ITC Limited Beta calculations

Date Adj. closing share price % change in stock price

4/2/2017 263.65509
4/9/2017 270.421661 2.57%
4/16/2017 265.201752 -1.93%
4/23/2017 269.310028 1.55%
4/30/2017 267.811676 -0.56%
5/7/2017 265.153381 -0.99%
5/14/2017 276.366577 4.23%
5/21/2017 298.358002 7.96%
5/28/2017 308.507843 3.40%
6/4/2017 295.989716 -4.06%
6/11/2017 300.559662 1.54%
6/18/2017 305.024414 1.49%
6/25/2017 317.780762 4.18%
7/2/2017 327.838684 3.17%
7/9/2017 330.880585 0.93%
7/16/2017 283.093262 -14.44%
7/23/2017 285.791718 0.95%
7/30/2017 275.488495 -3.61%
8/6/2017 266.460907 -3.28%
8/13/2017 276.518799 3.77%
8/20/2017 276.224426 -0.11%
8/27/2017 278.285095 0.75%
9/3/2017 267.344055 -3.93%
9/10/2017 264.302155 -1.14%
9/17/2017 263.222748 -0.41%
9/24/2017 253.410172 -3.73%
10/1/2017 261.063965 3.02%
10/8/2017 260.867737 -0.08%
10/15/2017 264.547455 1.41%
10/22/2017 264.302155 -0.09%
10/29/2017 260.426147 -1.47%
11/5/2017 256.452087 -1.53%
11/12/2017 252.723267 -1.45%
11/19/2017 255.47081 1.09%
11/26/2017 250.515457 -1.94%
12/3/2017 256.795532 2.51%
12/10/2017 259.788361 1.17%
12/17/2017 258.414581 -0.53%
12/24/2017 258.169281 -0.09%
12/31/2017 257.973022 -0.08%
1/7/2018 262.486816 1.75%
1/14/2018 268.717804 2.37%
1/21/2018 275.586639 2.56%
1/28/2018 270.140625 -1.98%
2/4/2018 266.215576 -1.45%
2/11/2018 261.358368 -1.82%
2/18/2018 264.007751 1.01%
2/25/2018 258.659912 -2.03%
 3/4/2018 254.538605 -1.59%
3/11/2018 255.765182 0.48%
3/18/2018 251.496704 -1.67%
3/25/2018 251.104202 -0.16%
3/8/2019 292.049988 16.31%
3/15/2019 606.64 107.72%
3/22/2019 594.64 -1.98%
3/29/2019 609.81 2.55%
4/5/2019 592.90 -2.77%
4/12/2019 593.79 0.15%
4/19/2019 581.25 -2.11%
4/26/2019 570.23 -1.90%
5/3/2019 565.37 -0.85%
5/10/2019 584.82 3.44%
5/17/2019 584.12 -0.12%
5/24/2019 585.21 0.19%
5/31/2019 622.11 6.31%
6/7/2019 619.55 -0.41%
6/14/2019 610.30 -1.49%
6/21/2019 622.55 2.01%
6/28/2019 650.50 4.49%
7/5/2019 640.95 -1.47%
7/12/2019 647.20 0.98%
7/19/2019 597.65 -7.66%
7/26/2019 642.20 7.45%
8/2/2019 664.95 3.54%
8/9/2019 619.25 -6.87%
8/16/2019 592.75 -4.28%
8/23/2019 559.25 -5.65%
8/30/2019 548.45 -1.93%
9/6/2019 549.80 0.25%
9/13/2019 549.90 0.02%
9/20/2019 544.60 -0.96%
9/27/2019 545.65 0.19%
10/4/2019 548.40 0.50%
10/11/2019 549.30 0.16%
10/18/2019 551.80 0.46%
10/25/2019 537.95 -2.51%
11/1/2019 548.90 2.04%
11/8/2019 549.85 0.17%
