A Bite of the Apple: Apple Inc. (Medium) Apple Inc., under the leadership of Steve Jobs, has been a huge success over the past few years, with new products such as iPhone and iPad received enthusiastically by consumers. The firm's stock price increased from $91 at the beginning of 2009 to $350 by midyear 2011. The income statement and balance sheet for the first quaiter of 201 1 are shown below. The firm has a statutory tax rate of37 percent.

a. Reformulate the statements for the 2011 fiscal quarter in a way that shows how Apple adds value through its business. The long-term marketable securities are debt securities. "Other income and expenses" on the income statement is largely income on financial assets.

b. You will observe that Apple holds a large amount of "cash" on its balance sheet, invested largely in government and corporate bonds and commercial paper. It earned an average of only 0. 75 percent (on an annual basis, before tax) on this cash during the quarter. With the free cash flow for the full 1 fiscal year ending September 2011 projected to be $14.6 billion, the figure could become much higher. Apple pays no dividends. What could be Apple's thinking in holding so much cash?

c. Why does Apple have no financing debt?

d. You will notice in your reformulation that Apple has negative net operating assets. What do you infer from this? Calculate residual income from operations for the quarter (using a rough guess of the required return) to provide some insights.