers as well as Microsoft’s later entrance into this world. The following provides a visual understanding of how this works: Table 1 – Decimal Numbers in the Binary System (Swarthmore University, 2005) Decimal Number Binary Number 0 = 0 1 = 1 2 = 10 3 = 11 4 = 100 5 = 101 6 = 110 7 = 111 8 = 1000 9 = 1001 10 = 1010 11 = 1011 12 = 1100 13 = 1101 14 = 1110 In computers, bits are utilized in conjunction with bytes, which are represented as ‘8-bit bytes’ that work as follows: Table 2 – 8 Bit Bytes (Barfield and Caudell, 2001. pp. 50-54) Decimal Number Bytes 0 = 0000000000000000 1 = 0000000000000001 2 = 0000000000000010 65534 = 1111111111111110 65535 = 1111111111111111 The earliest computer has been traced back to the ‘abax’, which is the Greek word that describes ‘calculating board’ as well as ‘calculating table’ which as invented in China and called the abacus, it was also used in ancient Greece, the Roman Empire, Russia, Japan, and is still in use by the blind (qi-journal.com, 2005). Operating much as the bits and bytes in the modern computer, the abacus has a vertical row of beads that represent multiples of 10, 1, 10, 100, 1,00 and so forth (qi-journal.com, 2005). The basic principle of the abacus operates in much the same manner as the modern computer, through numerical representation. The first generations of modern computers were huge in comparison with today’s small, powerful and fast machines, and needed air-conditioned rooms to dissipate the heat. Programming on the first commercial computer in 1951, the UNIVAC, was a group of related mechanisms driven my mathematical equations that had to be written in order for the UNIVAC to work on problems (hagar.up.ac.za, 2006). It would take another 6 years for the first personal computer to be developed, the IBM 610 Auto-Point, which was termed as a ‘personal computer’ because it only took one individual to operate it, however, the cost in 1957 termed at $55,000 translates in to well over $100,000 in today’s value (maximon.com, 2006). In 1975 saw the introduction of the Altair 8800, which sold for $439, with 256 bytes of RAM, which also represented the year that Bill Gates, along with Paul Allen founded Microsoft (maximon.com, 2006). Altair was seeking a computer language, which Gates and Allen delivered via a program called BASIC on 23 July 1975, which they gave the company â€Å"†¦ exclusive worldwide rights to †¦ for 10 years† (Rich, 2003, p. 34). Sold as an add-on with the Altair 8800 for $75, the preceding provided the revenue underpinnings for Microsoft (Rich, 2003, p. 35). Generating just $381,715 in 1977, Microsoft was upstaged by Apple Computers that made machines as well as their own operating system (Rich, 2003, p. 36). Apple’s success caught the attention of IBM, which was not in the personal computer market, the foregoing was the means via which Gates entered the picture with IBM based upon DOS, program it secured from Seattle Computer for just $50,000 that heralded the beginni ngs of the industry giant (Rich, 2003, p. 51). Microsoft MS-DOS represented the foundation for the beginning financial strength of the company, which would enable it to develop Windows 95 and successive versions leading to Vista in 2007. Along the way, Microsoft has been accused, rightly or wrongly, of a monopolistic approach to software bundling that has stifled competition and innovation. This paper will seek to examine this facet, its effects, how it happened and the ramifications of the statement. Chapter 2 – Literature Review 2.1 Monopolist or Fierce Competitor In â€Å"Trust on Trial: How the Microsoft Case is Reframing the Rules of Competition†, by Richard McKenzie (2000, p. 1), reflects that Microsoft in the last 25 years has become â€Å"†¦ the worlds premier software company, dominating many of the markets it has entered and developed†¦Ã¢â‚¬  and also finds itself â€Å"†¦under legal assault †¦Ã¢â‚¬  for monopolist behaviour. McKenzie (2000, p. 2) indicates that in the United States â€Å"†¦its the Justice Department against Microsoft, but behind the courtroom scenes there has been a good deal of political maneuvering by other major American corporate high-tech combatants -Sun Microsystems, Oracle, Netscape, IBM, and America Online, to name just a few who would like nothing better than to see their market rival, Microsoft, get its comeuppance in the court of law†. In this instance it is the â€Å"†¦efficacy of antitrust law enforcement has been on trial† as the Microsoft case repr esents â€Å"†¦the first large-scale antitrust proceedings of the digital age;† (McKenzie, 2000. p. 2). McKenzie (2000, p. x) reflects upon the government case against Microsoft as a monopolist, indicating that while its operating system comes â€Å" †¦ preloaded on at least nine of every ten computers containing Intel microprocessors sold in the country, if not the world† was it this that made the company a monopolist? The market dominance that Microsoft has in the fact that its operating system comes preloaded in over 90% of the computers sold was expressed by the former United States Republican candidate Robert Dole, who stated â€Å"Microsoft’s goal appears to be to extend the monopoly it has enjoyed in the PC operating system marketplace to the Internet as a whole, and to control the direction of innovation. (McKenzie, 2000, p. 28). This view was also repeated by the media as well as New York Attorney General Dennis Vacco who see Microsoft’s â€Å"†¦product development strategies are evidence of monopoly power: †¦Ã¢â‚¬  in that the â€Å" †¦ Windows operating system has become almost the sole entry point to cyberspace† (McKenzie, 2000, p. 29). It is without question that Microsoft’s dominance resulting from preloaded operating software provides it with an advantage in introducing other forms of software. But, is that simply good business practices o r predatory behaviour? For consideration, McKenzie (2000, p. 47) points to the book written by Judge Bork â€Å"The Antitrust Paradox† where he stated repeatedly †¦ antitrust should not interfere with any firm size created by internal growth †¦. And like it or not, that is how Microsoft got into the position it now enjoys. But, in all the rhetoric, there is another facet to Microsoft’s dominance, the PC manufacturers themselves. As stated by the manufacturers themselves, there simply is no other choice! (McKenzie, 2000, p. 29). Eric Browning, the chief executive of PC manufacturer Micron has said I am not aware of any other non-Microsoft operating system product to which Micron could or would turn as a substitute for Windows 95 at this time† (McKenzie, 2000, p. 30). This sentiment was also echoed by John Romano, an executive at Hewlett-Packard who advised †¦ we dont have a choice †¦ (McKenzie, 2000, p. 30). The tie-in between monopoly power and market dominance has been explained by Franklin Fisher, the chief economist for the Justice Department as Monopoly power is a substantial degree of market power, or the ability of a firm (a) to charge a price significantly in excess of competitive levels and (b) to do so over a significant period of time (McKenzie, 2000, p. 30). Fisher further asserts that Microsoft’s dominance in the market â€Å"†¦ is protected by barriers to entry in the form of economies of scale in production, network effects, and switching costs †¦ (McKenzie, 2 000, p. 30). Fisher adds that â€Å"There are no reasonable substitutes for Microsoft’s Windows operating system for Intel-compatible desktop PCs. Operating systems for non-Intel-compatible computers are not a reasonable substitute for Microsoft’s Windows operating system because there would be high costs to switching to non-Intel-compatible computers like Mac and Unix† (McKenzie, 2000, p. 30). However, the monopolistic tendencies of Microsoft have not resulted in the company charging higher prices as a result of its dominant position. This view was put forth by the chief economic consultant for the state attorneys general in that â€Å"†¦the absence of viable competitors in Intel-compatible operating systems means that Microsoft doesnt have to worry about raising its price or using its economic weight in other ways †¦Ã¢â‚¬  (McKenzie, 2000, p. 30). He asserts that â€Å" †¦ a monopolist would continue to raise its price so long as its profits rose. †¦Ã¢â‚¬  (McKenzie, 2000, p. 31). Something that Microsoft has not done. Such is inconsistent with the manner in which monopolists behave. The line of reasoning for the preceding is that â€Å"†¦the cost of the operating system represents on average 2.5 percent of the price of personal computers (and at most 10 percent for very inexpensive personal computers), so even a 10 percent increase in the pr ice of the OS [operating system] would result at most in a 1 percent increase in the price of even inexpensive PCs †¦Ã¢â‚¬  (McKenzie, 2000, p. 31). Warren-Boulton thus concludes â€Å"†¦that Microsofts price for Windows is very likely far below the monopoly price †¦Ã¢â‚¬  which is a result of â€Å"†¦the so-called coefficient of the price elasticity of demand facing any firm (the ratio of the percentage change in the quantity to the percentage change in the price †¦Ã¢â‚¬  (McKenzie, 2000, p. 31). Therefore, argues McKenzie (2000, p. 32) a monopolist would not price its product in the very low range, â€Å"†¦because a very low elasticity implies that a price increase will increase profits †¦Ã¢â‚¬ , thus the government’s case has opposing views of Microsoft’s monopolist position, a telling facet in considering the overall implications of the company. The foregoing direct contradicts Franklin Fisher’s, the chief economist for the Justice Department, claims that Microsoft earns â€Å" †¦ superhigh profits †¦Ã¢â‚¬ , which its low prices does not support (McKenzie, 2000, p. 32). Thus, in being a so-called monopolist, Microsoft’s pricing policies do not reflect the behaviour of one. The complicated market, competitive, product and business realities of Microsoft in a competitive market must also be viewed as the company taking actions to protect its position through new product introductions as well as making it difficult for compe titors to gain an edge, the manner in which all firms operate if they intend to remain in business and continue as market leaders. The fact that Microsoft provides its Internet browser free along with its operating system, serves the interest of customers in that they have this feature already available in the purchase of their computers. It also represents a competitive action that limits other browsers from gaining an edge in the market. McKenzie (2000, p. 32) aptly points our that â€Å" †¦ Any firm that is dominant in a software market isnt likely to want to give up its dominance, especially if there are substantial economies of scale in production and network effects in demand †¦Ã¢â‚¬ , something with both Fisher as well as Warren-Boulton indicate is true in the software industry. McKenzie (2000, p. 32) adds that if Microsoft where to start losing market share for its operating system â€Å"†¦it could anticipate problems in keeping its applications network intact, which could mean its market share could spiral downward as a new market entrant makes sales and those sales lead to more and more applications being written for the new operating system †¦Ã¢â‚¬ . The flaw in the monopolist argue, as pointed out by McKenzie (2000. p. 34) is that even if a company had a 100% share of the market â€Å"†¦it must price and develop its product as though it actually had market rivals because the fi rm has to fear the entry of potential competitors †¦Ã¢â‚¬ . To make his point, McKenzie (2000, p. 34) points to classic microeconomics textbooks that teach that a monopolist represents a ‘single producer’ â€Å"†¦that is capable of restricting output, raising its prices above competitive levels, and imposing its will on buyers †¦Ã¢â‚¬  therefore in the position of the U.S. Justice Department, Microsoft’s high, 90%, market share is a near or almost monopoly, that McKenzie (2000, p. 34) aptly states is like almost being pregnant, you either are or you aren’t. To illustrate his point, McKenzie (2000, p. 34) points to the company called Signature Software, which at the time had â€Å"†¦100 percent of the market for a program that allows computer users to type their letters and e-mails in a font that is derived from their own handwriting†. He adds that despite it being the singular producer in the market, the company â€Å"†¦prices its software very modestly, simply because the program can be duplicated with relative ease.