11/15/2019 542.20 -1.39%
11/22/2019 538.35 -0.71%
11/29/2019 548.05 1.80%
12/6/2019 548.25 0.04%
12/13/2019 503.95 -8.08%
12/20/2019 549.90 9.12%
12/27/2019 521.80 -5.11%
1/3/2020 530.65 1.70%
ulations
BSE 500 closing price % change in BSE
12712.389648 ITC Ltd Beta
12710.75 -0.01% 0.55
12729.129883 0.14%
12979.240234 1.96%
12945.570313 -0.26%
13112.980469 1.29%
13051.030273 -0.47%
13164.839844 0.87%
13290.230469 0.95%
13355.150391 0.49%
13287.830078 -0.50%
13207.780273 -0.60%
13178.450195 -0.22%
13409.25 1.75%
13660.580078 1.87%
13704.490234 0.32%
13828.509766 0.90%
13879.80957 0.37%
13336.330078 -3.92%
13595.730469 1.95%
13617.080078 0.16%
13857.589844 1.77%
13848.839844 -0.06%
14077.599609 1.65%
13834.580078 -1.73%
13610.700195 -1.62%
13910.160156 2.20%
14146.889648 1.70%
14154.570313 0.05%
14405.169922 1.77%
14657.910156 1.75%
14484.860352 -1.18%
14454.330078 -0.21%
14628.580078 1.21%
14338.179688 -1.99%
14535.580078 1.38%
14586.049805 0.35%
14908.089844 2.21%
15002.730469 0.63%
15137.990234 0.90%
15283.929688 0.96%
15378.910156 0.62%
15514.219727 0.88%
14886.089844 -4.05%
14649.94043 -1.59%
14614.530273 -0.24%
14639.900391 0.17%
14611.240234 -0.20%
14234.379883 -2.58%
14276.759766 0.30%
13937.089844 -2.38%
14125.530273 1.35%
14591.910156 3.30%
14603.81 0.08%
14620.27 0.11%
14673.56 0.36%
14768.92 0.65%
14813.4 0.30%
14743.27 -0.47%
14528.54 -1.46%
14587.74 0.41%
14826.58 1.64%
14735.33 -0.62%
15200.81 3.16%
15361.14 1.05%
15423.22 0.40%
15495.21 0.47%
15629.21 0.86%
15846.2 1.39%
15659.97 -1.18%
15528.44 -0.84%
14945.39 -3.75%
14445.89 -3.34%
13689.97 -5.23%
13906.1 1.58%
13704.74 -1.45%
13352.53 -2.57%
14112.76 5.69%
14185.4 0.51%
14249.66 0.45%
14079.47 -1.19%
14429 2.48%
14170.58 -1.79%
14412.03 1.70%
14401.2 -0.08%
14516.04 0.80%
14355.02 -1.11%
14422.98 0.47%
14488.81 0.46%
14260.83 -1.57%
14361.85 0.71%
14323.79 -0.27%
13994.2 -2.30%
14136.76 1.02%
14319.03 1.29%
14618.31 2.09%
TC Ltd Beta
0.55
 Rating Matrix
Greater Than ≤ to Rating is Spread is
-100000 0.199999 D2/D 18.60%
0.2 0.649999 C2/C 13.95%
0.65 0.799999 Ca2/CC 10.63%
0.8 1.249999 Caa/CCC 8.64%
1.25 1.499999 B3/B- 4.37%
1.5 1.749999 B2/B 3.57%
1.75 1.999999 B1/B+ 2.98%
2 2.2499999 Ba2/BB 2.38%
2.25 2.49999 Ba1/BB+ 1.98%
2.5 2.999999 Baa2/BBB 1.27%
3 4.249999 A3/A- 1.13%
4.25 5.499999 A2/A 0.99%
5.5 6.499999 A1/A+ 0.90%
6.5 8.499999 Aa2/AA 0.72%
8.50 100000 Aaa/AAA 0.54%

