Question

Please solve in Excel and show your work. Thank you.

Calculate the value of Apples’ stocks given These following inputs are 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. 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.
3. Do you think Apple’s P/E multiple is justified?

Answer 1

Based on the given data, pls find below the tables:

A) Table 1: with the assumption of 5% growth for next four years (year on year) and 3.5% growth for perpetual period;

Table 2: With the assumption of 10% growth for next four years (uear on year) and 3.5% growth for perpetual period;

Assumption: Since no data on dividend payout etc is provided, have considered the FCF of Year 1 as the base of computation of EPS and further for calculating the P/E multiple;

P/E = Value (Price) per share / EPS;

EPS = FCF / No.of Shares; (Ideally, it should be the net earnings instead of FCF; WIth no other data, it is assumed as same);

B) In case 1, the P/E multiple is 25.7 times and in the case 2, the same is at 30.6 times. Such higher P/E multiple means that the buyers have to pay more for than the actual value earned by the company. This reflects that the buyers are more optimistic on the future of the company; While in this case, it is assumed that the company FCFs grow at 10% for next five years and further at 3.5% perpetual, the valuations show an increase in the P/E multiple as the growth rate is higher than the base case;