1. Apple has $100 billion in cash that earns 2% risklessly after taxes
2. Apple has 1 billion shares outstanding that trade at a multiple of 10x expected net income
3. There are two possible states of the world with respect to Apple's performance: a good state (95% probability) and a bad state (5% probability).
4. In the good state, Apple's after-tax net income will be $42 billion, consisting of $40 billion of net income from operations and $2 billion in earnings on cash
5. In the bad state, Apple will earn nothing on operations but will still earn $2 billion on its cash

QUESTION 1: Under the assumptions listed above, what is Apple's expected net income? What is the

implied total market value of its equity? What is its stock price per share?

QUESTION 2: Suppose now that Apple gives each common shareholder one iPref share paying a dividend of $2 per iPref share (this would be a free distribution and would not entail any payment by existing shareholders for iPref shares). The iPrefs have priority over common shares in future dividends, bankruptcy, or liquidation. Under the assumptions given above, whatwould be Apple's total dividend obligation to the iPrefs? How risky would the iPrefs be?

QUESTION 3: What impact will issuing one iPref share per common share have on Apple's earnings per share of common stock? In a perfect market, what would Apple's stock price be after the iPref distribution? What would happen to its P-E multiple?