The intrinsic valuation of Apple Inc. is based on a Discounted Cash Flow (DCF) model using Free Cash Flow to the Firm (FCFF), discounted at the company’s Weighted Average Cost of Capital (WACC). The main assumptions driving the valuation are summarized below.
Revenue Growth
Revenue is forecast over a five-year explicit period, reflecting Apple’s mature market position and stable demand for its core products and services. Growth gradually converges to a long-term terminal growth rate of 2.5%, consistent with expected long-run global GDP and inflation.
Operating Margins
Operating margins are assumed to normalize slightly below recent historical peaks, reflecting competitive pressures in hardware, offset by the higher-margin Services segment. A steady-state operating margin of approximately 26–27% is used in the terminal period.
Tax Rate
A normalized effective corporate tax rate of 16.5% is applied, based on Apple’s historical average and current U.S. and international tax structure.
Reinvestment and Capital Expenditures
Capital expenditures are modeled at approximately 3% of revenues, in line with Apple’s historical reinvestment intensity. Net working capital requirements are assumed to remain low, reflecting Apple’s efficient operating cycle and strong cash management.
Discount Rate (WACC)
The Weighted Average Cost of Capital is estimated using the Capital Asset Pricing Model (CAPM) and current market conditions:
-
Risk-free rate: 4.0%
-
Equity risk premium: 5.5%
-
Levered beta: 1.2
-
Cost of equity: 10.6%
-
After-tax cost of debt: 4.3%
-
Target capital structure: 85% equity / 15% debt
This results in a WACC of 9.7%, which is used to discount future free cash flows.
Terminal Value
Terminal value is calculated using the perpetual growth method with a 2.5% terminal growth rate, representing sustainable long-term expansion in line with global economic growth.