Individual Finance Assignment: Apple Inc. and Store Project (FINM4000)

This finance assignment analyzes Apple Inc.'s financial performance, comparing 2017 and 2018 working capital efficiency, calculating net working capital and current ratios. It assesses three major risk factors affecting the company. The assignment includes share price analysis, bond valuation, and a new store project's financial feasibility. The project's free cash flow, net present value (NPV) at different WACCs, and internal rate of return (IRR) are calculated to determine whether the project should be accepted. The analysis uses data from Apple's annual reports and competitor analysis, providing a comprehensive financial evaluation.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Contents
Part 1:...............................................................................................................................................2
Sub part (a):.................................................................................................................................2
Sub part (b):.................................................................................................................................6
Sub part (c):.................................................................................................................................6
Part 2:...............................................................................................................................................9
Sub part (a):.................................................................................................................................9
Sub part (b):.................................................................................................................................9
Sub part (c):...............................................................................................................................11
Subpart (d):................................................................................................................................17
Sub part (e):...............................................................................................................................17
References:....................................................................................................................................18

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Part 1:
Sub part (a):
In order to analyze the working capital efficiency of Apple Inc. for 2017 in comparison to 2018
firstly, it is essential to calculate the networking capital of the company in these two years, i.e.
2017 and 2018. As per the annual report 2018 of the company the calculation of net working in
2017 and 2018 is calculated below.
Amounts are in US$ millions 2017-09 2018-09
Current assets
Cash 20,289.00 25,913.00
Investments Short-term 53,892.00 40,388.00
Total cash 74,181.00 66,301.00
Accounts Receivables 17,874.00 23,186.00
Inventories 4,855.00 3,956.00
Deferred income taxes
Other current assets 31,735.00 37,896.00
(A): Total current assets 128,645.00 131,339.00
Current liabilities
Debt short term 18,473.00 20,748.00

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Accounts payable 49,049.00 55,888.00
Tax liability
Accrued liabilities 25,744.00
Deferred revenues (Current) 7,548.00 7,543.00
Other current liabilities 32,687.00
(B) Total current liabilities 100,814.00 116,866.00
Net working capital (A-B) 27,831.00 14,473.00
As is clear from the current assets and current liabilities of Apple Inc. in 2017 and 2018 that the
working capital efficiency of the company was significant better in 2017 as compared to in 2018.
The net working capital calculated by reducing the total current liabilities from total current
assets of the company in 2017 was $27,831 million. In comparison the net working capital of
2018 is $14,473 million. Thus, the efficiency in working capital of the company was far better in
2017 as compared to 2018.
The current ratios of the company in these two years shall further provide evidence of working
capital position of the company in the two years (Asim Shah, 2018).
Year 2017 2018

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Total current assets 128645 131339
Total current liabilities 100814 116866
Current ratio 1.276063 1.123843
Again the current ratio of the company in 2017 at 1.276 is significantly better from the current
ratio of 1.124 of 2018 suggesting the ability of the company to repay its current liabilities by
using current assets was better in 2017 as compared to 2018.
Competitor analysis in this regard will provide further evidence as to the efficiency of working
capital opposition of Apple Inc. Samsung being one the biggest competitors of Apple provided
following information in relation to current assets and liabilities for 2017 and 2018 (Bagire &
Namada, 2013).
Current assets 2017 2018
Cash 30,545,130.00 30,340,505.00
Investments Short-term 3,191,375.00 4,705,641.00
Total cash 33,736,505.00 35,046,146.00
Accounts Receivables 27,695,995.00 33,867,733.00
Inventories 24,983,355.00 28,984,704.00
Prepaid expenses 5,588,892.00 5,497,974.00

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Other current assets 54,977,717.00 71,300,867.00
Total current assets 146,982,464.00 174,697,424.00
Current liabilities
Debt (short term) 16,035,313.00 13,586,660.00
leases 10,925.00 33,386.00
Accounts payable 9,083,907.00 8,479,916.00
Tax liability 7,408,348.00 8,720,050.00
Other current liabilities 34,636,621.00 38,261,498.00
Total current liabilities 67,175,114.00 69,081,510.00
Net working capital (A-B) 79,807,350.00 105,615,914.00
A clear picture can be drawn from the competitor analysis that the working capital efficiency of
Samsung in both 2017 and 21018 has been significantly better than Apple. In fact in 20185 it has
improved from 2017 whereas Apple experienced deterioration in working capital efficiency in
2018 compared to its working capital position of 2017.
Sub part (b):
Three major risk factors are as following:
Global and regional economic conditions:

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Adverse global and regional conditions could materially affect the financial performance of the
company in the future. This is an unsystematic risk as it cannot be controlled by the company.
Management of frequent introductions and transitions of products and services:
Considering the ever increasing demand of customers with new and innovative technology
making way for better and improved products the management needs to introduce and make
transition of products and services frequently. This is a systematic risk as it can be managed by
the company with proper strategy and system in place (Giannakis & Harker, 2014).
Inventory and other asset risks:
The risk of obsolete inventory and other assets has increased significantly with rapid
technological growth. Thus, the management has a huge responsibility to ensure that there is a
proper system in place to deal with product recycling to reduce the loss of inventory
depreciation. It is a systematic risk.
Sub part (c):
The apple share price movement over the last few years can be understood from the following
share price movement image.