Debt to capital ratio 10% 20%

Particulars Iteration 1 Iteration 2 Iteration 1
Debt/Equity 0.1111 0.1111 0.2500
Debt value 31112.4620 31112.4620 62224.9240
EBIT 15540.9800 15540.9800 15540.9800
Interest payment 2681.8942 2793.8991 5587.7982
Interest coverage ratio 5.7948 5.5625 2.7812
Expected rating Aaa/AAA A1/A+ A1/A+
Default spread 0.54% 0.90% 0.90%
Expected Interest rate 8.62% 8.98% 8.98%
Obtained Rating A1/A+ A1/A+ Baa2/BBB

Tax Shield Rate Calculations

Debt to capital ratio Rating Interest rate Debt value
0.00% AAA 8.62% 0
10.00% A1/A+ 8.98% 31112.4620
20.00% Baa2/BBB 9.35% 62224.9240
30.00% B3/B- 12.45% 93337.3860
40.00% Ca2/CC 18.71% 124449.8480
50.00% C2/C 22.03% 155562.3100
60.00% C2/C 22.03% 186674.7720
70.00% C2/C 22.03% 217787.2340
80.00% C2/C 22.03% 248899.6960
90.00% C2/C 22.03% 280012.1580
Debt to capital ratio Debt to equity Interest rate Tax Rate
0.00% 0.00 8.62% 34.00%
10.00% 0.11 8.98% 34.00%
20.00% 0.25 9.35% 34.00%
30.00% 0.43 12.45% 34.00%
40.00% 0.67 18.71% 22.69%
50.00% 1.00 22.03% 15.42%
60.00% 1.50 22.03% 12.85%
70.00% 2.33 22.03% 11.01%
80.00% 4.00 22.03% 9.64%
90.00% 9.00 22.03% 8.57%

Final Result
Debt (%) EBIDT Tax rate Implired Growth
0% 15541 34.00% 6.62%
10% 15541 34.00% 6.62%
20% 15541 34.00% 6.62%
30% 15541 34.00% 6.62%
40% 15541 22.69% 6.62%
50% 15541 15.42% 6.62%
60% 15541 12.85% 6.62%
70% 15541 11.01% 6.62%
80% 15541 9.64% 6.62%
90% 15541 8.57% 6.62%
 Iterations
20% 30%
Iteration 2 Iteration 1 Iteration 2 Iteration 3
0.2500 0.4286 0.4286 0.4286
62224.9240 93337.3860 93337.3860 93337.3860
15540.9800 15540.9800 15540.9800 15540.9800
5818.0304 8727.0456 10323.1149 10873.8055
2.6712 1.7808 1.5055 1.4292
Baa2/BBB Baa2/BBB B1/B+ B2/B
1.27% 1.27% 2.98% 3.57%
9.35% 9.35% 11.06% 11.65%
Baa2/BBB B1/B+ B2/B B3/B-

Tax Shield Rate Calculations

Interest amount EBIT Interest coverage ratio Tax Shield Rate
0 15540.98 Infinte 34.00%
2793.8990876 15540.98 5.5625 34.00%
5818.030394 15540.98 2.6712 34.00%
11620.504557 15540.98 1.3374 34.00%
23284.5665608 15540.98 0.6674 22.69%
34270.376893 15540.98 0.4535 15.42%
41124.4522716 15540.98 0.3779 12.85%
47978.5276502 15540.98 0.3239 11.01%
54832.6030288 15540.98 0.2834 9.64%
61686.6784074 15540.98 0.2519 8.57%

Optimal Debt Structure Calculations

 After tax cost of debt Unlevered beta Equity beta Cost of equity
5.69% 0.84 0.84 12.07%
5.93% 0.84 0.90 12.37%
6.17% 0.84 0.98 12.73%
8.22% 0.84 1.07 13.20%
14.46% 0.84 1.27 14.13%
18.63% 0.84 1.54 15.45%
19.20% 0.84 1.93 17.29%
19.60% 0.84 2.57 20.36%
19.91% 0.84 3.86 26.50%
20.14% 0.84 7.72 44.93%

