ITC LIMITED

SOURCES OF FUNDS 19-Mar 18-Mar 17-Mar

Total Share Capital 1,225.86 1,220.43 1,214.74
Equity Share Capital 1,225.86 1,220.43 1,214.74
Reserves 54,725.99 50,179.64 44,126.22
NETWORTH 57,949.79 51,400.07 45,340.96
Secured Loans 7.89 0 0.01
Unsecured Loans 0 11.13 17.99
TOTAL DEBT 7.89 11.13 18
TOTAL LIABILITIES 57,957.68 51,411.20 45,358.96
Gross Block 22,717.26 18,595.00 16,843.67
Less: Accum. Depreciation 4,230.86 3,029.01 1,963.43
NET BLOCK 18,486.40 15,565.99 14,880.24
Capital Work in Progress 3,401.36 5,025.58 3,537.02
INVESTMENTS 26,578.00 23,397.22 18,585.29
Inventories 7,587.24 7,237.15 7,863.99
Sundry Debtors 3,646.22 2,357.01 2,207.50
Cash and Bank Balance 3,768.73 2,594.88 2,747.27
Total Current Assets 15,002.19 12,189.04 12,818.76
Loans and Advances 6,329.97 6,203.48 4,394.64
Total CA, Loans & Advances 21,332.16 18,392.52 17,213.40
Current Liabilities 11,682.36 10,808.96 8,683.79
Provisions 157.88 161.15 173.2
Total CL & Provisions 11,840.24 10,970.11 8,856.99
NET CURRENT ASSETS 9,491.92 7,422.41 8,356.41
TOTAL ASSETS 57,957.68 51,411.20 45,358.96
Contingent Liabilities 2,491.31 2,257.52 2,148.64
Book Value (Rs) 45.64 42.12 37.33
AMAN KAYAL MBA 2nd SEMESTER
ANSWER 1-
ITC's capital structure mostly consists of mostly equity share capital and the company has a
minimum amount of debt.
The capital structure of the company has not changed in any major way as debt has always
been at negligible levels for the company is the past 3 years
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%(Approx)
Tax Rate-30%
Dividend Paid as at 13.05.2019=5.75
Cost of Equity Share Capital(Ke)
Ke(=D1/P0)+G
Ke=(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=.1(1-.3)/1
Kd=7%

Now,
Sources Amount Cost of Capital Cost
Equity Sh
1,225.86 13.66% 167.4525
Capital
Debt 7.89 7% 0.5523
Total 168.0048

WACC= Total Cost/Total Amount

0.13617
WACC=13.61%

ANSWER 2-
I think Net Income apprach is the most applicable approach as the cost of debt is lower than
the cost of equity and also the benefit of deductible expenditure i.e. tax is availed in this
approach.
Short Note on Net Income Approach:
Net income approach was developed by Durand, In this approach, the cost of debt is
identified as cheaper source of financing than equity share capital. The more application of
debt in the capital structure brings down the overall capital, more particularly 100%
application of debt finance leads to resemble the over all cost of capital as cost of debt. The
weighted average cost of capital will come down due to more application of leverage in the
capital structure, only with reference to cheaper cost of raising than the equity share capital
cost. The value of the firm is more in the case of lesser overall cost of capital due to more
application of leverage in the capital structure. The optimum capital structure is that at when
the value of the firm is highest and the overall cost of capital is lowest. This approach
highlights that the application of leverage influences the overall cost of capital and that affects
the value of the firm.