Importantdisclosuresappearonthelastpageofthisreport.

TheHenryFund

HenryB.TippieSchoolofManagementJonKerr[jonathan-kerr@uiowa.edu] AppleInc.(AAPL) November8,2015

ConsumerGoods–ElectronicEquipment StockRating BuyInvestmentThesis TargetPrice $145-$155

Apple has always been known as an innovative company giving customersthe best possible user experience. The company has built a productecosystem integrating their products into all aspects of people lives. TheApplebrandimageallowsthecompanytochargepremiumpricesforeachoftheirproducts.Thepremiumpricescreatehighmarginsandhighprofitsforthecompany. Recentenhancements toexistingproductsandnewproductreleases in new markets will generate continued growth. Increasedinvestment in research and development will drive innovation into thefuture.Apple’sbrandimageandcontinuedinnovationhasApplepositionedwellforfuturesuccess.DriversofThesis• Applehascreatedapremiumbrandimageandproductecosystemthatis

difficultforcompetitorstoduplicate.TheproductecosystemgivesApplea competitive advantage in every market they compete in and willcontinuetodrivecompanygrowthinthefuture.

• The iPhone is positioned as the premium brand of smartphone in amaturebut still growing industry. Continuedgrowth is expecteddrivenbyAsiancountriessuchasChinaandIndiawithrelativelylowsmartphonepenetration.

• ApplehasreleasedtheAppleWatch,whichentersthemintotheboomingwearablesmarket.Thiscouldbeahugerevenuesourceinamarketthatisexpectedtogrow28.1%peryearinto2019.

RiskstoThesis• AppleishighlydependentontheiPhoneproductline,whichconsistently

accountsformorethan50%ofprofits.• Apple competes in competitive and fast-paced industries. If consumers

begin to treat the markets Apple competes is as commodity markets,Applewillhaveadifficulttimechargingpremiumpricesandmaintaininghighmargins.

HenryFundDCF $153.26HenryFundDDM $149.46RelativeP/EMultiple $147.91PriceData CurrentPrice $121.0652wkRange $92.00-$134.54Consensus1yrTarget $148.88KeyStatistics MarketCap(B) $674.9SharesOutstanding(B) 5.58InstitutionalOwnership 60.20%FiveYearBeta 1.09DividendYield 1.84%Est.5yrGrowth 15.34%Price/Earnings(TTM) 12.44Price/Sales(TTM) 2.87Debt/Equity 54.0%Profitability OperatingMargin 30.48%NetProfitMargin 22.85%ReturnonAssets(TTM) 20.84%ReturnonEquity(TTM) 46.25%

EarningsEstimatesYear 2013 2014 2015 2016E 2017E 2018EEPS $5.72 $6.49 $9.28 $9.70 $10.33 $11.02

Growth -10.34% 13.54% 42.95% 4.51% 6.54% 6.68%12MonthPerformance CompanyDescription

Appledesignsandmanufacturersnumerouselectronic devices includingmobile phones,personal computers, watches, portabledigital music players, and other mediadevices, as well as software and services.The cornerstone of the company is theiPhone product line, but other importantproduct lines include the iPad, Mac, andiTunes. The company sells these productsworldwide to individual consumers and intheenterpriseandeducationmarkets.

12.4

46.3

22.917.1

31.2

16.314.2 13.0 5.20

10

20

30

40

50

P/E ROE ProfitMargin

AAPL Industry Sector

-10%

-5%

0%

5%

10%

15%

20%

25%

N D J F M A M J J A S O

AAPL S&P500

Source:YahooFinance

Source:YahooFinance

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EXECUTIVESUMMARY

Apple Inc. is a leader in consumerelectronics, designingand manufacturing mobile phones, tablets, personalcomputers,andotherdevices.Theycontinuetobeattheforefront of innovation in each of the markets theycompete in by investing in strategic research anddevelopment.

Apple has always been known for the superior userexperiencewitheachoftheirproducts.Thecompanyhasbuilt the Apple brand as a top-of-the-line brand andthereforecandemandpremiumpricesfortheirproducts.Applehasbeenabletogenerateconsistentprofitsinfast-paced and evolving industries. This is due to theAppleecosystemthecompanyhascreated.ThecoreproductofApple isthe iPhone. However,consumersgetmoreandmore benefits from other Apple devices and serviceswhenusedalongside the iPhone. The truevalueApplegives consumers is the Apple ecosystem amongst all itsproducts.

The mature but growing smartphone market willcontinue to be Apple’s main source of revenue. TheiPhone isexpectedtoaccountfor66%ofthecompany’stotalrevenuein2015. Duetotheincreasedadoptionofsmartphones, industry wide units sales are expected toincreaseat8.2%4-yearCAGR.(2)Thisincreasedadoptionalong with the company’s new iPhone installment plan,weforecastiPhoneunitsalestogrowata3.5%CAGRinto2020slightlydecreasingtheircurrentglobalmarketshareofapproximately16%.

Apple’s mature products will continue to grow into thefuture but the new products and services such as theAppleWatchandAppleMusicwilldrivethe incrementalrevenue growth for the entire company going forward.The Apple Watch enters the company into theWearable’s market, which is expected to increase at a28.1% 4-year CAGR. AppleMusic gives the company asolution for consumers following the trend of switchingfromdownloadedmusictostreamingmusic.

The iPhone, iPad, and Mac are proven, premiumproducts.TheseproductsarethebaseofApplesrevenuewhichwehavemodeledtoincreaseata3.8%CAGRinto2020. The new products and services, along withconsistent innovation, will drive Apples success in thefutureandtherefore,werecommendabuyrating.

COMPANYDESCRIPTION

Apple,headquartedinCupertino,California,wasfoundedin1976asacomputercompany.WiththereleaseoftheiPodin2001,thecompanybegantotransformitselftoamobile device company, integrating its products intoeveryday life. The company now designs andmanufacturers numerous electronic devices includingmobile phones, personal computers, watches, portabledigitalmusicplayers,andothermediadevices. Throughthe transformation, the company has created anecosystem of innovative products, most notably theiPhone and the iPad. These two products account fornearlythree-fourthsofthecompany’srevenue.

RevenueTypes

Source:Apple201510-K(1)

Apple’s main revenue generator is the iPhone, which isthe company’s line of smartphones that combines aphone,musicplayer,internetdevice,camera,andavoiceactivated intelligentassistant intooneproduct. In2015,iPhone sales were $155.0 billion, which accounted for66.3%ofrevenue.(1)ThenumberofiPhonessoldin2015was231.2millionunits,a36.8%increasefrom2014.Weexpectthenumberofunitstoincreaseata5-yearCAGRof 3.5% to 274.3 million units in 2020. However, dueincreasingpricingpressurefromgrowingcompetition,webelieve Apple will begin to decrease the average pricefrom$671in2015to$630in2020.Whileunitsalesareforecast to grow at a 3.5% CAGR, we forecast iPhonerevenuestoonlygrowat2.2%aCAGRinto2020.

66%10%

11%

9%

4%

FY2015%RevenueperSegment

iPhone

iPad

Mac

iTunes,SogwareandServices

Accessories

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Apple alsohas a lineofmulti-purpose tablets called theiPad. The iPad generated $23.2 billion in 2015, 9.9%ofthe company’s revenue. The iPadwas released in 2010and had seen tremendous growth until 2014when unitshipments dropped from 71 million to 68 million withiPad revenues decreasing 5.3%. Apple is still the globalleader in the tablet market, maintaining the highestmarket share of tablet shipments for all tabletmanufacturers. However,due to the increasingnumberof players in this market, Apple’s market share hasdecreasedfrom61.5%inQ22011to24.5%inQ22015.(3)Noonecompanyhasbeen themaincatalyst forApple’sdecreased market share; it has been numerouscompanies that have chipped away at their marketdominance. We expect revenue from the tablet toreverse the decreasing trend in 2016 and have a slightincreaseinrevenueof2%.Overall,weforecasttheiPadrevenuestoincreaseata5.9%CAGRfrom2015to2020.

Mac is the company’s line of laptop computer anddesktop computers. Mac computers contributed $25.5billiontothecompany’s revenue in2015,10.9%of totalsales.Macsaleshavebeenfairlysteadyforthecompanysince 2008 with revenues and number of units shippedincreasingeachyearexcept in2013. Weexpectsalestoincrease 3% to $26.2 billion in 2016. We expect Macsalestogrowataconstant3%into2020.

Thecompanyalsogeneratesrevenuethroughthesaleofdigitalmediaviaonlinestoresaswellasthroughlicensingand other services. The iTunes, Software and Servicessegmentaccountedfor8.5%ofrevenuein2015.InJuneof 2015, Apple announced that since the launch of theiTunesstore,100billionappshadbeendownloadedfromits App Store and 25 billion songs have been sold iniTunes. The App Store and iTunes will continue tomaintain revenue for the segment. Growth in thissegment will come from new initiatives Apple hasreleasedsuchAppleMusicandApplePay.Weexpect8%growth for this segment in 2016,with a 5-yearCAGRof5.8%into2020.

Apple’s Accessories segment includes the Apple TV, theApple Watch, Beats Audio headphones, and Apple-branded third-party accessories for the iPhone, iPad,Mac,andiPod.Thisproductcategoryaccountedforonly4.3% in 2015. We expect large growth in the segmentwiththereleaseoftheAppleWatchdrivingthemajorityof thegrowth in2016. Applealso recently released thegeneration 4 Apple TV thatwill boost revenues in 2016andbeyond.Weforecast40%growth in thissegment in2016. Weexpect revenues for theAccessories segment

toincreaseata17.4%CAGRinto2020andbecome8.0%oftotalrevenue.

SegmentRevenueGrowth

2015Revenue

2016Revenue

2015%TotalRevenue

2016%TotalRevenue

Rev.GrowthRate

iPhone $155,041 $159,692 66.3% 65.1% 3.0%

iPad $23,227 $23,692 9.9% 9.7% 2.0%

Mac $25,471 $26,235 10.9% 10.7% 3.0%

iTunes,SoftwareandServices $19,909 $21,502 8.5% 8.8% 8.0%

Accessories $10,067 $14,094 4.3% 5.7% 40.0%

TotalRevenue $233,715 $245,214 100.0% 100.0% 4.9%Source:Apple201510-K(1)

GeographicDiversification

Applegenerates revenue through sixdifferentoperatingsegments. The segments are broken down into regionsbasedonthenatureandlocationofitscustomers.

Source:Apple201510-K(1)

The Americas segment is the highest revenue segmentand includes both North and South America. Europeincludes the European countries, India, theMiddle East,andAfrica.GreaterChinaincludesChina,HongKong,andTaiwan. The “Rest of Asia Pacific” includes AsiancountriesandAustralia.

All of the company’s operating segments had increasedrevenues in 2015. The greatest growth came from theGreaterChinaregion. In2015, theGreaterChinaregionhas revenue growth of 84%. In contrast, the Americasonly had growth of 17%. In 2015, China is expected tohaveasmartphonepenetrationamongallmobilephone

40%

25%

22%

7%

6%

FY2015RegionalSales

Americas

GreaterChina

Europe

Japan

RestofAPAC

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users of 45% (excluding Hong Kong), compared topenetrationratesof81%intheUSand80%intheUK.(4)We believe the Greater China segment will continue togeneratealargerpercentageofrevenueforthecompanyas the releaseof the iPhone6,witha larger screen,willcontinuetodrivedemandinthisregion.

SinceApplehas60%ofrevenueinforeignsales,currencyexchangerateshaveamajorimpactoncompanyprofits.Apple CFO LucaMaestri said in the 2014 earnings calls,“We prefer to adjust local pricing at the time of newproduct launches.” So if currency fluctuates after aproduct has been launched, Apple would rather havereduced revenue and margins than reduced unit salesdue to higher prices. Maestri did say the company hascurrency hedges and as their current hedging contractsexpire, the company will entire into new hedgingcontracts at current levels. Maestri also stated thatrevenuegrowth inQ12015wouldhavebeen4%higherhadcurrencynotaffectedresults.(5)

RECENTDEVELOPMENTS

In late2014,Applereleasedtheir largest iPhoneyet,theiPhone6 and iPhone6plus. Thephoneaddedadditionfunctionality to previous models but biggest differencewas the screen size, which increased to 4.7” and 5.5”responding to consumerdemand for larger screens. OnSeptember 9, 2015, Apple had its new product releaseevent. The company released a new iPhone 6s and 6sPlus with some enhanced features but the iPhoneproductlineisalreadyseeingtremendousgrowth.Wedonotexpect thenewphones to significantly increase thatgrowth. Apple also released a 12.9” iPad Pro to targetthe enterprise market. An updated Apple TV wasunveiledasAppleattemptstobecomeanintegralpartofconsumerslivingrooms.

Applehasexpandeditsproductecosystemin2015. Thebiggestmove from the companywas the release of theApple Watch to take advantage of the booming“wearable’s” industry. As well, using their 2014 BeatsAudioacquisition,thecompanyhasstartedcompetinginthestreamingaudiomarketwithAppleMusic.

