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Apple: Corporate Governance and Stock Buyback Case Solution

Solution Id Length Case Author Case Publisher
1298 639 Words (2 Pages) Won-Yong Oh, Seoyeon Park Ivey Publishing : W14736
This solution includes: A Word File A Word File

Apple is faced with a tough decision regarding the cash that it has available. There are two options for the company. Either it can use this money to reduce the number of shares that the company has in the stock market. The other option is to invest this cash in Apple’s growth by investing the cash in mergers and acquisitions, resulting in the growth of the company.

If the company decides to opt for the stock buyback option, it will have some pros and cons. The pros are that the company’s share price will increase, increasing the value of the company. Furthermore, it would result in the company reducing its taxes because of the lower number of shares. It would also result in the money being invested for the increase in the value of the company whereas, it is not being invested elsewhere. Also, the buyback would still leave cash for the company to be invested in research and development activities including innovation efforts.

Following questions are answered in this case study solution

  1. If you are one of Apple’s shareholders, will you vote for or against the stock buyback proposal?

Case Analysis for Apple: Corporate Governance and Stock Buyback Case Solution

However, the cons of this situation is that increasing value of the company on the stock exchange by using financial tools would not be sustainable. In the short-term, it would increase the share price of the company, but it would not be sustainable for the long-term. Also, this stock buyback option is not an action that is aligned with the goals and vision of the company. All the actions and tactics that the company adopts should be done in line with the strategic vision of the company and should contribute to its achievement. However, this is just an option that presents short-term gain. In the future, the position of the company in the stock market would be the same, and the increase in the value of the stock will become dependent on financial re-engineering that is not sustainable and profitable for the company. Another con of this situation is that the money would not result in the company’s growth. When the company requires money to invest in other operations, this action would not reap profits for the company or result in ‘investment’ that generates benefits for the company. The benefit of this action will be enjoyed in the short-term.

The other option is to invest this money in growth opportunities. The cons of this situation is that the company would increase the tax payable by increasing the size of the business. This is because increased growth and investment would require increased taxes that the company is trying to avoid by keeping this cash in foreign reserves.

The pro of this situation is that the company will grow, and the value of the stock of the company will increase which will be sustainable. This is because the value of the company will be increased by growth and investment efforts. Also, the investment would generate further profits for the company that can be distributed among the stockholders.

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