† McKenzie (2000, p. 34) also points out that Netscape at one time almost completely dominated the browser market, yet did not price its advantage in monopolist fashion. In protecting its position, Microsoft developed and introduced new products, all of which any other firm had the opportunity to do and thus innovate, yet such did not happen. McKenzie (2000, p. 137) asserts that the aggressive development of new products by Microsoft was in defense of its market position as well as being good marketi ng and customer satisfaction practices. He points to the following innovations by Microsoft that helped to cement is market dominance and stave off competitive inroads, all of which could have been created by other firms (McKenzie, 2000, p. 137): 1975 Microsoft develops BASIC as the first programming language written for the PC. A feat that could have been accomplished by anther firm had they innovated and gotten the initial contract with Altair for the 8800. 1983 Microsoft developed the first mouse based PC word processing program, Word. 1985 The company develops the first PC based word processing system to support the use of a laser printer. 1987 Microsoft’s Windows/386 became the first operating system to utilize the new Intel 32-bit 80386 processor. 1987 Microsoft’s introduces Excel, the first spreadsheet that was designed for Windows. 1989 Word became the first word processing system to offer tables. 1989 Microsoft Office becomes the first business productivity application offering a full suite of office tools. 1991 Word becomes the first productivity program to incorporate multimedia into its operation. 1991 Word version 2.0 becomes the first word processing program to provide drag and drop capability. 1995 Internet Explorer becomes the first browser to support multimedia and 3D graphics 1996 Microsoft’s Intellimouse is the first pointing device to utilize a wheel to aid in navigation. 1996 Microsoft introduces Picture It, the first program to permit consumers to create, enhance and share photo quality images over their PC’s. 1997 DirectX becomes the first multimedia architecture to integrate Internet ready services. 1998 Microsoft’s WebTV in conjunction with the hit television show Baywatch becomes the first internationally syndicated Internet-enhanced season finale. 1999 Windows 2000, which later becomes Windows NT adds the following innovations as firsts to a PC operating system, Text to speech engine, Multicast protocol algorithms that are reliable, Improvements in the performance registry, Inclusion of DirectX, Vision based user interfaces, Handwriting recognition, and a number of other innovations to enhance its operating system, and maintain as well as increase its market position. The preceding represents examples of innovation spurred by Microsoft that could have been introduced by its competitors in various fields first, but where not. Thus, Microsoft in these instances, as well as others introduce consumer enhancing innovations to further its market dominance through aggressive new product development, a path that was open to others as well. 2.2 Bundling, Innovative or Stifling Competition Rosenbaum’s (1998) book â€Å"Market Dominance: How Firms Gain, Hold, or Lose it and the impact on Economic Performance† provides a perspective on the means via which companies gain as well as lose market share, and the tactics they employ to best their competition. Few people remember that when Microsoft introduced Microsoft Word and Excel, the dominant software programs for word processing and spreadsheets were Lotus 1-2-3- and WordPerfect (Rosenbaum, 1998, p. 168). In fact, WordPerfect was the application found in all businesses, period (Rosenbaum, 1998, p. 168). Each of the preceding applications cost approximately $300, which Microsoft bested by selling his Office Suite program for $250. Through providing limited use Word programs in Windows, consumer had the chance to test Word before buying it (Rosenbaum, 1998, p. 168). More importantly, Microsoft’s spreadsheet, word processing, presentation programs were simply better and easier to use that the competitio n. By innovatively offering a free limited version of Word with the operating system, Microsoft induced trial, to which it had to follow up on with a better product. In looking at competitive practices and competition analysis, there is a relationship that exists between the structure of the market and innovation, to which Hope (2000, p. 35) poses the question as to â€Å"†¦whether monopoly is more conducive to innovation than competition †¦Ã¢â‚¬ . Hope (29000, p. 35) indicates that in response to the foregoing, there is no â€Å"†¦clear-cut answer, probably because there is none †¦Ã¢â‚¬ . Hope (2000, p. 35 puts forth the theory that â€Å"†¦Most economists, and virtually all designers of competition policy, take market structure as their starting point as something which is somehow, almost exogenously, given (although it may be affected by competition policy), and which produces results in terms of costs, prices, innovations, etc †¦Ã¢â‚¬  However, Hope (2000, p. 35) tells us that this is wrong, based upon elementary microeconomics, as â€Å"†¦Market structure is inherently endogenous†¦ (and is) â⠂¬ ¦ determined by the behaviour of existing firms and by entry of new ones, simultaneously with costs, prices, product ranges, and investments in RD and marketing†. Exogenous variables, if they in fact exist in a particular situation, represent facets such as product fundamentals such as â€Å"†¦production processes, entry conditions, the initial preferences of the consumers, variables determined in other markets, and government policy †¦Ã¢â‚¬  (Hope, 2000, p. 35). As a result, Hope (2000, p. 35) advises that the questions as to whether â€Å"†¦there will be more innovation with monopoly than with competition is no more meaningful than to ask whether price-cost margins will be higher if costs are high than if they are low †¦Ã¢â‚¬ . 2.2.1 Bundling Examples in Other Industries Aron and Wildman (1999, p. 2) make the analogy of Microsoft’s bundling methodology with that of cable television whereby a broadcaster how owns a â€Å"†¦ marquee channel can preclude competition in thematic channels (such as comedy or science fiction channels) by bundling their own thematic channels with the †¦Ã¢â‚¬  marquee channel. The preceding illustrates the idea that consumers tend to value channels such as HBO, Cinemax and Showtime that their reputation helps to cause consumers to consider other program platforms they offer. These channels advertise their other channels on their marquee stations and vise versa, offering bundling of channels at reduced prices to encourage purchase. Aron and Wildman (1999, p. 2) offer the logic that â€Å"†¦a provider that attempts to compete by offering a thematic channel on a stand-alone basis, without an anchor channel, would not be able to survive the competitive pressure of a rival with an anchor.† The argume nt that having a marquee channel, or anchor, is key to the viability of broadcasters is supported by the development of pay television in the United Kingdom. Aron and Wildman (1999, p. 2). The dominant pay television supplier is BSkyB which controls â€Å"†¦most of the critical programming rights in Britain, enabling it to use bundled pricing to execute a price squeeze against rivals †¦Ã¢â‚¬  which as in the case of Microsoft â€Å"†¦the pay television industry is that a firm that monopolizes one product (here, an anchor channel) can effectively leverage that monopoly to preclude competition in another product market by using bundled pricing† (Aron and Wildman, 1999, p. 2). Aron and Wildman (1999, p. 3) provide another example of how firms utilize bundling to inhibit their competition, through the example of Abbott and Ortho laboratories, which produce blood-screening tests utilized to test blood that is donated for viruses. Interestingly Abbott produced all five of the test utilized to check for viruses, whereas Ortho only produced three, thus Abbott bundled the five tests in a manner that Ortho was unable to compete, thus effectively making it a monopolist (Aron and Wildman (1999, p. 3). Were these good business practices that this enabled Abbott to increase its market share at the expense of another company that did not innovate in producing all five tests to complete? Ortho claimed that â€Å"†¦Abbott was effectively a monopolist in two of the tests, Ortho claimed that Abbott could and did use a bundled pricing strategy to leverage its monopoly into the other non-monopolized tests and preclude competition there† (Aron and Wildman, 1999, p. 3). The preceding examples show â€Å"†¦that a monopolist can preclude competition using a bundled pricing strategy †¦Ã¢â‚¬  (Aron and Wildman, 1999, p. 3) and that in so doing can accomplish such without charging prices in excess of what is reasonable for their customers, which makes sound business sense in that capturing the market thus eliminates the need for such, and also provides the business condition that prevents competitors from re-entering the market at lower prices. Thus it is rational for a monopolist to behave as if competitors exist, which in fact they will if it provides such an opportunity through increased pricing. The examples indicated show that â€Å" †¦ it is indeed possible in equilibrium for a provider who monopolizes one product (or set of products) to profitably execute a fatal price squeeze against a rival in another product by using a bundled pricing strategy† (Aron and Wildman, 1999, p. 3). 