Two reactions are a constant from readers on reading John Grisham’s A Time to Kill

One idealistic, self-confident and liberal white lawyer, Jake Brigance, the protagonist is enough to influence the racial prejudice of the Mississippi citizens and bring about a judicial change. The second reaction is one of awe when the reader’s realize that it is Grisham’s first work of fiction.Quantifying Jake’s idealism is difficult. On the one hand he is opportunistic enough to take up an offer that does not seem to be very promising just for the fact that it is closest to his home town (Grisham, 1989, page no.30). But he is a man of extremely disciplined habits as described in Chapter 3. But what is right is right and what is wrong is wrong in the opinion of Brigance. His idealism is distinguished for two very pragmatic qualities attached to it.He is aware that a high profile case can make him very popular and by inference very rich if he succeeds (or may be, even if he is not). But he is also aware that he might be let off if HE as a white had dispensed vi gilante justice if HIS daughter had been brutalized and in that possibility his client Hailey, was being denied natural justice.He was incapable of watching it from the sidelines and he ends up taking the plunge. In the face of several surreal obstacles that crop up, he is in a situation where he seems to be left with nothing in his own words â€Å"I’ll have no wife, no daughter, no house, no practice, no clients, no money, nothing† (Grisham, 1989, page no.464). Still he labors on towards what he believes is justice.Towards the end of the story, his friend and mentor Lucien offers to bribe a juror (sisco) to hang the jury. With so much hanging in the balance for him, his professional and personal life and for his client, Jake rejects his offer. That is the kind of idealism Jake brings to the narrative but makes it so believable by the several instances of drinking binges he allows himself in moments of despair. Idealism is the only fuel that has brought about most inst ances of human greatness, but Grisham ably depicts that it must be very hard, almost breakingly so, for its practitioners.They are sure to be plagued, as was Jake, that a compromise seems safer and so much better, through out the journey towards your goal. It makes the reader ask him/herself sheepishly in their own private recesses, how many they have taken the easy way out. This firm belief in an ideal and the compassion to pursue it no matte what, affects the jurors, the community which they come from and ultimately the entire Mississippi to take cognizance of the silent racism and do something about it.A prerequisite to follow one’s heart when the entire world seems to preach that the journey is not worth it is a self belief, Self-confidence. Jake possesses this quality in ample measure though not of the aggressive variety hung for exhibition around professional boxers or say ball players. When one of the rapist’s mother comes to seek him out as her son’s cou nsel and tells his secretary that he heard he is the best criminal lawyer in the county he replies â€Å"Tell her that’s true. But I’m not interested† (Grisham,   1989, page no.34)He is quietly confident that he has the fire to pursue a case so controversial and also hopes that he would be able to succeed. He has the confidence required to continue with his efforts in the face of increasing and scathing criticism of his stand, his foolhardiness and their possible consequences.The most invisible characteristic of any crusade (this case for Jake was no lesser than a crusade) is not the belief of its proponent in the theory but his belief in his fitness to carry forward such a task. It is a rare single general, scientist or leader who is not plagued by self doubt and the sensibility of his cause, pursuit or research. Any pretensions to such all pervading belief would be arrogance and that is not the measure of any idealistic pursuit.The one factor that keeps winn ing over all the small demons in several rounds of small battles within the confines of the mind and continues to show the way when all the flickers of hope are extinguished is SELF-CONFIDENCE. When a theory or appoint is made with such conviction and self-confidence many in the audience are forced to acknowledge the leanings towards such honesty.The compassion and the confidence in his being right which becomes clear in Jake’s summation helps the Juror Wanda to come up with the honesty to face the truth about their prejudice and help other jurors to face theirs with the ingenious way of closing their eyes and simulating her auto suggestions in their mind9Grisham, 1989, pages 504 &513) It is small wonder that Jake’s client was acquitted with unanimity.The vision that Jake had of a white man being acquitted if he happened to enforce vigilante justice just passed on to the jurors through the sheer force of his belief and confidence in his own self. Being right is general ly very transparent. Only prejudice requires masks and veils

