Apple borrows money.

[ZenOps]

http://www.wired.com/business/2013/05/why-fabulously-wealthy-apple-is-borrowing-money/

Interesting.

You never want to hold or bring your money back to a system where you have to pay taxes.

Its much more profitable to just borrow the money instead of going into your offshore "segregated" cash reserves.

Learning something new every day.

[Modelexis]

Not gonna lie, I understood almost none of that.

Would there be any advantage to buying apple bonds than stocks?

This is where the article loses me:

Of that interest, 100 percent is tax deductible, so after taxes, the cost of the interest is 65% of the base rate. That means Apple can pay out a penny or more for every dollar it raises in bonds, or lose about one-third of every foreign dollar it brings back home.

[triplep]

Originally posted by Modelexis

This is where the article loses me:

Of that interest, 100 percent is tax deductible, so after taxes, the cost of the interest is 65% of the base rate. That means Apple can pay out a penny or more for every dollar it raises in bonds, or lose about one-third of every foreign dollar it brings back home.


Apple brings in $1 = .35 cents in taxes

Apple borrows $1 @ 1% = .01 cents in interest, this decreases income by .01 cents thus reducing taxes owing by .0035 cents. Hence, for every $1 apple borrows @ 1%, they will effectively be paying " 0.0065 cents" to borrow money.

Therefore, they are saving .35 - .0065 = .3435 cents in taxes on every single dollar that they borrow instead of paying taxes on every single dollar that is brought in.


So to put it into prospective:

To bring in 17 billion from over seas Apple would have to pay 5.95 billion in taxes.

If Apple issues bonds for 17 billion @ 3% as indicated by the article, they will effectively be paying 1.95% in interest for a total amount of interest expense each year of approximately 331 million. This means that these bonds would have to be outstanding for almost 18 years for Apple to pay out interest equivalent to the 5.95 billion that they would have to pay in taxes.

Hope that helps.

[Modelexis]

Yeah, thanks - that makes sense.

[ExtraSlow]

This kind of shit is pretty common. The large Oil and Gas companies have been doing it for years.

[Xtrema]

Hence the "Design in California" commercials lately from Apple.

[BigMass]

while i'm not a fan of Apple, "don't hate the playa' hate the game"