2.3 The Case Against Microsoft Spinello (2002, p. 83) in his work â€Å"Regulating Cyberspace: The Policies and Technologies of Control† inform us that there are four distinct aspects of the United States government case which is based upon violations of the Sherman Act, which are as follows: The company’s monopolization of the PC operating systems market was achieved via anticompetitive means, specially in the instance of the utilization of its browser, in violation of â€Å"Section 2 of the Sherman Act, which declares that it is unlawful for a person or firm to â€Å"monopolize†¦any part of the trade or commerce among the several States, or with foreign nations† (Spinello, 2002, p. 83). That Microsoft engaged in â€Å"†¦Unlawful exclusive dealing arrangements in violation of Sections 1 and 2 of the Sherman Act (this category includes Microsoft’s exclusive deal with America Online)† (Spinello, 2002, p. 83). That Microsoft in its attempt to maintain it competitive edge in browser software â€Å"†¦attempted to illegally amass monopoly power in the browser market) in violation of Section 2 of the Sherman Act †¦Ã¢â‚¬  (Spinello, 2002, p. 83). And that the bundling of its browser along with the operating system was in violation of â€Å"†¦Section 1 of the Sherman Act (Section 1 of this act prohibits contracts, combinations, and conspiracies in restraint of trade, and this includes tying arrangements) †¦Ã¢â‚¬  †¦Ã¢â‚¬  (Spinello, 2002, p. 83). Spinello (2002, p. 89) provides an analysis of the Department of Justice case against the company utilizing a distinct example as represented by Netscape. He contends that the option for consumer choice was never inhibited by Microsoft, and that Netscape’s own practices contributed to the decline in popularity of its browser. Chapter 3 –Analysis 3.1 Bundling, Competitive or Market Restrictive? The Concise Dictionary of Business Management (Statt, 1999, p. 109) defines a monopoly as â€Å"A situation in which a market is under the control or domination of a single organization †. The Dictionary continues that â€Å"This condition is generally considered to be met at one-quarter to one-third of the market in question (and that) †¦ A monopoly is contrary to the ideal of the free market and is therefore subject to legal sanctions in all industrialized countries with a capitalist or mixed economy†. In addressing this facet of the Microsoft case, McKenzie (2000, p. 27) elaborates that Microsoft’s market position as a ‘single seller’ in the market as a result of its dominance represents â€Å"†¦ latent, if not kinetic, monopoly power† and in the opinion of the judge presiding over the case, the company is â€Å"†¦illegally exploiting its market power in various ways to its own advantage and to the detriment of existing and potential market rivals and, more important, consumers†. This goes to the heart of the matter concerning the assertion that Microsoft’s monopolist approach is stifling competition and innovation as its bundling practices effectively eliminates software such as Netscape and others from becoming an option for other companies as the Internet browser Explorer comes preloaded with Windows and Vista operating software. This view was publicly asserted by the United States Attorney General at the time, Janet Reno in a 1997 press conference where she stated on behalf of the Justice Department that Microsoft is unlawfully taking advantage of its Windows monopoly to protect and extend that monopoly (McKenzie, 2000, p. 27). Gillett and Vogelsang (1999, p. xiv) in â€Å"Competition, Regulation, and Convergence: Current Trends in Telecommunications Policy Research† advise that â€Å"†¦Bundling is a contentious element of software competition that has been at the heart of the Microsoft antitrust litigation, and represents an integral aspect in the examination of how and if Microsoft’s monopolistic approach to software bundling has an effect on innovation and competition. They state that â€Å" †¦ through bundling, can profitably extend this monopoly to another product, for which it faces competition from a firm offering a superior product (in the sense that it would generate more surplus than the product offered by the monopolist) (Gillett and Vogelsang, 1999, p. xiv). They continue that â€Å"†¦Bundling the two products turns out to be an equilibrium outcome that makes society in general and consumers in particular worse off than they would be with competition without bundl ing †¦Ã¢â‚¬ . Gillett and Vogelsang (1999, p. xiv) offer the idea that â€Å"†¦bundling is likely to be welfare reducing and that unbundling would not be a suitable remedy †¦Ã¢â‚¬  Aron and Wildman (1999, p. 1) advise us that through the use of bundling a company can exclude its rivals through the combined pricing, thus successfully leveraging its monopoly power. They continue that the preceding represents part of an equilibrium strategy by which the monop

Role of Debt in Capital Structure of Firms

Role of Debt in Capital Structure of Firms Capital structure has got importance in the literature of corporate finance. It provides insight about the role of debt in the capital structure of a firm. It is believed that firm endeavors to uphold optimal capital structure. In existing literature, however, there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. The main objective of a firm is to maximize its profit and to give maximum return to its shareholders. For this purpose the company should use Optimal Capital Structure so as to achieve the desired targets, but usually when the time comes for the generation of capital, firms go with the more easiest way. The study investigates the relationship between the weighted average cost of capital (WACC) with Debt / Equity ratio of the firms in the Fertilizer Sector through , cross sectional analysis for the financial year 2010. The present study depicts that firms always keep in mind the tax shield. They usually prefer debt due to tax shield but some firms go with the more easiest way to raise capital, and the concept of optimal capital structure is set aside. In Pakistan, the interest rates are usually high as compared to developed countries. That is why, big firms usually prefer to raise funds through equity instead of debt. Since, financial institutions offer loans to profitable firms, at low rate keeping in view their credit rating and riskiness of operations, so these firms like fertilizer companies also include debt in their capital structure. The results are constructed with the literate review concluding that there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. Further, maximization of stock return for different firms is debatable. Introduction Capital structure theories provide insights about the role of debt in the capital structure of a firm. In corporate finance literature, it is believed that firm endeavor to uphold optimal capital structure. In existing literature, however, there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. Further, maximization of stock return for different firms is debatable. Various decisions taken by management include operating, financial and non- financial decisions. Financial structure (capital structure) decisions have gained importance in corporate finance, strategic management and financial economics literature. These decisions have implication for shareholders value. Capital structure comprises of debt and equity, the choice of which is associated with different levels of benefit and controls. There have always been controversies among the researchers about the optimal capital structure of the firm because of significant variation with regard to capital structure of the firm because if significant variations with regard to capital structure existing in different industries and among firm within the same industry. Further, the different proxies may be used to measure the same attribute of a variable. Selection of these proxies may create biasness. Conventional determinants of capital structure in existing literature include collateral value of ass et, non-debt tax shield, growth, uniqueness, industry classification, size volatility, and profitability. Use of debt in capital structure of a firm acts as a monitoring device over managerial actions. Use of debt puts pressure on managers to enhance the performance of a firm so that sufficient cash flows are generated to retire loan obligations. The main objective of business firm is to maximize the wealth of shareholders in the long run, the management should only invest in projects which give are turn in excess of cost of funds invested in the projects of the business. The difficulty will arise in determination of cost of funds, if it raised from different sources and different quantums. 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 funds in the company. There are variations in the cost of capital due to the fact that different kinds of investment carry different levels of risk which is compensated for by different levels of return on the investment. There are two main sources of capital for a company: shareholders and lenders usually debenture holders and financial institutions. The cost of equity and cost of debt are the rates of return that need too be offered to these two groups of suppliers of capital in order to attract funds from them. The cost of capital consist of four elements: Cost of Equity (Ke), Cost of Retained Earning (Kr), Cost of Preferred Capital (Kp) and Cost of Debt( Kd).The funds required for the project are raised from the equity shareholders which are of permanent nature. These funds need not be repayable during the life time of the organization. Hence its a permanent source of funds. The equity shareholders are the owners of the company. The main objective of the firm is to maximize the wealth of the equity shareholders. Equity share capital is the risk capital of the company. If the companys business is doing well the ultimate beneficiaries are the equity shareholders who will get the return in the form of dividends from the company and the capital appreciation for their investment. If the company comes for liquidation due to losses, the ultimate and worst sufferers are the equity shareholders. Sometimes they may not get their investment back during the liquidation process. The following methods are used in calculation of cost of equity. First is Dividend Yield Method. The Dividend per share is expected on the current market price per share. As per this method, the cost of capital is defined as â€Å"the discount rate that equates the present value of all expected future dividends per share with the net proceeds of the sales (or the current market price) of a share. This method is based on the assumption that market value of shares is directly related to the future dividends on the shares. Another assumption is that the future dividend per shares is expected to be constant and the company is expected to earn at least this yield to keep the shareholders content. Second method is Dividend growth Model in which shareholders will normally expect to increase year after year and not to remain constant in perpetuity. In this method, an allowance for