Q4andFY2015Earnings

On October 27, 2015, Apple announced their mostsuccessfulyeareverwithrevenuegrowing28%tonearly$234 billion. The company had quarterly revenue of$51.5billionandquarterlynetprofitof$11.1billion, anincreaseof21.4%and30.6%fromQ42014,respectively.

Grossmarginincreasedto39.9%inthequartercomparedto 38.0% a year ago. For the quarter, the earnings perdilutedsharewere$1.96,an increaseof38.0%fromthecorresponding quarter a year ago. The growth wasattributedtorecordsalesofiPhoneandMacproducts,aswellasexpandedavailabilityoftheAppleWatch.(6)

Appleisexpecting2016Q1revenuetobebetween$75.5billion and $77.5 billion, a slight increase from 2015Q1revenuesof$74.6billion. Theyexpect tomaintain theircurrent gross margin between 39% and 40% and haveoperating expenses of $6.35 billion. We havemodeled2016 revenue to be $245.2 billion with net income of$52.7billion,growthof4.9%and-1.3%,respectively.Weexpectnetincometodeclineslightlyduetoanincreaseinoperatingexpenses.

AppleWatchShipments

Duringthe3rdquarterof2015,ApplebeganshippingtheAppleWatch.TheAppleWatchwillprovidelargegrowthin revenue in the accessories segment of the company.Aswell,thewatchwillhelpdriverevenuesofotherAppleproducts and help enhance the “Apple ecosystem” ofproducts.TheAppleWatchallowsthecompanytoentera previously untapped and growing “wearables”marketand compete against the Samsung Gear, Pebble Steel,Sony SmartWatch, and others. The number of devicessoldinthesmartwearablemarketisexpectedtogrowata28.1%CAGRinto2019andreach89.4millionunits.(7)

Analystsestimatethatapplesold3.6millionunits in thequarter. This equates to approximately $1.6 billion inrevenue. Aftersellingthewatch inatestmarketof100stores,BestBuyhasannouncedtheywillbeginsellingthedeviceinall1,050ofitsstoresbecauseofthebetterthanexpecteddemand.

An issue of the Apple Watch is that it has limitedfunctionality when not paired with a cell phone.Therefore the AppleWatch is a phone accessory and isonly compatible with the iPhone 5 and newer. ThiscompatibilityissuelimitsthecustomerbaseoftheAppleWatch. Since 2012, the iPhone has averagedapproximately 16% market share of new smartphoneshipments.Thereforethewatchislimitedtoonly16%ofthesmartphonemarketsize.(8)

Page5

Source:IDC(8)

Evenwith the limitedmarket,we expect total revenuesfor thewatch in2015 tobe$3billionwith thatnumbergrowing to $6 billion in 2016. We expect AppleWatchrevenues to reach$14billion in 2020. With an averageprice of $450 for anAppleWatch, thiswould equate to31.2 million units sold in 2020, approximately 11% ofiPhoneunitsales.WefeelourestimationofAppleWatchsales are reasonable as aCredit Suisse surveyof iPhone6/6Plus owners indicates that 18% of the respondentswoulddefinitelybuythewatch.(9)

Source:CreditSuisse(9)

AppleMusic

InJulyof2014,AppleacquiredBeatsMusicfor$3billion.Along with the entering the company in new marketswiththeBeatsheadphones,thisacquisitionhelpedApplecreate a subscription based streaming audio musicservicetocompetewithPandoraandSpotify.Themusicservice, calledAppleMusic,was launched at the end ofJune2015.

AppleMusic differentiates itself from Spotify and othercompetitors by offering three additional features otherthan just streaming music. Apple Music has a radioservicecalledBeats1,whichisanaround-the-clockgloballivebroadcastfromDJslocatedinLosAngeles,NewYork,and London. The second feature Apple Music uses todifferentiate itself is curated playlists created by realpeople. Theplaylists are built for the listener basedonthe users favorite genres and artists. The last uniquefeature is Connect. This is a social networking feature,whichletsfansfollowartists.

Apple Music has the potential to cannibalize revenuefromApple’s iTunesmusicstore,assomecustomerswillno longer buy music through iTunes a la carte style.Instead customers may only pay the $9.99 monthlysubscription fee forAppleMusicandstreamtheirmusicrather than owning it. This subscription fee is equal toSpotify’sPremiumsubscriptionof$9.99.Alsoequivalentto Spotify is Apple Music will allow users to downloadalbumsforofflinelistening.WebelieveAppleMusicwillover takethe iTunesMusicStoreas thebiggest revenuegenerator in the iTunes,Software,andServicessegmentandwehaveforecastedrevenueforthesegmenttogrowata5.8%CAGRinto2020.

ApplePay

OnOctober20,2014,ApplereleasedApplePay.Thisisamobilepaymentsservicewhichisdesignedtoallowuserstomakepayments for goodand services in retail storesusing an iPhone 6, iPhone 6 Plus, or AppleWatch. Forsecurity, Apple uses tokenization,which prevents actualcreditcardnumbersfrombeingsentovertheair. ApplePayaimsatreplacingthewallet.AppleCEOTimCookhassaidthatApplePaywill“foreverchangethewayallofusbuy things.” (10) Apple Pay has seen some early successwithagrowinglistofpartners.OnJuly7,Appleadded23moreU.S.banksandcreditunions,whichbringsthetotalto461ApplePaypartners in theUnited States and9 intheUK.(11)

23.0%

16.6%

14.4%

20.9%

17.1%

13.0%

12.8% 17

.5%

15.2%

11.7%

11.7%

19.7%

18.2%

14.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

Q2'15

GlobalSmartphoneOperabngSystemMarketShareheldby

AppleiOS

Yes,Definitely

18%

Yes,Probably11%

Maybe27%

ProbablyNot27%

DefinitelyNot18%

iPhone6/6+UsersWhoWillBuyanAppleWatch

Page6

ApplegeneratesmoneyfromApplePaybychargingfeeswhen consumers use the service in place of credit anddebitcardforpurchases. ApplePaydoesofferabenefittoboththetransactionpartnerandtheuser. Applepayoffers an extra layer of security with a Touch IDfingerprintfeature.Thisfeaturedeliversproofthatboththe mobile device and the authorized cardholder arephysicallypresentinthestore.

However, we do not believe Apple Pay will make asignificant addition to company revenue. Apple collects$0.15ona$100transaction.Itisestimatedthatthisfeewillearn$118millioninrevenuein2015and$310millionin 2016, only about a tenthof apercentof revenue. (12)We believe the purpose of Apple Pay is to help sellhardware and not generate revenue from transactionfees. Apple Pay is one more way the company canintegrate itsproductofferings intoeveryday life,makingconsumers dependent on the iPhone thereby making itdifficultforconsumerstoexittheAppleecosystem.

iPhoneInstallmentPlans

OnSeptember9,2015,AppleannouncedapaymentplanforiPhonesinresponsetocarriersnolongergivingphonesubsides.CustomerscanbuyanunlockediPhoneandpayfor the device over a 24-month time frame. Thecustomerhastheoptiontotradeintheircurrent iPhoneforanewiPhoneattheendof12months,aslongastheysign on for another 24-month agreement. Apple iscateringtotheconsumerswhopreferthenewestmodelavailablebutatthesametimerefurbishingandresellingtherecentlytraded-inphone.

For the consumer, a benefit of purchasing the phoneusing Apple’s installment plan is that the phone isunlocked and can be used with any carrier without theneed to sign a contract. For Apple, one benefit of thenewpaymentplancouldbethatitshortenstheupgradecycle for the iPhone. As well, it helps Apple keepcustomers in the Apple ecosystem. Customers whopurchase phones through carriers can upgrade to anymanufacturer’s phone, but Apple customers only havetheoptionof upgrading to another iPhone. Webelievethe new iPhone installment plan will increase customerupgradecycles,therebyincreasingiPhonesales.

INDUSTRYTRENDS

TheelectronicsindustriesthatApplecompetesinarefastpaced and extremely competitive. Mobile devicesincluding smartphones and smart wearables are seeing

growth and increased penetration. The mobile phonemarket is by far the most important in the industrybecauseofthevolumeofshipmentsandrevenue.

SmartphoneGrowth

WorldwideMobilePhoneShipments

Source:S&PNetAdvantage(13)

Thesmartphoneindustryhasexperiencedalargeamountof growth in recent years. In 2014, smartphoneshipmentsgrew27.6%fromthepreviousyear.However,growthof shipments in the industry is expected to slowtoan11.3%increasein2015.Evenwithslowinggrowth,global shipments are expected to reach 1.9 billion by2019,an8.2%4-yearCAGR.(2)Thegrowthisbeingcausedbytheincreasedadoptionofsmartphonesamongmobilephoneusers. Smartphones are expected to account for80% of mobile phone shipments in 2018 with Asia andotheremergingmarketsbeingthelargestcontributorstothegrowth.(13)

TabletSales

Source:Statista(14)

19

76

145

219.9

229.6

248 263 276

286

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015*2016*2017*2018*

Shipmen

tsinm

illionun

its

ProjectedGlobalTabletShipments

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The tablet market had seen tremendous growth withworldwide shipments increasing from19millionunits in2010 toalmost220millionunits in2013. However, theyear-over-year growth rate slowed to 4.4% in 2014,comparedto100.7%and53.3%growthin2012and2013,respectively. The preference of consumers towardssmartphones with larger screens is having a negativeimpact on tablet sales. IDC expects Tablet sales tocontinuetobeslowin2015withshipmentsof248millionunits,an increaseof8%. By2018,worldwideshipmentsareexpectedtoreach286millionunits,a4-yearCAGRof5.6%.(14)

MobilePhoneInstallmentPurchasePlans

AsofAugust13,2015,newVerizoncustomerswillhaveto provide their own phone or buy one under aninstallmentplan.T-Mobilestartedthistrendin2013andall fourmajorcellphoneprovidersarefollowingsuit. Inthe past, a consumer who signed up for a two-yearcontract could also purchase a new smartphone for asubsidized price typically around $199. Apple iPhone,Samsung Galaxy or other devices retail for up to $700.Thepricingmodel for theserviceprovider’smonthly feehadthecostofthephonebuilt intoitandtheconsumerwould eventually pay for the remaining cost of thephone.However,thefullpriceofthephonewasusuallyunknown to the consumer. Without the subsidies, thefull cost of the phone is more visible to consumer andprice-sensitive consumers could change their buyinghabits. InQ42014theaverageApple iPhonecostwas$687 while Android devices had an average price of$254.(15) This now visible price disparity could shiftconsumersawayfromthemoreexpensiveiPhone.

PCSales

The introduction of the tablet and large screensmartphoneshashadanadverseaffectonPCandlaptopsales,which have been declining since 2011. Accordingto IDC, Q2 2015 PC shipments for the top 5 vendorsdecreased 11.8% over the past year. Apple is the onlycompany in thegroup tohaveayear-over-year increaseinPCshipmentswithgrowthof16.1%inQ22015.IDCisforecastingoverallPCshipmentstoremainsteady inthenearfuturewithgrowthofzeroto-3%.(16)

Source:Statista(17)

MusicDownloadsvsStreaming

In 1999,when the onlinemusic sharing service Napsterwas launched, consumers of the music industry shiftedhowtheyacquiredtheirmusicfrompurchasingaphysicalproductwith recordedmusic to downloading songs andalbums through the internet. A new transition ishappening in the music industry with consumerschanging how they access music. Rather than owningmusic by purchasing and downloading songs, customersare “renting” their music through ad-supported andsubscriptionbasedstreamingmusicservices.

In 2007, 3% of the music industry revenues wereattributed to streaming music services. In 2014, thatnumberhadrisento21%oftotalrevenues.(18)Accordingto PricewaterhouseCoopers, revenue from digital musicstreamingisexpectedtogrowto$2.76billionin2018,a13.4% CAGR. While digital music downloading revenuewillgrowatarateofonly3.3%.(19)

The number of users streaming music is expected toincrease from 129.4 million in 2015 to 168.3 million in2020, a CAGR of 5.4%. While the number of usersdownloading music is expected to decrease from 65.6millionin2015to63.8millionin2020.(20)

364 349315 308

282 279 282

0

50

100

150

200

250

300

350

400

2011 2012 2013 2014 2015* 2016* 2019*

Millionsofu

nits

GlobalDesktopandLaptopShipments

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MARKETSANDCOMPETITION

ThemarketsthatApplecompetesinarecharacterizedbyconstantinnovationandshortproductlifecycles.Duetothese characteristics, products eventually face maturityandobsolescence.

SmartphoneMarket

The smartphone market is a massive and fast pacedmarket with products constantly being updated andenhanceddue toquicklyevolving technologies. Productlifecycles are short in the industry with the majormanufactures releasing new generations of productsevery year or two. Also, consumers usually have theopportunity to upgrade their existing phone to the nextgeneration every couple of years when their contractwithaserviceproviderexpires.