Barack Obama Back to School Essay

On September 8th 2009, the president of The United States, Barack Obama gave a speech called â€Å"Back to School†. The speech was about the responsibility that you have as a young individual – responsibility you have for yourself, your teachers, parents, and your country. Obama mentions, among other things, that you have to attend school to find out what your good at, and what you want to make of your future. He says that without education your never going to get the job you want most. He says that what you make of your education is going to determine the future of the country and if you quit school and quit on yourself, your giving up on our country. Throughout the speech, Obama makes references to not only his own life experiences, but also, the American dream. He ends his speech by saying, that it is hard to be successful and that you have to fight to achieve your goal in life. You have to practice, study hard and not be afraid of asking people for help. Furthermore he ends his speech by asking his audience questions and to say that he has great expectations for this new generation. The President of the United States Barack Obama is the speaker of the text â€Å"Back to School†. His audience is not only the young people at Wakefield High School, but moreover young people attending school in all over America. P. 1 l. 1: â€Å"Hello everyone – how’s everybody doing today? † It is already indicated in the first line that he is trying to level with his audience, the young students, despite of his status. Furthermore he uses the words â€Å"I know†, and almost turns them into a phrase. With this phrase, which appears several times through the text, he indicates to the audience that he knows their feelings or thoughts. The imagery in this speech is very vivid, showing what success looks like, and what an individual could make of their life. With the use of small and simple sentences Obama tries to get the point across that school is important and one needs an education to survive in this world. The length of the speech shows how adamant he is of children staying in school, and trying to better their future. There is a lot of repetition in the speech, stating that school is important, and an education is necessary in life, and that you cant get what you want without practicing hard, studying even harder and always trying your best. There seems to be no form of alliteration in this speech. Many people use the alliteration of speech to capture the audience and individual minds. Obama references to many other famous people who have failed many times and still succeed. â€Å"J. K. Rowling’s — who wrote Harry Potter — her first Harry Potter book was rejected 12 times before it was finally published. Michael Jordan was cut from his high school basketball team. He lost hundreds of games and missed thousands of shots during his career. But he once said, ‘I have failed over and over and over again in my life. And that’s why I succeed. ’†. The language of this poem shows that the speech is meant for a young audience, possibly kindergarden-12th grade. Barack talks about staying in school, a the responsibility an individual has as a student. He directly addresses the audience, by using the word â€Å"you†. He uses a very direct tone in order to capture the audience in a better way. With the use of logos, the spectators can better understand what the President is saying to them by using his own experiences, and journeys. Trying to sound like president Kennedy, Obama makes the audience feel comfortable, and makes them feel like what he is saying is true. He uses promptness and sternness to show how serious education is, not only for yourself, but your country. Toward the middle of his speech Obama says â€Å"The truth is, being successful is hard. You won’t love every subject that you study. You won’t click with every teacher that you have. Not every homework assignment will seem completely relevant to your life right at this minute. And you won’t necessarily succeed at everything the first time you try. † This helps ones mind feel at ease with knowing he’s speaking the truth.

Critique of Education Standard III Essay Example | Topics and Well Written Essays - 750 words

Critique of Education Standard III - Essay Example One of the area in which libraries can  strengthen  their  dedication  to sustaining  student  education  is the reference services. Are students  being taught  by the librarians using  reference  orientation? This  study  recognizes eight instructional approaches that the librarians can  relate  in digital  orientation  operations and observes librarians’ use of these approaches in one  university’s instant message (IM)  orientation  service (Oakleaf & VanScoy, 380). Article Summary Since this study indicates a  fresh  method to the knowledge of  training  in digital orientation, the outcomes  anticipate  verification  by  potential  researchers. In order to  exploit  the  force  of digital  orientation  on  student  education, librarians can  implement  a  diversity  of instructional policies based in  educational  theory (Oakleaf & VanScoy, 380). At the start of this study, the inve stigators built up a list of instructional policies on the center of  educational  assumptions, incorporating metacognition, dynamic learning, and social constructivism, and working descriptions of each approach. Metacognition is the capacity to be  deliberate  and insightful about a person’s ideas. ... Librarians can  implement  dynamic  learning  methods in digital orientation operations to  employ  users in successful information looking for behavior.  According to  communal  constructivist  hypothesis, what people gain knowledge of,  is being socially built  via relations with  skilled  members of a particular community.  Elmborg  illustrates that librarians who  implement  a social constructivist  form  of  training  can  lead  users to  develop  into members of a  society  of knowledgeable people (Oakleaf & VanScoy, 381). For the instructional strategies; librarians should  reinforce  constructive  information-seeking actions. They should share breakdowns, successes and coping policies. They should  move  away from  recitation  to images and relations. Librarians should  split  transaction into separate, manageable chunks. They should as well  permit  users to  formulate  choices and take actions . They should  identify  the user’s  capability. Librarians should also refer to  supplementary  librarians with skilled expertise. Librarians should as well  explain  the scope of what they do (Oakleaf & VanScoy, 384). Critique of Article Several authors have emphasized the instructional  prospective  of  orientation  service in the modes of digital and face-to-face. For instance, Moyo recognizes the incorporation of training into  orientation  service as a growing need. Beck and Turner reveal that in-person  orientation  operations take place at the user’s  moment  of need, when they are  mainly  open  to  knowledge  (Oakleaf & VanScoy, 380).  Elmborg  illustrates training provided through  orientation  service as  reliable  in that the learner has a  particular  plan  in  progress  and