future growth in dividend is added to the current dividend yield. It is recognized that the current market price of a share reflect expected future dividends. The dividend growth model is also called as â€Å"Gordon dividend growth model. Third model is Price Earning Method which takes into consideration the Earning per share(EPS) and the market price of the share. It is based on the assumption that the investors capitalize the stream of future earnings of the share and the earnings of a share need not be in the form of dividend and also it need not be disbursed to the shareholders. It based on the argument that even if the earning are not disbursed as dividends, it is kept in the retained earnings and it causes future growth in the earnings of capital, the earning per share is divided by the current market price. Forth model is Capital Asset Pricing Model which divides the cost of equity into two components, the near risk-free return available on investing in government bonds and an addition risk premium for investing in a particular share or investment. This risk premium in turn comprises the average return on the overall market portfolio and the beta factor (or risk) of the particular investment. Putting this all together the CAPM assesses the cost of equity for an investment. Literature Review The empirical study done by Modigliani and Miller (1958) depicts the basis of capital structure. Under the assumption of market perfection, they argued that the value of firm is independent from its mode or source of financing. They believe that cost of capital had no influence on the capital structure, so according to them there exists no capital structure. The level of leverage may be different in the firm or within the same industry. In their point of view, the value of firm is not determined by however, the firm finances its assets but by the real assets possession is the actual value of a firm. Researchers have relaxed the unrealistic assumptions in Modigliani and Miller proposition. In real life there exists information asymmetry. Debt payments are subject to tax shield. Agency costs reflect a tradeoff model where decrease in agency cost of equity will cause an increase in agency cost of debt Jensen and Meckling (1976) They argue that agency costs, however, reduce because use of debt restricts issuance of equity, which in turn strengthens managerial ownership. It helps to reduce agency conflicts. Myers and Majluf (1984) argue that use of debt reduces agency problems. Further, leverage also bring its own agency cost that generates a conflict between agency cost of debt and equity. Jensen (1986) argues that use of debt constrains the free cash flow explanations give birth to its fixed nature of obligations. Since managerial compensation had controlled the positively related firms to grow, therefore, investors may invest available cash flows optimally or utilizes the available cash flows to pay dividends or profits. When profits are paid at low rate due to some reason, it extremely impacts the shares market price. Use of debt generate limits to the managerial discretion to use such cash flows fully because of non-payment of profit on debt may take a firm bankruptcy. Further, firms that use debt faces extreme scanning by debt holders. These facts indulge managers to utilize their resources optimally which ultimately enriches firm value. The theoretical framework of capital structure begins with the seminal paper of Modigliani and Miller (1958) who postulate that capital structure of a firm is irrelevant in perfect capital markets. By using net operating income approach, they argue that the overall capitalization rate remain constant for any level of financial leverage. That is, the total risk of security holders of a firm remains unaffected for any change in capital structure. Therefore, value of a firm is independent of the capital structure of a firm. Their theory is based on unrealistic assumptions of no income taxes, no transaction costs, no information asymmetry, no bankruptcy and agency cost etc. They believe in the conservation of investment value. The researchers have relaxed the assumption of perfect capital market assumed by Modigliani and Miller. Following theories explain the relevance of capital structure under different market imperfection. Trade off theory relaxes the assumption of bankruptcy costs. It considers the cost of financial distress (bankruptcy cost, reorganization cost and non-bankruptcy cost). It elaborates the impact of financing cost and tax shield on debt. According to trade-off theory, increase in debt is positively related to marginal cost of debt and negatively related to marginal benefit of increase in debt. A firm focuses on trade-off between marginal benefit and cost of debt while deciding about the proportion of debt and equity in its capital structure with a view to optimize the overall value of the firm. A firm should borrow until the marginal tax advantage of additional debt is offset by the increase in present value of the expected costs of financial distress. This theory has been criticized by researchers on different grounds. For instance, Miller (1977) argues that firms pay large taxes frequently, whereas occurrence of bankruptcy is not recurring in nature. So, low weights are assigned to b ankruptcy cost. Further, in reality, firms do not have higher weightage of debt in their capital structure. Pecking Order theory of capital structure is based on the costs of asymmetric information. It assumes relevance of asymmetric information only for external financing. It describes the sequence (internal financing to external financing) that a firm uses to finance its capital expenditures. According to pecking order, a firm having sufficient profits and cash flows use internal funds first. It will go for external financing if internal funds are not sufficient. While deciding about external financing, a firm will issue the safest security like bonds; debenture or term-finance certificates and equity will be used as the last option. Further, in case the internally generated cash flows exceed the capital investment requirements, these excessive cash flows will be utilized to repay debt instead of buying back equity. Milton and Artur (1991) discussed the theory of capital structure grounded on four basic factors. Firstly, agency cost that shows conflicts among managers, equity holders and debt holders. Secondly, there is asymmetric information and it explains the possible capital structure. Thirdly, it is centered on the product/input market interactions with Capital structure. Fourthly, it describes theories driven by co-operate control consideration it shows the linkage between the market for co-operate control and for Capital structure. Peter and Gordon (2005) have discussed the importance of industry to firm-level financing and real its decisions. The findings of this paper were financial structure that depends on a firms position within its industry and In competitive industry, a firms financial control depends on its natural hedge the activities of other firms in this industry, and its status as entrant, current performance, or exiting firm. Financial control is higher and less discrete in concentrated industries, where strategic debt interactions are stronger, but a firms natural hedge is not significant. Our finding shows that financial structure, technology, and risk are jointly determined within industries. These findings are reliable with recent industry equilibrium models of financial structure. The analysis made by Laurence et al (2001), discusses the Capital Structures in developing countries uses a new set of data to assess whether capital structure theory is transferable across countries with different influential structures or not. In this analysis they used 10 developing countries and provided evidence that these decisions are affected by the same factors as in developed countries. However, there are persistent differences across countries, indicating that specific country factors are at work. their findings suggests that although some of the insights from modern finance theory are transferable across countries and much remains to be done to understand the impact of different institutional features on capital structure choices. This paper affirms the arguments on the tax shield valuation as it remains a hot issue in the financial literature. Basically, two methods have been projected to incorporate the tax benefit of debt in the present value computation: The adjusted present value (APV), and the weighted average cost of capital (WACC). This note clarifies the correlation between these two apparently different approaches by offering a formula for the WACC. Firms interest expenses are tax deductible. Therefore, debt increases the cash flows available to stockholders and bondholders by the amount of the tax reduction. Joseph Ignacio (2005), discusses the cost of debt is the market rate or unsubsidized rate for which an investor is willing to pay. In further detail debt creates and sustain its value when tax shield is applied and the rate is sustainable but if the rate of repayment is high then form the loan and at a low market rate then loan will be preferable as it is subsidized debt and no tax is applied, the firm would be a benefited with debt financing, and the unlevered and levered values of the cash flows would be unequal. And the optimal rate of return and WACC can be achieved if a firm follows the rules and take into account all sources of financing. Tom and Timothy (2004) assumes that the use of weighted average cost of capital (WACC) is better then the use of any other calculation because either it may be riskier or will not depict the true picture of the financial performance or the position of the firm. This paper encourages the usage of WACC in all the firms although it is difficult to calculate and had some mathematical complexities but after that it depicts a clear picture of the firm, as by using spreadsheets it is easy to present the findings of the company to its managers, clients, colleagues and shareholders. The WACC is a fundamental concept in corporate finance. Its basic definition is averaging the cost of capital coming from both the equity and the debt by Farber at el (2006) and it looks simple. But the fact is its practical implementation which has raised several questions, they are most likely the distinction between book value and the market value. This paper addresses more in depth the tax shield valuation and establishes a general formula that remains valid for any debt structure. In this context, there contribution allows not only to compare the usual WACC computation in a more rigorous way but also less synthetic one, and helps the firms to adapt the WACC approach to any chosen tax shield valuation model. In this sense, the WACC appears as a powerful and very adaptable concept. Greg (2004), discusses what is WACC and what are there components and how these components are calculated and are helpful in the calculation of WACC. The paper further