SmartphoneMarketShare

Samsung Apple Huawi Xiaomi Lenevo Others

2015Q2 21.4% 13.9% 8.7% 5.6% 4.7% 45.7%

2014Q2 24.8% 11.6% 6.7% 4.6% 8.0% 44.3%

2013Q2 31.9% 12.9% 4.3% 1.7% 5.7% 43.6%

2012Q2 32.2% 16.6% 4.1% 1.0% 5.9% 40.2%Source:IDC(21)

The top five companies in the industry bymarket shareare Samsung, Apple, Huawei, Xiaomi, and Lenovo.Samsung is the market leader retaining 21.4% marketshareinQ2of2015.However,thesmartphonemarketisa competitive market with 45.7% of the market beingserved by companies outside the top five in theindustry.(21)Whileall thecompaniescompeteonmarketshare, Apple dominates the market in terms industryprofits. Inthefirstquarterof2015,Applerecorded92%of the total operating income from the industries topeight smartphone manufacturer’s, up from 65% in Q12014. Together, Apple and Samsung account for morethan100%ofindustryprofitsasothermanufacturer’slostmoneyinthequarter.(22)

Source:WJS(22)

Most companies within the market compete based onpriceandfeatures,exceptforApplewhoisabletochargea premium for the iPhone. While other companies aredecreasing smartphone sales prices, Apple is increasing.In FY2014 the average cost of the iPhonewas $603. InFY2015,thatnumberincreasedto$671.ThepriceoftheiPhone is expected to fall but only to $635 by 2018.Android, which has a much lower average price due tothewiderangeofhighand low-endphones, isexpectedto have a similar trend dropping from $254 in 2014 to$214 in 2018. (23) These declining prices could indicatethatthemarkethasbecomecommoditizedandcostwillbecome the main driver for market share as handsetsbegintocontainidenticalfeatures.

Evenwith falling average prices, growth is still availableespecially outside the US and Europe in countries withlow smartphone penetration. We expect iPhone unitsales to be 247.6 million in 2016 with that numberincreasingto274.4millionin2020,a3.5%CAGR.

TabletMarket

The tablet market is very similar to the smartphonemarket.Companiescompeteinthemarketwithfeaturesandprice.Thelifeexpectancyoftabletsisslightlylongerthansmartphonesdueto lessusage,which leads to lessdamage. In2015, the lifespanofa tablet isexpectedtobe 26 months, compared to an 18-month life forsmartphones in the US. Even with longer life cycles,

Page9

productsareconstantlybeingupdatedandenhancedduetoquicklyevolvingtechnologies.

TopFiveTabletVendorsMarketShare

2Q15UnitShipments

2Q15MarketShare

2Q14UnitShipments

2Q14MarketShare

Y-o-YGrowth

Apple 10.9 24.5% 13.3 27.7% -17.9%

Samsung 7.6 17.0% 8.6 18.0% -12.0%

Lenovo 2.5 5.7% 2.4 5.7% 6.8%

Huawei 1.6 3.7% 0.8 3.7% 103.6%LGElectronics 1.6 3.6% 0.5 3.6% 246.4%

Others 20.4 45.6% 22.4 46.7% -9.3%Source:IDC(24)

The top five companies in the industry are Apple,Samsung, Lenovo, LG andHuawei. Four of the top fivecompanies in the industry are the same leaders in thesmartphone industry,with theexceptionofLGreplacingXiaomi. Apple is themarket leader with 24.5%marketshareinQ2of2015.However,Apple’smarketsharehasdecreased from 61.5% in Q2 of 2011. Much like thesmartphone market, the tablet market is a competitivemarket with 45.6% of the market being served bycompaniesoutsidethetopfiveintheindustry.(24)

During 2011 to 2013 there was steady growth in thetabletmarket. However,therewasamarketslowdownin2014assmartphonesscreenshavebecomelarger.

Source:IDC(25)

Therearestillgrowthopportunitiesinthetabletindustry.Manufacturers are beginning to target the enterprisemarket to attempt to replace PCs. Apple just releasedtheir new 12.9” iPad Pro to compete with Microsoft’s

Surface Pro 3 tablet. The new iPad was designedspecifically with businesses in mind. Apple added astandalone keyboard to make this Apple’s first 2-in-1.While only a small percentage of the overall tabletmarket, 2-in-1’s are expected to have a 5-year CAGR of57%while traditional tabletswill havea5-yearCAGRof2%.WebelieveApplewillcontinuetolosemarketsharebut saleswill begin to increase in 2016 due to the newiPad Pro. Overall we believe iPad revenues will have a5.94% CAGR from 2015 to 2020, maintainingapproximately11%oftotalcompanyvalue.

WearableMarket

Smart wearable technology refers to any electronicdevice, which can be worn by a person to integratecomputing intodaily activities. This can includedevicessuchaseyewear,wristwear,andfootwear.Companiescompete in this industry with features and smartphonecompatibility. Many wearable devices must be pairedwitha smartphone to takeadvantageofall the featuresof the device. The Samsung watch can only be pairedwithphonesrunningtheAndroidoperatingsystem.TheApple Watch can only be paired with an iPhone 5 ornewer.

The market is in its early stage of development but isexpectedtohitan inflectionpoint in2015drivenby theAppleWatch. In 2014, approximately 4.2million smartwatches were sold. During 2015, Apple alone shippedalmost 7 million Apple watches. (34) The total smartwearable’s market is expected to increase from 4.2millionunitsshippedin2014to33.1millionunitsin2015,an increase of 688%. Shipments are expected to reach89.4millionunitsin2019,a28.1%4-yearCAGR.(7)

Source:IDC(7)

19

76

145

220 229.6248

263 276 286269.4

0

50

100

150

200

250

300

350

2010

2011

2012

2013

2014

2015*

2016*

2017*

2018*

2019*

Millionsofu

nits

GlobalTabletShipmentForecast

22.1 39.066.34.2

33.1

89.4

0

50

100

150

200

2014 2015 2019

UnitS

hipm

entsinM

illions

UnitShipmentforecastbasic/smartwearablesworldwide

BasicWearables SmartWearables

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PCMarket

The PC market is a very mature market and is on thedeclinemainlyduetobusinessesextendingtheirupgradecycles.LifespansofPCsareincreasingbecausethepaceof change has slowed. The technology of computerhardware has outpaced the technology of computersoftware,whichhasextendedthe lifeofPCs. Accordingto Daniel Research Group, the average lifespan of adesktop PC in 2012 was 3.97 years. The lifespan hasincreased to 4.6 years in 2015. Another reason for thedeclineinPCsalesisconsumershavebeenreplacingPCswith tablets. InQ2 2015, shipments fell to 66.1millionunits,an11.8%year-over-yeardecline.ThedeclineofPCshipments should slow with the total volume shippedforecast tobe293.1million in2015,decliningslightly to291.4millionin2019.(26)

PCs are becoming commodities as the feature setbecomes more and more common among competingcompanies. Companies in the industry are nowcompetingstrictlyonprice. In2009, theaveragesellingprice of a desktop PC was $605. In 2015, the price isexpectedtobe$379.(28)

The top 5 companies in the PCmarket are Lenovo, HP,Dell,AppleandAcerGroup.Lenovoisthemarketleaderwith 20.3%market share inQ22015. Other companiesoutsidethetopfivehold32.3%ofthemarket.(27)

WorldwidePCShipments2Q2015

2Q15Shipments

2Q15MarketShare

2Q14Shipments

2Q14MarketShare

Y-o-YGrowth

Lenovo 13,444 20.3% 14,535 19.4% -7.5%

HP 12,253 18.5% 13,675 18.2% -10.4%

Dell 9,560 14.5% 10,466 14.0% -8.7%

Apple 5,136 7.8% 4,423 5.9% 16.1%

Acer 4,334 6.6% 5,932 7.9% -26.9%

ASUS 4,330 6.5% 4,693 6.3% -7.7%

Others 17,082 25.8% 21,274 28.4% -19.7%Source:BGR(27)

Apple was the onlymanufacturer to see year-over-yeargrowthinthePCmarket.Applesawa16.1%increaseinshipments in Q2 2015 and increased its market sharefrom5.9%to7.8%.Applealsodoesnotcompeteonpricewithintheindustry.In2014,theaveragepriceforaMacwas$1,274,muchhigherthantheaveragedesktopPCof$379. We believe the growth of the Mac computer is

from the entire Apple ecosystem. Apple has anextremely large customer followingwithmore than 800millioniPhone’ssoldsinceitwasfirstreleasedin2007.(1)TheiPhonehasgiventheAppleexperiencetomillionsofcustomers. We believe these customers are continuingwiththeAppleexperiencebyswitchingtoaMacwhenitistimetoupgradetheirPC.WeexpectMacunitsalestobe21.5millionunits in2016. We thenexpectMacunitsalestoincreaseata4.5%CAGRinto2020.

PeerComparison

Apple competes in multiple markets of the technologyhardware industry. Apple competes inmaturemarketswithitstoprevenuegeneratingproducts. Thereforeourpeeranalysisisfocusedonprofitabilitymetrics.

Samsung is Apple’s largest competitor in both thesmartphone and tabletmarket. In Samsung’s last fiscalyear,theyhadsalesof$195.9BillionUSDwhileapplehadsales of $233.7Billion. HP and Lenovohave the largestmarketshareinthePCmarketandthesecompanieshadrevenue’sof$111.5Billionand$46.3Billionin2014.

AmetricthatstandsoutamongtherestistheNetProfitMargin.TheonlymarketthatAppleisthemarketleaderinisthetabletmarket.Yet,theyhaveanetprofitmarginthatdwarfsalloftheircompetingcompanies.Apple’snetprofitmarginpercentageis22.9%,comparedto13.1%forMicrosoft, second among the peer group. Samsung,Applesmost formidable competitor, has a profitmarginof11.2%.Thedifferenceinnetprofitmarginpercentageis due to the brand image Apple has built which hasallowed them to charge a premium for all of theirproducts.ThisbrandimageiswhatsetsAppleapartfromtheircompetitors.

Source:FactSet

Notsurprisingly,Apple’sROAandROEarenearlydoublethe next closest competitor in the group. Apple has anROAof20.8%andanROEof46.3%whileSamsunghasan

Sales(B)

NetProfitMargin%

ROA%

ROE%

P/E(ntm)

Debt/Equity

Samsung 195.9 11.2 10.4 15.1 7.9 6.95

HP 111.5 4.5 4.8 18.6 7.3 73.0

Microsoft 93.6 13.1 7.0 14.4 15.6 44.1

LG 48.9 0.98 1.6 4.9 11.8 77.0

Lenovo 46.3 1.8 3.7 23.4 17.2 74.8

Blackberry 3.9 -9.1 -4.1 -8.3 - 49.8

Apple 233.7 22.9 20.8 46.3 13.0 56.4

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ROAandROEof10.4%and15.1%, respectively. LenovohasanROAandROEof3.7%and23.4%,respectively.

Due to short product life cycles and constant threat ofproduct obsolescence, companies competing in thetechnology sector must have high research anddevelopmentcosts.SamsunghadR&Dexpensesof$13.8BillioncomparedtoApple’s$8.1Billionin2015.

Source:FactSet

ThesecompaniesoftencompeteagainstApple,but theyalso sell a much wider range of products and services.Appleisonlyfocusedoninnovatingasmallcoregroupofproducts, which sharemuch of the same hardware andmany of the same features. Apple is therefore able tokeepR&DexpenditureslowwhiletheseothercompaniesmustspreadR&Dexpensesoveralargesetofproducts.

ECONOMICOUTLOOK

While the iPad andMAC are becomingmore andmorepopular in the business world, the majority of Apple’srevenuesarefromsalestoconsumers.Therefore,agoodindication of sales for Apple in the United States isconsumer confidence. Consumer confidence is a strongindicatorofconsumerspending.

Since the recession in 2008, consumer confidence hasbeen steadily increasing. We believe consumerconfidence will remain neutral for the next six monthsandbegintoincreaseoverthenextfewyears.

Source:FRED(29)

Many of the products that Apple produces arediscretionary goods, such as smartphones, tablets, PC,anddigitalmusicdownloads. Whenconsumerspendingis down, sales for these products will also be down.Personal Consumption Expenditures have followed theconsumer confidence indicator as expenditures havebeen on the rise since 2009 and have maintainedapproximately3%growthperyear.

Source:FRED(30)

GDP is anotherdriver that cangivea good indicationoffutureApplesales.WeexpectRealGDPgrowthtobeat2.7% for the next 6 months before increasing toapproximately3%inthenexttwoyears.