Core Essay Example | Topics and Well Written Essays - 500 words

Core - Essay Example Hence the sincere political beliefs of the Americans in neutrality were overridden by the compulsions of the economy. It was a time when the politicians spoke of democracy and prosperity. This prosperity was visible in the growing incomes and higher living standards of people in Europe and England as well as the US. The phenomenon arose from the wealth generated mainly from the nations of Asia and Africa and at their cost. Hence there was also a conflict brewing between the haves and the have nots. The notion of uniting the exploiter and the exploited under the guise of a united democratic nation provided a safety valve to douse the fires of class conflict. Capitalism needed to create an artificial unity between the rich and poor in order to put an end to class conflict and war and the unity necessary to fight off the aggressor provided this. The American Dream refers to the ideals of freedom, equality and opportunity available to every American. It also refers to the personal happiness and material comfort sought by individuals in the US. This dream seems to have been seriously impacted by the laws passed during WWI. The espionage act seriously restricted freedom of speech and the draft law is against personal freedom of choice. During and after the war there was a conscious effort to repress socialism that had begun to take root. Although the espionage act was meant to apply only during war, it has been in force for a long time as America has consistently been at war since the Korean war of 1950. The American dream refers to the opportunity the American people had to live their lives in happiness through the route of hard work, and the opportunities to discover their strengths and find success as a result of the choices they made in life. Laws like the draft law that impacted the right to freedom of choice and the espionage act that clamped down on freedom of speech that was part of the American Dream was

The Conspirator Essay Example | Topics and Well Written Essays - 500 words

The Conspirator - Essay Example This paper discusses the conspirators involved in this plot in general and the role of Mary Suratt in particular. Abraham Lincoln was assassinated on April 14, 1865. He was the first president in American history who faced assassination. Lincoln was assassinated at a time when American civil war was in its closing periods. At the time of assassination, Lincoln was watching a play at Fords Theatre in Washington, along with his wife. The major conspirator of Lincoln’s assassination was a stage actor called John Wilkes Booth. He has planned this murder in company of Lewis Paine, George Atzerodt, David Herold, and Mary Surratt. Actually, the conspirators planned to murder the secretary of state and the vice president along with Lincoln. Pain and Herold had assigned the duty of killing the secretary of states while George Atzerodt had the duty of killing the vice president. However, they succeeded in murdering Lincoln alone even though Paine shot the secretary of state. The major objective of this mass murder attempt was to destabilize the American government which took serious actions to end civil war and also to end racial discrimination. All the conspirators were arrested even though Booth suffered serious injury while attempting to escape and later died in the police custody. All the other four conspirators were hanged. Mary Suratt was an American boarding house owner who was accused for participating in Lincoln’s murder conspiracy. She was hanged and became the first woman in American history to suffer execution Mary Suratt’s involvement in the conspiracy was unbelievable to the people who know her. She was highly religious in nature and was not at all a woman of aggressive nature or intend. She was simple and behaved politely with others. However, her involvement in this conspiracy was proved beyond doubt

3A-Business Preparedness Plan Report #intro only Essay

3A-Business Preparedness Plan Report #intro only - Essay Example In order to safe-guard the organization against future hazards, this report illustrates to the management major problems that will be faced by Toronto Aquarium in case of any further oil-spill. These include exposure of aquarium’s animals and fishes to lethal effects of oil-spill, contamination of drinking water flows, and oil, itself being highly flammable which presents a huge safety hazard for the public. Moreover, in case of such disaster, company will be forced to experience complete business shut-down. The report progresses in proposing a Business Preparedness Plan with tools handling hazard-specific impacts. It will explain in detail, through a model preparation plan, effective ways to tackle future spills or leaks, preventing disasters and plans to recover departments, staff and people who may get affected after a substantial loss. These include handling emergency shifting of animals and fishes during crisis via effective transportation system, assessment of the costs involved in this process, raising admission fee to increase overall company funds, training employees to shut-down the water pipes during oil-spill disaster to avoid contamination, planning for steps to raise public awareness regarding preserving environment and company’s policy of no-smoking in the aquarium and lastly implementation of these

Western Civilization Essay Example | Topics and Well Written Essays - 500 words - 4

Western Civilization - Essay Example Only by examining the facts can one make a decision on right or wrong. Although not one of the actual assassins, Cicero makes the argument that some members of the conspiracy had brought up what he referred to as â€Å"petty crimes† (one of the instances was fraudulent buying and selling). His viewpoint was that made little sense when the emperor’s real crime was the simple fact that he declared himself king and that in itself justified the Emperor’s death. Indeed, Cicero goes so far to state that such views are that of an insane person (and â€Å"immoral†) and those that followed him were just as mad as Caesar. In his case, he states that the Empire was once a free state with free people and that removing somebody like Caesar (either by force or peaceful means) was not only reasonable but in fact warranted. Cassius Dio on the other hand, makes an entirely different viewpoint in that killing Caesar was perhaps not totally justified and only brought unnecessary war and sedition to Rome. Granted, it could be argued that unlike Cicero, Cassius lived close to three hundred years after the event and was writing history as based upon the documents available to him. Yet historians such as Cassius often provide valuable insight many years after the fact, maybe unprejudiced, whereas those like Cicero were inflamed and caught up in the moment. Cassius does make a valid point in that the senators and other leaders courted Caesar like he was a king, such as riding into the city on horseback in full regalia and naming him Father of His Country. True Caesar’s ego made him giddily accept such â€Å"honors† and the man truly believed he was deserving of those favors. So why then use this as a later excuse to later kill him? Cassius points out that they hoped to convince Caesar that he was a mere mortal and when that failed (the Emperor actually believd himself otherwise!), the conspiracy took

