As was announced by the Team on my.wbs you are required to submit a written assignment as your summer assessment.  Your assignment will be based on the Vlerick Business School case study entitled “Apple – Time to ‘Think DifferTM’ about cash?”.  The case study is distributed separately.

Specifically, you are required to read carefully the case study and answer the following 14 questions using your training and knowledge from lectures and seminars. There are two types of questions:

 

  • Qualitative: no need for you to include computations (you can if you want)
  • Quantitative: you are required to include computations.

 

The assignment must be a maximum of 2,500 words (no minimum word limit), double-spaced. References, charts, and calculations do not count within the word limit. The total number of pages of your submission including references, charts and calculations should not exceed 14 pages.

The weight of each question (as well as word limit) is indicated in each question, and so is whether the question is a qualitative or a quantitative one.

 

Back up your arguments with examples, theory, and evidence, as appropriate. Please state any assumptions and quantitative inputs that you use. You must do this assignment alone, and every assignment in the cohort will be cross-checked.

 

Questions:

 

  1. Discuss Apple’s financial statements and equity issuance during 1995 and 2012.

[note: this is a qualitative question, please do not use more than 150 words to answer]

[5 marks]

 

  1. Detect key risk factors that may impact the company’s future business and value.

[note: this is a qualitative question, please do not use more than 150 words to answer]

[5 marks]

 

  1. Discuss the tax strategies of Apple.

[note: this is a qualitative question, please do not use more than 150 words to answer]

[5 marks]

 

  1. Using your knowledge from the Capital Asset Pricing Model, discuss the stock price of Apple [Hint: discuss whether in your view Apple stock is adequately priced. Do use your knowledge of CAPM to comment on this point, do not discuss the predictions of CAPM]

[note: this is a quantitative question, so please make use of computations and include an explanation of no more than 250 words to answer (computations do not count as words)]

[8 marks]

 

  1. Does Apple’s cash pile come at the expense of shareholders? [Hint: discuss your views on whether and how cash should be distributed to shareholders.]

[note: this is a qualitative question, please do not use more than 200 words to answer]

  • marks]

 

  1. Assess Apple’s past and new dividend policy – are shareholders better off? What pay-out policy would you recommend? Why?

[note: this is a qualitative question, please do not use more than 250 words to answer]

 

[12 marks]

  1. Describe and evaluate Apple’s past and new capital structure policy. [Hint: you can refer to

Modigliani and Miller propositions, but do not discuss their predictions]

[note: this is a qualitative question, please do not use more than 250 words to answer]

[8 marks]

  1. Apple is considering invest in a project that costs $40 million and generates an expected annual cash flow of $2 million per year. In your opinion, should the firm finance new expansions with debt or equity? Illustrate your recommendations with changes on the market balance sheets of Apple at the announcement and completion of the project and list any assumptions you make. [Hint: you can refer to Modigliani and Miller propositions, but do not discuss their predictions]

[note: this is a quantitative question, so please make use of computations and include an explanation of no more than 150 words to answer (computations do not count as words)]

[11 marks]

 

  1. Using the knowledge acquired in the module, show mathematically an example in which the marginal costs of financing the new project with debt outweighs benefits. [Hint: you can refer to trade-off theory of debt, but do not discuss theory] [note: this is a quantitative question, so please make use of computations and include an explanation of no more than 150 words to answer (computations do not count as words)]

[6 marks]

 

  1. Using the knowledge acquired in the module, show mathematically an example in which the relationship between corporate and personal taxes makes it optimal for Apple to use equity. [Hint: you can refer to Modigliani and Miller propositions in presence of corporate and personal taxation, but do not discuss their predictions]

[note: this is a quantitative question, so please make use of computations and include an explanation of no more than 150 words to answer (computations do not count as words)]

[8 marks]

 

  1. Evaluate Cook’s compensation and corporate governance policy.

[note: this is a qualitative question, please do not use more than 250 words to answer]

  • marks]

 

  1. As an investor, you would like to construct a portfolio consisting of 50% of Apple stock, and 50% of another stock of your choice. Using the knowledge acquired in the module, pick one other stock and discuss your choice. Compute the beta, expected return, and variance of your portfolio.

[note: this is a quantitative question, so please make use of computations and include an explanation of no more than 100 words to answer (computations do not count as words)]

  • marks]

 

  1. How would your results change if the coefficient of correlation between the two stocks was one? And if it was zero? Explain your answer.

[note: this is a quantitative question, so please make use of computations and include an explanation of no more than 50 words to answer (computations do not count as words)]

[4 marks]

 

  1. Suppose that another firm identical to Apple on September 12, 2012 was entirely financed with equity, and the market value of this firm was = $200,000,000. As an arbitrageur, what would you have done on September 12, 2012 (based on the information from Apple’s balance sheets reported on p. 27)? Suggest two arbitrage strategies. Discuss any factors that would have affected your trading decision.

[note: this is a quantitative question, so please make use of computations and include an explanation of no more than 250 words to answer (computations do not count as words)]

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