Final Result
WACC FCFF Firm value
12.07% 10257 ₹ 200,648.93
11.72% 10257 ₹ 214,462.48
11.42% 10257 ₹ 227,973.73
11.71% 10257 ₹ 215,098.05
14.26% 12014 ₹ 167,630.90
17.04% 13145 ₹ 134,512.16
18.44% 13544 ₹ 122,233.53
19.83% 13829 ₹ 111,627.31
21.23% 14043 ₹ 102,526.65
22.62% 14210 ₹ 94,696.16
 Data *All Values in ₹ Crores
Firm value 311124.62
Risk-free rate 6.6800%
Country risk 1.40%
D/D+E 0.004%
D/E 0.00004
Debt value 11.13
PBDIT 15540.98
Interest expense 86.65
Interest coverage ratio 179.35
Likely rating Aaa/AAA
Risk Premium 0.54%
Pre-tax cost of debt 8.62%
Current EPS 4.47

Iterations
40%
Iteration 4 Iteration 1 Iteration 2 Iteration 3
0.4286 0.6667 0.6667 0.6667
93337.3860 124449.8480 124449.8480 124449.8480
15540.9800 15540.9800 15540.9800 15540.9800
11620.5046 15494.0061 20808.0146 23284.5666
1.3374 1.0030 0.7469 0.6674
B3/B- B3/B- Caa/CCC Ca2/CC
4.37% 4.37% 8.64% 10.63%
12.45% 12.45% 16.72% 18.71%
B3/B- Caa/CCC Ca2/CC Ca2/CC

Firm Value 311124.62

EBIT 15540.98
FCFF 10257.0468

6.62%
Implied Growth Rate

Cost of Equity 10.137148%

WACC 0.1013709 10.137%

Equity Beta 0.55

Unlevered Beta 0.84
 WACC Growth rate Firm value
12.07% 6.62% ₹ 200,648.93
11.72% 6.62% ₹ 214,462.48
11.42% 6.62% ₹ 227,973.73
11.71% 6.62% ₹ 215,098.05
14.26% 6.62% ₹ 143,112.77
17.04% 6.62% ₹ 104,961.35
18.44% 6.62% ₹ 92,567.84
19.83% 6.62% ₹ 82,792.01
21.23% 6.62% ₹ 74,883.75
22.62% 6.62% ₹ 68,354.55

