Directions

Assume Apple has the following projected free cash flows for the next 5 years:

Dec 2021: $73b

Dec 2022: $72b

Dec 2023: $73.5b

Dec 2024: $75b

Dec 2025: $77b

After 2025, Apple projects a steady 3% growth rate.

Use a cost of capital of 8.5%

Assume debt is $150b and total cash including marketable securities is $215b.

(it is now 1 Jan 2021).

Now Complete The Following

Calculate Apple's horizontal value

Calculate Apple's current intrinsic value

Is Apple currently over or undervalued? (compare to its current market price)

Does Apple pay a dividend? If so, use the dividend discount model to calculate Apple's current intrinsic value (use the 10k annual report)

In the current economic environment, discuss the difficulty involved with predicting future cash flows (growth rate) and in estimating the discount rate(cost of capital) that can affect your valuation model.