Saudi Arabia Research Paper Example | Topics and Well Written Essays - 3750 words

Saudi Arabia - Research Paper Example As Prophet Mohammad was responsible for converting members of all communities into Islamic faith, the constitution of Saudi Arabia has been the Holy Koran. The Islamic law, called Shari’a guides the country. The King is bound by such laws, along with the advice of Ulema, the religious scholars. The status of women has improved, as compared to the same that was prevalent during the pre-Islamic period, in Arabian region. However, the same needs lot of further reforms, as the present laws are definitely against females. Incidentally, Saudi Arabia is the only country in the world, where women are not allowed to drive. The oil boom, starting from 1950-60 has brought prosperity and huge economic development to the nation, which is evident everywhere in the country, currently. Pre-Islamic history of Saudi Arabia Before the dawn of Islam and arrival of Prophet Mohammad, as messenger from God; the whole Arabian Peninsula was fragmented into different tribes, with no cohesion or authori ty. As there was total lack of any political organization or activity, in \the whole region; the moral authority of tribal chiefs ruled the day, which was decided by their personality and character. However, Yemen was an exception, as it had some sort of a political government. Due to lack of any government in the Arabia, the Justice was delivered, barely as per the wishes of injured victim, which most often resulted in harsh cruelty. Since no judges, police or other law enforcing agencies prevailed, the rule of justice was based on the feelings of revenge. Hence, the confederation of tribes played an important part to protect people from enemies, seeking such revenge. (Arabia Before Islam) No political authority The life in Arabia, during late sixth and early seventh century, A.D, just before the arrival of Prophet Mohammad, revolved mainly around war and other feuds among various tribes. As it is, the region is mostly covered by the Arabian Desert, which could not support life, as progressively, as is being done now. Therefore, war was seen as an instrument to reduce the population, while people enjoyed participating in such battles. They took it as an activity to kill their time, while war gave them the opportunity to show case their skills with bows, arrows, horsemanship and so on. The victory of the people in war would bring honor to the whole tribe. There were mainly two groups of Arabian population, at that time, called Hejaz and Bedouins. While people belonging to Hejaz section were settlers along the towns, Bedouins were nomadic tribes, which used to wander around, looking for their own prey. The sedentary population of Hejaz group always feared the nomads, as Bedouins were deemed to be the pirates of the desert, following their own anarchic traditions. The lack of any political authority, until the rise of Islam in the region was responsible for arrogance of the people. The command of any tribal leader and obedience to the same was mainly based on th e sharing of booty, during any battle. The obedience would vanish, once the sharing gets over, as the members would freely change their loyalty. Religions followed in pre-Islamic Arabia Various tribes followed different religious faiths. Most of the population was idol worshippers, as Kabba in Makkah had around 360 idols made from stone and wood. The tradition says that it

Discuss the legal and ethical issues surrounding Solyndra, the Essay

Discuss the legal and ethical issues surrounding Solyndra, the California based solar panel manufacturer - Essay Example Solyndra, a solar panel manufacturer, was formed in the Silicon Valley in 2005. The company focused on designing and manufacturing solar photovoltaic equipments mainly for commercial and public utility purposes. The client base constituted of commercial firms, government agencies, energy companies and other roofing firms. The company was established by Dr. Christian Gronet in 2005 as Gronet Technologies Inc (Hargreaves, 2012). At a later stage, the company was renamed as Solyndra that pioneered in the development of greener energy. The company aimed to create a breakthrough to reflect ways in which the government and business organizations would function in a cleaner energy environment (Brewer, Kinsey & Mendenhall, 2012). The saga of Solyndra venturing in the creation of greener technology is observed to encounter a severe downfall owing to the potential mismanagement of funds by the US government. Solyndra focused on gaining a competitive advantage such that it aimed to develop solar panels without the use of polysilicon, which was considerably expensive in the energy market. Though the production cost of solar panels created by Solyndra was high in nature, yet its installation was found to be considerably cheaper. During 2009, a huge loan amount of around $535 million was sanctioned by the US Government in order to enhance production and distribution operations of the company. The legal and ethical issues that rocked the company started with the declaration and receipt of this huge loan amount, which was observed to fail in achieving the required objective owing to fall in the value of polysilicon and also organizational inability to sustain the cheap installation costs (Wang, 2011). Similarly, wit h fall in the prices of natural gas and rising competition for the entry of Chinese firms, demand for the solar photovoltaic equipments produced by Solyndra faced a major setback. The

Brief a case Assignment Example | Topics and Well Written Essays - 250 words

Brief a case - Assignment Example The nephew assigned Louisa Hamer (P) the funds. P brought suit against the executor of Willian E. Story (the uncle) estate, Franklin Sidway (D). During the judgment, the case was ruled in favor of P but later on appeal reversed in favor of D. P appealed (1967). Yes. Mere abstention from a legal conduct that is permissible is sufficient consideration to seal a promise that is based on forbearance of a valid contract. Consideration is not taken as a benefit to the person who promises. When a someone’s offer is ambiguous regarding whether accepting it shall be in form of exchange of promises or performance, determining if the person who offered was indifferent to whether accepting be in form of performance or promise is realized by interpreting the language for the offer under the circumstances it was given. According to the court’s rule concerning this case, the language of the offer was clear that the uncle sought acceptance not by a promise to perform but by performance. D argued that the contract was not valid for it did not have consideration, and there is no consideration unless there is a benefit to the person who promised. Refraining from a thing that someone is entitled to do is enough to create an enforceable contract. Under the bargain test for consideration, Hamer forbearance was somehow a benefit to Sidway and a detriment to him. D benefited by having his nephew refraining from a conduct he did not like and P faced a detriment by denying himself the conduct’s