Optimal D/E Ratio 20% Debt 80% Equity

 50% 60% 70% 80% 90%
Iteration 1 Iteration 2 Iteration 1 Iteration 1 Iteration 1 Iteration 1
1.0000 1.0000 1.5000 2.3333 4.0000 9.0000
155562.3100 155562.3100 186674.7720 217787.2340 248899.6960 280012.1580
15540.9800 15540.9800 15540.9800 15540.9800 15540.9800 15540.9800
29105.7082 34270.3769 41124.4523 47978.5277 54832.6030 61686.6784
0.5339 0.4535 0.3779 0.3239 0.2834 0.2519
Ca2/CC C2/C C2/C C2/C C2/C C2/C
10.63% 13.95% 13.95% 13.95% 13.95% 13.95%
18.71% 22.03% 22.03% 22.03% 22.03% 22.03%
C2/C C2/C C2/C C2/C C2/C C2/C
On referring the Annual Report of ITC Ltd, it can be seen that the firm had very less debt for FY 2017-2018.
Also from the weekly closing prices, the Beta of ITC was found to be less than 1 but positive implying that it is le
volatile than the market.
From the calculation it could be seen that the Optimal Debt Equity Mix should be 20% Debt and 80% Equ
however even this will result in decrease in firm's value.
The porbable reasons could be increase in interest expenses, other bank charges, etc
ITC has shown tremendous YoY growth and hence there is no doubt about its growth in future
Hence, taking additional debt will add to fixed costs and increase in equity costs and these
disadvantages would probably supercede the advanatges of tax benefits and agency costs.
 Vodafone Idea Limited Beta Calculations
Date Adj. closing share price % change in stock price BSE 500 closing price
4/2/2017 87.300003 12712.389648
4/9/2017 86.099998 -1.37% 12710.75
4/16/2017 85.099998 -1.16% 12729.129883
4/23/2017 85.650002 0.65% 12979.240234
4/30/2017 81.699997 -4.61% 12945.570313
5/7/2017 92.300003 12.97% 13112.980469
5/14/2017 87.900002 -4.77% 13051.030273
5/21/2017 79.650002 -9.39% 13164.839844
5/28/2017 79.900002 0.31% 13290.230469
6/4/2017 78.900002 -1.25% 13355.150391
6/11/2017 77.75 -1.46% 13287.830078
6/18/2017 79.349998 2.06% 13207.780273
6/25/2017 85.050003 7.18% 13178.450195
7/2/2017 83.400002 -1.94% 13409.25
7/9/2017 88.650002 6.29% 13660.580078
7/16/2017 91.900002 3.67% 13704.490234
7/23/2017 95.550003 3.97% 13828.509766
7/30/2017 92.650002 -3.04% 13879.80957
8/6/2017 86.25 -6.91% 13336.330078
8/13/2017 90.25 4.64% 13595.730469
8/20/2017 90.050003 -0.22% 13617.080078
8/27/2017 88.900002 -1.28% 13857.589844
9/3/2017 79.75 -10.29% 13848.839844
9/10/2017 79.650002 -0.13% 14077.599609
9/17/2017 78.199997 -1.82% 13834.580078
9/24/2017 77.349998 -1.09% 13610.700195
10/1/2017 73.800003 -4.59% 13910.160156
10/8/2017 78.900002 6.91% 14146.889648
10/15/2017 91.099998 15.46% 14154.570313
10/22/2017 93 2.09% 14405.169922
10/29/2017 106.050003 14.03% 14657.910156
11/5/2017 97.050003 -8.49% 14484.860352
11/12/2017 95.199997 -1.91% 14454.330078
11/19/2017 94.650002 -0.58% 14628.580078
11/26/2017 93.150002 -1.58% 14338.179688
12/3/2017 96.150002 3.22% 14535.580078
12/10/2017 93.949997 -2.29% 14586.049805
12/17/2017 100.650002 7.13% 14908.089844
12/24/2017 108.199997 7.50% 15002.730469
12/31/2017 115.650002 6.89% 15137.990234