$13.8

$12.1

$11.5

$9.8

$8.1

$5.6

7.3%

12.9%

20.7%

14.9%

3.5%

4.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

Billion

sUSD

2015R&DExpenses

R&DExpenses R&D%ofSales

96

97

98

99

100

101

102

1-Jan-10

1-Jun-10

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2

1-Dec-12

1-May-13

1-Oct-13

1-Mar-14

1-Aug-14

1-Jan-15Normalised

(Normal=100)

UniteStatesConsumerOpinionSurvey:ConfidenceIndicators

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Sep-12

Dec-12

Mar-13

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fromYearAgo

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One factor that affects consumer spending is theunemployment rate. Unemployed people are trying tostretchtheirfinancialassetsforalongerdurationduetotheuncertaintyof theendof theirunemployment. Thisleads to a reduction in consumer spending due tofinancial limitations. Weexpecttheunemploymentrateto maintain a level around 5.1% in the next 6 months,whichshouldkeepconsumerspendingfromdecreasing.

Source:FRED(31)

Exchange rates are a driver for companies competing inthe technology industry. In 2014,Apple generated62%ofitsrevenuefrominternationalsales.Assuch,currencymovementscouldhavealargeeffectonsalesandprofitsfor Apple. In the graph below, the US dollar has beengettingstronger in recentmonths. Weexpectexchangeratestomaintaintheircurrent levelsforthenextcoupleyears.

Source:FRED(32)

CATALYSTSFORGROWTH

iPhone

Apple recently released the iPhone6s and 6s Plus. Themost significant difference between the 6s and the 6 isthe 3D touch technology that allows the 6s iPhones tosensedifferentpressures.Thenewphonehavereceivedgreat reviews from the public. The new iPhone releaseandtherecentlyannounced installmentplancoulddrivefurthergrowthintheiPhoneproductline.

The iPhone product line accounted for more than two-thirdsofthecompany’srevenuein2015.TheiPhonewillcontinue to be Apple’s largest source of revenue.BecauseofthedependencyontheiPhone,thecompanymustcontinuetomakeimprovementstothephonewhilecreatinggrowthbyinnovatinginothermarkets.

AppleWatch

The Apple Watch is a product that could provide thecompanywithgrowth intothefuture. TheAppleWatchcompetes in the wearable’s market, which is a newmarketforthecompany.Thewearable’smarketspaceisexpected to see tremendous growth in the next fewyears.

AppleMusic

AppleMusicisnotnecessarilyoperatinginanewmarketforApple,butitisanewproductofferingthatallowsthecompany to compete in a different way in the digitalmediamarketspace.AppleMusicpositionsthecompanyto serve the growing number of consumers who areswitching fromdownloading theirmusic to streaming it.Thisservicegivesthecompanyanotherrevenuesourceinamarkettheyalreadyhaveasignificantpresencein.

AppleTV

ApplerecentlyreleasedtheupgradedAppleTV.AppleTVallowsausertowatchNetflixandsimilarservicesaswellasstreamliveTVchannels,suchasESPN,iftheuserhasaTV service provider login. In 2014, Apple sold almost 6million units and that number is expected to reach 10million in 2015. With the release of new Apple TV,shipmentsareexpectedtoincreaseto24million.(33)ThenewversionofAppleTVallowsuserstoplaygamesandisApples first attempt to enter into the online gamingmarket. Themost significantupgrade to thedevicehasyettobereleased.AppleplanstoreleaseastreamingTV

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

Percen

t

UnemploymentRate:AllPersonsAged15-64:U.S.

90

95

100

105

110

115

120

2010 2011 2012 2013 2014 2015

(Ind

exJa

n1997=100)

TradeWeightedUSDollarBroadIndex

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servicethatwouldbundlemultipletelevisionchannelsfora price around $40 per month, which would competewith cable television providers as well as DishNetworkand DirecTV. This service is expected to be released in2016 and could be a significant revenue source asconsumersarecontinuingto leavecableandsatelliteTVservicesforinternetstreamingservices.

INVESTMENTPOSITIVES

• Apple has a competitive advantage in everymarket they compete in because of the productecosystemtheyhavecreated. The iPhone is thecoreofthecompany.TheintegrationoftheiPhoneandApple’sotherproductsandaccessories iswhatcreatesvalue forusersandisdifficultforcompetitorstoduplicate.

• Apple holds only 16% of market share in thesmartphone industry but 92% of the industry profits.ApplehaspositionedtheiPhoneasthepremiumbrandofsmartphoneinamaturebutstillgrowingindustry.

• Applehasastrongbalancesheetwhichwouldallthem to survive a downturn in the market. While thecompany did have a current ratio of only 1.17 in 2015,they do have $185billion is cash offshore. Apple couldeasily become liquid and survive short-term issues evenwithhavingtopaya35%taxonrepatriatedfunds.

• The iTunes, Software and Services segment hasan estimated 90% grossmargin. Applemusic targets agrowing segment of consumers streaming music ratherthan downloading it. The high margins along withcontinued growth of iTunes and Apple Music adoptionwilldriveprofitsinthissegment.

• WiththeadditionoftheAppleWatchandAppleTVtotheAccessoriessegment,Applenowhasentryintogrowing markets with potential to generate significantrevenue.

INVESTMENTNEGATIVES

• Smartphones are becoming a commodity.Competitors quickly adopt features that distinguish anyphone from another. Because of this commoditization,iPhonemarginscouldbegintodecrease,asApplewouldneedtoreducethesellingpricetogainnewcustomers.

• Apple is becoming extremely dependent on theiPhoneproduct lineforrevenue. Two-thirdsofthetotalcompaniesrevenuecamefromtheiPhonein2015.New

productswillneedtogeneratealargeamountofrevenuetocounteractanydecreaseiniPhonesales.

VALUATION

We used a Discounted Cash Flow (DCF), DividendDiscount Model (DDM), and Relative Price to Earnings(P/E) analysis to value Apple Inc. The DCF and DDMmodels computed stock prices of $153.26 and $149.46.For the relativeP/Eanalysiswecalculatedapricebasedon peers and another price based on industry leaders.Thesetwoapproachescomputedstockpricesof$147.91and $180.68, respectively.We believe the true value ofApplestockisinbetweenat$145and$155.

Apple has only been paying dividends since 2012 whentheyhadapayout ratioof 5.9%. In 2013, the companyincreased that ratio to 28.5%, however, the dividendpayment growth has been inconsistent. The companystated in their 2015 10-K that they expect dividends tocontinueatcurrent levelsorgrow. Wehavemodeledaconstant payout ratio of 22.0% based on the quarterlydividends throughout2015,butwedonothavea lotofhistoricaldatatoconfidentlymakeanassumptionforthedividendgrowth. While theDDMmodel,doesgiveusarelatively close price to our range,we do not putmuchweightonit.

The Peer Comparison relative P/E analysis modelcomputeda lowpriceof$147.91. Applecurrentlyhasaforward P/E ratio of 13.0 and the peer average forwardP/E ratio is 15.9. Because of Apple’s premium brandstatus, we believe the company should not trade at adiscount to its peers. The Brand Leaders relative P/Eanalysis model computed a relatively high price of$180.68.TheaverageP/Eofthebrandleaderswas19.5.This peer relative P/Eprice iswithinour price range. AP/Eofaround15.9isjustifiableforApplebecauseofthecompany’slargecashbalanceandpremiumbrands.

TheDCFmodelcomputedapriceof$153.26.Thispriceisthe basis for our price range. Our model was builtassumingmany different revenue growth rates for eacharea of business. The iPhone product segment is thelargest revenue generator for the company and weforecastedunit sales togrowata3.5%CAGR into2020.However, we forecasted decreasing margins for theiPhone due to pricing pressures from lower costsmartphones and therefore modeled revenue to growslower than units sales a 2.2% CAGR for the next fiveyears.

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The next largest segment is the Mac computer,accounting for 11%of revenue in 2015. The PCmarkethasbeen indecline since2011. Weexpect the industryto have roughly zero growth into 2019. However, webelievetheMacwillcontinuetostealmarketsharefromcompetitors and have modeled revenues to grow at a3.0%CAGRforthenextfiveyears.

The iPad line of tablets is the third largest segment forApple, accounting for 9.9% of revenue in 2015. Weexpectrevenuestobegintopickbackupin2016asAppletargetstheenterprisesectorwiththenewiPadPro.WeexpectrevenuesfortheiPadtogrowata5.9%CAGRforthenext5yearsandaccountingfor11.0%ofrevenue in2020.

Since2009,theiTunes,SoftwareandServicesegmenthasgrownat21%CAGR. With theadditionofAppleMusic,weexpectthissegmenttocontinuetogrowhoweverwedo not believe the segmentwill keep the same pace ofgrowthithashadthelast6years.Wemodeledrevenuestogrowata5.8%five-yearCAGR.

Mostofthenewgrowthforthecompanywillcomefromthe Accessories segment. The new Apple Watch andAppleTVwilldrivethegrowthforthissegment.Wehavemodeled revenues for this segment to increase at a17.4% CAGR for the next 5 years. In 2015, theAccessories segment accounted for only 4.3% of totalrevenue,weexpect this segment to increase to 8.0%oftotal revenue by 2020. Overall,we havemodeled totalcompanyrevenuetogrowata3.84%CAGRforthenext5years.

Forthelastfiveyears,Apple’sgrossmarginshaverangedfrom 37.6% to 43.9%. In 2015, the gross margin was40.1%. The total gross margin is most affected by theiPhonegrossmargin,whichaccountsfor66%ofrevenue.TheiPhonegrossmarginwasapproximately47%in2015.We expect company grossmargins to decline slightly to39% in 2016 as the iPhone will face increased pricingpressure and the average sale price for an iPhone willdecreasefrom$671in2015to$645in2016.Weexpectcompany grossmargin to decrease to 37.5% in 2020 astheaveragecostofan iPhonedropsto$630andiPhonegrossmarginsdropto43.5%.

In Apple’s 2015 annual report, they state that R&D iscritical to the survival of the company. From 2008 to2014, the R&D expenses averaged 2.7% of revenue.Howeverin2015,ApplehadarecordR&Dinvestmentof$8.0billion,or3.45%ofrevenue.ThisR&Dexpenseasa

percent of revenue is low when compared to peers.Samsung,Apple’sbiggestrivalinthesmartphonemarket,hasanR&Dexpenseasapercentofrevenueof7.3%.WeexpectAppletocontinueincreasetheirlevelofR&D.WehavemodeledtheR&Dexpensetobe3.9%in2016and4.2%into2020.

We have also modeled SG&A expenses to begin toincreaseto2011levels,accountingfor7.5%ofrevenuein2020. With the increase in operating expenses anddecrease in gross margins, we have modeled Apple’soperating income to decrease from 30.5% in 2015 to28.9%in2016beforedecliningto25.8%in2020.

Source:Apple10-K

In the third quarter of 2015, Apple’s Board of Directorsincreased the share repurchaseprogram to$140billion,which has $36 billion remaining for repurchases. Weexpecttheboardtoannounceanothersharerepurchaseprogram and average around $30 billion in repurchaseseach year through 2020. With these share repurchasesand the dividend payments,we havemodeled the totalpayout ratio to increase slightly in 2016 from 87.4% to88.4%,withthepayoutratiototaling74.6%in2020.Withthesepayoutratios,thecompanywillhaveaveragecashflowsof$3.4billionperyearfrom2016to2020,whichismorethantheaveragecashflowperyearof$1.97billionfrom2011to2015.

WiththereleaseoftheAppleWatchandthenewAppleTV, as well as the new iPhone and iPad releases, weexpect inventories to riseslightly in2016and into2020.Weexpect inventorieswill increase to2008 levelswhenthe iPod was at its peak. Therefore we have modeledinventoriesto increaseto1.35%ofrevenue in2016 into2020.

20%22%24%26%28%30%32%34%36%38%

0100002000030000400005000060000700008000090000

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Billion)

OperabngProfits

OpProfit OpMargin%

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Capital expenditures are expected to be around $13billion in 2016. Capital expenditures have beenincreasingasapercentofrevenuesince2009. Wehavemodeledthistrendtocontinuewithcapitalexpendituresincreasing from 4.4% of revenue in 2015 to 6.0% ofrevenuein2020.

Thereare currently 52analysts coveringApple and theyhave a consensus average estimate of 146.74. Theanalyststargetpricesrangefrom$115to$200.Ourpricerangeof$145to$155iswithinanalyst’sestimatesandisslightlyhigherthantheconsensusaverageestimate.Ourprice range is a 20% to 28% premium over the currentstockprice.OnJuly20,2015thestockpricehitahighof$132.07, and our price range is a 9.8% and 17.4%premiumoverthatprice.Webasedourpricerangeonasensitivity analyses around the DCF price by varyinggrowth of the iPhone and the Mac and by varying theBeta,WACC,andcontinuingvalueofNOPLAT.

