I did the Apple Company and used the following http://investor.apple.com/secfili

Question

I did the Apple Company and used the following

http://investor.apple.com/secfiling.cfm?filingID=1628280-16-20309&CIK=320193

I found the Form 10-K of Apple Inc. for the fiscal year ended September 24, 2016.

Once again, your team is the key financial management team for your company. The company’s CEO is now looking to expand its operations by investing in new property, plant, and equipment. Your team recently calculated the WACC for your company, which will now be useful in evaluating the project’s effectiveness. You are now asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets.

The parameters for this project are:

Your team will be using the same company for this project that you used in the Week 6 project. The company is now looking to expand its operations and wants you to do some analysis using key capital budgeting tools to do this. The parameters for this project are as follows.

The firm is looking to expand its operations by 10% of the firm’s net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm’s balance sheet.)

The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment’s cost.

The annual EBIT for this new project will be 18% of the project’s cost.

The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use the same marginal tax rate that you used in the Week 6 project.

The hurdle rate for this project will be the WACC that you calculated in Week 6.

Deliverable for this Project

Prepare a narrated PowerPoint presentation using VoiceThread or Webex that will highlight the following items.

Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project

Your calculations that convert the project’s EBIT to free cash flow for the 12 years of the project.

The following capital budgeting results for the project

Net present value

Internal rate of return

Discounted payback period.

Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project

Explanation / Answer

DEAR STUDENT,    LETS TAKE THE BASIC INFORMATION FROM THE GIVEN QUESTION PARTICULARS $ IN MILLIONS PROPERTY , PLANT AND EQUIPMENT AS ON 24-09-2016 = 27010 OUR INVESTMENT FOR EXPANSION = 10% OF ABOVE = 2701 LIFE OF PROJECT = 12 YEARS SALVAGE VALUE= 135.05 DEPRECIAITON PER YEAR UNER SLM METHOD = 213.83 EBIT PER YEAR 4861.8 SINCE EXPECTED RETURN IS NOT GIVEN IN THE PROBLEM LETS ASSUME EXPECTED RETURN = 10% LETS ASSUME TAX RATE = 50% COMPUTATION OF NPV= STEP1: INTIAL CASH OUT FLOWS INVESTMENT AMOUNT 2701 STEP2; PV CASH IN FLOWS PARTICULARS AMOUNT EBIT 4861.8 LESS: DEPRECIATION 213.83 EBT 4647.97 TAX @50% 2323.985 EAT 2323.985 ADD: DEP 213.83 CFAT 2537.815 PVAF 10%,12 YEARS 6.814 PV OF CASH INFLOWS 17292.67 STEP3 PV OF SALVAGE VALUYE SALVAGE VALUE 135.05 PVF 10%,12 YEARS 0.319 PV OF SALVAGE VALUE 43.08095 STEP4: NPV= STEP2+STEP3-STEP1 14634.75

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