Financial Policy at Apple, 2013 (A)

Instructions and Questions

Reports must be delivered electronically to gaspar@essec.edu in Word, PowerPoint, or PDF

format. Please name your files as Group#_<Name> where # stands for your group number
and <Name> is the name of the case. For example if you are delivering a .pdf file from group
5 and the report concerns the ACME case, name your file Group5_ACME.pdf. The date and
hour of delivery for each case is given in the course schedule and late filing is not accepted.
Originality of thinking and clear, professional reports will be rewarded. The first page of the
report should be an executive summary of the analysis and the recommendations proposed by
the students. The remainder of the text should be no more than 6 pages long in Word format
or 8 PowerPoint slides. Tables, figures, graphs etc. that support the analysis can be added
without limit. Each case will be discussed on the class their delivery is due. WARNING:
copying and/or plagiarism from any source without acknowledgement are not tolerated
and are penalized severely.

Questions:

1. From the beginning of 2000 until its peak in 2012, Apple’s stock price rose from $27.97 to
$702.10, an increase of over 25 times. What specific attributes of their operational
performance account for this stock performance?

2. Apple’s stock price decreased by 37% from its peak in September 2012 until the end of March
2013, from $702.10 to $442.66. Again, what specific attributes of their operational
performance account for this stock performance?

3. Why does Apple hold so much cash? How much “excess cash” do they have? How much cash
would they have after five years if they distributed all of their excess cash to shareholders in
2012? Use Exhibit 10 to forecast Apple’s financial status over the next five years.

4. If Apple chose instead to commit to an annual dividend from 2012-2017, how much do you
think they could afford to distribute each year?

5. Quantitatively compare the results of a share repurchase, dividend, and iPref issuance. Assume
that Apple will use all excess cash for share repurchases, dividends, and in the case of iPref,
will issue five per share. For the iPref analysis, assume a constant P/E ratio of 10x as Einhorn
did. How does this assumption impact the analysis?

6. What should Cook and Oppenheimer do?