We feel our price range is justified based on the“ecosystem”Applehascreatedamongitsentireproductline. The companyhas alsohad greatmarketing,whichhaspositionedeachofitsproductsasthepremiumbrandin each respectivemarket. The company has increasedtheirR&Dexpendituresin2015andweexpectthattrendto continue in the future which will create moreinnovation for the company. We believe the AppleWatchwilldrivegrowthforthecompanyintheboomingwearable’smarket.WebelieveiPhonesaleswillcontinuetoincreaseassmartphonespenetratemoreandmoreofthemobilephoneusers. The iPhonewillcontinuetobethebaseproductthatAppleusestofindmoreandmorewaystointegratetheirproductsintoeverydaylife.

KEYSTOMONITOR

iPhoneSales

NotonlyisdoestheiPhoneaccountformorethan50%ofrevenues; it is also the center of the Apple ecosystem.ThecompanyjustreleasedtheiPhone6sand6sPlusbutthe differences from the previous version are subtle.SalesgrowthofthenewmodelsoftheiPhoneshouldbemonitored.IfsalesbegintodropfortheiPhone,itcouldfilter down to every other product segment within thecompany.

AppleCarPlay

Apple announced CarPlay nearly two years ago but carmanufacturersarejustnowfinallyintegratingApple’sin-

dash software into their vehicles. Chevrolet, Hyundai,Honda,andVolkswagenarereleasing2016vehicleswithAppleCarPlay.CarPlayallowsAppletoextendtheAppleecosystemintothecar.TheconsumerdemandforAppleCarPlayshouldbemonitored,as it couldbeasignificantrevenue source if all car manufacturers are forced tojumponboardtomeetthatdemand.

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11. Apple.com,“ApplePayParticipatingBanks”https://support.apple.com/en-us/HT204916

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13. S&P Capital IQ – Technology Hardware, Storage &Peripherals,April2015http://www.netadvantage.standardandpoors.com.proxy.lib.uiowa.edu/NASApp/NetAdvantage/simpleSearchRun.do?ControlName=IndustriesSurveySearch

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15. Forbes,02/03/2015,“AverageiPhonePriceIncreasesto$687andAndroidDecreasesto$254,SaysReport”http://www.forbes.com/sites/amitchowdhry/2015/02/03/average-iphone-price-increases-to-687-and-android-decreases-to-254-says-report/

16. BusinessInsider, 07/10/2015, “PC Sales areImploding”http://www.businessinsider.com/pc-sales-plummet-in-q2-2015-gartner-idc-say-2015-7?r=UK&IR=T

17. Statista,“GlobalPCShipments(desktopandportable)from2009to2019”http://www.statista.com.proxy.lib.uiowa.edu/statistics/269049/global-pc-shipment-forecast-since-2009/

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http://www.wsj.com/articles/apples-share-of-smartphone-industrys-profits-soars-to-92-1436727458

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31. Federal Reserve Bank of St. Louis, 09/2015, “TradeWeightedU.S.DollarIndex:Broad”https://research.stlouisfed.org/fred2/series/TWEXBMTH#

32. Federal Reserve Bank of St. Louis, 03/2015,“UnemploymentRate”https://research.stlouisfed.org/fred2/series/LRUN64TTUSM156N#

33. CNet, Lance Whitney, 09/10/2015, “Apple TVshipments to more than double next year, analystpredicts”http://www.cnet.com/news/apple-tv-shipments-to-more-than-double-next-year-analyst-predicts/

34. Canalys,November4,2015, “Almost7millionAppleWatcheswereshippedin2quartersofavailability”

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http://www.canalys.com/newsroom/almost-7-million-apple-watches-were-shipped-two-quarters-availability

IMPORTANTDISCLAIMER

HenryFundreportsarecreatedbystudentenrolledintheAppliedSecuritiesManagement(HenryFund)programatthe University of Iowa’s Tippie School of Management.These reports are intended to provide potentialemployersandotherinterestedpartiesanexampleoftheanalytical skills, investment knowledge, andcommunication abilities of Henry Fund students. HenryFund analysts are not registered investment advisors,brokers or officially licensed financial professionals. Theinvestment opinion contained in this report does notrepresentanofferorsolicitationtobuyorsellanyoftheaforementionedsecurities.Unlessotherwisenoted,factsand figures included in this report are from publiclyavailable sources. This report is not a completecompilation of data, and its accuracy is not guaranteed.From time to time, the University of Iowa, its faculty,staff, students, or the Henry Fund may hold a financialinterestinthecompaniesmentionedinthisreport.

AppleRevenueDecomposition

FiscalYearsEnding09/30/2015 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

iPhone 91,279 101,991 155041 159692 162886 166144 169467 172856iPad 31,980 30,283 23227 23692 26535 28657 30090 30993Mac 21,483 24,079 25471 26235 27022 27833 28668 29528iTunes,SoftwareandServices 16,051 18,063 19909 21502 22792 24159 25367 26382Accessories 10,117 8,379 10,067 14094 16913 19449 21394 22464TotalRevenue 170,910 182,795 233,715 245,214 256,147 266,243 274,986 282,223

iPhone 53.41% 55.80% 66.34% 65.12% 63.59% 62.40% 61.63% 61.25%iPad 18.71% 16.57% 9.94% 9.66% 10.36% 10.76% 10.94% 10.98%Mac 12.57% 13.17% 10.90% 10.70% 10.55% 10.45% 10.43% 10.46%iTunes,SoftwareandServices 9.39% 9.88% 8.52% 8.77% 8.90% 9.07% 9.22% 9.35%Accessories 5.92% 4.58% 4.31% 5.75% 6.60% 7.31% 7.78% 7.96%%TotalRevenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

iPhoneGrowthRate 16.00% 11.74% 52.01% 3.00% 2.00% 2.00% 2.00% 2.00%

iPadGrowthRate 3.34% -5.31% -23.30% 2.00% 12.00% 8.00% 5.00% 3.00%

MacGrowthRate -7.48% 12.08% 5.78% 3.00% 3.00% 3.00% 3.00% 3.00%iTunes,SoftwareandServicesGrowthRate 24.52% 12.54% 10.22% 8.00% 6.00% 6.00% 5.00% 4.00%

AccessoriesGrowthRate -5.98% -17.18% 20.15% 40.00% 20.00% 15.00% 10.00% 5.00%TotalRevenueGrowthRate 9.20% 6.95% 27.86% 4.92% 4.46% 3.94% 3.28% 2.63%

UnitSalesbyProduct

iPhone 150,257 169,219 231,218 247,585 254,509 261,644 268,995 274,375iPad 71,033 67,977 54,856 56,408 64,718 69,896 73,391 75,592Mac-Total 16,341 18,906 20,587 21,504 22,518 23,587 24,714 25,676

$periPhone 607 603 671 645 640 635 630 630$periPad 450 445 423 420 410 410 410 410$perMac 1315 1274 1237 1220 1200 1180 1160 1150

DomesticRevenue% 45.0% 44.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%InternationalRevenue% 55.0% 56.0% 60.0% 60.0% 60.0% 60.0% 60.0% 60.0%

AppleIncomeStatement

FiscalYearsEnding09/30/2015 2013 2014 2015 2016E 2017E 2018E 2019E 2020ENet sales 170,910 182,795 233,715 245,214 256,147 266,243 274,986 282,223Cost of sales 99,849 104,312 128,832 138,212 145,709 152,138 158,214 161,411Depreciation & Amortization 6,757 7,946 11,257 11,369 11,822 12,933 13,652 14,978Gross margin 64,304 70,537 93,626 95,634 98,617 101,172 103,120 105,834

Research & development expense 4,475 6,041 8,067 9,563 10,758 11,182 11,549 11,853Selling, general & administrative expense 10,830 11,993 14,329 15,203 15,881 16,507 17,049 17,498Total operating expenses 15,305 18,034 22,396 24,767 26,639 27,689 28,599 29,351

Operating income (loss) 48,999 52,503 71,230 70,867 71,977 73,483 74,521 76,482

Total Other Income (expense) 1,156 980 1,285 1,348 1,309 1,422 1,558 1,696Income (loss) before provision for income taxes 50,155 53,483 72,515 72,215 73,286 74,905 76,080 78,178

Provision for (benefit from) income taxes 13,118 13,973 19,121 19,509 19,799 20,236 20,553 21,120

Net income (loss) 37,037 39,510 53,394 52,706 53,488 54,669 55,526 57,058

Year end shares outstanding 6,294 5,866 5,578 5,289 5,063 4,855 4,665 4,491Weighted average shares outstanding - basic 6,477 6,086 5,753 5,434 5,176 4,959 4,760 4,578Net earnings (loss) per common share - basic 5.72 6.49 9.28 9.70 10.33 11.02 11.67 12.46

Cash dividends declared per common share 1.63 1.82 1.98 2.13 2.27 2.43 2.57 2.74

AppleBalanceSheet

FiscalYearsEnding09/30/2015 2,013 2,014 2015 2016E 2017E 2018E 2019E 2020EASSETSCash & cash equivalents 14,259 13,844 21,120 23,010 27,908 30,513 33,345 38,272Short-term marketable securities 26,287 11,233 20,481 21,059 26,652 34,404 42,374 50,569

Accounts receivable, gross 13,201 17,546 16,931 18,391 19,211 19,968 20,624 21,167Less: allowance for doubtful accounts 99 86 82 92 96 100 103 106Vendor non-trade receivables 7,539 9,759 13,494 13,409 14,007 14,559 15,037 15,432Accounts receivable, net 20,641 27,219 30,343 31,708 33,122 34,427 35,558 36,493

Inventories 1,764 2,111 2,349 3,310 3,458 3,594 3,712 3,810

Other current assets 6,882 9,806 9,539 12,996 13,576 14,111 14,574 14,958

Total current assets 69,833 64,213 83,832 92,083 104,716 117,049 129,564 144,103

Long-term marketable securities 106,215 130,162 164,065 178,418 184,435 189,664 194,606 199,595

Gross property, plant & equipment 28,519 39,015 49,257 62,008 75,840 90,750 106,699 123,632Accumulated depreciation 11,922 18,391 26,786 38,115 49,897 62,789 76,402 91,340Property, plant & equipment, net 16,597 20,624 22,471 23,893 25,943 27,960 30,297 32,292

Goodwill 1,577 4,616 5,116 5,116 5,116 5,116 5,116 5,116Acquired intangible assets, net 4,179 4,142 3,893 3,853 3,813 3,773 3,733 3,693Other assets 5,146 3,764 5,556 5,640 5,891 6,124 6,325 6,491Other non-current assets 10,902 12,522 14,565 14,609 14,820 15,013 15,174 15,300

Total assets 203,547 227,521 284,933 309,003 329,916 349,686 369,641 391,290

LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable 22,367 30,196 35,490 37,762 39,446 41,000 42,347 43,461

Accrued warranty & related costs 2,967 4,159 5,843 6,130 6,404 6,656 6,875 7,056Accrued marketing & selling expenses 1,291 2,321 2,794 2,889 3,017 3,136 3,239 3,325Income taxes payable 1,200 1,209 1,721 1,853 1,881 1,922 1,953 2,006Accrued compensation & employee benefits 959 1,209 1,433 1,444 1,509 1,568 1,620 1,662Deferred margin on component sales 1,262 1,057 2,337 2,452 2,561 2,662 2,750 2,822Other current liabilities 6,177 8,498 11,053 11,648 12,167 12,647 13,062 13,406Accrued expenses 13,856 18,453 25,181 26,416 27,539 28,592 29,498 30,277

Commercial paper 0 6,308 8,499 6,060 4,321 3,081 2,196 1,566Current Portion of long-term debt 0 0 2,500 4,611 5,693 6,171 6,517 6,887

Total current liabilities 36,223 54,957 71,670 74,849 76,998 78,844 80,558 82,191

Total Deferred Taxes (Liabilities - Assets) 13,036 15,941 18,516 21,850 22,966 23,878 24,253 25,344

Total Deferred Revenue 10,060 11,522 12,564 14,880 15,544 16,156 16,687 17,126Long-term debt 16,960 28,987 53,463 66,007 71,557 75,564 79,858 84,143Other liabilities 3,719 4,567 9,365 6,628 6,923 7,196 7,432 7,628Total Other non-current liabilities 30,739 45,076 75,392 87,515 94,024 98,916 103,978 108,896

Total Liabilities 79,998 115,974 165,578 184,215 193,988 201,638 208,789 216,432

Stockholders' Equity:Common stock and Additional Paid in Capital 19,764 23,313 27,416 27,420 27,425 27,429 27,434 27,434Retained earnings 104,256 87,152 92,284 97,713 108,847 120,963 133,763 147,769

Accumulated other comprehensive income (loss) -471 1,082 -345 -345 -345 -345 -345 -345

Total shareholders' equity 123,549 111,547 119,355 124,788 135,927 148,047 160,852 174,858

TotalLiabilitesandStockholders'Equity 203,547 227,521 284,933 309,003 329,915 349,685 369,640 391,290

