FIN203 - Corporate Finance - Apple Annual Report - Company Perspective - Capital Budgeting - Finance Assignment Help

Assignment Task:

FIN203: Corporate Finance Assignment Help

Part 1: Company Perspective

a) Calculate the Cash Conversion Cycle for Apple in 2017 as compared to 2018 by referring to Source 1 pp. 38-40 and evaluate how it has changed. In your analysis consider the working capital efficiency of competitors like Samsung (See Source 5). (Keep in mind that in America Gross Margin is Net Sales)

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? (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 that in 2007 you purchased an Apple $1000 face value bond with a fixed annual coupon rate of 4.5% which matures at the end of 2020. Currently it is the
end of 2019 and the bond has a yield to maturity of 5%. What would be the price of the bond today in 2019?

Part 2: Capital Budgeting

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 $40 million per year AUD over the 20 years (with the first cash flow at the end of year

1). By developing the site Apple will lose existing rental income of $1 million per year which would have continued for 20 years. 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. 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 assuming the cost of capital is 5.94% and recommend whether they should accept the project.

d) What is the IRR for new Apple store with a cost of capital of 5.94%? Should they accept the project at a 5.94% 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.

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