Refer to Apple Inc.'s 10-K filed on 11/3/2017 for the period ended 9/30/2017 for the following question.

https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm

Forecast Apple's free cash flows for each of the next five years based on Apple's free cash flow for 9/24/2016 and 9/30/2017. Assume that the changes in operating assets and liabilities is $0 for each of the years in your forecast period (9/30/18 - 9/30/22). Please describe the assumptions that you used in the text field provided below. Note: This problem could have many different correct answers based on the judgement you apply to it.

I am not asking anyone to provide external information. I have already pulled some of this information from the link I was referencing which is the public data that we are pulling from for this exercise. As I am not sure if I am using the correct pieces from the financial statements I simply referenced this link. Here are the pieces from the financials that I pulled for these practice questions. I calculated the growth rate, forecasted sales and forecasted cost of sales. My group mate created the free cash flow and that's where I am getting a bit lost. I understand how to complete the calculations on the top but I am not quite understanding how the free cash flow was set up & how you decide what your assumptions should be. Basically I am asking for some help understanding the process of setting up the free cash flow calculations.

Apple

($millions) 2017 2016

Revenue... $229,234 $215,639

Cost of revenue 141,048 131,376

Selling, general, 15,261 14,194

& administrative

expenses...

Net income... 48,351 45,687

Accounts receivable... -2,093 527

Dividends paid... 12769 12,150

Formula for sales growth rate = (Sales in current year - sales in previous year)/Sales in previous year

(229,234-215,639)/215639 = 6.30%

Forecasted Revenue for 2018 $243,686.10 Forecasted Cost of Revenue for 2018

Forecasted Revenue for 2019 $259,049.33 (2018 forecasted rev * 61.23%)$149,201.91

(2017 Rev, * (1+ avg. sales growth) Forecasted Cost of Revenue for 2019

(2018 Rev, * (1+ avg. sales growth) (2019 forecasted rev * 61.23%) $158,608.37

Formula for cost of revenue rate = cost of rev/sales 2017 2016 2 Year Avg.

61.53% 60.92% 61.23%

Free cash flow for each of the next five years would be:

2018 2019 2020 2021 2022

Net Income $51,268 $54,601 $58,150 $61,699 $65,248

Since Net Income has remained stable at 21% of Revenues

Operating Activities $62,291 $60,880 $ 59,022 $ 61,699 $65,248

Operating activities have contributed a declining scale of 31.5%, 44.1% and 52.2% to Net income, I utilized a decline of 10% per year until 0

Net Income Adjustments to reconcile Changes in operating Investing/ % of Free Cash

net income to cash gener. assets & liabilities Financing Gross Sales Flows

by operating activities

9/24/2016 $45,687 $20,139 -2 $(45,977) -21% $19,849

9/30/2017 $48,351 0 $(46,446) -20% $1,905

9/30/2018 $51,268 $(46,385) -19% $4,883

9/30/2019 $54,601 $(46,801) -18% $7,800

9/30/2020 $58,150 $(47,074) -17% $11,076

9/30/2021 $61,699 $(47,184) -16% $14,514

9/30/2022 $65,248 $(47,111) -15% $18,137