1/7/2018 108.599998 -6.10% 15283.929688
1/14/2018 102.300003 -5.80% 15378.910156
1/21/2018 95.150002 -6.99% 15514.219727
1/28/2018 88.150002 -7.36% 14886.089844
2/4/2018 83.849998 -4.88% 14649.94043
2/11/2018 82.050003 -2.15% 14614.530273
2/18/2018 82.199997 0.18% 14639.900391
2/25/2018 83 0.97% 14611.240234
 3/4/2018 78.800003 -5.06% 14234.379883
3/11/2018 81.150002 2.98% 14276.759766
3/18/2018 77.650002 -4.31% 13937.089844
3/25/2018 75.75 -2.45% 14125.530273
3/8/2019 32.400002 -57.23% 14591.910156
3/15/2019 606.64 1772.35% 14603.81
3/22/2019 594.64 -1.98% 14620.27
3/29/2019 609.81 2.55% 14673.56
4/5/2019 592.90 -2.77% 14768.92
4/12/2019 593.79 0.15% 14813.4
4/19/2019 581.25 -2.11% 14743.27
4/26/2019 570.23 -1.90% 14528.54
5/3/2019 565.37 -0.85% 14587.74
5/10/2019 584.82 3.44% 14826.58
5/17/2019 584.12 -0.12% 14735.33
5/24/2019 585.21 0.19% 15200.81
5/31/2019 622.11 6.31% 15361.14
6/7/2019 619.55 -0.41% 15423.22
6/14/2019 610.30 -1.49% 15495.21
6/21/2019 622.55 2.01% 15629.21
6/28/2019 650.50 4.49% 15846.2
7/5/2019 640.95 -1.47% 15659.97
7/12/2019 647.20 0.98% 15528.44
7/19/2019 597.65 -7.66% 14945.39
7/26/2019 642.20 7.45% 14445.89
8/2/2019 664.95 3.54% 13689.97
8/9/2019 619.25 -6.87% 13906.1
8/16/2019 592.75 -4.28% 13704.74
8/23/2019 559.25 -5.65% 13352.53
8/30/2019 548.45 -1.93% 14112.76
9/6/2019 549.80 0.25% 14185.4
9/13/2019 549.90 0.02% 14249.66
9/20/2019 544.60 -0.96% 14079.47
9/27/2019 545.65 0.19% 14429
10/4/2019 548.40 0.50% 14170.58
10/11/2019 549.30 0.16% 14412.03
10/18/2019 551.80 0.46% 14401.2
10/25/2019 537.95 -2.51% 14516.04
11/1/2019 548.90 2.04% 14355.02
11/8/2019 549.85 0.17% 14422.98
11/15/2019 542.20 -1.39% 14488.81
11/22/2019 538.35 -0.71% 14260.83
11/29/2019 548.05 1.80% 14361.85
12/6/2019 548.25 0.04% 14323.79
12/13/2019 503.95 -8.08% 13994.2
12/20/2019 549.90 9.12% 14136.76
12/27/2019 521.80 -5.11% 14319.03
1/3/2020 530.65 1.70% 14618.31
% change in BSE
Vodafone Idea Ltd Beta
-0.01% -0.29
0.14%
1.96%
-0.26%
1.29%
-0.47%
0.87%
0.95%
0.49%
-0.50%
-0.60%
-0.22%
1.75%
1.87%
0.32%
0.90%
0.37%
-3.92%
1.95%
0.16%
1.77%
-0.06%
1.65%
-1.73%
-1.62%
2.20%
1.70%
0.05%
1.77%
1.75%
-1.18%
-0.21%
1.21%
-1.99%
1.38%
0.35%
2.21%
0.63%
0.90%
0.96%
0.62%
0.88%
-4.05%
-1.59%
-0.24%
0.17%
-0.20%
-2.58%
0.30%
-2.38%
1.35%
3.30%
0.08%
0.11%
0.36%
0.65%
0.30%
-0.47%
-1.46%
0.41%
1.64%
-0.62%
3.16%
1.05%
0.40%
0.47%
0.86%
1.39%
-1.18%
-0.84%
-3.75%
-3.34%
-5.23%
1.58%
-1.45%
-2.57%
5.69%
0.51%
0.45%
-1.19%
2.48%
-1.79%
1.70%
-0.08%
0.80%
-1.11%
0.47%
0.46%
-1.57%
0.71%
-0.27%
-2.30%
1.02%
1.29%
2.09%
 Rating Matrix
Greater Than ≤ to Rating is Spread is
-100000 0.199999 D2/D 18.60%
0.2 0.649999 C2/C 13.95%
0.65 0.799999 Ca2/CC 10.63%
0.8 1.249999 Caa/CCC 8.64%
1.25 1.499999 B3/B- 4.37%
1.5 1.749999 B2/B 3.57%
1.75 1.999999 B1/B+ 2.98%
2 2.2499999 Ba2/BB 2.38%
2.25 2.49999 Ba1/BB+ 1.98%
2.5 2.999999 Baa2/BBB 1.27%
3 4.249999 A3/A- 1.13%
4.25 5.499999 A2/A 0.99%
5.5 6.499999 A1/A+ 0.90%
6.5 8.499999 Aa2/AA 0.72%
8.50 100000 Aaa/AAA 0.54%

