Buiness Finance Assignment

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MMM041 Business Finance

Assignment 2012/13

|Module Convenor | Dr Jessica Yang | |Group Members |Zhengyu Lu 21001941 | | | |Chenyu Wu 21028178 | | | | | | |Submission Date | 25th January 2013 | |Words Count | 1999 |

Apple’s Payout Policy

Table of Content

1. Executive Summary-------------------------------------------------------3

2. Introduction-------------------------------------------------------4

3. Apple’s previous payout policy and financial strategy ------------------5

4. Apple’s current payout policy--------------------------------------------5

5. Comparisons against the competition and industry-----------------------6

6. Influence of the policy change--------------------------------------------7

7. Recommendation and views of institutional investors and financial analysis --------------------------------------------8

8. Conclusion------------------------------------------------------8 References ----------------------------------------------------- 10

Apple’s Payout Policy

1. Executive summary

This report is to analysis the change in Apple’s payout policy and, base on theories and comparisons, to indentify whether the new policy is good for the investors. Recommendations will be given at last for helping the investors understand the current situation better.

Previously, Jobs ran Apple by keeping investing and not paying dividends - Cash of the company was accumulated rapidly. Nowadays, Tim Cook ran Apple differently by initiating dividends and share repurchase policy - The leadership as well as the policy changed - Investors might become worried.

Through applying Modigliani & Miller (MM) theory, Job’s value-focused operating created Apple’s huge wealth accumulation in hand for the company, thereby increasing the interests of shareholders. Cook’s investor-focused way added dividends (profits) to the shareholders and, moreover, provided opportunities of withdrawing investment - shares buyback program. Moreover, Apple was compared with its competitor Microsoft, and with the Cisco. The new policy is demonstrated to be common and even better. Therefore, investors should not be negative.

Besides, most investors and financial analysts considered the new policy a beneficial one - It added extra focuses and profits to investors. Therefore, from the investors’ perspective, the new policy is well-recommended to be pursued.

2.0Introduction

Since 1995, Apple never paid a dividend and just kept cash in hand for investment. On March 19, 2012, Apple declared to initiate their quarterly dividends ($2.65/share) in fourth quarter of the fiscal 2012. Moreover, the board had approved a $10 billion share repurchase program. The payout policy and the buyback program would account for a total distribution of $45 billion to the shareholders and will be executed over three years. (Apple Inc. 2012)

[pic]
(Figure 1: Apple’ Dividend History)
(Source from: Apple Inc. 2012)

[pic]
(Figure 2: Apple’s Share Price)
(Source from: Yahoo Finance 2012)

By the end of September, 2012, cash held by Apple reached approximately $120. Before iPhone 5 on sale, Apple’s share price once hit a new high of $705. At that time, the shares outstanding were 9 billion. Based on a $2.65 share...
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