AppleCashFlowStatement

FiscalYearsEnding09/30/2015 2011 2012 2013 2014 2015Cash flows from operating activities:Net income (loss) 25,922 41,733 37,037 39,510 53,394Depreciation & amortization 1,814 3,277 6,757 7,946 11,257Share-based compensation expense 1,168 1,740 2,253 2,863 3,586Deferred income tax expense (benefit) 2,868 4,405 1,141 2,347 1382Loss on disposition of property, plant & equipment 0 0 0 0 0Accounts receivable, net 143 -5,551 -2,172 -4,232 611Inventories 275 -15 -973 -76 -238Vendor non-trade receivables -1,934 -1,414 223 -2,220 -3,735Other current & non-current assets -1,391 -3,162 1,080 167 -179Accounts payable 2,515 4,467 2,340 5,938 5,400Deferred revenue 1,654 2,824 1,459 1,460 1,042Other current & non-current liabilities 4,495 2,552 4,521 6,010 8746Net cash flows from operating activities 37,529 50,856 53,666 59,713 81,266

Cash flows from investing activities:Purchases of marketable securities -102,317 -151,232 -148,489 -217,128 -166402Proceeds from maturities of marketable securities 20,437 13,035 20,317 18,810 14538Proceeds from sales of marketable securities 49,416 99,770 104,130 189,301 107,447Purchases of other long-term investments 0 0 0 0 0Payments made in connection with business acquisitions, net -244 -350 -496 -3,765 -343Payment for acquisition of property, plant & equipment -4,260 -8,295 -8,165 -9,571 -11,247Payment for acquisition of intangible assets -3,192 -1,107 -911 -242 -241Other cash flow from investing activities -259 -48 -160 16 -26Net cash flows from investing activities -40,419 -48,227 -33,774 -22,579 -56,274

Cash flows from financing activities:Proceeds from issuance of common stock 831 665 530 730 543Excess tax benefits from stock-based compensation 1,133 1,351 701 739 749Taxes paid related to net share settlement of equity awards -520 -1,226 -1,082 -1,158 -1,499Dividends & dividend equivalent rights declared 0 -2,488 -10,564 -11,126 -11,561Repurchases of common stock 0 0 -22,860 -45,000 -35,253Proceeds from issuance of long-term debt, net 0 0 16,896 11,960 27114Proceeds from issuance of commercial paper, net 0 0 0 6,306 2,191Net cash flows from financing activities 1,444 -1,698 -16,379 -37,549 -17,716

Cash flows from all activities:Net Increase (decrease) in cash & cash equivalents -1,446 931 3,513 -415 7,276

Cash & cash equivalents, beginning of the year 11,261 9,815 10,746 14,259 13,844Cash & cash equivalents, end of the year 9,815 10,746 14,259 13,844 21,120

AppleForecastedCashFlowStatement

FiscalYearsEnding09/30/2015 2016E 2017E 2018E 2019E 2020E

Cashflowsfromoperatingactivities:Net income (loss) 52,706 53,488 54,669 55,526 57,058Add: Depreciation 11,329 11,782 12,893 13,612 14,938Add: Amortization 40 40 40 40 40Changes in:Accounts Receivable Net -1,365 -1,414 -1,305 -1,131 -936Inventories -961 -148 -136 -118 -98Total Deferred Taxes (Assets - Liabilities) 3,334 1,116 912 374 1,091Other current assets -3,457 -579 -535 -463 -384Other non-current assets -84 -251 -232 -201 -166Accounts payable 2,272 1,684 1,555 1,346 1,114Accrued Expenses 1,236 1,123 1,053 906 779Deferred revenue 2316 663 613 531 439Other non-current liabilities -2,737 295 273 236 196

Net cash flows from operating activities 64,628 67,799 69,798 70,660 74,072

Cash flows from investing activities:Short-term marketable securities -578 -5,594 -7,752 -7,970 -8,195Long-term marketable securities -14,353 -6,017 -5,228 -4,943 -4,989Property & equipment, gross -12,751 -13,832 -14,910 -15,949 -16,933Goodwill 0 0 0 0 0Commercial paper -2,439 -1,739 -1,240 -884 -630

Net cash flows from investing activities -30,121 -27,182 -29,129 -29,746 -30,747

Cash flows from financing activities:Current Portion of Long-term debt 2,111 1,082 479 346 370Long-term debt 12,544 5,550 4,007 4,295 4,284Payment of cash dividend -12,277 -12,353 -12,554 -12,726 -13,052Repurchase of Common Stock -35,000 -30,000 -30,000 -30,000 -30,000Common Stock and Additional paid-in capital 4 4 4 4 0Accumulated other comprehensive income 0 0 0 0 0

Net cash flows from financing activities -32,617 -35,717 -38,064 -38,081 -38,398

Cash flows from all activities:Net increase (decrease) in cash & cash equivalents 1,890 4,899 2,605 2,832 4,927

Cash & cash equivalents, beginning of year 21,120 23,010 27,908 30,513 33,345Cash & cash equivalents, end of year 23,010 27,908 30,513 33,345 38,272

AppleCommonSizeIncomeStatement

FiscalYearsEnding09/30/2015 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Net sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Cost of sales 58.42% 57.07% 55.12% 56.36% 56.88% 57.14% 57.54% 57.19%Depreciation & Amortization 3.95% 4.35% 4.82% 4.64% 4.62% 4.86% 4.96% 5.31%Gross margin 37.62% 38.59% 40.06% 39.00% 38.50% 38.00% 37.50% 37.50%

Research & development expense 2.62% 3.30% 3.45% 3.90% 4.20% 4.20% 4.20% 4.20%Selling, general & administrative expense 6.34% 6.56% 6.13% 6.20% 6.20% 6.20% 6.20% 6.20%Total operating expenses 8.96% 9.87% 9.58% 10.10% 10.40% 10.40% 10.40% 10.40%

Operating income (loss) 28.67% 28.72% 30.48% 28.90% 28.10% 27.60% 27.10% 27.10%

Interest income 0.95% 0.98% 0.00% 1.37% 1.42% 1.46% 1.51% 1.56%Interest expense -0.08% -0.21% 0.00% -0.48% -0.57% -0.59% -0.60% -0.62%Other income (expense), net -0.19% -0.24% 0.55% -0.34% -0.34% -0.34% -0.34% -0.34%Income (loss) before provision for income taxes 29.35% 29.26% 31.03% 29.45% 28.61% 28.13% 27.67% 27.70%

Provision for (benefit from) income taxes 7.68% 7.64% 8.18% 7.96% 7.73% 7.60% 7.47% 7.48%

Net income (loss) 21.67% 21.61% 22.85% 21.49% 20.88% 20.53% 20.19% 20.22%

AppleCommonSizeBalanceSheet

FiscalYearsEnding09/30/2015 2013 2014 2015 2016E 2017E 2018E 2019E 2020EASSETSCash & cash equivalents 8.34% 7.57% 9.04% 9.38% 10.90% 11.46% 12.13% 13.56%Short-term marketable securities 15.38% 6.15% 8.76% 8.59% 10.41% 12.92% 15.41% 17.92%

Accounts receivable, gross 7.72% 9.60% 7.24% 7.50% 7.50% 7.50% 7.50% 7.50%Less: allowance for doubtful accounts 0.06% 0.05% 0.04% 0.04% 0.04% 0.04% 0.04% 0.04%Vendor non-trade receivables 4.41% 5.34% 5.77% 5.47% 5.47% 5.47% 5.47% 5.47%Accounts receivable, net 12.08% 14.89% 12.98% 12.93% 12.93% 12.93% 12.93% 12.93%

Inventories 1.03% 1.15% 1.01% 1.35% 1.35% 1.35% 1.35% 1.35%

Other current assets 4.03% 5.36% 4.08% 5.30% 5.30% 5.30% 5.30% 5.30%

Total current assets 40.86% 35.13% 35.87% 37.55% 40.88% 43.96% 47.12% 51.06%

Long-term marketable securities 62.15% 71.21% 70.20% 72.76% 72.00% 71.24% 70.77% 70.72%

Gross property, plant & equipment 16.69% 21.34% 21.08% 25.29% 29.61% 34.09% 38.80% 43.81%Accumulated depreciation & amortization 6.98% 10.06% 11.46% 15.54% 19.48% 23.58% 27.78% 32.36%Property, plant & equipment, net 9.71% 11.28% 9.61% 9.74% 10.13% 10.50% 11.02% 11.44%

Goodwill 0.92% 2.53% 2.19% 2.09% 2.00% 1.92% 1.86% 1.81%Acquired intangible assets, net 2.45% 2.27% 1.67% 1.57% 1.49% 1.42% 1.36% 1.31%Other assets 3.01% 2.06% 2.38% 2.30% 2.30% 2.30% 2.30% 2.30%Other non-current assets 6.38% 6.85% 6.23% 5.96% 5.79% 5.64% 5.52% 5.42%

Total assets 119.10% 124.47% 121.91% 126.01% 128.80% 131.34% 134.42% 138.65%

LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable 13.09% 16.52% 15.19% 15.40% 15.40% 15.40% 15.40% 15.40%

Accrued warranty & related costs 1.74% 2.28% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%Accrued marketing & selling expenses 0.76% 1.27% 1.20% 1.18% 1.18% 1.18% 1.18% 1.18%Income taxes payable 0.70% 0.66% 0.74% 0.76% 0.73% 0.72% 0.71% 0.71%Accrued compensation & employee benefits 0.56% 0.66% 0.61% 0.59% 0.59% 0.59% 0.59% 0.59%Deferred margin on component sales 0.74% 0.58% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%Other current liabilities 3.61% 4.65% 4.73% 4.75% 4.75% 4.75% 4.75% 4.75%Accrued expenses 8.11% 10.09% 10.77% 10.77% 10.75% 10.74% 10.73% 10.73%

Commercial paper 0.00% 3.45% 3.64% 2.47% 1.69% 1.16% 0.80% 0.55%Current Portion of long-term debt 0.00% 0.00% 1.07% 1.88% 2.22% 2.32% 2.37% 2.44%

Total current liabilities 21.19% 30.06% 30.67% 30.52% 30.06% 29.61% 29.30% 29.12%

Total Deferred Taxes (Assets - Liabilities) 7.63% 8.72% 7.92% 8.91% 8.97% 8.97% 8.82% 8.98%

Total Deferred Revenue 5.89% 6.30% 5.38% 6.07% 6.07% 6.07% 6.07% 6.07%Long-term debt 9.92% 15.86% 22.88% 26.92% 27.94% 28.38% 29.04% 29.81%Other liabilities 2.18% 2.50% 4.01% 2.70% 2.70% 2.70% 2.70% 2.70%Total Other non-current liabilities 17.99% 24.66% 32.26% 35.69% 36.71% 37.15% 37.81% 38.59%

Total Liabilities 46.81% 63.44% 70.85% 75.12% 75.73% 75.73% 75.93% 76.69%

Stockholders' Equity:Common stock and Additional Paid in Capital 11.56% 12.75% 11.73% 11.18% 10.71% 10.30% 9.98% 9.72%Retained earnings 61.00% 47.68% 39.49% 39.85% 42.49% 45.43% 48.64% 52.36%

Accumulated other comprehensive income (loss) -0.28% 0.59% -0.15% -0.14% -0.13% -0.13% -0.13% -0.12%

Total shareholders' equity 72.29% 61.02% 51.07% 50.89% 53.07% 55.61% 58.49% 61.96%

TotalLiabilitesandStockholders'Equity 119.10% 124.47% 121.91% 126.01% 128.80% 131.34% 134.42% 138.65%

AppleValueDriverEstimation

FiscalYearsEnding09/30/2015 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

MarginalTaxRateFederalstatutorytaxrate 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%Stateincometaxes,netoffederalbenefit 1.01% 0.88% 0.94% 0.94% 0.94% 0.94% 0.94% 0.94%Foreignratedifferential -9.20% -8.87% -8.92% -8.92% -8.92% -8.92% -8.92% -8.92%MarginalTaxRate 26.81% 27.01% 27.02% 27.02% 27.02% 27.02% 27.02% 27.02%

EBITA:Net sales 170,910 182,795 233,715 245,214 256,147 266,243 274,986 282,223- Cost of sales -99,849 -104,312 -128,832 -138,212 -145,709 -152,138 -158,214 -161,411- Depreciation & Amortization -6,757 -7,946 -11,257 -11,369 -11,822 -12,933 -13,652 -14,978- Research & development expense -4,475 -6,041 -8,067 -9,563 -10,758 -11,182 -11,549 -11,853- Selling, general & administrative expense -10,830 -11,993 -14,329 -15,203 -15,881 -16,507 -17,049 -17,498+ImpliedInterestonOperatingLeases 138 148 157 196 209 227 244 265EBITA 49,137 52,651 71,387 71,063 72,186 73,710 74,766 76,747

