Model Estimation.

Use a spreadsheet and estimate the DCF model for Apple Inc.

Here are some tips.

Pay close attention to the rounding conventions. Use the spreadsheet rounding functions. Note: setting the

format of a cell to "no decimals" is not the same as rounding the number; with the former, the decimals are

still there, but they are not displayed.

Make sure we subtract NNO and the book value of any preferred stock from total enterprise value. In some

cases, NNO is a negative number; this occurs when nonoperating assets such as cash and marketable securi-

ties exceed nonoperating liabilities. By subtracting this negative NNO, the value of equity will be greater

than the enterprise value of the firm.

The stock prices obtained are point estimates derived from a specific set of assumptions. To understand the

impact of each assumption, compute alternative stock prices by varying the assumptions. The point is to de-

termine a range of stock prices that derive from a reasonable set of assumptions. One approach is to increase

and decrease each of the model assumptions by a reasonable amount such as +/ 10%. Use the spreadsheet

functions to perform this sensitivity analysis. Identify which assumptions are most important or impactful.

Determine the company's actual stock price. Compare the per share estimate to the actual stock price and

form an opinion about the relative value. Is the stock over or under-valued according to the model?