The cost of capital is also called hurdle rate or cut off rate. It is the minimum rate of return expected by the investors. The investor’s decision to invest in a particular firm depends upon the cost of capital or cut off rate of that firm which is the minimum rate of return expected by the investors. The firm may use the capital in the form of equity shares, debentures, preference shares and retained earning. In case the firm is unable to achieve the hurdle rate then the market value of the shares will fall. So it is very essential for the firm to achieve minimum rate of return to get wealth maximization.
To conclude cost of capital (KO) is:
- is not a cost rater it is the rate of return from a particular project.
- Minimum rate of return
- Has 3 components – business risk, financial risk, normal rate of return at zero risk level. KO= B+F+RO
This is the meaning of cost of capital.
A lever is a force in a car or in any machine which helps in doing more work with lesser labor. In financial management leverage analysis means arranging fixed assets in such a way that fixed return is ensured. The types of leverage analysis are: Continue reading “Leverage analysis and types”
The marketer is responsible for selling the goods in the market so he must have the knowledge how the consumers actually make their buying decisions. For this he must study the consumer buying decision process or model. It involves five stages. Continue reading “5 Stages of consumer buying decision process”
Wants are unlimited and the resources to satisfy these wants are limited. So the consumers think rationally before buying any product. Buying a toothpaste is totally different from buying a luxury car. The more expensive the good is the more information is required by the consumer. There are four types of consumer buying behavior on the basis of buyer involvement while purchasing any product.
|Significant differences between brands
||Complex buying behavior (motor cycle )
||Variety seeking behavior (washing detergent)
|Few differences between brands
||Dissonance buying behavior (floor tiles)
||Habitual buying behavior (toothpaste)
High involvement:- the term means when the consumer is highly involved while buying a product. Generally this situation happens in case of expensive or luxuries goods. Like while buying a diamond necklace a consumer is highly involved.
Low involvement:- this term means when the consumer is not highly involved while buying a product. It happens in case of low price goods. Like while buying toothpaste a consumer is not highly involved.
Significant differences between brands:- it means when there are significant differences between brands.
Few differences between brands:- it means when there are very little differences between brands.
1) Complex buying behavior:- when the consumer is highly involved in the buying and there is significant differences between brands then it is called complex buying behavior. So in this case the consumer must collect proper information about the product features and the marketer must provide detailed information regarding the product attributes. For eg. Consumer while buying a motor cycle is highly involved in the purchase and has the knowledge about significant differences between brands.
2) Variety seeking behavior:- in this case consumer involvement is low while buying the product but there are significant differences between brands. Consumers generally buy different products not due to dissatisfaction from the earlier product but due to seek variety. Like every time they buy different washing detergent just for variety. So it is the duty of the marketer to encourage the consumer to buy the product by offering them discounts, free samples and by advertising the product a lot.
3) Dissonance buying behavior:- here consumer is highly involved in the purchase but there are few differences between brands. Like consumer while buying a floor tiles buy them quickly as there are few differences between brands.
4) Habitual buying behavior:- in this case there is low involvement of the consumer and there are few differences between brands. The consumer buys the product quickly. For eg. Toothpaste.
These are the types of consumer buying behavior.
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The marketer must understand how consumers make their buying decisions. In some cases it is very difficult to find out who the buyer is and who the user is. There are different roles played by the consumer. So to understand properly consumer buying decision process it is necessary to understand the different roles played by them. They are:
i) INITIATOR: initiator is the person who brings the idea to buy a product for eg. Son brings the idea to buy a computer.
ii)INFLUENCER: influencer is the person with whom influence person wish tobuy anyproduct. For eg, Son’s friend influences him to buy a computer.
iii)GATEKEEPER: it is the person inside the house who informs that there is no budget to buy it. For example, in this case father says there is no budget to buy the cycle.
iv) DECIDER: it is the person who decides to buy the product like mother decides to buy the computer for her son.
v) BUYER: now the family member go to the market and buy the product. Like in this case mother and father go to the shop to buy a computer.
vi) USER: at the end the family uses the computer.
Therefore all these are the different roles played by the consumer in buying decision process.
When the buyer’s need is raised to a particular level they become the motives which mean “I want to achieve this” which ultimately affect the consumer buying behavior. This means that the consumers have the desire which motivate them to buy a particular product. The buying motives of the consumer are divided into two categories: Continue reading “2 Buying Motives of consumer”
The buying behavior of consumer is affected by a number of factors which are generally uncontrollable. These factors are also known as determinants of consumer buying behavior. All these factors affect the buying behavior of consumer differently. Continue reading “Determinants of consumer buying behavior”
I have already discussed the meaning of capital structure. Today I will discuss the different theories of capital structure.
1.) Net income approach: this theory is given by Durand. As per the theory the value of firm can be increased and its cost of capital can be reduced by increasing proportion of debt in its capital structure. The approach is based upon following assumptions:- Continue reading “Theories of capital structure”
Consumer is now a day treated as “KING” and it is very difficult to understand consumer behavior as consumer behavior is complex. Consumers are rational they think before buying. Therefore the marketer must understand the consumer behavior before starting the marketing strategy. He must study the likes and dislikes of the consumer. All consumers are different in their cultural background, income, life style, personality, beliefs and attitudes etc. But one thing is common as all of them are “consumer”. So the marketing manager must know the answer of following questions. Like:
What customers like to buy?
When they buy?
How they buy?
Why they buy?
From where they buy?
Marketing environment is very important in marketing management. It is uncontrollable and ever changing. So for the success of the company it is very essential to regularly monitoring the marketing environment. It consists of:- Continue reading “Marketing environment”