Refer to the Apple Inc., consolidated financial statements in Appendix A and online in the filings section of www.sec.gov.

Requirements

1. Apple Inc.'s consolidated statements of operations do not mention income from continuing operations. Why not? Focus your attention on the company's Consolidated Statements of Operations for the three years ended September 27, 2014, as well as the footnotes to financial statements and other materials. What clues do you find that help you evaluate the quality of Apple Inc.'s earnings?

2. Assume the role of an investor. Suppose you are determining the price to pay for a share of Apple Inc. stock. Assume you are considering three investment capitalization rates that depend on the risk of an investment in Apple Inc.: 5%, 6%, and 7%. Compute your estimated value of a share of Apple Inc., stock, using each of the three capitalization rates. For the sake of simplicity for this activity, use net income for the fiscal year ending September 27, 2014 as the estimated annual income in the future. Which estimated value would you base your investment strategy on if you rate Apple Inc. risky? If you consider Apple Inc. a safe investment?

3. Go to Apple Inc.'s website and compare your computed estimates to its actual stock price. Which of your prices is most realistic?