After graduating with a degree in finance, you land a job at Apple as a financial analyst. The first project to which yo
Posted: Thu Apr 28, 2022 1:41 pm
After graduating with a degree in finance, you land a job at
Apple as a financial analyst. The first project to which you have
been assigned is the valuation of a potential acquisition target.
Apple is considering widening its competition with Amazon to
include big-box retail sales. To that end, Apple is exploring the
purchase of a mass merchandiser that is likely to be valued at
around $115 billion.
You have been asked to retrieve Apple’s WACC as it is often used
as the appropriate discount rate when valuing acquisition targets.
Sitting at a Bloomberg terminal, you pull up Apple's current
WACC. Before sending the WACC to your manager, you pause and ponder
the following questions:
1. Is it appropriate to use Apple’s WACC to value this target
firm? Why or why not?
2. Will using Apple’s WACC as the required return cause us to
make a bad investment decision? Why or why not?
3. If we choose not to use Apple’s WACC, how can we come up with
an appropriate required return for this investment?
4. What would be the most challenging aspects of running an
analysis to come up with the appropriate required return?
Write a memo to the manager of your team, Emma May, that
includes Apple’s WACC and addresses these questions.
Apple Inc Cost of Capital - Current Market Value Period MR 2022Q1 Capital Structure (Millions of USD) 3) Equity 4 Debt Cost (A-T) 5) Preferred Equity WACC Weight 95.9% 4.1% 0.0% Cost 9.6% 2.3% 0.0% WxC 9.2% 0.1% 0.0% 9.3% Market Cap 2,880,565.2 95.9% ST Debt 16,169.0 0.5% LT Debt 106,629.0 3.6% Pref. Eqty 0.0 0.0% Total 3,003,363.2 100.0% 6) History WACC EVA ROIC EVA Spread # Track Annotate a Zoom Economic Value Added (Millions of USD) 7) Net Operating Profit 8) Cash Operating Taxes NOPAT 116903.00 11402.75 105500.25 11.00- 10.50 WACC 9.3312 10.00- 9) Total Investment Capital Capital Charge 194730.00 18170.67 9.3312 9.00- 8.50 Economic Value Added 87329.59 8.00- 7.50 ROIC EVA Spread 54.18% 44.85% '12 '13 '14 '15 '16 '17 '18 '19 '20 '21
Apple as a financial analyst. The first project to which you have
been assigned is the valuation of a potential acquisition target.
Apple is considering widening its competition with Amazon to
include big-box retail sales. To that end, Apple is exploring the
purchase of a mass merchandiser that is likely to be valued at
around $115 billion.
You have been asked to retrieve Apple’s WACC as it is often used
as the appropriate discount rate when valuing acquisition targets.
Sitting at a Bloomberg terminal, you pull up Apple's current
WACC. Before sending the WACC to your manager, you pause and ponder
the following questions:
1. Is it appropriate to use Apple’s WACC to value this target
firm? Why or why not?
2. Will using Apple’s WACC as the required return cause us to
make a bad investment decision? Why or why not?
3. If we choose not to use Apple’s WACC, how can we come up with
an appropriate required return for this investment?
4. What would be the most challenging aspects of running an
analysis to come up with the appropriate required return?
Write a memo to the manager of your team, Emma May, that
includes Apple’s WACC and addresses these questions.
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