The final assessment is worth 55% of your final mark and is 2000 words (plus or minus 10%). The...

Question

The final assessment is worth 55% of your final mark and is 2000 words (plus or minus 10%). The assessment consists of a written report and an oral presentation. Ensure you read the following brief and instructions thoroughly.

Part A - Written report

The purpose of this assignment is to evaluate the dividend and payout policy (plus related issues) associated with one of the most prominent companies nowadays: Apple. As a start, please read the following articles available through the links below:

Melloy, J 2017 ‘Apple now pays the biggest dividend in the world, surpassing Exxon’s payout’,CNBC Markets, May 2, viewed 10 October 2018,https://www.cnbc.com/2017/05/02/apple-now-pays-the-biggest-dividend-in-the-world-surpassing-exxon.html
Heath, T 2018, ‘How rich is Apple? Its recent stock buyback is more valuable than 275 companies on the S&P 500’Washington Post, May 3, viewed 10 October 2018,https://www.washingtonpost.com/news/get-there/wp/2018/05/03/how-rich-is-apple-its-recent-stock-buyback-is-more-valuable-than-275-companies-in-the-sp-500/?noredirect=on&utm_term=.8887b980f3e1

Based on the articles above and the theories/concept explained in Topic 6 (“Payout policy”, Chapter 16 of the textbook), address the following questions:

a) How the increase in dividends paid by Apple since 2012 can be interpreted? Explain the potential risks the company might face when deciding to increase dividends.

b) Which are the factors behind Apple’s decision to choose for a specific payout policy (i.e., dividends vs share repurchases)? Elaborate on the implications of both in terms of the informational content/prospects related to Apple’s future outlook.

c) From an investor point of view, would you prefer Apple to buy back its shares or else pay dividends? Explain your reasoning.

d) Using the model set out in page 418 of the textbook (“Stock Repurchases and DCF models of share price”), calculate the theoretical price of Apple’s share price. Would you recommend buying the stock?

Part B - Oral Presentation

The goal of the oral presentation is to provide a venue on which knowledge of the practical application of concepts and theories learned in ‘Corporate Finance’ can be demonstrated. For this purpose, please choose one article among those the ones listed on the assessment page in the student learning portal, based on which a 5 minutes presentation will be made.

The articles to choose from are as follows:

Blake, M, Vanham, P & Hughes, D 2016, ‘5 things you need to know about fintech’,World Economic Forum, 20 April, viewed 10 October 2018,https://www.weforum.org/agenda/2016/04/5-things-you-need-to-know-about-fintech/(weblink only)
Bullock, N 2017, ‘Global number of IPOs highest since financial crisis on back of US and China deals’,Financial Times, 28 December, viewed 10 October 2018,https://www.ft.com/content/ae9e6500-e69b-11e7-8b99-0191e45377ec
Collins, J 2016, ‘Why Apple should pay a special dividend to reward shareholders and ease its cash glut’,Forbes,Feb 26, viewed 10 October 2018,https://www.forbes.com/sites/greatspeculations/2016/02/26/why-apple-should-pay-a-special-dividend-to-reward-shareholders-and-ease-its-cash-glut/#5414c440490e(Weblink only)
Gallo, A 2014, ‘A refresher on net present value’,Harvard Business Review, November 19, viewed 10 October 2018,https://hbr.org/2014/11/a-refresher-on-net-present-value

Jacobs, MT & Shivdasani, A 2012 ‘Do you know your cost of capital?’,Harvard Business Review, July–August, pp.118–124

Kosur, J 2015, ‘9 skills CFOs will need to be successful in the future’,Business Insider, September 10, viewed 10 October 2018,https://www.businessinsider.com.au/skills-cfos-need-to-succeed-in-the-future-2015-9?r=US&IR=T- (weblink only)
Pearson, T 2014, ‘Alibaba valuation calculator’,Financial Times,28 August, viewed 10 October 2018,http://ig-legacy.ft.com/content/62c5c28e-2df0-11e4-b330-00144feabdc0(weblink only)
‘Shell to pay its dividend in cash in latest sign of health for big oil’,The Wall Street Journal, 28 Nov 2017, viewed 10 October 2018,https://www.wsj.com/articles/shell-shores-up-its-dividend XXXXXXXXXX
Schoenberger, CR 2017 ‘Investing in funds: Venture investing: Why those startup valuations might be way off’,The Wall Street Journal,Oct 9, viewed 10 October 2018,https://www.wsj.com/articles/why-those-startup-valuations-might-be-way-off XXXXXXXXXX
‘Secrets and agents – information asymmetry’,The Economist, Volume 420, Issue 8999 June XXXXXXXXXX, pp. 55–56, viewed 10 October 2018,https://www.economist.com/economics-brief/2016/07/23/secrets-and-agents
Smith, T 2015, ‘What exactly do we mean by ‘shareholder value?’,Financial Times,10 January, viewed 10 October 2018,https://www.ft.com/content/463abec2-9721-11e4-845a-00144feabdc0
‘The discount rate illusion’,The Economist,May XXXXXXXXXX, viewed 10 October 2018,https://www.economist.com/buttonwoods-notebook/2013/05/23/the-discount-rate-illusion
‘The market isn’t going to save you from saving too little’,The Wall Street Journal,July XXXXXXXXXX, viewed 10 October 2018,https://www.wsj.com/articles/the-market-isnt-going-to-save-you-from-saving-too-little XXXXXXXXXX
Wessel, M 2014, ‘What net present value can’t tell you’,Harvard Business Review,November 20, viewed 10 October 2018,https://hbr.org/2014/11/what-net-present-value-cant-tell-you
‘Why doing a cost-benefit analysis is harder than it looks’,The EconomistApr XXXXXXXXXX, viewed 10 October 2018,https://www.economist.com/the-economist-explains/2014/04/23/why-doing-a-cost-benefit-analysis-is-harder-than-it-looks
Whitehouse, T 2016, ‘The pros and cons of stock buybacks’,The Wall Street Journal, September, pp. 43–45, viewed 10 October 2018,https://www.wsj.com/articles/SB100014240529702038249 XXXXXXXXXX

