Skip to main content

Apple DCF

 The most difficult part of this valuation was calculating the WACC. WACC equals Cost of debt * Weight of debt ( debt / debt + equity) * (1- effective tax rate) + Cost of equity* Weight of equity. Cost of debt is defined as the interest expenses of that year divided by total debt of that year.

Cost of equity is defined using the Capital asset pricing model CAPM), where CAPM = risk free-rate + company's beta(expected market risk - risk free rate). Using values from the 10-K and the yahoo! finance page of Apple, I came up with an estimated value of 11%. 

To calculate the Discount factor, you have to divide 1 by 1+WACC to the power of the corresponding future year (in my model 2021 equals year 1). The terminal value/ continuing value is calculated with the following formula: Last FCF value * (1+ perpetual growth rate)/(WACC- perpetual growth rate). The Enterprise value is the sum of the PV of Cash flows & the PV of the Continuing value. Following the few remaining steps, I ended up with a Fair value of equity of around $55, which stands in strong contrast too Apple's current stock price of $131.97. Even though, I felt like I have followed the right steps, there is a good possibility  have done something wrong along the way of my calculations. I will continue my research by looking at other examples of Apple DCFs in order to see what went wrong. 



Comments

Post a Comment

Popular posts from this blog

Going Private Again Is The New Trend On The Menu

With the start of the year, a growing number of newly public companies are changing course and going back to being private again. 10 companies that went public in the boom years of 2020 and 2021 have decided to sell themselves to private equity firms. As the US economy headed towards a downward trend in its economic cycle, a majority of the 2020-2021 class of initial public offerings have had a dismal performance, resulting in the decision to go private once again. Grill maker  Weber  agreed to be bought out by BDP Capital Partners in December of last year  for $8.05 a share, well below its $14 IPO price less than 18 months earlier.  Sumo Logic  Inc. agreed in February  to be bought by private-equity firm  Francisco Partners for $12.05 a share, down from the data-analytics software company’s $22 IPO price. However, not all companies are selling at a loss. KnowBe4 Inc. in October agreed to go private again in a deal with Vista Equity Partners, t...
Post a Comment
Read more

The Extra Strong Dollar: What that means for MNCs

 On July 12th, something unprecedented happened. The Euro reached parity with the US Dollar, meaning that 1 Euro is now worth 1 Dollar. For the 20 or so years the Euro has been around, it has never reached parity with the Dollar, but now that has changed. One reason why this has occurred is because the Federal Reserve has been steadily increasing interest rates in the US in order to combat inflation, while Europe has remained inactive in comparison. Another issue is that the ongoing Russian invasion of Ukraine has caused mass capital investment flight out of European markets & into American ones, increasing demand for Dollars and pushing up its value, thus making it stronger relative to the Euro. This stronger dollar has its advantages and disadvantages. A key disadvantage for multinational companies is that big currency fluctuations can have a significant impact on profitability. American companies with large international footholds will take a hit from converting their foreig...
1 comment
Read more

Is Britain doomed?

With reelections in the UK coming up and moderately high inflation still being hard to combat over the world, it’s a good a time as any to do a deep-dive and evaluate the British economy and stock market. Brexit has had undeniable effect on the UK economy as well, Goldman Sachs says that "the UK has significantly underperformed other advanced economies since the 2016 Brexit referendum, with lower growth and higher inflation". Their analysis shows that the British economy is 5% smaller than it would have been had it remained in Europe. Moreover, UK debt spending has been increasing at a concerning rate year over year. The IMF listed the UK in its Fiscal Monitor publication last week as one of four large economies that “critically need to take policy action to address fundamental imbalances between spending and revenues”. They project UK debt to hit 98 % of GDP by the end of the decade - which would still leave the country below the US, Italy and France,...
Post a Comment
Read more