Less:AdjustedTaxes:Income tax provision (benefit) 13,118 13,973 19,121 19,509 19,799 20,236 20,553 21,120- Tax Shield on Interest income -433 -485 0 -906 -980 -1,052 -1,121 -1,190+ Tax Benefit on Interest expense 36 104 0 318 392 425 449 475+ Tax Shield Other income (expense), net 87 116 -347 224 234 243 251 258+TaxShieldonImpliedLeaseInterest 37 40 43 53 56 61 66 71AdjustedTaxes 12,845 13,748 18,816 19,198 19,501 19,913 20,198 20,734

Plus:ChangeinDeferredTaxLiabilities:Deferred income tax provision (benefit) 1,141 2,347 1,382 3,334 1,116 912 374 1,091NetChangeinDTLiabilities 1,141 2,347 1,382 3,334 1,116 912 374 1,091

NOPLATNOPLAT:EBITA-AdjustedTaxes+ChangeinDT 37,433 41,250 53,953 55,199 53,801 54,709 54,942 57,105

OperatingCurrentAssets:AverageofcashonB/Ssince2009 10% 10% 10% 10% 10% 10% 10% 10%xRevenue 170,910 182,795 233,715 245,214 256,147 266,243 274,986 282,223"Normal"Cash(RevenuexAvg%) 17,091 18,280 23,372 24,521 25,615 26,624 27,499 28,222Cashandcashequivalents 14,259 13,844 21,120 23,010 27,908 30,513 33,345 38,272

Lowerof"Normal"CashorActualCash 14,259 13,844 21,120 23,010 25,615 26,624 27,499 28,222Accounts receivable, net 20,641 27,219 30,343 31,708 33,122 34,427 35,558 36,493Inventories 1,764 2,111 2,349 3,310 3,458 3,594 3,712 3,810Vendor non-trade receivables 7,539 9,759 13,494 13,409 14,007 14,559 15,037 15,432Other current assets 6,882 9,806 9,539 12,996 13,576 14,111 14,574 14,958OperatingCurrentAssets 51,085 62,739 76,845 84,433 89,777 93,315 96,380 98,916

OperatingCurrentLiabilities:Accounts payable 22,367 30,196 35,490 37,762 39,446 41,000 42,347 43,461Accrued warranty & related costs 2,967 4,159 5,843 6,130 6,404 6,656 6,875 7,056Accrued marketing & selling expenses 1,291 2,321 2,794 2,889 3,017 3,136 3,239 3,325Income taxes payable 1,200 1,209 1,721 1,853 1,881 1,922 1,953 2,006Accrued compensation & employee benefits 959 1,209 1,433 1,444 1,509 1,568 1,620 1,662Deferred margin on component sales 1,262 1,057 2,337 2,452 2,561 2,662 2,750 2,822Other Current Liabilites 6,177 8,498 11,053 11,648 12,167 12,647 13,062 13,406OperatingCurrentLiabilities 36,223 48,649 60,671 64,179 66,985 69,592 71,845 73,738

NetPPE:Property & equipment, net 16,597 20,624 22,471 23,893 25,943 27,960 30,297 32,292

PVofOperatingLeases:PVofOperatingLeases 4,002 4,245 5,290 5,625 6,108 6,582 7,133 7,602

OtherOperatingAssets:Acquired intangible assets, net 4,179 4,142 3,893 3,853 3,813 3,773 3,733 3,693Other non-current assets 10,902 12,522 14,565 14,609 14,820 15,013 15,174 15,300TotalOtherLong-TermOperatingAssets 15,081 16,664 18,458 18,462 18,633 18,786 18,907 18,993

OtherOperatingLiabilities:Deferred revenue - non-current 10,060 11,522 12,564 14,880 15,544 16,156 16,687 17,126Other liabilities 3,719 4,567 9,365 6,628 6,923 7,196 7,432 7,628TotalOtherLong-TermOperatingLiabilities 13,779 16,089 21,929 21,508 22,467 23,352 24,119 24,754

InvestedCapital:InvestedCapital 36,763 39,534 40,464 46,727 51,010 53,699 56,752 59,312

ValueDrivers:NOPLAT 37,433 41,250 53,953 55,199 53,801 54,709 54,942 57,105

/BeginningIC 34,683 36,763 39,534 40,464 46,727 51,010 53,699 56,752ROIC: 107.93% 112.20% 136.47% 136.41% 115.14% 107.25% 102.31% 100.62%

BeginningIC 34,683 36,763 39,534 40,464 46,727 51,010 53,699 56,752x(ROIC-WACC) 99.32% 103.59% 127.86% 127.80% 106.52% 98.64% 93.70% 92.01%

EP 34,445 38,083 50,548 51,714 49,776 50,314 50,316 52,216

NOPLAT 37,433 41,250 53,953 55,199 53,801 54,709 54,942 57,105-CapEx 2,081 2,770 931 6,262 4,283 2,689 3,053 2,560

FCF 35,352 38,480 53,022 48,937 49,518 52,019 51,889 54,545

WeightedAverageCostofCapital(WACC)Estimation

WACC=Re*(E/V)+Rd*(1-t)*(D/V)+Rpfd*(PFD/V)

CostofEquityRe=Rf+B*(E[Rm]-Rf)Rf 2.820%E[Rm]-Rf 4.85%Beta 1.316Re 9.20%

AppleBondMatureson5/3/2023 3.02%-(10-yrBond(yahoofinance)) 2.13%

Costofdebt +(30-yearTreasuryYield(YahooFinance)) 2.82%Rd 3.71% --------------> =CostofDebt 3.71%

CostofPreferredStockRpfd 0.00%

MarketValueofEquitySharesoutstanding 5578SharesPrice 121.06E $675,273

MarketValueofDebtLong-term debt 53,463Commercial Paper 8,499Operating Leases $5,290D 67,252

MarketValueofPreferredPFD 0

MarketValueofFirmV=E+D+PFD $742,525

weightofequity 90.94%weightofdebt 9.06%weightofpreferred 0.00%MarginalTaxRate 27.02%

WACC 8.61%

AppleDiscountedCashFlow(DCF)andEconomicProfit(EP)ValuationModels

KeyInputs:

CVGrowth 1.50%

CVROIC 100.62%

WACC 8.61%

CostofEquity 9.20%

FiscalYearsEnding09/30/2015 2016E 2017E 2018E 2019E 2020E

DCFModelPeriod 1 2 3 4 5

FCF 48,937 49,518 52,019 51,889 54,545

ContinuingValue 790,707

PV 45,056 41,975 40,598 37,284 568,155

V(operating) 733,068

Non-operatingAssets:

ExcessCash 0

Short-term marketable securities 20,481

Long-term marketable securities 164,065

V(non-operating) 184,546

Non-operatingLiabilities:

EmployeeStockOptions 120

PVofOperatingLeases 5,290

V(other) 5,411

Debt:

Commercial paper 8,499

Current Portion of LT Debt 2,500

Long-term debt 53,463

V(debt) 64,462

V(e) 847,741SharesOutstanding 5,578

IntrinsicValueofStock(FYEnd'14) 151.98

EPModelPeriod 1 2 3 4 5

EconomicProfit 51,714 49,776 50,314 50,316 52,216

ContinuingValue 733,955

PV 47,612 42,193 39,267 36,154 527,376

NPV 692,603

BeginningInvestedCapital(end2015) 40,464

V(operating) 733,068

Non-operatingAssets:

ExcessCash 0

Short-term marketable securities 20,481

Long-term marketable securities 164,065

V(non-operating) 184,546

Non-operatingLiabilities:

EmployeeStockOptions 120

PVofOperatingLeases 5,290

V(other) 5,411

Debt:

Commercial paper 8,499

Current Portion of LT Debt 2,500

Long-term debt 53,463

V(debt) 64,462

V(e) 847,741SharesOutstanding 5,578

IntrinsicValueofStock(FYEnd'14) 151.98

IntrinsicValueofStock(Today) $153.26

AppleDividendDiscountModel(DDM)orFundamentalP/EValuationModel

FiscalYearsEnding09/30/2015 2016E 2017E 2018E 2019E 2020E

EPS 9.70$ 10.33$ 11.02$ 11.67$ 12.46$

KeyAssumptionsCVgrowth 3.00%CVROE 33.99%CostofEquity 9.20%

FutureCashFlowsP/EMultiple(CVYear) 14.70EPS(CVYear) 12.46$FutureStockPrice 183.21$DividendsPerShare 2.13 2.27 2.43 2.57 11.36FutureCashFlows 183.21

Period 1 2 3 4 5DiscountedCashFlows 1.95 1.91 1.86 1.80 140.69

IntrinsicValue(FYEnd'14) 148.21$

IntrinsicValueofStock(Today) $149.46

AppleRelativeValuationModelsPeerComparison

EPS EPSTicker Company Price 2015E 2016E P/E15 P/E16

GOOGL GoogleInc. $761.60 $28.98 $34.07 26.3 22.4HPQ HewlettPackard $14.01 $1.77 $1.71 7.9 8.2MSFT MicrosoftCorporation $54.92 $2.77 $3.12 19.8 17.6INTC IntelCorporation $33.84 $2.22 $2.35 15.2 14.4IBM IBM $138.25 $14.94 $15.10 9.3 9.2MSI MotorolaSolutions,Inc $68.01 $3.29 $3.95 20.7 17.2CSCO CiscoSystems $28.45 $2.30 $2.45 12.4 11.6

Average 15.9 14.4

AAPL Apple $121.06 $9.28 $9.70 13.0 12.5

ImpliedValue:RelativeP/E(EPS15) $147.91RelativeP/E(EPS16) 139.31$

BrandLeaders

EPS EPSTicker Company Price 2015E 2016E P/E15 P/E16

KO CocaCola $41.96 $1.99 $2.07 21.1 20.3MCD McDonalds $113.31 $4.87 $5.32 23.3 21.3WMT Wal-MartStoresInc. $58.78 $4.51 $4.15 13.0 14.2F FordMotorCompany $14.52 $1.63 $1.91 8.9 7.6JNJ Johnson&Johnson $101.92 $6.18 $6.41 16.5 15.9GE GeneralElectric $29.92 $1.31 $1.52 22.8 19.7NKE Nike $131.78 $4.30 $4.92 30.6 26.8

Average 19.5 18.0

AAPL Apple $121.06 $9.28 $9.70 13.0 12.5

ImpliedValue:RelativeP/E(EPS15) $180.68RelativeP/E(EPS16) 174.19$

AppleKeyManagementRatios

FiscalYearsEnding09/30/2015 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

LiquidityRatiosCurrentAssets 69,833 64,213 83,832 92,083 104,716 117,049 129,564 144,103/CurrentLiabilities 36,223 54,957 71,670 74,849 76,998 78,844 80,558 82,191=CurrentRatio 1.928 1.168 1.170 1.230 1.360 1.485 1.608 1.753

(CurrentAssets 69,833 64,213 83,832 92,083 104,716 117,049 129,564 144,103-Inventory) 1,764 2,111 2,349 3,310 3,458 3,594 3,712 3,810/CurrentLiabilities 36,223 54,957 71,670 74,849 76,998 78,844 80,558 82,191=QuickRatio 1.879 1.130 1.137 1.186 1.315 1.439 1.562 1.707

(Cash 14,259 13,844 21,120 23,010 27,908 30,513 33,345 38,272+MarketableSecurities) 132,502 141,395 184,546 199,477 211,088 224,068 236,980 250,164/CurrentLiabilities 36,223 54,957 71,670 74,849 76,998 78,844 80,558 82,191=CashRatio 4.052 2.825 2.870 2.972 3.104 3.229 3.356 3.509

ActivityorAsset-ManagementRatiosAnnualSales 170,910 182,795 233,715 245,214 256,147 266,243 274,986 282,223/AverageAccountsReceivable 19,667 23,930 28,781 31,025 32,415 33,774 34,992 36,025ReceivablesTurnover 8.69 7.64 8.12 7.90 7.90 7.88 7.86 7.83

365 365 365 365 365 365 365 365 365/ReceivablesTurnover 8.69 7.64 8.12 7.90 7.90 7.88 7.86 7.83AverageCollectionPeriod 42.00 47.78 44.95 46.18 46.19 46.30 46.45 46.59

CostofGoodsSold 99,849 104,312 128,832 138,212 145,709 152,138 158,214 161,411/AverageInventory 1,278 1,938 2,230 2,830 3,384 3,526 3,653 3,761InventoryTurnover 78.160 53.838 57.772 48.843 43.056 43.146 43.307 42.915

365 365 365 365 365 365 365 365 365/InventoryTurnover 78.160 53.838 57.772 48.843 43.056 43.146 43.307 42.915InventoryPeriod 4.670 6.780 6.318 7.473 8.477 8.460 8.428 8.505

FinancialLeverageRatiosTotalDebt(includesoperatingleases) 20,962 39,540 67,252 77,692 81,985 85,227 89,188 93,311/TotalAssets 203,547 227,521 284,933 309,003 329,916 349,686 369,641 391,290DebtRatio 10.30% 17.38% 23.60% 25.14% 24.85% 24.37% 24.13% 23.85%

