Reference no: EM132308675

Assessment Description

Answer the questions below with reference to the following sources and submit:

1) A word document with answers to the below questions on Turitin (MyKBS)
2) An excel document with supporting calculations in the drop box on the portal (in Assessment table)

Part 1: Company Perspective

a) Evaluate the working capital efficiency of Apple in 2017 as compared to 2018 by referring to Source 1 pp. 38-40 and Source 5. In your analysis consider the working capital efficiency of competitors. (Keep in mind that in America they use slightly different terminology)

b) On page 8 of Apple's Annual Report (Source 1) what are three of the major risks discussed? Are these risks systematic or unsystematic? Why?

c) Apple Shares and Debt:

i. How has Apple share price preformed over the last three years relative to the market? Based on your research what are the reasons for this performance? (See Source 4)

ii. From 2014 to 2018 has Apple taken on more or less long-term debt? See Source 3 and justify your answer.

iii. Imagine you purchased an Apple $1000 face value bond at the end of 2008 when its yield to maturity was 4%. This bond was issued in 2007 and has a fixed annual coupon rate of 4.5% and matures at the end of 2020. Currently it is the end of 2019 and it has a yield to maturity of 5% and you want to sell this bond. What price did you buy the bond at and what price will you sell it at today? What would be your holding period return?

Part 2: Capital Budgeting

Answer the following questions with the aid of excel spreadsheets. **You also need to answer the below questions in your word file and refer to your excel spreadsheets as supporting documents. Upload your ONE excel spreadsheet separately under "Excel File for Report". Consider Sources 1-5 above and the below graph for some of the answers. (All figures are in AUD)

Apple is considering whether to build the "Global Store" in Federation Square Melbourne today in 2019. Apple has already purchased the land on the site and wants to make a decision about whether to build on it. Assume the store will have a life of 20 years and will generate revenues of $32 million per year AUD over the 20 years (with the first cash flow at the end of year 1). By building the store Apple will attract negative media attention (see Source 1) causing revenues to fall in its other stores by $400,000 AUD per year for the first five years of the project. By developing the site Apple will also lose existing rental income of $1 million per year. The total annual costs of the store will be 12% of the revenues from the new store and will similarly continue for 20 years with the first cost incurred at the end of year 1. The initial outlay for the project is $300 million AUD for building the store (The land has already been purchased so should not be considered in the analysis). The store will be depreciated straight line over the 20 years to a book value of 0 and Apple projects that the store can be sold at the end of year 20 for $200 million AUD. This sale price is however an optimistic projection and is dependent multiple factors.

All values are in AUD. Assume the tax rate is 30% over the 20 years.

Using the above information as well as Sources 1-5 answer the following questions.

a) Why does the analysis not consider the price of the land? Explain with reference to theory.

b) Based on the above information and sources what are the free cash flows generated by Apple's new store over the 20 years (Refer to your excel spreadsheet)?

c) Calculate the NPV for new Apple store using the below costs of capital and recommend whether they should accept the project for each cost of capital.
a. A WACC (cost of capital) of 5.94%?
b. A WACC (cost of capital) of 8%?

d) What is the IRR for new Apple store with a cost of capital of 5.94% and 8%? Should they accept the project at a 5.94% cost of capital? Should they accept it at an 8% cost of capital? Why?

e) Based in your analysis in a-d should Apple build the new store if we assume the cost of capital is 5.94%? Consider the NPV and IRR calculation in your answer, but also discuss the validity of some of the assumptions made.

Part 3: Appropriate referencing, layout and research

Students need to reference sources appropriately based on the attached guide

Students also need to ensure that the work is their own and conduct independent research.

Attachment:- Finance.rar