discusses that what should be the minimum discount rate that make intuitive sense to invest or to add a firm in portfolio. It also explains that what is the cost of debt, cost of financing and the components of cost of financing. Myers and majluf (1984), argues that the use of debt reduces agency problems and further leverage also brings its own agency cost thats generates a conflict between agency cost debt and equity. Jenson (1986), states that the use of debt will restrict the cash flow projections due to its fixed rules. Since marginal benefits and control its positively related to firm development. Therefore management may invest available resources to obtain cash flows. When dividend are paid but at a low rate its adversely affect the share price in the market. The usage of debt limits the firm to invest else-where because the non-payment of the debt leads to bankruptcy. Lakshmi (1994), differentiates between the traditional capital structure models and the new pecking order theory model of the corporate financing. The basics of pecking order theory model assumes that the debt financing driven by the internal financing, has much more time series explanatory power than a static trade of model, which predicts that each firm adjusts gradually toward an optimal debt ratio. And had shown in their results that the power to reject the pecking order against trade of theory. The model of (CAPM) given by William and John (1964,1965), gives evidence of the birth of asset pricing theory for which noble prize was given to sharpe in 1990. Forty years later CAPM is now publically used in estimating the cost of capital of the industry and evaluating the esteem to have the maximum profits from the portfolio invested in. The attractiveness in estimation of CAPM is that it offers a wide pleasing range of predictions about how to measure and ensure the risk and the relation between expected returns and risk. Unfortunately, some problems of CAPMs may reflect the theory may fails at some times, the result of many not be as per assumptions. But they may be caused by difficulties in implementation of valid tests to the model. Dan at el (2005) examine the entire associations between leverage, corporate and personal taxes, and the firms cost of equity to generate capital. Expanding the theory of Modigliani and Miller (1958, 1963), the cost of equity capital can be expressed as an impact of leverage and corporate and level taxes. The predictions that the equity cost will increase in leverage, but that corporate taxes shifts from leverage related risk premium, while the personal tax disadvantage of burden of debt reduces the profit. They examined the findings by using implied equity cost estimation system of the firms corporate tax rate and the personal tax gives a big advantage of debt. Their result suggests that the premium equity risk is linked with the profit, and if the entire profit is decreasing the corporate tax generates benefit. They also marked evidence that the premium equity risk has relations with leverage, and increase in entire profit may give a results in increased in personal tax. Rodolfo (2008) sets forth the contribution to this long lasting debate on cost of capital, firstly by introducing the multiplicative model that helps to calculate the rate of WACC. Secondly, by making adjustments in the rate of governance risk. The older approach says that the cost of capital might be calculated by means of a weighted average of debt and capital. But this is not a correct way of calculation and that might bring misappropriation, whereas the multiplicative model not only calculate the linear approximation but also the joint outcome of expected costs of debt and stock, and its proportion in the capital structure of that firm. Nevins (1967), explains in reference to Modigliani and millers discussion that how leverage can be effective and efficient to increase the entire cost of capital of the industry or the firm. He also discusses in detail that when the account is taken of risk and is ruin an increasing cost of capital is perfectly the same with little arbitrage operations. Giving ways to the chances of bankruptcy is tantamount to relax the that entire stream of operating earnings Is independent from the entire capital structure. Robert (1988), argues the effect of corporate and personal taxes on the firms optimal capital structure and financing decisions under uncertain defined conditions. It further more discussion they discussed the entire capital structure model by categorizing them entire firms important investments decisions. The results suggests that when investment was allowed to adjust optimally the existing assumptions about the relationship between investment and debt related tax shields must be changed. Secondly, they discussed that the increases in investment related tax shields changes due to corporate tax code are not necessarily linked with reductions in profits at the individual and companys level. In cross sectional analysis, firms with bigger investment tax shield. Need not to have lower debt tax shields unless all the market utilize the same mechanism. Differences in production technologies in the entire market may query questions that why the empirical results cross-sectional analysis do not meet the expectations of the researchers. Alan reviewed the financial consumption and behavior of the company to increase their profits and wealth of their existing shareholders. They mainly focuses on the impact of personal income and capital gains and taxes, and discovered that in the presence of different taxation systems of dividends and capital gains, wealth maximization does not imply maximization of firm market value and the source of equity financing is not irrelevant. The approximate cost of capital in the presence of income taxes does not depend directly on either the dividend payout rate or the tax on dividends paid. Equity shares have a market value lower than the difference between the production cost of a companys assets and the current market value of its debt obligations. Because of this capitalization, it need not be true that an economy without taking risks and uncertainty there would have no financing. The Hypothesis The detail literature review enabled us to construct the following hypothesis. H0: The firm with high debt/ equity ratio should have less cost of capital. H1: The firm with lower debt/ equity ratio should have higher cost of capital.. Research Methodology This chapter describes the methodology to investigate research problems in order to draw conclusion for the present study. Research methodology comprises of research method employed identification to the problem criteria for sample selection methods for data collection and construction for measuring instruments. It comprises of the brief description of variables and proxies used to measure those variables. It also describers research limitation and ethical concerns. 3.1 Research design and data description As stated earlier, the objective of the study is to explore the relationship between the Debt / Asset Ratio and the weighted average cost of capital. For this purpose we have targeted four companies of fertilizer sector from Pakistan into year 2010. Basically there are four companies in the Fertilizer sector listed under the roof of Karachi Stock Exchange, but three of them are selected at random. Therefore, the sample size comprises of almost cover 75% of the fertilizer sector. 3.2 Model Description As stated earlier the study has been under taken to investigate the relationship of Debt / Equity Ratio and weighted cost of capital in the industry. Following models are used to calculate the cost of capital. 3.2.1 Cost of debt The capital structure of a firm normally include the debt component. The debt may be in the form of Debentures, Bonds, Term Loans from Financial Institutions and Banks etc. The debt carries a fix rate of interest, irrespective of the profitability of the company. Because the coupon rate is fixed, the firm increases its earning through debt financing. Then after payment of fixed interest charges more surplus is available for equity shareholders, and hence EPS will increase. An important point to be remembered that dividends payable to equity shareholders and preference shareholders is an appropriation of profit, whereas the interest payable to debt is charged against profit. Therefore, any payment towards interest will reduce the profit and ultimately the companys tax liability will decrease. The phenomenon is called as tax shield. The tax shield is viewed as a benefit that accrues to the company which is geared. 3.2.2 Price Earning Method This method takes into consideration the Earning per share(EPS) and the market price of the share. It is based on the assumption that the investors capitalize the stream of future earnings of the share and the earnings of a share need not be in the form of dividend and also it need not be disbursed to the shareholders. It based on the argument that even if the earning are not disbursed as dividends, it is kept in the retained earnings and it causes future growth in the earnings of capital, the earning per share is divided by the current market price. We have selected price earning method as this method provides us the required results. Although there are various methods to calculate the cost of Equity but there are some limitations applied on them. 3.2.3 Debt / Equity Ratio The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders equity and debt used to raise the companys capital. It is also known as Risk, Gearing or Leverage Ratio. The two components are often taken from the firms balance sheet or statement of financial position, but the ratio may also be calculated using market values for both, if the companys debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially. =Long Term Interests Bearing Debt/ Total Equity 3.3 Companies Included in the Study Following companies are included in this study from the Fertilizer sector for detailed analysis. Fauji Fertilizer Limited. (FFC) Fauji Fertilizer Bin Qasim Limited. (FFBL) Dawood Hercules Chemicals Limited. (DAWH) 3.4 Limitations of The Study Although there are various methods to calculate the Cost of Equity but there are some limitations. For instance, Gordon Growth Model cannot be applied because the firms in Pakistan do not pay dividends at perpetual constant growth rate. The other technique Capital Asset Pricing Model of calculating the Cost of Equity will create biasness due to real adjustment of inflation premium in real rate of interest to calculate the risk free rate of return. Further, the return on market portfolio requires a detailed analysis of stock returns with other financial indicators. Therefore, the study uses Price Earning Method due to availability of actual and exact data. Empirical Study Of Fertilizer Sector This chapter includes the descriptive results and detailed analysis. The detailed analysis of Fertilizer sector is given below. It includes Cost of Debt KD, Cost of Equity KE, the WACC and Debt / Equity Ratio of the three companies which fall in the fertilizer sector. Analysis The present study empirically investigates the relationship between the Weighted Average Cost Of Capital and Return On Assets. We have chosen three fertilizer companies listed in Karachi Stock Exchange. Name of Company WACC Debt/ Equity Ratio Fauji Fertilizer Limited 12.77% 24.72% Fauji Fertilizer Bin Qasim Limited 9.18% 37.16% Dawood Hercules Chemicals Limited 10.98% 20.91% After the detailed analysis, the study concludes that Fauji fertilizer has low debt / equity ratio as compared to Fauji Fertilizer Bin Qasim Limited and higher WACC. Which is consistent with our hypothesis that H0: The firm with high debt/ equity ratio should have less cost of capital. In the case of Fauji Fertilizer Bin Qasim Limited it has higher Debt / Equity ratio as compared to Dawood Hercules. So accordingly, its WACC is less than Dawood Hercules which is consistent with our Hypothesis. Further, when we compared Dawood Hercules with Fauji Fertilizer the study concludes that, though the debt / equity ratio of Fauji Fertilizer has greater Debt / Equity Ratio than of Dawood Hercules, but the WACC of Fauji Fertilizer is higher than Dawood Hercules. Which is not favorable according to hypothesis. This conclusion leads to the conclusion that while deciding about the capital structure, the firms always do not keep in mind the optimal capital structure which is subject to the availabil ity of funds. Conclusion The present study depicts that firms always keep in mind the tax shield. They usually prefer debt due to tax shield but some firms go with the more easiest way to raise capital, and the concept of optimal capital structure is set aside. In Pakistan, the interest rates are usually high as compared to developed countries. That is why, big firms usually prefer to raise funds through equity instead of debt. Since, financial institutions offer loans to profitable firms, at low rate keeping in view their credit rating and riskiness of operations, so these firms like fertilizer companies also include debt in their capital structure. The results are constructed with the literate review concluding that there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. Further, maximization of s tock return for different firms is debatable. Role of Debt in Capital Structure of Firms Role of Debt in Capital Structure of Firms Capital structure has got importance in the literature of corporate finance. It provides insight about the role of debt in the capital structure of a firm. It is believed that firm endeavors to uphold optimal capital structure. In existing literature, however, there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. The main objective of a firm is to maximize its profit and to give maximum return to its shareholders. For this purpose the company should use Optimal Capital Structure so as to achieve the desired targets, but usually when the time comes for the generation of capital, firms go with the more easiest way. The study investigates the relationship between the weighted average cost of capital (WACC) with Debt / Equity ratio of the firms in the Fertilizer Sector through , cross sectional analysis for the financial year 2010. The present study depicts that firms always keep in mind the tax shield. They usually prefer debt due to tax shield but some firms go with the more easiest way to raise capital, and the concept of optimal capital structure is set aside. In Pakistan, the interest rates are usually high as compared to developed countries. That is why, big firms usually prefer to raise funds through equity instead of debt. Since, financial institutions offer loans to profitable firms, at low rate keeping in view their credit rating and riskiness of operations, so these firms like fertilizer companies also include debt in their capital structure. The results are constructed with the literate review concluding that there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. Further, maximization of stock return for different firms is debatable. Introduction Capital structure theories provide insights about the role of debt in the capital structure of a firm. In corporate finance literature, it is believed that firm endeavor to uphold optimal capital structure. In existing literature, however, there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. Further, maximization of stock return for different firms is debatable. Various decisions taken by management include operating, financial and non- financial decisions. Financial structure (capital structure) decisions have gained importance in corporate finance, strategic management and financial economics literature. These decisions have implication for shareholders value. Capital structure comprises of debt and equity, the choice of which is associated with different levels of benefit and controls. There have always been controversies among the researchers about the optimal capital structure of the firm because of significant variation with regard to capital structure of the firm because if significant variations with regard to capital structure existing in different industries and among firm within the same industry. Further, the different proxies may be used to measure the same attribute of a variable. Selection of these proxies may create biasness. Conventional determinants of capital structure in existing literature include collateral value of ass et, non-debt tax shield, growth, uniqueness, industry classification, size volatility, and profitability. Use of debt in capital structure of a firm acts as a monitoring device over managerial actions. Use of debt puts pressure on managers to enhance the performance of a firm so that sufficient cash flows are generated to retire loan obligations. The main objective of business firm is to maximize the wealth of shareholders in the long run, the management should only invest in projects which give are turn in excess of cost of funds invested in the projects of the business. The difficulty will arise in determination of cost of funds, if it raised from different sources and different quantums. 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 funds in the company. There are variations in the cost of capital due to the fact that different kinds of investment carry different levels of risk which is compensated for by different levels of return on the investment. There are two main sources of capital for a company: shareholders and lenders usually debenture holders and financial institutions. The cost of equity and cost of debt are the rates of return that need too be offered to these two groups of suppliers of capital in order to attract funds from them. The cost of capital consist of four elements: Cost of Equity (Ke), Cost of Retained Earning (Kr), Cost of Preferred Capital (Kp) and Cost of Debt( Kd).The funds required for the project are raised from the equity shareholders which are of permanent nature. These funds need not be repayable during the life time of the organization. Hence its a permanent source of funds. The equity shareholders are the owners of the company. The main objective of the firm is to maximize the wealth of the equity shareholders. Equity share capital is the risk capital of the company. If the companys business is doing well the ultimate beneficiaries are the equity shareholders who will get the return in the form of dividends from the company and the capital appreciation for their investment. If the company comes for liquidation due to losses, the ultimate and worst sufferers are the equity shareholders. Sometimes they may not get their investment back during the liquidation process. The following methods are used in calculation of cost of equity. First is Dividend Yield Method. The Dividend per share is expected on the current market price per share. As per this method, the cost of capital is defined as â€Å"the discount rate that equates the present value of all expected future dividends per share with the net proceeds of the sales (or the current market price) of a share. This method is based on the assumption that market value of shares is directly related to the future dividends on the shares. Another assumption is that the future dividend per shares is expected to be constant and the company is expected to earn at least this yield to keep the shareholders content. Second method is Dividend growth Model in which shareholders will normally expect to increase year after year and not to remain constant in perpetuity. In this method, an allowance for future growth in dividend is added to the current dividend yield. It is recognized that the current market price of a share reflect expected future dividends. The dividend growth model is also called as â€Å"Gordon dividend growth model. Third model is Price Earning Method which takes into consideration the Earning per share(EPS) and the market price of the share. It is based on the assumption that the investors capitalize the stream of future earnings of the share and the earnings of a share need not be in the form of dividend and also it need not be disbursed to the shareholders. It based on the argument that even if the earning are not disbursed as dividends, it is kept in the retained earnings and it causes future growth in the earnings of capital, the earning per share is divided by the current market price. Forth model is Capital Asset Pricing Model which divides the cost of equity into two components, the near risk-free return available on investing in government bonds and an addition risk premium for investing in a particular share or investment. This risk premium in turn comprises the average return on the overall market portfolio and the beta factor (or risk) of the particular investment. Putting this all together the CAPM assesses the cost of equity for an investment. Literature Review The empirical study done by Modigliani and Miller (1958) depicts the basis of capital structure. Under the assumption of market perfection, they argued that the value of firm is independent from its mode or source of financing. They believe that cost of capital had no influence on the capital structure, so according to them there exists no capital structure. The level of leverage may be different in the firm or within the same industry. In their point of view, the value of firm is not determined by however, the firm finances its assets but by the real assets possession is the actual value of a firm. Researchers have relaxed the unrealistic assumptions in Modigliani and Miller proposition. In real life there exists information asymmetry. Debt payments are subject to tax shield. Agency costs reflect a tradeoff model where decrease in agency cost of equity will cause an increase in agency cost of debt Jensen and Meckling (1976) They argue that agency costs, however, reduce because use of debt restricts issuance of equity, which in turn strengthens managerial ownership. It helps to reduce agency conflicts. Myers and Majluf (1984) argue that use of debt reduces agency problems. Further, leverage