DISCUSSION ABOUT SEVERAL ISSUES IN THE COMAPANY BASED ON THE CASE STUDY

Apple is the world's second-largest information technology company by revenue after Samsung Electronics, and the world's third-largest mobile phone maker. It is also the largest publicly traded corporation in the world by market capitalization, but with all that, the company hardly gives any dividend to its shareholders. Apple recorded an increased of 197.82% in net profit from 2010 to 2012 with earning of $98 million in 2012, their share price increases to 50.8% from 2011 to 2012. Making so much profit does not guaranty any dividend to shareholders because Apple did not pay any dividend to shareholders since 2005 and did not declare dividend since 2006 up third quater of 2012. Apple's decision not to offer dividend will provide the best value for their undistributed cash and with that the cash will be used to increase their Research and Development expenses. For example, with Apple's upside potential and market penetration (with the prospects of higher global penetration), investing its resources into obtaining content for iTunes, improving upon the TV and movie streaming offerings of Netflix, and building a subscription a la carte offering may be in the best interest of shareholders. According to Anna N. Danielova, assistant professor of finance at the DeGroote School of Business in Hamilton, Ont. It is not unusual for Apple not to pay dividends because about 70 percent of firms or more do not pay dividends. Among those are high-growth companies which choose not to pay dividends for the following reasons: they need to finance their growth and internally-generated earnings are cheaper, so all generated earnings are reinvested back; and their shares are presumably mostly held by investors who prefer capital gains over dividends. But, in the case of Apple Inc, their R&D expenses are only 2% of total 2012 revenue which do not affect the profits at all. Many shareholders felt that Apple is not being nice when it comes to returning the favor to the investors. With all the profits gain, this shows that Apple is not considered about shareholders wealth. Comparing to Samsung, they are paying dividend to shareholders even they are making profit growth of 43.71% far behind Apple and are using only 7.627% and 5.06% out of their total profit as dividend. This shows that it is not required for the company to spend so much percentage of their profit in giving the return to shareholders in terms of dividend. Alternatively, managers steals investors fund where the self-interest managers may likely to undertake unprofitable projects that may not benefit the business as much as to them, mislocating fund and overpay to serve private interest. For example in the case involving Apples CEO, Tim Cook where one of the shareholders the National Center for Public Policy Research (NCPPR) asked Cook to provide information on the profitability of the projects that he is involving and to discontinue them if they proved unprofitable. This was a request by Cooks bosses that he focus on the job that he is supposed to be doing, which is maximizing value for shareholders. According to Tim, there are many things Apple does because they are right and just, and that a return on investment (ROI) was not the primary consideration on such issues. And he also mentioned to NCPPR that If you want me to do things only for ROI reasons, you should get out of this stock. The money that Tim Cook is blowing on trendy projects is not his own but the shareholders. The shareholders own the company, not Tim Cook. If Tim Cook wants to finance green energy projects or plant trees to combat climate change he is free to do so with his own money. But he has no right to commandeer other peoples money just because he thinks hes found a good cause. Apple also faced a lawsuit by hedging $137 billion of cash pile, David Einhorn, Greenlight capital filed a lawsuit and issued a letter to Apple shareholders urging them to share more of its cash to the investor but Apple fired back saying that the company already delivered $10 billion of its plan to return $45 billion to shareholders over the next three years.

DISCUSS ABOUT THE STRATEGIES THAT THE COMPANY COULD CONSIDER IN ORDER TO ACHIEVE THE GOAL OF THE CORPORATION BASED ON THE CASE STUDY

From time to time, Apple Inc. tried to find ways to overcome the agency issues which related to principal and agent problem mentioned before. The basic problem still remains that is; what to do with Apples cash pile. It does, in law and theory, belong to the shareholders. And perhaps it would be a good idea to raise the dividend payout. Dividend payout ratio indicate how well a companys earning to pay dividends to its shareholders. Commonly for a mature company, they tend to have a high dividend payout ratio. A portion of a companys net income goes to the shareholders where another portion is stored for future earnings growth. A stable company with solid dividend policy will definitely issue out a stable dividend payout. Apart from that, a company passably get involve in stock buyback program. A stock buyback program which frequently known as share repurchase is where a company will buy back all its shares from the market. Therere two ways buybacks shares can be carried out. There first one is tender offer and the second one is open market. Tender offer is where the company needs to submit, or tender their shares within a certain time frame presented to the shareholders. Once the company received all offers from shareholders, they will need to figure out a combination to buy the shares at lower cost. The next buybacks are open market. Open market as the phase suggests is buying shares on the open market. In a nutshell, a stock buyback is where a company buys its own shares using its cash. In the case of Apple Inc., on April 30, 2013, this issue made the headlines again when Apple Inc. completed its bond offering for the first time in nearly two decades. Instead of repatriating its $102 billion offshore cash that would have been taxed by the U.S. government, Apple chose to borrow $17 billion to finance its investments in the domestic market and share buybacks. Apple's cash position puts them in a position of strength. As they develop new opportunities and explore new markets, shareholders should embrace this fact that their choices become much more abundant when sitting on almost $100 billion in cash. Other than that, Apple also release a new policy requires executive officers to hold three times their annual base salary in stock where executives have five years to satisfy the requirement. The policy also reaffirms the companys existing policy of requiring the chief executive to hold 10 times his annual base salary and non-employee directors to hold five times their annual allowances. Theres always a value to simplify this, another alternatives is to align incentives by insisting that the management, the agents, must be substantial shareholders and thus also be principals. Manager who have serious agency issues (Like in Tim Cooks position as stated above) may adopt antitakeover precautions in ensuring their personal job security.

REFERENCE

Harford, J & Wang, C & Zhange, K. (Sept, 2014). Foreign Cash: Taxes, Internal Capital Markets and Agency Problem. http://fisher.osu.edu/supplements/10/14668/Foreign%20Cash%20201409125%20(2).pdf Marc. (March 6, 2014). The principle-agent problem at Apple. http://www.governmentalwaysfails.com/in-the-news-the-principal-agent-problem-at-apple/

Ghosh, P. (Feb 27, 2012). Apple: Why wont they pay dividends?. http://www.ibtimes.com/apple-why-wont-they-pay-dividends-214148

RightLine Writers .Stock Buybacks http://www.rightline.net/education/buybacks.html

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