Debt to capital ratio 10%

Particulars Iteration 1 Iteration 2 Iteration 3
Debt/Equity 0.1111 0.1111 0.1111
Debt value 8263.2000 8263.2000 8263.2000
EBIT 5943.9600 5943.9600 5943.9600
Interest payment 1381.6070 749.4722 727.1616
Interest coverage ratio 4.3022 7.9309 8.1742
Expected rating Caa/CCC A2/A Aa2/AA
Default spread 8.64% 0.99% 0.72%
Expected Interest rate 16.72% 9.07% 8.80%
Obtained Rating A2/A Aa2/AA Aa2/AA

Tax Shield Rate Calculations

Debt to capital ratio Rating Interest rate Debt value
0.00% AAA 8.62% 0
10.00% Aa2/AA 8.80% 8263.2000
20.00% A3/A- 9.21% 16526.4000
30.00% Baa2/BBB 9.35% 24789.6000
40.00% B2/B 11.65% 33052.8000
50.00% Caa/CCC 16.72% 41316.0000
60.00% C2/C 22.03% 49579.2000
70.00% C2/C 22.03% 57842.4000
80.00% C2/C 22.03% 66105.6000
90.00% C2/C 22.03% 74368.8000
Debt to capital ratio Debt to equity Interest rate Tax Rate
0.00% 0.00 8.62% 34.00%
10.00% 0.11 8.80% 34.00%
20.00% 0.25 9.21% 34.00%
30.00% 0.43 9.35% 34.00%
40.00% 0.67 11.65% 34.00%
50.00% 1.00 16.72% 29.26%
60.00% 1.50 22.03% 18.50%
70.00% 2.33 22.03% 15.86%
80.00% 4.00 22.03% 13.88%
90.00% 9.00 22.03% 12.34%

Final Result
Debt (%) EBIDT Tax rate Implired Growth
0% 5944 34.00% 7.92%
10% 5944 34.00% 7.92%
20% 5944 34.00% 7.92%
30% 5944 34.00% 7.92%
40% 5944 34.00% 7.92%
50% 5944 29.26% 7.92%
60% 5944 18.50% 7.92%
70% 5944 15.86% 7.92%
80% 5944 13.88% 7.92%
90% 5944 12.34% 7.92%
 Iterations
20% 30%
Iteration 1 Iteration 2 Iteration 1 Iteration 2
0.2500 0.2500 0.4286 0.4286
16526.4000 16526.4000 24789.6000 24789.6000
5943.9600 5943.9600 5943.9600 5943.9600
1454.3232 1522.0814 2283.1222 2317.8276
4.0871 3.9052 2.6034 2.5645
Aa2/AA A3/A- A3/A- Baa2/BBB
0.72% 1.13% 1.13% 1.27%
8.80% 9.21% 9.21% 9.35%
A3/A- A3/A- Baa2/BBB Baa2/BBB

Tax Shield Rate Calculations

Interest amount EBIT Interest coverage ratio Tax Shield Rate
0 5943.96 Infinte 34.00%
727.1616 5943.96 7.9309 34.00%
1522.08144 5943.96 4.0871 34.00%
2317.8276 5943.96 1.9233 34.00%
3850.6512 5943.96 1.2349 34.00%
6908.0352 5943.96 0.7170 29.26%
10922.29776 5943.96 0.6408 18.50%
12742.68072 5943.96 0.5442 15.86%
14563.06368 5943.96 0.4665 13.88%
16383.44664 5943.96 0.4082 12.34%

Optimal Debt Structure Calculations

 After tax cost of debt Unlevered beta Equity beta Cost of equity
5.69% -0.26 -0.26 6.84%
5.81% -0.26 -0.28 6.75%
6.08% -0.26 -0.30 6.64%
6.17% -0.26 -0.33 6.49%
7.69% -0.26 -0.37 6.30%
11.83% -0.26 -0.44 5.97%
17.95% -0.26 -0.58 5.33%
18.54% -0.26 -0.77 4.42%
18.97% -0.26 -1.15 2.59%
19.31% -0.26 -2.30 -2.91%

Final Result
WACC FCFF Firm value
6.84% 3923 ₹ -394,915.34
6.66% 3923 ₹ -336,746.61
6.53% 3923 ₹ -304,956.16
6.40% 3923 ₹ -278,771.37
6.86% 3923 ₹ -399,269.21
8.90% 4205 ₹ 461,615.86
12.91% 4844 ₹ 104,772.89
14.30% 5001 ₹ 84,535.85
15.70% 5119 ₹ 71,011.67
17.09% 5211 ₹ 61,292.23
 Data *All Values in ₹ Crores
Firm value 82632.00
Risk-free rate 6.6800%
Country risk 1.40%
D/D+E 68.935%
D/E 2.21907
Debt value 56962.49
PBDIT 5943.96
Interest expense 4924.53
Interest coverage ratio 1.21
Likely rating Caa/CCC
Risk Premium 8.64%
Pre-tax cost of debt 16.72%
Current EPS 4.47

