Corporate Valuation & Capital Allocation

Question / Objective

Estimate an intrinsic per-share value for Apple Inc. using a discounted cash flow (DCF) model built on the company's own historical financials, then test how sensitive that value is to the discount rate assumed — a core exercise in corporate valuation and capital allocation coursework.

Course-Concept Connection

• Intermediate Corporate Finance
• FIN 3023 — Intermediate Corporate Finance
• FIN 4123 — Security Analysis & Corporate Valuation II
• Financial Modeling

Data Sources

• SEC EDGAR — Apple Inc. 10-K filings, XBRL company facts (revenue, operating cash flow, capital expenditures, net income, debt, cash) — as of FY2021–FY2025 10-Ks, filed through Oct 31, 2025
• stockanalysis.com — AAPL key statistics (current price, beta, market cap — not 10-K data) — as of Sep 15, 2026
• FRED — 10-Year Treasury Constant Maturity Rate (risk-free rate proxy) — as of Sep 14, 2026

Methodology

1. 1.Pulled Apple's fiscal-year revenue, free cash flow (operating cash flow less capital expenditures), total debt, and cash & marketable securities for FY2021–FY2025 directly from SEC EDGAR's XBRL company-facts API (the same figures underlying AAPL's 10-K filings), plus current price/beta/shares outstanding from market data.
2. 2.Built a five-year explicit free cash flow forecast off the FY2025 base, using a declining growth assumption (7.0% tapering to 4.0%) that reflects a maturing growth profile.
3. 3.Calculated a WACC using CAPM for the cost of equity (10-year Treasury as the risk-free rate, AAPL's 5-year beta, and a standard 5.0% equity risk premium) and an assumed after-tax cost of debt, weighted by AAPL's actual capital structure (market cap vs. total debt).
4. 4.Applied the Gordon Growth Model to estimate a terminal value at the end of Year 5, using a 3.0% long-run terminal growth rate.
5. 5.Discounted the explicit-period cash flows and the terminal value back to present value, summed them for enterprise value, then bridged to equity value and per-share value.
6. 6.Re-ran the model at three WACC scenarios (9.3%, 10.3%, 11.3%) to test sensitivity, holding the terminal growth rate constant.

Assumptions

• Equity risk premium assumed at a standard 5.0% (a common textbook/practitioner convention, not company-specific data).
• Pre-tax cost of debt assumed at 4.0%, taxed at a 21% statutory federal rate, given AAPL's investment-grade credit profile.
• FCF growth assumption (7.0% declining to 4.0% over 5 years, 3.0% terminal) is a modeling judgment, not a company guidance figure or analyst consensus estimate.
• Per-share values use AAPL's most recently reported shares outstanding (~14.59B) rather than a fully diluted or forward-adjusted count.

Analysis

Key Findings

• At the base-case 10.3% WACC and 3.0% terminal growth rate, the model implies an intrinsic value of roughly $103.58/share — well below AAPL's actual trading price of $331.34 (as of Sep 15, 2026).
• The gap is highly sensitive to WACC: dropping the discount rate to 9.3% raises the implied value to about $120.81/share, while raising it to 11.3% lowers it to about $90.52/share — a ~33% swing from a 2-point change in WACC, which illustrates how much terminal-value assumptions dominate DCF outcomes for mature, cash-generative companies.
• The model's conservative growth and terminal-value assumptions contribute to the gap versus the market price. The market may also be pricing in factors that a simplified free-cash-flow DCF does not fully capture (buyback-driven per-share value growth, brand/ecosystem value, services-segment margin expansion) — this model does not attempt to determine AAPL's "correct" market value.
• Operating margin has trended upward across the five-year window (29.8% in FY2021 to 32.0% in FY2025), suggesting the underlying growth assumption could reasonably be more optimistic than the conservative case used here.

Limitations

• • This is a simplified single-stage DCF built for educational purposes — it does not incorporate segment-level modeling, buyback effects on future share count, or analyst consensus estimates.
• • Revenue, cash flow, debt, and cash figures are pulled directly from SEC EDGAR's XBRL data (sourced from AAPL's own 10-K filings); current stock price, beta, and market cap are market data (not 10-K figures) and will move daily from the stated as-of date.
• • The equity risk premium and cost of debt are standard modeling assumptions, not AAPL-specific sourced data points.
• • This analysis is not investment advice and should not be used as the basis for any investment decision.