Fleck wrote:
just following up on our discussion; I thought this article was interesting when combined with our discussion of Trump's tax plan, including the repatriation of cash part.
http://www.usatoday.com/...rows-again/80451180/ I'm a bit of a dummy when it comes to the higher level of economics and financing - why with so much cash does Apple need to still borrow money? And why the mountain of cash in the first place? What is the point of that?
As to the repatriation of U.S. cash - are you talking about US cash that is abroad? If that's the case, I have often wondered how big that amount was. I spent a year traveling around the world in the mid 1990's - everyone and everywhere back then even in the most remote places in far away places like Vietnam or Cambodia would be working in U.S. cash. It was like the local currency was irrelevant. What is the total number of US dollars under mattresses and in other more legit and secure places around the world? That has to be a substantial number
No expert either I will tell you what I think
Apple has ton of cash because the have made tons of profit in us and internationally. Many of their shareholders believe if they are not going to use to investthey should return to shareholders via dividend (as a long time shareholder I agree; I have had almost my entire original investment returned via dividends on a stock that is wildly higher than when I bought it: win win). All of this is a good problem to have and why apple is a good company
My understanding from a street.com article is $10b in cash resides in US and $200+b resides overseas. I don't know whether it was earned overseas and kept overseas or some was transferred there
Either way Apple is choosing to take on debt in the form of bonds at historically low interest rates to pay out dividends. I assume because the tax rate and/or what they believe is investment return on this cash is higher than using the cash. Kind of like the decisions individuals make to prepay a mortgage or not but in reverse.
Assuming you have to pay 25-35% tax rate on this "cash" (don't know why/if that's true) before it can be used to pay div. better to issue debt at 5% (interest which is deductible) and keep the cash for other investment.
Trumps tax plan we discussed earlier said approx $2.5T in cash from us companies lies overseas. If true that means almost 10% of that is apple cash. Trump proposes that his tax relief would be paid for in part by raising tax on very rich and part by 10% tax on this overseas cash. If you leave overseas you still pay 10%. But a reduced 10% rate (again I don't know what rate is/how it works currently) allows companies to bring back and use in us for expansion, payment of dividends etc etc. 10% tax vs. issuing bonds at 5% may change the thinking above
Not building a case for anything. I have just enjoyed our discussion and wanted to forward a second article which I think relates to the first so we could both continue our education
Thanks