TotalDebt 20,962 39,540 67,252 77,692 81,985 85,227 89,188 93,311/TotalEquity 123,549 111,547 119,355 124,788 135,927 148,047 160,852 174,858Debt-to-EquityRatio 16.97% 35.45% 56.35% 62.26% 60.32% 57.57% 55.45% 53.36%

ProfitabilityRatios(Sales-COGS) 71,061 78,483 104,883 107,003 110,438 114,105 116,772 120,811/Sales 170,910 182,795 233,715 245,214 256,147 266,243 274,986 282,223GrossProfitMargin 41.58% 42.93% 44.88% 43.64% 43.12% 42.86% 42.46% 42.81%

NetIncome 37037 39510 53394 52706 53488 54669 55526 57058/Sales 170910 182795 233715 245214 256147 266243 274986 282223NetProfitMargin 21.67% 21.61% 22.85% 21.49% 20.88% 20.53% 20.19% 20.22%

NetIncome 37,037 39,510 53,394 52,706 53,488 54,669 55,526 57,058/AverageTotalAssets 188,514 215,534 256,227 296,968 319,459 339,801 359,663 380,465ReturnonAssets 19.65% 18.33% 20.84% 17.75% 16.74% 16.09% 15.44% 15.00%

NetIncome 37,037 39,510 53,394 52,706 53,488 54,669 55,526 57,058/AverageShareholderEquity 120,880 117,548 115,451 122,072 130,358 141,987 154,449 167,855ReturnonEquity 30.64% 33.61% 46.25% 43.18% 41.03% 38.50% 35.95% 33.99%

PayoutPolicyRatiosDividendsperShare $1.63 $1.82 $1.98 $2.13 $2.27 $2.43 $2.57 $2.74/EarningsperShare 5.72 6.49 9.28 9.70 10.33 11.02 11.67 12.46PayoutRatio 28.5% 28.0% 21.3% 22.0% 22.0% 22.0% 22.0% 22.0%

DividendsperShare 1.63 1.82 1.98 2.13 2.27 2.43 2.57 2.74xSharesOutstanding 6,477 6,086 5,753 5,434 5,176 4,959 4,760 4,578(TotalDividend 10,552 11,076 11,391 11,595 11,767 12,027 12,216 12,553+StockRepurchases) 22,860 45,000 35,253 35,000 30,000 30,000 30,000 30,000/NetIncome 37,037 39,510 53,394 52,706 53,488 54,669 55,526 57,058TotalPayoutRatio 90.21% 141.93% 87.36% 88.41% 78.09% 76.88% 76.03% 74.58%

PresentValueofOperatingLeaseObligations(2015) PresentValueofOperatingLeaseObligations(2014)

Operating Operating

FiscalYearsEnding30-Sep Leases FiscalYearsEnding30-Sep Leases

2015 772 2015 662

2016 774 2016 676

2017 744 2017 645

2018 715 2018 593

2019 674 2019 534

Thereafter 2592 Thereafter 1877

TotalMinimumPayments 6271 TotalMinimumPayments 4987

Less:Interest 981 Less:Interest 742

PVofMinimumPayments 5290 PVofMinimumPayments 4245

CapitalizationofOperatingLeases CapitalizationofOperatingLeases

Pre-TaxCostofDebt 3.71% Pre-TaxCostofDebt 3.71%

NumberYearsImpliedbyYear6Payment 3.8 NumberYearsImpliedbyYear6Payment 3.5

Lease PVLease Lease PVLease

Year Commitment Payment Year Commitment Payment

1 772 744.4 1 662 638.3

2 774 719.6 2 676 628.5

3 744 667.0 3 645 578.2

4 715 618.0 4 593 512.6

5 674 561.8 5 534 445.1

6&beyond 674 1979.4 6&beyond 534 1441.8

PVofMinimumPayments 5290.2 PVofMinimumPayments 4244.6

PresentValueofOperatingLeaseObligations(2013) PresentValueofOperatingLeaseObligations(2012)

Operating Operating

FiscalYearsEnding30-Sep Leases FiscalYearsEnding30-Sep Leases

2014 610 2013 516

2015 613 2014 556

2016 587 2015 542

2017 551 2016 513

2018 505 2017 486

Thereafter 1855 Thereafter 1801

TotalMinimumPayments 4721 TotalMinimumPayments 4414

Less:Interest 719 Less:Interest 686

PVofMinimumPayments 4002 PVofMinimumPayments 3728

CapitalizationofOperatingLeases CapitalizationofOperatingLeases

Pre-TaxCostofDebt 3.71% Pre-TaxCostofDebt 3.71%

NumberYearsImpliedbyYear6Payment 3.7 NumberYearsImpliedbyYear6Payment 3.7

Lease PVLease Lease PVLease

Year Commitment Payment Year Commitment Payment

1 610 588.2 1 516 497.5

2 613 569.9 2 556 516.9

3 587 526.2 3 542 485.9

4 551 476.3 4 513 443.4

5 505 420.9 5 486 405.1

6&beyond 505 1420.9 6&beyond 486 1378.8

PVofMinimumPayments 4002.5 PVofMinimumPayments 3727.6

EffectsofESOPExerciseandShareRepurchasesonCommonStockBalanceSheetAccountandNumberofSharesOutstanding

NumberofOptionsOutstanding(shares): 1.2AverageTimetoMaturity(years): 4.10ExpectedAnnualNumberofOptionsExercised: 0.3

CurrentAverageStrikePrice: 15.08$CostofEquity: 9.20%CurrentStockPrice: $121.06

1 2 3 4 52016E 2017E 2018E 2019E 2020E

IncreaseinSharesOutstanding: 0.3 0.3 0.3 0.3 0AverageStrikePrice: 15.08$ 15.08$ 15.08$ 15.08$ -$IncreaseinCommonStockAccount: 4 4 4 4 -

ChangeinTreasuryStock -35,000 -30,000 -30,000 -30,000 -30,000ExpectedPriceofRepurchasedShares: 121.06$ 132.20$ 144.37$ 157.65$ 172.16$NumberofSharesRepurchased: (289) (227) (208) (190) (174)

SharesOutstanding(beginningoftheyear) 5,578 5,289 5,063 4,855 4,665Plus:SharesIssuedThroughESOP 0.3 0.3 0 0 0Less:SharesRepurchasedinTreasury 289 227 208 190 174SharesOutstanding(endoftheyear) 5,289 5,063 4,855 4,665 4,491

VALUATIONOFOPTIONSGRANTEDINESOP

TickerSymbol AAPLCurrentStockPrice $121.06RiskFreeRate 2.82%CurrentDividendYield 1.50%AnnualizedSt.Dev.ofStockReturns 33.05%

Average Average B-S ValueRangeof Number Exercise Remaining Option ofOptionsOutstandingOptions ofShares Price Life(yrs) Price GrantedRange1 1.2 15.08 4.10 100.39$ 120$

Total 1.2 15.08$ 4.10 107.63$ 120$

SensitivityAnalysisDCFPrice MacGrowth5-yrCAGR

$153.26 -1.00% 0.00% 1.00% 2.00% 3.00% 3.50% 4.00% 4.50% 5.00%-1.00% $137.71 $138.21 $138.72 $139.26 $139.83 $140.12 $140.41 $140.71 $141.020.00% $140.62 $141.12 $141.64 $142.18 $142.74 $143.03 $143.35 $143.68 $144.021.00% $143.74 $144.29 $144.86 $145.46 $146.08 $146.40 $146.73 $147.06 $147.402.00% $147.26 $147.81 $148.38 $148.98 $149.60 $149.92 $150.24 $150.58 $150.92

iPhoneGrowth 3.00% $150.92 $151.47 $152.04 $152.64 $153.26 $153.58 $153.90 $154.24 $154.585-yrCAGR 3.50% $152.80 $153.35 $153.93 $154.52 $155.14 $155.46 $155.79 $156.12 $156.46

4.00% $154.73 $155.28 $155.85 $156.45 $157.07 $157.39 $157.71 $158.05 $158.394.50% $156.69 $157.24 $157.81 $158.41 $159.03 $159.35 $159.68 $160.01 $160.355.00% $158.69 $159.24 $159.81 $160.41 $161.03 $161.35 $161.68 $162.01 $162.35

DCFPrice CVgrowthofNOPLAT$153.26 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50%1.100 $157.81 $165.24 $173.88 $184.05 $196.18 $210.92 $229.20 $252.47 $283.111.150 $153.66 $160.57 $168.56 $177.91 $189.00 $202.35 $218.76 $239.39 $266.121.200 $149.75 $156.19 $163.59 $172.21 $182.37 $194.52 $209.31 $227.71 $251.211.250 $146.07 $152.07 $158.95 $166.92 $176.25 $187.34 $200.73 $217.22 $238.02

Beta 1.316 $141.51 $147.00 $153.26 $160.46 $168.85 $178.73 $190.54 $204.91 $222.781.350 $139.29 $144.53 $150.51 $157.36 $165.31 $174.63 $185.73 $199.16 $215.741.400 $136.16 $141.08 $146.66 $153.03 $160.39 $168.98 $179.14 $191.33 $206.241.450 $133.20 $137.81 $143.03 $148.97 $155.80 $163.73 $173.05 $184.16 $197.631.500 $130.38 $134.72 $139.61 $145.16 $151.51 $158.84 $167.42 $177.57 $189.79

DCFPrice CVgrowthofNOPLAT$153.26 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50%6.50% $184.72 $196.07 $209.69 $226.34 $247.15 $273.91 $309.58 $359.52 $434.447.00% $171.96 $181.34 $192.42 $205.73 $221.98 $242.31 $268.44 $303.28 $352.067.50% $161.02 $168.87 $178.03 $188.86 $201.86 $217.74 $237.59 $263.11 $297.158.00% $151.54 $158.19 $165.86 $174.81 $185.39 $198.08 $213.60 $232.99 $257.92

WACC 8.61% $141.50 $146.99 $153.25 $160.45 $168.84 $178.71 $190.52 $204.89 $222.759.00% $135.95 $140.85 $146.40 $152.75 $160.07 $168.61 $178.70 $190.81 $205.629.50% $129.46 $133.72 $138.50 $143.92 $150.12 $157.27 $165.62 $175.48 $187.3110.00% $123.66 $127.38 $131.53 $136.21 $141.51 $147.56 $154.55 $162.70 $172.3410.50% $118.44 $121.71 $125.34 $129.40 $133.97 $139.15 $145.06 $151.89 $159.86

DDMPrice MacGrowth5-yrCAGR$149.46 -1.00% 0.00% 1.00% 2.00% 3.00% 3.50% 4.00% 4.50% 5.00%-1.00% $130.19 $130.84 $131.53 $132.24 $132.98 $133.36 $133.75 $134.15 $134.550.00% $134.06 $134.72 $135.40 $136.12 $136.86 $137.24 $137.63 $138.02 $138.431.00% $138.10 $138.75 $139.44 $140.15 $140.89 $141.27 $141.66 $142.06 $142.46

iPhoneGrowth 2.00% $142.30 $142.95 $143.64 $144.35 $145.09 $145.47 $145.86 $146.26 $146.665-yrCAGR 3.00% $146.67 $147.32 $148.01 $148.72 $149.46 $149.84 $150.23 $150.63 $151.03

4.00% $151.21 $151.87 $152.55 $153.26 $154.00 $154.39 $154.77 $155.17 $155.585.00% $155.93 $156.59 $157.28 $157.99 $158.73 $159.11 $159.50 $159.90 $160.306.00% $160.84 $161.50 $162.18 $162.90 $163.64 $164.02 $164.41 $164.80 $165.217.00% $165.94 $166.60 $167.28 $168.00 $168.74 $169.12 $169.51 $169.90 $170.31

DDMPrice PayoutRatio$149.46 15.00% 20.00% 22.00% 25.00% 28.03% 30.00% 35.00% 40.00% 45.00%1.00% $137.61 $139.96 $140.89 $142.29 $143.71 $144.63 $146.96 $149.29 $151.611.50% $139.66 $142.03 $142.97 $144.38 $145.81 $146.74 $149.09 $151.43 $153.772.00% $141.76 $144.14 $145.09 $146.52 $147.95 $148.89 $151.25 $153.62 $155.97

iPhoneGrowth 2.50% $143.90 $146.30 $147.25 $148.69 $150.14 $151.08 $153.47 $155.85 $158.225-yrCAGR 3.00% $146.08 $148.49 $149.46 $150.91 $152.37 $153.32 $155.72 $158.12 $160.51

3.50% $148.30 $150.74 $151.71 $153.17 $154.64 $155.60 $158.02 $160.44 $162.854.00% $150.57 $153.02 $154.00 $155.48 $156.96 $157.92 $160.36 $162.80 $165.234.50% $152.88 $155.36 $156.34 $157.83 $159.32 $160.29 $162.75 $165.21 $167.665.00% $155.24 $157.73 $158.73 $160.22 $161.73 $162.71 $165.19 $167.66 $170.13