Job stress to job performance Essay Example for Free

Job stress to job performance Essay The thesis selected for my critique which is called â€Å"A Study on Job Stress to Job Performance: Counseling as a Moderator† was written by Tseng, Yu-man in 2013. The thesis was done by a partial fulfillment of the requirements for the Degree of Master of Human Resource Management. It can be discovered on the Electronic Thesis Harvestable and Extensible System of National Sun Yat-Sen University. In this article, the overview of the thesis will be simply described followed by the critique on the research design and data analysis. A terse paragraph on the overall impressions will also be comprised with possible suggestions made in the conclusion part. Overview of the research thesis: In the thesis, the author intended to understand the relationship between job stress and job performance. According to the relationship, she explored â€Å"Is consultant a moderator between job stress and job performance. † She also examined â€Å"Is the personal demographic information as an obvious difference between job stress and job performance. † Quantitative method was applied and data was collected from the questionnaire survey. Furthermore, the thesis used some statistic method in this research, such as conducting the poll through questionnaires, factor analysis, descriptive statistic, T test, ANOVA, correlation analysis, regression analysis. However, unfortunately, there is no information to demonstrate if the consultant as a moderator between job stress and job performance. The author suggested backward researcher can apply ink to paper or depth interview more when doing questionnaire design. The results indicated that: 1. Job stress and job performance have statistically negative relationship. 2. There is no answer about if the consultant as a moderator between job stress and job performance. No one has the experience of seeking the consultant in the retrieved questionnaire materials. Therefore, it is unable to learn if the consultant as a moderator between job stress and job performance. 3. Marriage has an influential effect in the relationship between job stress and job performance. Other personal demographic information, such as gender, age, schooling record, seniority and current position within company, do not have significant difference in the relationship between job stress and job performance. Critique of the research design: (a) Problem statement/ introduction part: The introduction part consists of the pressures among our daily life and how it affects us to become stressful that threaten our lives. This is because there are differences between pressures and stresses. Pressures come from external, but stresses generate from internal. The author states particularly and precisely the causal relationships of pressures and stresses. First, she brought out a concept that suicide is a serious philosophic problem. It leads out another concept that â€Å"Should we struggle to survive? † Then, she used lots of instances for demonstration. Lastly, she said there will be less ill effects if we have moderate ways to relax when we have pressures and stresses. The author seems to have missed out specifying what the right behaviors are for releasing our pressures and stresses. This is noteworthy to tell the readers that some people relax in bad behaviors such as smoking which can produce a more aggravated problem than pressures and stresses. (b) Literature review of the study: In the literature review section of this thesis, the content is discussed systematically in the following arrangement: stress; job stress; job performance; the relationship between job stress and job performance; and consultative. The literatures represented exhaustive and related to the themes of study. The literature reviews have a few strengths that help the readers understand the contents easily. The contents described deeply with different types of diagrams appropriately. For example, it mentioned the scholars have lots of views in different years, it shows there are frequent changes in the definitions of the terms each year. Moreover, it used descriptive statistic to analyze the factors precisely. However, there are some improvements needed in the areas. It seems to be a little bit unbalanced in defining all the terms. Here are some suggestions for improvement. First, it depicted a lot in each factor of stress, job stress and job performance. The thesis is mainly focused on the relationship between job stress and job performance, but the literature reviews depicted the relationship in a very simple manner. There should be more information with instances to analyze the relationship. Therefore, the reliability of the investigation will be increased and the persuasiveness will also be enhanced. (c) Methodology of the study: The research was to investigate the practical states of the variables among the research subjects. The research subjects are the employees of manufacturing and service industry. Therefore, the author used a questionnaires method to handle the research. Firstly, she constructed the research frameworks. Secondly, she set up the research assumptions after the research frameworks. She also confirms the operational definitions and ponders what should be used as the instrument. In the first phrase, the research frameworks set up a framework of the relation between job stress and job performance, also with the other factor of counseling. Then, the research assumptions set up two assumptions as the relativity assumption and diverseness assumption. For the relativity assumption, the author assumed that there is an obvious correlation and consultant as a moderator has an influential effect in the relationship between job stress and job performance. For the diverseness assumption, the author assumed that sex, age, marriage, level of education, years of service and current duty have variant effect in the relationship between job stress and job performance. In the second phrase, the research design has used factor analysis, correlation analysis and regression analysis in operational definition, job stress measurement table and job performance measurement table among job stress, job performance and counseling. For job stress, the author used Strees’s theory (1988) which believes a person will have job stress when facing some threats from job. Also, she used the measurement table with 32 questions in 5-point likert scale: always, often, sometimes, seldom and never, published by Institute of Occupational Safety and Health in Council of Labor Affairs in 1995 to measure. For job performance, the author used Campbell’s theory (1987) which believes that job performance related to the process when a person who has the willingness to help the organization to accomplish the goals. Moreover, she used the measurement table with 24 questions in 5-point likert scale: very agree, agree, no opinion, disagree and very disagree, adopted from Yu Dak Shing’s translation with minor amendments that published by Motowidlo Van Scotter (1994) Task Performance Questionnaire the Task Performance Questionnaire (TPQ) and contextual performance questionnaire (Contextual Performance Questionnaire, CPQ) to measure. For counseling, the author defined it in a psychological perspective that a person will use the personal information to understand himself or herself and make improvements in adapting to the new environments. In addition, she used a revised measurement table with reference to Taiwan Tobacco Liquor Corporation. However, it is a doubt whether the research design can obtain the results clearly and reliably. This is because the measurement tables do not show an obvious correlation between job stress and job performance. This will make up some errors. Moreover, the author does not mention the amounts of research subjects. To increase the reliability and preciseness, the author should mention the amounts of research subjects and its responsiveness. Also, she should find more references for making the measurement table in an obvious relationship. (d) Discussion and Conclusion of the Study: In the discussion section, results were interpreted and possible explanations were given. The significance of the investigations is very low because the sample size is restricted. This has been substantiated by the researcher’s discussion that most of the factors (job stress and job performance) do not consist of any correlation with counseling. The researcher should ameliorate the methodology especially sampling. The conclusion was highly dwelt as the researcher defined it into 6 parts of different data. However, most of them did not show any correlation with each other. Therefore, the researcher’s efforts were useless. Conclusion: Overall, this research study gives us a good view on the current situation of the extent on â€Å"Job Stress to Job Performance: Counseling as a Moderator† in Taiwan. It provides extended review on both international and local literatures. The data and analysis were represented in a systematic and intelligible way so that readers can effortlessly comprehend. However, the collected data involved a broad range of different factors for examining the effects in the relationship. It should be expressed more clearly in some definitions. Otherwise, the meaning of the sentence may sometimes confuse people‘s understanding. Reference: Tseng, Yu-man (2009). A Study on Job Stress to Job Performance:Counseling as a Moderator. Taiwan: National Sun Yat-sen University, Retrieved April 1, 2013, from eThesys: http://etd. lib. nsysu. edu. tw/ETD-db/ETD-search-c/view_etd? URN=etd-1103109-054940 Cooper, C. L. , Sloan, S. J. S. Williams, (1988). Occupational stress indicator management guide, Windsor, NFER-Nelson. Brian Seaward, Job stress

