Apple Computers Decided to Raise a Large Amount of Money

question 51

Multiple Choice

Apple Computers decided to raise a large amount of money by selling bonds (previously the company had little or no debt) and use the proceeds to buy back billions of dollars worth of the company's shares.The decision was made after Apple stock lost more than 40% of its value in a six month period when most share prices were rising.Why did Apple decide to buy back some of its shares?

• A)Apple wanted to lower its cost of capital by substituting debt for equity.
• B)Apple wanted to appease disappointed investors by offering them cash for their shares.
• C)Apple wanted to increase earning per share by reducing the number of shares outstanding.
• D)All of the above are reasonable explanations for Apple's decision.

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Definitions:

Annual Interest Rate

The percentage of principal that is paid as interest to the lender annually, not accounting for the compound interest within that year.

Maturity Value

The final amount payable at the end of a financial instrument's term, including the principal and accumulated interest.

Commercial Paper

Promissory notes issued by large corporations to borrow funds for a short term.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for the loans they take from a country's central bank or Federal Reserve.