also bring its own agency cost that generates a conflict between agency cost of debt and equity. Jensen (1986) argues that use of debt constrains the free cash flow explanations give birth to its fixed nature of obligations. Since managerial compensation had controlled the positively related firms to grow, therefore, investors may invest available cash flows optimally or utilizes the available cash flows to pay dividends or profits. When profits are paid at low rate due to some reason, it extremely impacts the shares market price. Use of debt generate limits to the managerial discretion to use such cash flows fully because of non-payment of profit on debt may take a firm bankruptcy. Further, firms that use debt faces extreme scanning by debt holders. These facts indulge managers to utilize their resources optimally which ultimately enriches firm value. The theoretical framework of capital structure begins with the seminal paper of Modigliani and Miller (1958) who postulate that capital structure of a firm is irrelevant in perfect capital markets. By using net operating income approach, they argue that the overall capitalization rate remain constant for any level of financial leverage. That is, the total risk of security holders of a firm remains unaffected for any change in capital structure. Therefore, value of a firm is independent of the capital structure of a firm. Their theory is based on unrealistic assumptions of no income taxes, no transaction costs, no information asymmetry, no bankruptcy and agency cost etc. They believe in the conservation of investment value. The researchers have relaxed the assumption of perfect capital market assumed by Modigliani and Miller. Following theories explain the relevance of capital structure under different market imperfection. Trade off theory relaxes the assumption of bankruptcy costs. It considers the cost of financial distress (bankruptcy cost, reorganization cost and non-bankruptcy cost). It elaborates the impact of financing cost and tax shield on debt. According to trade-off theory, increase in debt is positively related to marginal cost of debt and negatively related to marginal benefit of increase in debt. A firm focuses on trade-off between marginal benefit and cost of debt while deciding about the proportion of debt and equity in its capital structure with a view to optimize the overall value of the firm. A firm should borrow until the marginal tax advantage of additional debt is offset by the increase in present value of the expected costs of financial distress. This theory has been criticized by researchers on different grounds. For instance, Miller (1977) argues that firms pay large taxes frequently, whereas occurrence of bankruptcy is not recurring in nature. So, low weights are assigned to b ankruptcy cost. Further, in reality, firms do not have higher weightage of debt in their capital structure. Pecking Order theory of capital structure is based on the costs of asymmetric information. It assumes relevance of asymmetric information only for external financing. It describes the sequence (internal financing to external financing) that a firm uses to finance its capital expenditures. According to pecking order, a firm having sufficient profits and cash flows use internal funds first. It will go for external financing if internal funds are not sufficient. While deciding about external financing, a firm will issue the safest security like bonds; debenture or term-finance certificates and equity will be used as the last option. Further, in case the internally generated cash flows exceed the capital investment requirements, these excessive cash flows will be utilized to repay debt instead of buying back equity. Milton and Artur (1991) discussed the theory of capital structure grounded on four basic factors. Firstly, agency cost that shows conflicts among managers, equity holders and debt holders. Secondly, there is asymmetric information and it explains the possible capital structure. Thirdly, it is centered on the product/input market interactions with Capital structure. Fourthly, it describes theories driven by co-operate control consideration it shows the linkage between the market for co-operate control and for Capital structure. Peter and Gordon (2005) have discussed the importance of industry to firm-level financing and real its decisions. The findings of this paper were financial structure that depends on a firms position within its industry and In competitive industry, a firms financial control depends on its natural hedge the activities of other firms in this industry, and its status as entrant, current performance, or exiting firm. Financial control is higher and less discrete in concentrated industries, where strategic debt interactions are stronger, but a firms natural hedge is not significant. Our finding shows that financial structure, technology, and risk are jointly determined within industries. These findings are reliable with recent industry equilibrium models of financial structure. The analysis made by Laurence et al (2001), discusses the Capital Structures in developing countries uses a new set of data to assess whether capital structure theory is transferable across countries with different influential structures or not. In this analysis they used 10 developing countries and provided evidence that these decisions are affected by the same factors as in developed countries. However, there are persistent differences across countries, indicating that specific country factors are at work. their findings suggests that although some of the insights from modern finance theory are transferable across countries and much remains to be done to understand the impact of different institutional features on capital structure choices. This paper affirms the arguments on the tax shield valuation as it remains a hot issue in the financial literature. Basically, two methods have been projected to incorporate the tax benefit of debt in the present value computation: The adjusted present value (APV), and the weighted average cost of capital (WACC). This note clarifies the correlation between these two apparently different approaches by offering a formula for the WACC. Firms interest expenses are tax deductible. Therefore, debt increases the cash flows available to stockholders and bondholders by the amount of the tax reduction. Joseph Ignacio (2005), discusses the cost of debt is the market rate or unsubsidized rate for which an investor is willing to pay. In further detail debt creates and sustain its value when tax shield is applied and the rate is sustainable but if the rate of repayment is high then form the loan and at a low market rate then loan will be preferable as it is subsidized debt and no tax is applied, the firm would be a benefited with debt financing, and the unlevered and levered values of the cash flows would be unequal. And the optimal rate of return and WACC can be achieved if a firm follows the rules and take into account all sources of financing. Tom and Timothy (2004) assumes that the use of weighted average cost of capital (WACC) is better then the use of any other calculation because either it may be riskier or will not depict the true picture of the financial performance or the position of the firm. This paper encourages the usage of WACC in all the firms although it is difficult to calculate and had some mathematical complexities but after that it depicts a clear picture of the firm, as by using spreadsheets it is easy to present the findings of the company to its managers, clients, colleagues and shareholders. The WACC is a fundamental concept in corporate finance. Its basic definition is averaging the cost of capital coming from both the equity and the debt by Farber at el (2006) and it looks simple. But the fact is its practical implementation which has raised several questions, they are most likely the distinction between book value and the market value. This paper addresses more in depth the tax shield valuation and establishes a general formula that remains valid for any debt structure. In this context, there contribution allows not only to compare the usual WACC computation in a more rigorous way but also less synthetic one, and helps the firms to adapt the WACC approach to any chosen tax shield valuation model. In this sense, the WACC appears as a powerful and very adaptable concept. Greg (2004), discusses what is WACC and what are there components and how these components are calculated and are helpful in the calculation of WACC. The paper further discusses that what should be the minimum discount rate that make intuitive sense to invest or to add a firm in portfolio. It also explains that what is the cost of debt, cost of financing and the components of cost of financing. Myers and majluf (1984), argues that the use of debt reduces agency problems and further leverage also brings its own agency cost thats generates a conflict between agency cost debt and equity. Jenson (1986), states that the use of debt will restrict the cash flow projections due to its fixed rules. Since marginal benefits and control its positively related to firm development. Therefore management may invest available resources to obtain cash flows. When dividend are paid but at a low rate its adversely affect the share price in the market. The usage of debt limits the firm to invest else-where because the non-payment of the debt leads to bankruptcy. Lakshmi (1994), differentiates between the traditional capital structure models and the new pecking order theory model of the corporate financing. The basics of pecking order theory model assumes that the debt financing driven by the internal financing, has much more time series explanatory power than a static trade of model, which predicts that each firm adjusts gradually toward an optimal debt ratio. And had shown in their results that the power to reject the pecking order against trade of theory. The model of (CAPM) given by William and John (1964,1965), gives evidence of the birth of asset pricing theory for which noble prize was given to sharpe in 1990. Forty years later CAPM is now publically used in estimating the cost of capital of the industry and evaluating the esteem to have the maximum profits from the portfolio invested in. The attractiveness in estimation of CAPM is that it offers a wide pleasing range of predictions about how to measure and ensure the risk and the relation between expected returns and risk. Unfortunately, some problems of CAPMs may reflect the theory may fails at some times, the result of many not be as per assumptions. But they may be caused by difficulties in implementation of valid tests to the model. Dan at el (2005) examine the entire associations between leverage, corporate and personal taxes, and the firms cost of equity to generate capital. Expanding the theory of Modigliani and Miller (1958, 1963), the cost of equity capital can be expressed as an impact of leverage and corporate and level taxes. The predictions that the equity cost will increase in leverage, but that