Presentation on wacc of apple inc
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Apple Inc. is an American technology company founded in 1976 that designs, develops, and sells consumer electronics, computer software, and online services. This document calculates Apple's weighted average cost of capital (WACC) of 6.01% based on a cost of debt of 1.77%, cost of equity of 6.69%, debt/value ratio of 13.68%, and equity/value ratio of 86.32%. The WACC represents the average rate of return that Apple must earn on its projects to satisfy its shareholders and creditors.
Presentation on wacc of apple inc
- 1. Weighted Average Cost of Capital 0f Apple Inc. 1 Prepared by Alpha
- 2. Name of the group members Name ID Section A S M Shihab 12202120 D Md. Manik Mia 12202146 D Pulok Kundu 12202144 D Lucky Hasan 12202149 D Shakila Akter 12202155 D Nibedita Sarker 13102330 D 2
- 3. Company profile • Apple Inc. (previously Apple Computer, Inc.) is an American multinational corporation. • Apple Inc. ignited the personal computer revolution in the 1970s with the Apple II. • Established : on April 1,1976. • Founders : Steve Jobs, Steve Wozniak, and Ronald Wayne. • Industry : Computer Hardware Computer Software Consumer electronics Digital distributions 3
- 4. • Apple TV • iPad • iPhone • iPod (Classic, Nano, Shuf fle, Touch) • Mac (iMac, MacBook, ac Book Air, MacBook Pro, Mini, Pro) 4 Major Hardware Products Major Software Products • Mac OS X • iOS • iTunes • iWork • QuickTime • Safari • iLife
- 5. Weighted Average Cost Of Capital – WACC• Definition-A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. • Formula 5 E = Market value of the company's equity D = Market value of the company's debt V = Total Market Value of the company (E + D) Re = Cost of Equity Rd = Cost of Debt Tc= Tax Rate
- 6. Calculation of the cost of capital • Cost of debt • Cost of Equity or R Equity • WACC 6
- 7. Information for calculation • Tax Rate = 26.22% • Average Market Return 1950 – 2014 = 7% • Cost of Debt (before tax) or R debt =2.4% • Cost of Equity or R equity = 6.69% • Debt for 2014 or D = $85.810 billion • Stock Price = $628.66 7
- 8. Cont. • Outstanding Shares = $861.38 million • Equity = Stock price x Outstanding Shares or E = ($628.66*$861.38 million) • = $541.515 billion • Debt + Equity or D+E = ($541.515 +$85.810) billion • = $627.325 billion 8
- 9. Calculation of Cost of debt • Cost of debt (before tax) = Corporate Bond rate of company’s bond rating. • Current cost of Debt as of June 2, 2014 = 2.4% • 2014 Apple has averaged tax rate of 26.22% • Cost of Debt (After Tax) = (Cost of Debt Before Tax) (1 – Tax Rate) • Cost of debt after tax =.024 x (1 – .2622) =1.77% The higher the cost of debt, the higher the risk. 9
- 10. Calculation Cost of Equity or R Equity • Risk Free Rate = U.S. 10-year bond = 2.51% • Average Market Return 1950 – 2014 = 7% • Beta = Apple’s Beta = 0.93 • R Equity =Risk Free Rate + Beta Equity (Average Market Return – Risk Free Rate) =2.51 + 0.93 (7- 2.51) =2.51 + 0.93 x 4.49 =2.51 + 4.18 = 6.69% 10
- 11. Calculation of WACC WACC= (1 – Tax Rate) x R debt (D/D+E) + R equity (E/D+E) = (1 – .2622) x .024 x ($85.810 /$627.325) + .0669 ($541.515 /$627.325) =.7378 x .024 x .1368 + .0669 x .8632 =.0024 + .0577 = 6.01% 11
- 12. Current performance: • #1 World's Most Valuable Brands. • #12 Global 2000. • #11 in Sales. • #3 in Profit . • #114 in Assets . • #1 in Market value . • #55 America's Best Employers . • #79 Innovative Companies . • EPS growth of 20 percent . • Cumulative returns to $94 billion. • Revenue between $63.5 billion and $66.5 billion. • Gross margin between 37.5 percent and 38.5 percent. • Operating expenses between $5.4 billion and $5.5 billion. • Other income/(expense) of $325 million. • Tax rate of 26.5 percent. 12
- 13. QUERIES? ?? 13
- 14. Conclusion Based on the calculations above, we can conclude that Apple pays 6.01% on every dollar that it finances, or 6.01 cents on every dollar. From this calculation, we understand that on every dollar the company spends on an investment, the company must make $.0585 plus the cost of the investment for the investment to be feasible for the company. 14
- 15. THANK YOU!!! 15