In your presentation, please consider the following:

Briefly explain the article being discussed, pointing out three relevant issues that you regard as the most important ones to discuss
Explain the three issues above, and relate them to the relevant theories and concepts covered in the subject;
Explain the significance of the issues you have raised from a practical point of view, and whether the corporate finance theories allow them to be addressed in a way that you think is reasonable (explain your argument in case of either a yes or no answer to this question).

Payal · Accepted Answer

Apple Dividend Analysis
Table of Contents
Introduction 	3
What is Dividend ?	4
Factors That Affect Dividend policy 	5
Different Types of Dividend policy	6
Different theories of dividend	7
About the company 	8
Dividend analysis of Apple inc	9
Introduction
The purpose of this assignment is to evaluate the dividend and pay-out policy (plus related issues) associated with one of the most prominent companies - Apple. The primary goal of this project is to conduct a thorough dividend analysis of Apple. 
Apple Inc. is an American technology company that is headquartered in Cupertino, California. Apple designs, creates and sells consumer hardware electronics, computer software, and online services
It is prudent fact that dividends matter significantly. Company’s which perform well produce good profits, but investors benefit not from the profits shown on paper, but by receiving actual benefits from the stock; which come in the form of dividends & capital gains. Thus, dividend analysis of any company is very important. In this report, we would be first discussing about basics of dividend, dividend policies & dividend theories and then doing a thorough analysis of Apple’ Dividend history & dividend policy. 
What is Dividend?
Dividend is the sum of money distributed by the company to its shareholders out of its profits on a regular basis (generally annually). There are several ways in which company distributes its profits with its shareholders, which are as follows: - 
· Regular Cash Dividends: - Periodic dividend payments made in cash are known as regular cash dividends. Generally, companies strive for stability in their regular dividends—increasing them slowly and refraining from any reductions. Stable or increasing dividends paid regularly are perceived as a sign of consistent (and growing) profitability.
· Special(irregular) Dividends: - Extra or special (irregular) dividends: A cash dividend supplementing regular dividends, or a dividend of a company that normally does not pay dividends, is known as a special dividend. Extra dividends may be paid if the company had an especially profitable year but does not want to commit to a higher ongoing regular dividend payment
· Liquidating Dividends: - This is paid by a company when the whole firm or part of the firm is sold, or when dividends in excess of cumulative retained earnings are paid (resulting in a reduction of stated capital).
· Stock Dividends: - A non-cash dividend paid in the form of additional shares is known as a stock dividend. After payment of a stock dividend, shareholders have more shares and the cost per share will be lower (while the total cost basis remains the same).
· Stock Splits: - These are similar to stock dividends (non-cash) but generally larger in size. A two-for-one stock split is the same as a 100% stock dividend.
Factors That Affect Dividend Policy in practice 
· Investment opportunities: - Availability of positive NPV investment Opportunities and the speed with which the firm must react to the opportunities determines the amount of cash the firm must keep on hand. If the firm faces many profitable investment opportunities and has to react quickly to capitalize on the opportunities (it does not have time to raise external capital), dividend pay-out would be low.
· Expected volatility of future earnings: - Firms tie their target pay-out ratio to long-run sustainable earnings and are reluctant to increase dividends unless reversal is not expected in the near future. Hence, when earnings are volatile, firms are more cautious in changing dividend pay-out.
· Financial flexibility: - Firms with excess cash and a desire to maintain financial flexibility may resort to stock repurchases instead of dividends as a way to pay out excess cash. Financial flexibility is especially important during times of crisis when liquidity dries up and credit may be hard to obtain
· Tax considerations. Investors are concerned about after-tax returns.

The final assessment is worth 55% of your final mark and is 2000 words (plus or minus 10%). The assessment consists of a written report and an oral presentation. Ensure you read the following brief...

Part A - Written report

Part B - Oral Presentation

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