Corporate Accounting: Fund Sourcing Analysis for Apple Inc. Report

This report, addressed to the CFO of Apple Inc., analyzes various fund sourcing strategies to determine the best approach for the company. It examines the pros and cons of issuing common stock, reissuing treasury stock, and issuing convertible bonds. The analysis considers factors such as cost, dilution of ownership, impact on shareholder value, and potential risks. The report recommends issuing common stock through an IPO as the most suitable strategy, highlighting its cost-effectiveness and reduced risk of negatively impacting share value compared to other methods. The report references several academic sources to support its findings and recommendations.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name:
Institution:
Date:

CORPORATE ACCOUNTING
TO: The CFO
FROM: The Financial Analyst
CC: The CEO
DATE: 30th AUGUST 2019
SUBJECT: Fund Sourcing Avenues
Memo below shows the best method and recommendations for available fund sourcing.
Apple Inc. is the biggest designer, developer and seller of computer software,
consumer electronics and online services in the world. It is an American technological
company that deals with selling and developing electronic software’s and hardware’s. It has
been listed in the US and global markets and has been several ways of raising capital. The
company has various stakeholders’ equity and the purpose of this is to find out the pro and
cons of strategies of generating cash through equity (Burrai, Font, & Cochrane, 2015).
Pros and cons of issuing common stock
Common stocks are ordinary shares issued by companies as an alternative to raising
equity using debt or preferred shares. The advantages of common stock is that it is less
expensive than issuing debt which will require servicing of the debt. It is less expensive since
an IPO does not need an obligatory payment of interest to investors but rather they are
required to make discretionary payments of dividends when the profits are high.
The cos to this strategy is that increasing the common shares in the markets increases the
number of outstanding shares. When additional share are introduced into the market, they
dilute the value of the original share and ownership to the existing shareholders. (Buttner, &
Lowe, 2017).

CORPORATE ACCOUNTING
Pros and cons of reissuing treasury stock
Treasury stock is a stock type owned by the company that issued the stock. The stock
are not open to the market and are kept by the company’s treasury. The pros of the treasury
stock is that it improves the value of the shareholders based on the value of the company and
the number of outstanding shares of the company. A buy back increases the value of the
existing shares in the market.
The disadvantages of this strategy is that it is prone to manipulation since it ties the
company’s cash. The shareholders cannot access the money that has been tied up by the
company and can make a difficult financial situation since it limits the cash flow.
Manipulation in treasury stock occurs when the company releases the treasury stock to affect
the value of the stock in the market or a buy back of their stocks.
Pros and cons of issuing of convertible bonds
One of the advantages of this strategy is a delayed dilution or earnings per share
(EPS) and common stock. The company is also able to offer the bond at a coupon rate that is
lower than paying in straight bond. To the company, regardless of how profitable it is the
bond holders only get income that is limited and fixed until its conversion. This means that
there is more operating income that is available to the common stakeholders. The fixed
interest on convertible bond is an expense that is deductible to the company issuing the
convertible bond therefore paying less taxes. The disadvantages is that convertible bonds
dilutes the earnings per share of the common stock and the voting control of the shareholders
present. If the issue bond are bought by one person for example an investment banker, the
voting rights and the control of the company may shift in favor of the converters (Vismara,

CORPORATE ACCOUNTING
2019).. The shorter the maturity of the conversion bond the higher the risk of affecting the
company’s liquidity and may lead to bankruptcy. The heavy use of debt financing using
converted bonds affects the ability of the company to finance its operations in times of
hardships. The fortunes of the company may deteriorate and will experience a hard time in
raising capital required (Von Beschwitz, & Foos, 2018).
Recommendations to Apple Inc.
It is important to have the best strategy in raising equity in company so as to avoid the
ability of the company to finance its operations in times of hardships. The beast strategy out
of the three for the company is to raise an IPO by issuing a common stock. This is a better
strategy as it decreases the chances of affecting the value of the shares unlike the other
methods mentioned. . It is less expensive since an IPO does not need an obligatory payment
of interest to investors but rather they are required to make discretionary payments of
dividends when the profits are high.
Yours sincerely,

CORPORATE ACCOUNTING
References
Burrai, E., Font, X., & Cochrane, J. (2015). Destination stakeholders' perceptions of volunteer
tourism: An equity theory approach. International Journal of Tourism Research, 17(5), 451-
459.
Buttner, E. H., & Lowe, K. B. (2017). Addressing internal stakeholders’ concerns: The interactive
effect of perceived pay equity and diversity climate on turnover intentions. Journal of
Business Ethics, 143(3), 621-633.
Vismara, S. (2019). Sustainability in equity crowdfunding. Technological Forecasting and Social
Change, 141, 98-106.
Von Beschwitz, B., & Foos, D. (2018). Banks’ equity stakes and lending: Evidence from a tax
reform. Journal of Banking & Finance, 96, 322-343.
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