Theories of Child Rearing Styles

Theories of Child Rearing Styles Child Development and Welfare Name: Theresa, C. Eric Table of Contents (Jump to) TAQ2: Child Rearing Styles TAQ3 TAQ4: â€Å"Social learning theory goes beyond conditioning: It goes into the world of learning because of the experiences we have along the way. Discuss† References TAQ2: Child Rearing Styles Child rearing Style 1 Child rearing style 2 Child rearing Style 3 Child rearing Style 4 Name of style Authoritative Permissive Uninvolved Authoritarian Characteristics Parents are democratic Attentive parents Forgiving parents Children are taught proper behaviour Have set of rules Punishment to the children for disobeying the rules and rewards for obedience Parents take on the role of friends No expectations on the child Children are allowed to make their own decisions Neglect of the children Parents put their life before the child’s Parents show little interaction with the children Strict parenting style Parents have high expectations on the children Less communication between parent and children Harsh punishment from the parents No logical reasoning for rules and punishment Effects on the development of child’s conscience Tend to have happier dispositions Have good emotional control and regulation Develop lack of self discipline Become self-centered and demanding Children also lack good social skills Sense of unimportance to the parents Sense of loneliness Lack of self-control Rarely think on their own They feel pressured to conform They become socially withdrawn Effects on later achievement A child is able to develop good social skills Children become self-confident about their abilities to learn new skills. This is important in cognitive development and later achievements of a child. They become good team leaders, team players, and learn to spur each other to success. They believe in collaborative involvement, giving people a second chance, and are likely to perform well in situations that need high level of consultation. Children in this category grow up to be slow decision-makers, and may not be best suited in situations that need swift decisions, characterized by authoritarianism. Tendency to clash with authority Tend to be aggressive and act out Underage drinking due to lack of rules Lack of good manners and ability to apply common sense in normal situations Tendency to develop self-centeredness Such children grow up into irresponsible adults who cannot be trusted with important tasks (Gadeyne, Ghesquiere, Onghena, 2004). They generally become slow in implementing, innovating, and blending in. They have a hard time discerning between what is wrong and right, and may become excessively carefree in nature. Such individuals cannot impose rules, and have them implemented. Conclusively, they do not make good leaders and performers. Show patterns of truancy in school Patterns of delinquency during adolescence Development of uneven behaviours, mainly because of lack of early monitoring and guidance Children lack a sense of guidance Development of â€Å"I don’t-care attitudes†, which greatly affect their behaviour and treatment of others (Gadeyne, Ghesquiere, Onghena, 2004). Inability to form teams, and work in collaborative settings – they become withdrawn from the rest of the crowd Low self esteem Develop fear of failure Develop resentment of authority (Gadeyne, Ghesquiere, Onghena, 2004). They lack great teamwork ability Tend to exercise the same authoritarian rules on the people they interact with, or lead, subconsciously. Such children become fixated with success, meaning a single failure may mean the end of the road for them. TAQ3 The study involves two child rearing styles, which include Baumrind’s Parenting Style Typologies and Maccoby and Martin’s Parenting Style Typologies. These two parenting topologies came into existence following various parenting styles brought into focus by early researchers. These include dominance/submission, acceptance/rejection, responsiveness/unresponsiveness, control/no control, emotionally involved/uninvolved, democratic/autocratic, and restrictiveness/permissiveness (Krause, Parker, Covin, 2013). A study carried out by Baumrind in the years late 1960s and early 1970s proposed three patterns of parenting styles, which differed qualitatively. These included authoritarianism, permissiveness, and authoritativeness. These three styles were based on analyzing parenting in largely middle class, white families. The study by Baumrind engaged thirty-two families which were selected after prolonged observations of the preschool children’s patterns of behaviour in the nursery school setting. It is this study which gave birth to the three parental authority prototypic forms, such as authoritarian, authoritative, and permissive. In Baumrind’s later study, several attributes were highlighted pertaining the different parenting topologies. About authoritarian parents he concluded that they try to shape, control, and Evaluate their children’s behaviour based on the absolute set of standards (Krause, Parker, Covin, 2013). He pointed out that parents have high maturity dema nds on their children since they are uncomfortable with their inappropriate behaviours. They do not support the idea of give-and-take, and believe that children should