Company Capital Structure and Valuation for Apple, Inc.

Company Capital Structure and Valuation-Apple, Inc.
Student’s Name
Institutional Affiliation
Course
Instructor
Date
Company Capital Structure and Valuation-Apple, Inc.
Introduction
In our Milestone 1, the discussion concluded on the overview of Apple, Inc., its market, customer base, and key inputs, & their sources, in addition to its market trends, and analyzed its financial history through some of the key ratios presented in the Financial History tab of our excel spreadsheet. This discussion, being the final Milestone of Project 1, will evaluate the capital structure by highlighting the company’s debt, equity, and its total capital, articulating its dividend policy, analyzing the relationship between capital structure, cost of capital, and risk, and explaining how this relationship can be used in decision making and corporate value maximization. Further, it will value the company by calculating the current market value of its equity, forecasting its cash flows, and calculating its EVA, NPV, IRR, and MIRR.
3(A). Overall Capital Structure
The company’s capital structure is composed of;
* Debts in form of; i) A commercial paper of $6 billion, ii) A short-term debt of $9.613 billion, and long-term debt of $109.106 billion, totaling $118.719 billion, and iii) Finance or capital leases in form of Right-of-use assets of $861 million, other lease liabilities of $79 million and $769 million, all totaling to $1.709 billion.
* Equity that is made up of $57.365 billion common stock at par value, retained earnings of $5.562 billion, and other comprehensive income of $163 million, all totaling $63.09 billion.
3(B). Dividend Policy
The company’s dividend declarations in the future are a prerogative of the Board of Directors. It expects to continue paying dividends at the existing rate and even increase this rate. The company increased its dividend per quarter from $0.205 to $0.22 in May 2021 (Form 10-K, 2021). The company utilizes a part of its retained earnings balances to pay for the benefit plans and repurchases of common stock.
The benefit plan is paid for under the equity awards that saw $4.1 billion worth of common stock purchased for the current fiscal year. Common stock of $85.5 billion was repurchased for the fiscal year ended September 25, 2021. The balance of the retained earnings as at year end is reinvested into the business. Failure to adhere to this dividend policy, there would be a significant fall in its stock price and negatively impact the confidence of investors.
3(C) Relationship
The capital structure includes the items of the company’s debts and equity. In the case of this company, the debt capital comprises the three items namely; commercial paper, term debt, and leases, which make up to 66.7% of the capital structure, as per the attached spreadsheet. The equity items are the common stock, retained earnings, and other comprehensive income, which make up to 33.3% of the capital structure, as per the attached spreadsheet.
The cost of debt capital is 0.1%, 2.2%, and 2.5% for commercial paper, term debt, and leases, respectively. The cost of equity capital is 7% for each equity item of common stock, retained earnings, and other comprehensive...