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The share prices of the company has fluctuated heavily over the last three years as is visible in
the above image. In 2018 the share prices of the company showed huge growth as it touched
$216.16 per share on 24th August, 2018 however, there after the share price declined to its lowest
in last two years at $148.26 per share on January 4, 2019.
The reason for the above fluctuation in share prices is the performance of the company and the
market news about the company and its products.
In 2014 the long term debt of Apple Inc. was $28,987 million. This has increased to $97,207
million in 2017. However, in 2018 the long term debt of the company stood at $93,735 million
suggesting that over the last five years the company has borrowed significant amount of debt on
long term (Kim & Im, 2017).
Price paid to buy the bond is calculated below:
Year Coupon PV factor
@4% pa
Present
value ($)
2007
2008 45 0.961538 43.26923
2009 45 0.924556 41.60503
2010 45 0.888996 40.00484
2011 45 0.854804 38.46619
2012 45 0.821927 36.98672

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2013 45 0.790315 35.56415
2014 45 0.759918 34.1963
2015 45 0.73069 32.88106
2016 45 0.702587 31.6164
2017 45 0.675564 30.40039
2018 45 0.649581 29.23114
2019 45 0.624597 28.10687
2020 45 0.600574 27.02583
Present value of interest 449.3542
Add: Present value of redemption (1000 x
0.600574)
600.5741
Price paid to buy the bond 1049.93
Thus, price paid to purchase the bond in 2008 was $1049.93.
Current price to sale the bond today is calculated below.
Year Coupon PV factor
@4% pa
Present
value ($)
2019 45 0.952381 42.85714

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2020 45 0.907029 40.81633
Present value of interest 83.67347
Add: Present value of redemption (1000 x
0.9070296)
907.0295
Price to sale the bond 990.70
Hence, the current price at which the bond should be sold is $990.70.
Part 2:
Sub part (a):
The reason that the land cost has not been included in the computation is because it was already
in the possession of the company on which it has a store which is to be demolished to build the
new store. No additional cost will be incurred to acquire the land hence, no land cost has been
included here (Safdar, 2016).
Sub part (b):
Free cash flows
Yea
r
(A): Annual
revenue ($'
(B): Annual
expenses
©
Depreciatio
(D):
Revenue
(E)Ta
x
Free cash
flows (D-E +

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million) n (A-B-C) @30% C)
1 32 3.84 15 13.16 3.948 24.212
2 32 3.84 15 13.16 3.948 24.212
3 32 3.84 15 13.16 3.948 24.212
4 32 3.84 15 13.16 3.948 24.212
5 32 3.84 15 13.16 3.948 24.212
6 32 3.84 15 13.16 3.948 24.212
7 32 3.84 15 13.16 3.948 24.212
8 32 3.84 15 13.16 3.948 24.212
9 32 3.84 15 13.16 3.948 24.212
10 32 3.84 15 13.16 3.948 24.212
11 32 3.84 15 13.16 3.948 24.212
12 32 3.84 15 13.16 3.948 24.212
13 32 3.84 15 13.16 3.948 24.212
14 32 3.84 15 13.16 3.948 24.212
15 32 3.84 15 13.16 3.948 24.212
16 32 3.84 15 13.16 3.948 24.212
17 32 3.84 15 13.16 3.948 24.212

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18 32 3.84 15 13.16 3.948 24.212
19 32 3.84 15 13.16 3.948 24.212
20 32 3.84 15 13.16 3.948 24.212
Free cash flows 484.24
Sub part (c):
Year (A): Annual
revenue ($'
million)
(B):
Annual
expenses
©
Depreciation
Loss of
revenue
(D):
Revenu
e (A-B-
C)
(E)Tax
@30%
Free
cash
flows
(D-E +
C)
1 32 3.84 15 1.4 11.76 3.528 23.232
2 32 3.84 15 1.4 11.76 3.528 23.232
3 32 3.84 15 1.4 11.76 3.528 23.232
4 32 3.84 15 1.4 11.76 3.528 23.232
5 32 3.84 15 1.4 11.76 3.528 23.232
6 32 3.84 15 1.4 11.76 3.528 23.232