Iterations
40% 50%
Iteration 1 Iteration 2 Iteration 3 Iteration 1
0.6667 0.6667 0.6667 1.0000
33052.8000 33052.8000 33052.8000 41316.0000
5943.9600 5943.9600 5943.9600 5943.9600
3090.4368 3655.6397 3850.6512 4813.3140
1.9233 1.6260 1.5436 1.2349
Baa2/BBB B1/B+ B2/B B2/B
1.27% 2.98% 3.57% 3.57%
9.35% 11.06% 11.65% 11.65%
B1/B+ B2/B B2/B Caa/CCC

Firm Value 82632.00

EBIT 5943.96
FCFF 3923.0136

7.92%
Implied Growth Rate

Cost of Equity 4.872061%

WACC 0.1303945 13.039%

Equity Beta -0.29

Unlevered Beta -0.26
 WACC Growth rate Firm value
6.84% 7.92% ₹ -394,915.34
6.66% 7.92% ₹ -336,746.61
6.53% 7.92% ₹ -304,956.16
6.40% 7.92% ₹ -278,771.37
6.86% 7.92% ₹ -399,269.21
8.90% 7.92% ₹ 430,654.48
12.91% 7.92% ₹ 84,849.82
14.30% 7.92% ₹ 66,310.24
15.70% 7.92% ₹ 54,419.62
17.09% 7.92% ₹ 46,145.00

Optimal D/E Ratio 50% Debt 50% Equity

50% 60% 70% 80%
Iteration 2 Iteration 1 Iteration 2 Iteration 3 Iteration 1 Iteration 1
1.0000 1.5000 1.5000 1.5000 2.3333 4.0000
41316.0000 49579.2000 49579.2000 49579.2000 57842.4000 66105.6000
5943.9600 5943.9600 5943.9600 5943.9600 5943.9600 5943.9600
6908.0352 8289.6422 9276.2683 10922.2978 12742.6807 14563.0637
0.8604 0.7170 0.6408 0.5442 0.4665 0.4082
Caa/CCC Caa/CCC Ca2/CC C2/C C2/C C2/C
8.64% 8.64% 10.63% 13.95% 13.95% 13.95%
16.72% 16.72% 18.71% 22.03% 22.03% 22.03%
Caa/CCC Ca2/CC C2/C C2/C C2/C C2/C
 90%
Iteration 1
9.0000
74368.8000
5943.9600
16383.4466
0.3628
C2/C
13.95%
22.03%
C2/C
On referring the Annual Report of Vodafone Idea Ltd, it can be seen that the firm had high debt for FY 2017-2
Also from the weekly closing prices, the Beta of Vodafone Idea was found to be less than 0 i.e. negative implyi
inverse relation with the market.
This can be due to the cash burn and losses due to entry of Jio, which ultimately led to merger of Vodaone and Id
it was an unsafe stock to deal in and the negative Beta values strengthens this view.
From the calculation it could be seen that the Optimal Debt Equity Mix should be 50% Debt and 50% Equ
reduction from the existing high debt. It will help to ease off pressure and increase in firm value.
Although there would be more fixed costs and increase in equity costs but these disadvantages would be weighe
tax benefits, reduction in agency costs. More importantly it will add discipline in dealings as there would be more
and stake and only with better performance the firm can grow further.
All data has been taken from Annual Reports of the respective companies viz. ITC Ltd and Vodafone Idea Lt
The period for this has been Financial Year 2017-2018

Firm Value (ITC Ltd) = Total Number of Shares * Share Price on 31st March 2018 + Total Debt - Cash and Cash
Firm Value (Vodafone Idea Ltd) = Total Debt + Total Equity

Total Debt = Borrowing under Financial Liabilities under Non Current Liabilities + Borrowing under Financial Lia
Interest Expense = Financial Costs

Current EPS, Country Risk, Risk Free Rate have been assumed as constant at 4.47, 1.4 and 6.68
td and Vodafone Idea Ltd

Total Debt - Cash and Cash Equivalents

rowing under Financial Liabilities under Current Liabilities

7, 1.4 and 6.68