exclusively follow the commands they have been given by parents. This requires that children exercise absolute obedience and this even extends to even when they are socializing. The authoritarian parents do not bend rules at any given moment, and expect strict adherence (Abu, 2013). Such parents constantly demand that their children behave in a mature manner, and they pay less attention to psychological differentiation. These attributes were later updated by Maccoby and Martin (1983) who defined parenting style using two dimensions: parental demandingness (control, supervision, maturity demands) and parental responsiveness (warmth, acceptance, involvement) (Abu, 2013). The interaction between the two dimensions produced four distinct parenting styles. A primary difference between Baumrind’s parenting style typologies and Maccoby and Martin’s parenting style typologies is that Baumrind discussed on â€Å"permissive† parenting while Maccoby and Martin differentiates between two types of permissive parenting. About permissiveness, Baumrind (1971) suggests that parents make little mature demands on their children, as opposed to other parents discussed in the above categories. They use less punishment on their children. Besides, they let their children exercise self-control and make their own judgments. This gives an implication that they tend to tolerate their children’s misb ehaviour. These parents attempt to behave in less punitive and affirmative manner toward their children. They do not assert themselves as agents of modeling behaviour change, but present themselves as tools that can be used by the children to develop any type of desired behaviour (Abu, 2013). In addition, as opposed to other parents, this category of parents does not pay close attention to children while socializing. Thus, such children become non-achievers, since little pressure is exerted on them. These children are comparable to those of authoritarian children, though they differ in the aspect the degree of their achievement. The above findings are similar to those of Park and Bauer (2002), whose main focus was to establish the relationship between students’ academic achievement and parenting styles (As cited in. Krause, Parker, Covin, 2013). The results revealed that there was a significant positive relationship between authoritative parenting style and high school students’ academic achievement. Also shown on this study was a significant negative relationship between authoritarian and permissive parenting style and high school students’ academic achievement. Culture and education has clearly been shown as a factor that strongly influences the relationship between the different types of child rearing topologies. This is backed by the fact that studies carried out in different countries with different cultural setups showed different status of relationships. TAQ4: â€Å"Social learning theory goes beyond conditioning: It goes into the world of learning because of the experiences we have along the way. Discuss† Evolutionary psychologists have always argued that conditioning is an important aspect that shapes human personality. This argument can be derived from the effect of operant conditioning on animal behaviour, and how this has been used to relate to similar effects on humans. Basically, conditioning is a type of learning in which the behaviour of an animal of human being is shaped or largely modified by a series of consequences and antecedents (things that happened there before). It is suggested that behaviour is liable to change in form, strength, and frequency in equal measure. Various types of conditionings have been used to modify/shape animal behaviour. These include operant conditioning (instrumental conditioning), and classical conditioning. The former mainly deals with punishment and reinforcement to bring about the desired behaviour change. On the other hand, the latter deals with behaviours that are modified by reflexes, with respect to antecedent conditions (Anderson, Bushm an, 2001). However, it is not entirely true that conditioning is the major reason behind animal and human behaviour. Social learning theory is much more comprehensive and incorporates many other aspects that shape human and animal behaviour, as discussed in the proceeding sections of this paper. While conditioning mainly centers on using antecedents and experiences as the major tools that shape behaviour, social learning theories posit that there are other aspects that define human and animal behaviour, which go beyond the simple tenets of conditioning. Bandura’s social learning theory outlines that people learn from one another via observation, modeling, and imitation (Fuhrmann, Ravignani, Marshall-Pescini, Whiten, 2014). These three aspects go beyond the fabrics of positive and negative reinforcements, as applied in conditioning. While arguing this point out, it is important to understand what conditioning entails, especially with respect to effects of reinforcements. For instance, positive reinforcement involves rewarding an individual, especially a child, for a good work or performance achieved. It is believed that such reward systems would act as motivating factors for repeat performances. Though this school of thought might hold some weight, to some extent, it fails