Discussion 2 Week 7 Chapter 13 Corporate Valuations - Assignment Example

CORPORATE VALUATION al Affiliation) Looking at the dispute in Apple that highlights investor’s dilemma, the questions asked by many investors include; the worthiness of the business is the company’s market capitalization of $440 billion or is it the market capitalization of $303 billion? $303 billion being net of the cash pile of $137 billion (Eley, 2013). These and other questions have brought continuous debate on the value of shareholders in the company. It also brought the question on the importance of cash to shareholders when valuing a company.

Due to this dispute, David Einhorn, the activist hedge fund manager has launched a legal bid in order to force Apple to return the pile up cash to shareholders. Also, a member of the cross-asset team at “Societe Generale Bank” strongly believes that cash does not give returns to shareholders. From these disputes, it was seen that many directors in the IT sector prefer to keep cash. This helps them take advantage of new opportunities instead of giving to shareholders.To avoid such disputes, companies should ensure that such decisions have the support of shareholders.

To ensure that this is the case, companies need to make sure that rules on decision making are in the shareholders’ agreement or the company’s article of association. These rules will then a guide when making decisions (Laro, 2005). For instance, in case of piling cash, with the help of the rules, companies will ensure that the decision is within the rules. This will help avoid disputes and will also help the company in case there is a legal bid. It is also necessary to inform shareholders on decisions made by the company.

For example, decisions to keep cash should have valid evidence of the gains that the company and its shareholders should expect from this move. This is because holding on shareholders’ income in the form of cash will make shareholders doubt the company’s commitment to them. For example, in the case of Apple, with proper disclosure, there will not be a dispute over retaining cash. The dispute arose as a result of doubt over the cash pile of $137 billion.Another important point for companies to note is that shareholders are most interested in the return on their investment.

To them, the value of the company is crucial as this will reflect what they should expect from their investment in terms of dividend. Therefore, to avoid disputes, companies should ensure that they balance between the money that the company keeps for expansion and the money payable to shareholders in terms of dividend. Shareholders need to get value for their money (Hitchner, 2010). For example, in the case of Apple, investors need to get value for their money. The company needs to balance between investors’ return and what to retain.

This will avoid cases of legal bids to force the company return the pile up cash to shareholders.BibliographyEley, J. (2013, 02 08). Apple Dispute Highlights Investor Dilemma. Retrieved 02 18, 2013, from Tech Hub: http://www.ft.com/cms/s/0/ef693dc2-720a-11e2-89fb-00144feab49a.html#axzz2LEdew2GyHitchner, J. (2010). Financial valuation: Applications and models. Hoboken, N.J: Wiley.Laro, H. (2005). Business Valuation and Taxes: Procedure, Law, and Perspective. Hoboken: John Wiley & Sons.