University Finance: FINM4000 Assessment 2 Individual Assignment

This document presents a comprehensive solution to a FINM4000 finance assignment. The assignment analyzes Apple Inc.'s financial performance from a company perspective, examining its cash conversion cycle, associated risks, and stock performance relative to the S&P index. It delves into the company's capital structure, specifically the debt-to-equity ratio, providing insights into its financing strategies. The second part of the assignment focuses on capital budgeting, addressing scenarios related to land valuation and investment project analysis, including the application of NPV and IRR criteria to evaluate project acceptability. The solution provides detailed answers, calculations, and references to support the analysis, fulfilling all requirements of the assignment brief. The assignment demonstrates an understanding of key financial concepts and their practical application in corporate decision-making.

Running head: FINANCE
Finance
Name of the student
Name of the university
Student ID
Author note

1FINANCE
Table of Contents
Part 1 – Company perspective.........................................................................................................2
Answer (a)...................................................................................................................................2
Question (b).................................................................................................................................3
Question c....................................................................................................................................3
Answer (i)................................................................................................................................3
Answer (ii)...............................................................................................................................4
Answer (iii)..............................................................................................................................4
Part 2 – Capital budgeting...............................................................................................................5
Answer (a)...................................................................................................................................5
Answer (b)...................................................................................................................................5
Answer (c)...................................................................................................................................6
Answer (d)...................................................................................................................................7
Answer (e)...................................................................................................................................7
Reference.........................................................................................................................................8

2FINANCE
Part 1 – Company perspective
Answer (a)
Cash conversion cycle is used to express the time in days taken by the entity for
converting the investment made by the entity in the investment and other resources into the cash.
It considers the time required by the entity for selling its inventory, times required by it to collect
its receivables and time taken for making payment to the creditors on time. Looking into the cash
conversion cycle of Apple Inc it can be observed that Apple’s cash conversion cycle has been
increased in the negative terms whereas the same for Samsung has been increased in positive
terms (Yazdanfar and Öhman 2014). Major reason of this significant difference in both
company’s cash conversion cycle is that Apple makes it sales on direct basis where it gets
payment though cash or through card on immediate basis. On the contrary, Samsung makes its
sales indirectly though various vendors that generally requires long credit period for the payment
(Talonpoika et al. 2014). Further, if the negotiation term is taken into consideration it can be

3FINANCE
observed that Apple is in better position to deal with its dealers as compared to that of Samsung.
In addition to these, if the inventory turnover ratio of Apple is considered it can be identified that
Apple is Able to sell its inventory in less time as it has high demand in the market (Apple Inc
2019). On the contrary, manufacturing operation of Samsung is of small size. Owing to all these
factors the cash conversion cycle of Samsung is significantly better as compared to Samsung in
2017 as well as 2018 both (Samsung global 2019).
Question (b)
Page 8 of Apple Inc’s annual report states various risks with which the entity is
associated. These risks are as follows –
 Primarily the company is dependent upon the performance of the retailers, wholesalers
and carriers along with the resellers
 Competition is growing in the industry where the entity carries on its operation. Further,
the industry is exposed to the risks of changes in the technologies.
 Domestic as well as international economic factors may have adverse impact on the
operational as well as financial performance of Apple (Apple Inc 2019).
Above mentioned risks are considered as systematic risks as the risks are associated with
the market that cannot be controlled. However the entity can take contingent measures in
advance for reducing the impact of these risks.
Question c
Answer (i)
From the information gathered through Source 4, it can be stated that the performance of
Apple Inc’s stock as compared to the performance of S&P stock is better. This can be established

4FINANCE
through the rising trend of the stock of Apple Inc over the past few years. The major reason
behind the imp0roving performance of the company’s stock is that the entity is able to generate
higher return through deploying the shareholder’s capital (Rossi 2014). Owing to this fact, the
entity is able to provide better return to its shareholders. Hence, the investors can earn positive
returns through investing into the shares of Apple Inc (Apple Inc 2019).
Answer (ii)
To ascertain the proportion of debt and equity in capital structure of the company, debt to
equity ratio can be used as follows –
It can be identified from the above table that Apple raised the fund more through long-
term debt as the debt ratio of the entity is in increasing trend over the period from 2014 to 2017.
However, the company was able to improve the position slightly in the year 2018 (Apple Inc
2019).
Answer (iii)

5FINANCE
Part 2 – Capital budgeting
Answer (a)
As the land is already purchased by the entity where the land is proposed to be build, the
value of land will not be considered as even if the store is not built5 the land will not provide any
positive return. Further, no earnings in form of re3nt is expected from the same land.. value of
the land will be considered only when any rent or lease rent is expected from the same that will
result in opportunity loss for the entity (Daunfeldt and Hartwig 2014)
Answer (b)

6FINANCE
Answer (c)

7FINANCE
Answer (d)
Answer (e)
If the IRR of the project is more than the company’s cost of capital and the NPV of any
project is in positive and project is considered for acceptance, analyzing the IRR as well as NPV
of Apple Inc it can be identified that project fulfills both the criteria and hence is acceptable.

8FINANCE
Reference
Apple Inc. 2019. | American company. [online] Available at:
https://www.britannica.com/topic/Apple-Inc [Accessed 27 May 2019].
Daunfeldt, S.O. and Hartwig, F., 2014. What determines the use of capital budgeting methods?:
Evidence from Swedish listed companies. Journal of Finance and Economics, 2(4), pp.101-112.
Rossi, M., 2014. Capital budgeting in Europe: confronting theory with practice. International
Journal of Managerial and Financial Accounting, 6(4), pp.341-356.
Samsung global., 2019. Investor Relations │ Samsung. [online] Available at:
https://www.samsung.com/global/ir/ [Accessed 27 May 2019].
Talonpoika, A.M., Monto, S., Pirttilä, M. and Kärri, T., 2014. Modifying the cash conversion
cycle: revealing concealed advance payments. International Journal of Productivity and
Performance Management, 63(3), pp.341-353.
Yazdanfar, D. and Öhman, P., 2014. The impact of cash conversion cycle on firm profitability:
An empirical study based on Swedish data. International Journal of Managerial Finance, 10(4),
pp.442-452.