This document provides financial information about Apple Inc.'s capital structure for the years 2019, 2018 and 2017. It includes figures for sources of funds such as share capital and reserves, as well as applications of funds covering items like gross block, capital work in progress, investments and current assets. Two questions are then asked related to calculating Apple's weighted average cost of capital (WACC) using different approaches.
This document provides financial information about Apple Inc.'s capital structure for the years 2019, 2018 and 2017. It includes figures for sources of funds such as share capital and reserves, as well as applications of funds covering items like gross block, capital work in progress, investments and current assets. Two questions are then asked related to calculating Apple's weighted average cost of capital (WACC) using different approaches.
This document provides financial information about Apple Inc.'s capital structure for the years 2019, 2018 and 2017. It includes figures for sources of funds such as share capital and reserves, as well as applications of funds covering items like gross block, capital work in progress, investments and current assets. Two questions are then asked related to calculating Apple's weighted average cost of capital (WACC) using different approaches.
This document provides financial information about Apple Inc.'s capital structure for the years 2019, 2018 and 2017. It includes figures for sources of funds such as share capital and reserves, as well as applications of funds covering items like gross block, capital work in progress, investments and current assets. Two questions are then asked related to calculating Apple's weighted average cost of capital (WACC) using different approaches.
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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.
