Question

1. Calculate the calculate the value of Apples’ stocks given These following inputs from Yahoo finance to see how close the model will match the current mkt price. These are 2019 figures:

FCF’s = 60 billion             growth= 5%               wacc = 7.5%         Treasury securities = 51 billion  

  debt = 92 billion            #shares= 4.6 billion

Assume the growth rate listed is for the first 4 years and then FCF’s will grow at 3.5% thereafter. (HV)

2. Calculate the P/E ratio by showing the inputs.
3. In the context of the FCF model and discounted CF analysis what should happen to the value of operations if Apple’s FCF is anticipated to grow by an additional 5% more than expectations.
4. Do you think Apple’s P/E multiple is justified?

Answer 1

Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Terminal Value
FCF (in Bn)	60.0	63.0	66.2	69.5	72.9	1,887.1	(72.9*1.035/(1.075-1.035)
Discount rate (@ 7.5%)	1.000	0.930	0.865	0.805	0.749	0.749
Present Value		58.6	57.2	55.9	54.6	1,413.0
Equity Value ($ Bn)	1,639.4
Number of shares (in Bn)	4.6
Equity Share Price	356
EPS (2019 taken from Yahoo finance)	12
A) PE ratio	30
If FCF increases by additional 5% (In absence of information, extra 5 % is assumed in Y-1 only)
Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Terminal Value
FCF (in Bn)	60.0	66.2	69.5	72.9	76.6	1,981.4	(76.6*1.035/(1.075-1.035)
Discount rate (@ 7.5%)	1.000	0.930	0.865	0.805	0.749	0.749
Present Value		61.5	60.1	58.7	57.3	1,483.7
Equity Value ($ Bn)	1,721.4
Number of shares (in Bn)	4.6
Equity Share Price	374
Current Market Price	308
Expected Earnings (from yahoo finance)	13
PE Ratio	24
c) Based on our analysis of PE of 30, this seems a good buy at 24 EPS, However COVID 19 impact on valuation is not considered.

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