Assignment on

Capital Structure of Apple Inc. (AAPL)

Submitted by
Anuran Bordoloi
MBA 2nd Semester
Financial Management (Prof. Rohit Verma)
Date: 27/03/2020

Financial Statement & Capital Structure of ITC LTD.

FIGURES IN RS CRORE 2019 2018 2017

SOURCES OF FUNDS
SHARE CAPITAL 1225.86 1220.43 1214.74
RESERVES 56723.93 50179.64 44126.22
TOTAL SHAREHOLDERS FUNDS 57949.79 51400.07 45340.96
SECURED LOANS 0.00 0.00 0.01
UNSECURED LOANS 185.67 213.56 181.06
TOTAL DEBT 185.67 213.56 181.07
TOTAL LIABILITIES 58135.46 51613.63 45522.03
APPLICATION OF FUNDS
GROSS BLOCK 22852.69 18690.08 16895.59
CAPITAL WORK IN PROGRESS 3401.36 5025.58 3537.02
INVESTMENTS 26578.00 23397.22 18585.29
CURRENT ASSETS, LOANS & ADVANCES
INVENTORIES 7587.24 7237.15 7863.99
SUNDRY DEBTORS 3646.22 2357.01 2207.50
CASH AND BANK 3768.73 2594.88 2747.27
LOANS AND ADVANCES 6727.01 6615.24 4939.89
TOTAL CURRENT ASSETS 21729.20 18804.28 17758.65
CURRENT LIABILITIES AND PROVISIONS
CURRENT LIABILITIES 11689.56 11140.20 9096.26
PROVISIONS 369.94 39.24 142.91
NET CURRENT ASSETS 9669.70 7624.84 8519.48
MISCELLANEOUS EXPENSES NOT 0.00 0.00 0.00
WRITTEN OFF
DEFERRED TAX ASSETS N/A N/A N/A
DEFERRED TAX LIABILITY N/A N/A N/A
NET DEFERRED TAX N/A N/A N/A
OTHER ASSETS 0.00 0.00 0.00
TOTAL ASSETS 58135.46 51613.63 45522.03

Q1.
Solution:
Weighted Average Cost of Capital under Book Value Approach:
Market Price of Share = ₹156.8 as on 26th March
Growth Rate of Dividend for the past 3 years = 10%
Tax Rate = 30%
Dividend Paid as at 13/05/2019 = ₹5.75
Cost of Equity Share Capital (Ke)
Ke (= D1 / P0) + G
K6*e = (5.75/156.8) % + 10%
Ke = (5.75/156.8) % + 10%
Ke = 3.66% + 10%
Ke = 13.66%
Cost of Debt = Kd
Kd = I * (1 - Tax Rate) / Face Value
Kd = 0.1(1-0.3) / 1
Kd = 7%

Now,
Source Amount Cost of Capital Cost
Equity Capital 1225.86 13.66% 167.4525
Debt 7.89 7% 0.5523
Total 168.0048

WACC = Total Cost/Total Amount

0.13617
WACC = 13.61%

Q2.
Solution:
Net Income Approach is best opted method as the cost of debt (Kd) shows lower
value than the cost of equity and also takes into consideration about the deductible
expenses such as taxes, etc.

Net Income Approach:

This is an approach in which both cost of debt, and equity are independent of
capital structure. The components which are involved in it are constant and doesn't
depend on how much debt the firm is using. This theory was proposed by David
Durand. In this change in financial leverage leads to change in overall cost of
capital as well as total value of firm. If financial leverage increases, weighted
average cost decreases and value of firm and market price of equity increases. If
this decreases then weighted average cost of capital increases and value of firm and
market price of equity decreases. The assumptions which can be made according to
this approach is that there are no taxes involved in this and the use of debt doesn't
change the risk factor for the investors and will remain the same throughout.