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The head of Heera Ceramics Private Ltd (HCPL) Mr Vinod Kashyap has plans for expansion of his business by optimizing quality of the current production process. This expansion plan is expected to help immensely, in terms of doubling the distribution network by the introduction of robotics and automation of some existing critical manufacturing processes. He finds scope to make these changes in three specific areas (i) to implement robotic glazing and robotic plaster-mould making, which are two crucial areas of ceramics manufacturing process which consume lot of labor and time of production (ii) to introduce automation in casting department, which can further improve and maximize productivity and (iii) to introduce automatic leakage detection test and overflow test to eliminate the inefficiencies in the manufacturing process. Mr Kashayap wants to know the viability of his expansion proposal by estimating the NPV of the projected incremental cash flows of the company. To do this, he has calculated projected income statement (for knowing net income), financial statements including the cash flow statements for the next five years. His calculation showed that the projected growth of rate cash flow for the first five years is higher and it will be stabilized after five years at 4 percent. Head’s apprehension was about how to estimate the cost of equity for a private firm which has not been listed on any stock exchange. If the hurdle rate were not known, it would be difficult to value the expansion activities through NPV. He discussed this difficulty with his friend, a financial consultant who suggested him to calculate the unlevered cost of capital of similar firms functioning in the market and listed on the stock exchange and accordingly Mr Kashayap investigate the situation further. The case introduces to the fundamental concepts pertaining to valuation and calculation of cost of capital of the unlisted company. The share price data of the unlisted company will not be available and because of this, calculating the cost of capital would normally be difficult. The case, make use of hurdle rates of similar companies operating and listed in the stock market.