a. Apple has initiated I-phone 7 recently. Investors eager to figure out the fair market value of Apple Inc. Suppose you want to estimate firm value of Apple so as to answer an inquiry from a mysterious client who asked your institution to evaluate the possibility of acquiring Apple.

To help your firm valuation, your institution provides the following information:

Financial statement (Annual Income statements and Balance sheets) information of Apple Inc. from Google Finance https://www.google.com/finance?q=NASDAQ%3AAAPL&fstype=ii&authuser=1&ei=ftp5Ufi9CIK2lgP_6wE

Forecasts for Apples sales growth rate in next 5 years, the same as the average sales growth rate during 2013 to 2016 period;

Apples cost of capital, 12.7%.

In addition, this investor has never held an investment for more than five years. For the exiting price, you can use Amazon Inc as a benchmark company. You can find Amazons information from Yahoo Finance, http://finance.yahoo.com/q/ks?s=AMZN+Key+Statistics

Based on the information given, you need to estimate firm value of Apple, and ideally, tell your client the fair stock price of Apple (price per share).

b. Based on firm valuation, you believe the acquirer has to pay at least 15% premium. Please design a strategy to convince your client to acquire Apple Inc. This client always uses debt to lever its investment return. The required rate of return for this client is at least 18%. It can borrow a five-year loan at 4% interest rate. The lender requires a series of principal payments: 5% in year one and year two, 7% in year three, 10% in year four, and the rest principal pay-off in year five. You need to work on the spreadsheet and show your client that based on capital budgeting criteria this investment can meet the clients requirement if the client applies the strategy you recommend.