to take into consideration the basic fact that human and animal motivations are guided by the need to achieve a given goal, and once this is done, such kind of a reward or goal ceases to be a source of motivation. On the other hand, negative reinforcement involves applying punishment and punitive measures in cases of underperformance, or unruly behaviour. While this method of conditioning may be applauded as an effective means of curtailing negative behaviours, it is limited in scope, since the subject being conditioned may develop a lack of response to the punishments being leveled, and outgrow their effect. These points of weaknesses are what bring in Bandura’s social learning theory as an additional explanation to the behaviour development of both animals and humans. Irrespective of the shortfalls of conditioning in shaping human behaviour, social learning theorists have established that it is an important tool that determines how people react and adapt to situations. For instance, through the use of positive reinforcement, a child can be taught to say â€Å"thank you† after receiving a gift, and this may extend into adulthood to become a conditioned behaviour. In a similar note, negative reinforcement could be used to ensure that children learn to say â€Å"please† while addressing others, as show of respect, and courtesy. In cases where such is not applied, then a punishment could be launched. Such measures greatly shape the way people behave when they grow up. Basically, this closely ties with the social learning theory, as posited by Bandura, since this is also based on experiences, imitation, interactions with others, and modeling. Bandura’s theory of social learning has developed largely from conditioning and has, in reality, contributed to further promoting and development of the theory (Bandura, 1963). As aforementioned, the theory depends on such tenets as motivation, imitation, observation, and modeling to achieve the desired behaviour change. In respect to its connection to the theory of conditioning, the aspect of modeling reigns high. For instance, in a school setup, teachers can shape the behaviour of students by modeling the desired behaviour of course of action, through judicious application of both negative and positive reinforcements. A practical example is when a teacher wants to instill a habit of participation in a child (Kumpulainen, Wray, 2002). This can be done by offering gifts, applauding publicly, and many other positive ways. On the other hand, a teacher could curtail a negative behaviour by punishing the child through caning, deducting marks, and many others. Apart from the use o f the dual aspects of reinforcement, behaviour change can also be significantly modeled through guided participation, and imitation. When training a child to be grateful in cases where one has received a gift or any form of help, a parent can repeatedly make the child say â€Å"thank you† in every instance such a scenario is experienced. This repeated learning, and also through observation of what the parent usually does, will instigate imitation behaviour into the child, and later on develop the desired behaviour as modeled by the parent. Such kinds of conditionings are explicitly a derivation of the concept of modeling, as posited by Bandura. In respect to this, it is arguable that Bandura’s social learning theory has developed from the concept of conditioning, and has actually helped to further its arguments. While the theory brings in new concepts that are important in shaping behaviour, it is imperative to note that its main source of argument lies on creating, modeling, and instilling a given desired behaviour into an animal or a human being. This is the same thing that conditioning theory reiterates, which is why it is perfectly right to insinuate that Bandura has helped to promote the arguments put forward by the theory. (Word counts = 2,175 words). References Anderson, C.A.; Bushman, B.J. (2001). Effects of violent video games on aggressive behaviour, aggressive cognition, aggressive affect, physiological arousal, and pro-social behaviour: A meta-analytic review of the scientific literature.Psychological Science12(5): 353–359. Bandura, A. (1963).Social learning and personality development. New York: Holt, Rinehart, and Winston. Fuhrmann, D., Ravignani, A., Marshall-Pescini, S., Whiten, A. (2014). Synchrony and motor mimicking in chimpanzee observational learning. Scientific Reports, 4. doi:10.1038/srep05283. Gadeyne, E., Ghesquiere, P., Onghena, P. (2004). Longitudinal relations between parenting and child adjustment in young children. Journal of clinical child and adolescent psychology, 22, 347-358. Kumpulainen, K., Wray, D. (2002). Classroom Interaction and Social Learning: From Theory to Practice. New York, NY: RoutledgeFalmer. Miller, P. H. (2011).Theories of developmental psychology. New York: Worth Publishers. Krause, R., Parker, O., Covin, J. (2013). Teach your ventures well: a control-based typology of ICV parenting styles.Academy Of Management Annual Meeting Proceedings, 534-539. Abu Taleb, T. (2013). Parenting styles and childrens social skills as perceived by Jordanian mothers of preschool children.Early Child Development Care,183(11), 1646. Page 1

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.