corporate taxes shifts from leverage related risk premium, while the personal tax disadvantage of burden of debt reduces the profit. They examined the findings by using implied equity cost estimation system of the firms corporate tax rate and the personal tax gives a big advantage of debt. Their result suggests that the premium equity risk is linked with the profit, and if the entire profit is decreasing the corporate tax generates benefit. They also marked evidence that the premium equity risk has relations with leverage, and increase in entire profit may give a results in increased in personal tax. Rodolfo (2008) sets forth the contribution to this long lasting debate on cost of capital, firstly by introducing the multiplicative model that helps to calculate the rate of WACC. Secondly, by making adjustments in the rate of governance risk. The older approach says that the cost of capital might be calculated by means of a weighted average of debt and capital. But this is not a correct way of calculation and that might bring misappropriation, whereas the multiplicative model not only calculate the linear approximation but also the joint outcome of expected costs of debt and stock, and its proportion in the capital structure of that firm. Nevins (1967), explains in reference to Modigliani and millers discussion that how leverage can be effective and efficient to increase the entire cost of capital of the industry or the firm. He also discusses in detail that when the account is taken of risk and is ruin an increasing cost of capital is perfectly the same with little arbitrage operations. Giving ways to the chances of bankruptcy is tantamount to relax the that entire stream of operating earnings Is independent from the entire capital structure. Robert (1988), argues the effect of corporate and personal taxes on the firms optimal capital structure and financing decisions under uncertain defined conditions. It further more discussion they discussed the entire capital structure model by categorizing them entire firms important investments decisions. The results suggests that when investment was allowed to adjust optimally the existing assumptions about the relationship between investment and debt related tax shields must be changed. Secondly, they discussed that the increases in investment related tax shields changes due to corporate tax code are not necessarily linked with reductions in profits at the individual and companys level. In cross sectional analysis, firms with bigger investment tax shield. Need not to have lower debt tax shields unless all the market utilize the same mechanism. Differences in production technologies in the entire market may query questions that why the empirical results cross-sectional analysis do not meet the expectations of the researchers. Alan reviewed the financial consumption and behavior of the company to increase their profits and wealth of their existing shareholders. They mainly focuses on the impact of personal income and capital gains and taxes, and discovered that in the presence of different taxation systems of dividends and capital gains, wealth maximization does not imply maximization of firm market value and the source of equity financing is not irrelevant. The approximate cost of capital in the presence of income taxes does not depend directly on either the dividend payout rate or the tax on dividends paid. Equity shares have a market value lower than the difference between the production cost of a companys assets and the current market value of its debt obligations. Because of this capitalization, it need not be true that an economy without taking risks and uncertainty there would have no financing. The Hypothesis The detail literature review enabled us to construct the following hypothesis. H0: The firm with high debt/ equity ratio should have less cost of capital. H1: The firm with lower debt/ equity ratio should have higher cost of capital.. Research Methodology This chapter describes the methodology to investigate research problems in order to draw conclusion for the present study. Research methodology comprises of research method employed identification to the problem criteria for sample selection methods for data collection and construction for measuring instruments. It comprises of the brief description of variables and proxies used to measure those variables. It also describers research limitation and ethical concerns. 3.1 Research design and data description As stated earlier, the objective of the study is to explore the relationship between the Debt / Asset Ratio and the weighted average cost of capital. For this purpose we have targeted four companies of fertilizer sector from Pakistan into year 2010. Basically there are four companies in the Fertilizer sector listed under the roof of Karachi Stock Exchange, but three of them are selected at random. Therefore, the sample size comprises of almost cover 75% of the fertilizer sector. 3.2 Model Description As stated earlier the study has been under taken to investigate the relationship of Debt / Equity Ratio and weighted cost of capital in the industry. Following models are used to calculate the cost of capital. 3.2.1 Cost of debt The capital structure of a firm normally include the debt component. The debt may be in the form of Debentures, Bonds, Term Loans from Financial Institutions and Banks etc. The debt carries a fix rate of interest, irrespective of the profitability of the company. Because the coupon rate is fixed, the firm increases its earning through debt financing. Then after payment of fixed interest charges more surplus is available for equity shareholders, and hence EPS will increase. An important point to be remembered that dividends payable to equity shareholders and preference shareholders is an appropriation of profit, whereas the interest payable to debt is charged against profit. Therefore, any payment towards interest will reduce the profit and ultimately the companys tax liability will decrease. The phenomenon is called as tax shield. The tax shield is viewed as a benefit that accrues to the company which is geared. 3.2.2 Price Earning Method This method takes into consideration the Earning per share(EPS) and the market price of the share. It is based on the assumption that the investors capitalize the stream of future earnings of the share and the earnings of a share need not be in the form of dividend and also it need not be disbursed to the shareholders. It based on the argument that even if the earning are not disbursed as dividends, it is kept in the retained earnings and it causes future growth in the earnings of capital, the earning per share is divided by the current market price. We have selected price earning method as this method provides us the required results. Although there are various methods to calculate the cost of Equity but there are some limitations applied on them. 3.2.3 Debt / Equity Ratio The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders equity and debt used to raise the companys capital. It is also known as Risk, Gearing or Leverage Ratio. The two components are often taken from the firms balance sheet or statement of financial position, but the ratio may also be calculated using market values for both, if the companys debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially. =Long Term Interests Bearing Debt/ Total Equity 3.3 Companies Included in the Study Following companies are included in this study from the Fertilizer sector for detailed analysis. Fauji Fertilizer Limited. (FFC) Fauji Fertilizer Bin Qasim Limited. (FFBL) Dawood Hercules Chemicals Limited. (DAWH) 3.4 Limitations of The Study Although there are various methods to calculate the Cost of Equity but there are some limitations. For instance, Gordon Growth Model cannot be applied because the firms in Pakistan do not pay dividends at perpetual constant growth rate. The other technique Capital Asset Pricing Model of calculating the Cost of Equity will create biasness due to real adjustment of inflation premium in real rate of interest to calculate the risk free rate of return. Further, the return on market portfolio requires a detailed analysis of stock returns with other financial indicators. Therefore, the study uses Price Earning Method due to availability of actual and exact data. Empirical Study Of Fertilizer Sector This chapter includes the descriptive results and detailed analysis. The detailed analysis of Fertilizer sector is given below. It includes Cost of Debt KD, Cost of Equity KE, the WACC and Debt / Equity Ratio of the three companies which fall in the fertilizer sector. Analysis The present study empirically investigates the relationship between the Weighted Average Cost Of Capital and Return On Assets. We have chosen three fertilizer companies listed in Karachi Stock Exchange. Name of Company WACC Debt/ Equity Ratio Fauji Fertilizer Limited 12.77% 24.72% Fauji Fertilizer Bin Qasim Limited 9.18% 37.16% Dawood Hercules Chemicals Limited 10.98% 20.91% After the detailed analysis, the study concludes that Fauji fertilizer has low debt / equity ratio as compared to Fauji Fertilizer Bin Qasim Limited and higher WACC. Which is consistent with our hypothesis that H0: The firm with high debt/ equity ratio should have less cost of capital. In the case of Fauji Fertilizer Bin Qasim Limited it has higher Debt / Equity ratio as compared to Dawood Hercules. So accordingly, its WACC is less than Dawood Hercules which is consistent with our Hypothesis. Further, when we compared Dawood Hercules with Fauji Fertilizer the study concludes that, though the debt / equity ratio of Fauji Fertilizer has greater Debt / Equity Ratio than of Dawood Hercules, but the WACC of Fauji Fertilizer is higher than Dawood Hercules. Which is not favorable according to hypothesis. This conclusion leads to the conclusion that while deciding about the capital structure, the firms always do not keep in mind the optimal capital structure which is subject to the availabil ity of funds. Conclusion The present study depicts that firms always keep in mind the tax shield. They usually prefer debt due to tax shield but some firms go with the more easiest way to raise capital, and the concept of optimal capital structure is set aside. In Pakistan, the interest rates are usually high as compared to developed countries. That is why, big firms usually prefer to raise funds through equity instead of debt. Since, financial institutions offer loans to profitable firms, at low rate keeping in view their credit rating and riskiness of operations, so these firms like fertilizer companies also include debt in their capital structure. The results are constructed with the literate review concluding that there is no consensus among researchers about the level of optimal capital structure because of variation in proxies used to measure the same attribute, variation in industry norms (size, location and technology), agency cost (management ownership and competence) etc. Further, maximization of s tock return for different firms is debatable.