How Debt Could Make Sense for Apple

Some analysts have suggested that Apple  (NASDAQ: AAPL  )  should raise debt to address its foreign cash problem. While many investors may see this as counterintuitive, issuing debt could potentially reduce Apple's weighted average cost of capital, or WACC, since debt typically carries lower costs relative to equity. However, the cost of debt is explicit, while the cost of equity is implicit, which makes it a difficult decision to make.

In the video below, Fool contributor Evan Niu, CFA, explains how debt could actually benefit Apple.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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  • Report this Comment On April 17, 2013, at 11:19 AM, garysund wrote:

    My personal feeling is that apple could care less about what any analyst or investors say they should or should not do. They are very happy the stock price has dropped down almost 50% from its high. In fact if it continues to drop so be it. They are more concerned with the business of selling and making huge profits that lets them continue to bank cash. They can do the buy backs sooner at a very low cost. My take is they will continue to buy back shares and at some point the stock hits a level that it is paying above a 3% dividend without even a dividend increase. There comes a point where between the huge dividend payout and the cash cow that the stock recovers or even makes a new high at some point. You can either just drop out as a investor until you see it start moving up again ( which many already have) or go for the ride and pick up the dividend. Apple wins either way.

  • Report this Comment On April 17, 2013, at 11:44 AM, Jjkiam wrote:

    It is abundantly clear that Tim Cook and the board don't feel they have any fiduciary responsibility to shareholders or that the collapse of the value could impact consumer impressions of apple as a winner let alone future retail investor participation. Never seen a company do nothing in the face of 7 months of negative stock decreases unless they believe this is a reasonable price the stock should be at. All the theories of Apple waiting to see the price fall below 400 before acting don't ring true. I think Tim Cook is now a proven disaster as CEO. All he has done is apologised in humiliating fashion. Then had nothing to say about a collapsing stock price for 7 months except " I don't like it". Been repeating for the same period how Apple is "studying" what to do with the enormous amount of shareholder cash equivalents earning almost no interest. Gone to China only to see his company targeted in a smear campaign. Seen the stock take further hits after every public appearance he has made. But worst of all made unnecessary comments for 6 months about the apple pipeline and not shown ANYTHING new. Better to have kept his mouth closed, stayed in Cupertino and God forbids actually lead this company. Apple needs a CEO that can walk and chew gum at the same time

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