1. Apple STUDENT MANAGED INVESTMENT FUND Katherine Gonzalez Zachary Schwager Carlos Valcarcel Special Thanks to: John Neumann

2. Agenda I. Company Overview II. Product line-up III. Geographical Sales IV. Apple 10 yr Stock chart V. Industry Overview VI. Current Events VII. Fundamental Analysis VIII. DuPont Analysis IX. Market Share X. Pro Forma Income Statement XI. Relative Valuation XII. Absolute Valuation XIII. Recommendations

3. Company Overview Apple Inc. was founded by Steve Jobs and Steve Wozniak in 1976. Apple Computer, Inc., is an American multinational corporation with a focus on designing and manufacturing consumer electronics and closely related software products As of September 2007, the company operates 194 retail stores in the United States, and more in the United Kingdom, Japan, Canada, and Italy For a variety of reasons, ranging from its philosophy of comprehensive aesthetic design to their advertising campaigns, Apple has engendered a distinct reputation in the consumer electronics industry and has cultivated a customer base that is unusually devoted to the company and its brand, particularly in the United States.

4. Product line-up Computers Cellular phones MP3 players Software Online Music Vendor Distributes third party computer Accessories “Apple TV” an online television adapter

5. Revenue by Product

6. Geographical Sales The Company manages it business on a geographic basis. The operating segments consist of Americas, Europe, Japan, and Retail.

7. AAPL 10 Year Stock Chart

8. Industry Overview Apple Inc. competes in the Technology Industry, Their focus is: ◦Computers ◦Cellular Phones ◦Online music ◦Software ◦Computer accessories The Technology Industry is highly competitive and characterized by rapid technological advances in both hardware and software. Because Apple participates in several components of the highly dynamic Technology Industry, Apple’s strategy has been to be an Innovator rather than a follower. Apple’s Greatest competitor is the Microsoft Corporation.

9. Current Events Financial Results ◦Apple reported highest ever 4 th quarter revenue and earnings:  Revenue increase over 6.22 billion or 29%, driven by strong Mac and iPods sales  Robust growth from iTunes revenue  2007 Fiscal Year EPS: $3.93, up 73% iPhone ◦Apple sold over 1.1 million iPhones over the last quarter, ◦ Began selling iPhones in Europe November 9, 2007 ◦Apple plans to sell 10 million iPhones in 2008 Apple will also unveil a new sub-portable MacBook ◦The ultra-portable laptop is expected to be 50% thinner than the existing MacBook ◦Will contain flash-based memory instead of a disc drive. New Apple store highlights "geniuses," services ◦Apple stores pulled in $1.25 billion in revenue in the company's last fiscal quarter ◦ 42% jump from a year earlier and accounting for a fifth of total revenue.

10. Income/Cash Flow Sales Net Income Cash Flow from Operations

11. Sales Growth

12. Net Income Growth

13. Cash Flow from Operations

14. Operating Performance ROE ROA EBIT Net Profit Margin Asset Turnover

15. ROE

16. ROA

17. EBIT

18. Net Profit Margin

19. Asset Turnover

20. Short Term Liquidity Current Ratio Quick Ratio Receivables Turnover

21. Current Ratio

22. Quick Ratio

23. Receivables Turnover

24. Long-term Solvency

25. DuPont Analysis Decompose ROE into its components (Asset Turnover, Net Profit Margin, Financial Leverage) in order to analyze what might be trying to change ROE. Net Profit Margin Has significantly been increasing and affecting ROE.

26. Market Share A comparison with Apple’s main competitors to establish it’s market-share in the industry

27. Pro Forma Income Statement Industry Revenues --------------------->379,580.90 307,620.00 461,917.00 2006 2007 2008 Market Share5.09% 7.80% 6.50% Desktop 3,319.017.18%4,020.016.75% Portables 4,056.021.00%6,294.026.22% Ipod 7,676.039.74%8,305.034.60% Other Music Related products & Services 1,885.09.76%2,496.010.40% Iphone & Related products and Serivces - 123.00.51% Peripherals & other hardware 1,100.05.70%1,260.05.25% Software, service, and other net sales 1,279.06.62%1,508.06.28% Total Net Revenue 19,315.0100.00%24,006.0100.00% 30,045.0 Total COGS 13,717.00 15,852.00 21,559.95 GROSS PROFIT 5,598.00 8,154.00 8,485.05 Gross Profit Margin28.98% 33.97% Total COGS as % of Rev 71.02% 66.03% 71.76% SGA, Operating Expenses 3,145.0 3,745.0 4,482.71 Op Exp as % of Revenue 16.28% 15.60% 14.92% OPERATING INCOME $2,453.00 $4,409.00 4,002.33

28. Pro Forma Income Statement cont. Unusual Item 0 OPERATING Inc After Unusual Item $2,453.00 $4,409.00 4,002.33 OTHER INCOME (EXPENSE) Interest Income 394.0 647 657.5624 Interest Expense 0.0 Net Interest Income (Expense) 394.0 647.0 657.6 Gain on sales of prop/equip 0.0 0 Other Income (Expense) Net 29.0 48.0 EBT $2,818.00 $5,008.00 4,611.90 Income Taxes $829.00 $1,512.00 1,385.87 EAT $1,989.00 $3,496.00 3,226.02 NET INCOME $1,989.00 $3,496.00 3,226.02 Diluted Shares 877.5 889.3 905.3 EPS $2.27 $3.93 3.56 Realized Tax Rates:29.42% 30.19% 30.05%

29. Relative Valuation

32. Absolute Valuation FCFF Model

33. Absolute Valuation - Cost Of Capital

34. Absolute Valuation

35. E(FCFF) = FCFF 2007 * (1+g) t

36. Absolute Valuation Terminal Value E(FCFF) 2014 = FCFF 20013 * (1+g)

37. Absolute Valuation

38. Recommendation Buy 100 Shares