: Dividend Analysis and Preliminary Valuation assignment, you will compute the of the company’s stock value based on historical dividend data for your company (APPLE INC) and a market-based equity rate of return. In this analysis, you will use the constant growth formula to compute two estimates of the stock price, a high-end value and a low-end value. Analysts frequently assess the stock value using a range of values, based on reasonable assumptions for a high-end and a low-end range.
Once you have calculated two stock values, you will compare the company’s calculated values compared to the current market price of the stock. This comparison will help you determine if the stock is currently under-valued or over-valued, and will help you determine your recommendation of buy, hold, or sell. Analysts prepare value estimates based on historical data for the company as well as an understanding of expected future equity rates of return. It is important to understand that the constant growth formula provides an estimate of value, and analysts, like all humans, can be both right and wrong. The inputs used in the formula will greatly impact the value conclusion.
Write:
In your paper, address the following five parts in a Word document:
Part 1: Dividend Analysis (two to three paragraphs):
Create a table that illustrates the annual dividends per share paid by your selected company (APPLE INC)over the past 8 years. If the company has not paid dividends for 8 years, include as many years as available.
Calculate the growth in annual dividends per share each year and include this annual growth rate in your table.
To find the dividends your company has paid in the past 8 years, review the BUS401 |Picking a Company that Pays Dividends (Links to an external site.) video from Week 1.
Calculate the average dividend growth rate over the following periods:
the most recent 8 years,
the most recent 5 years, and
the most recent 3 years.
Summarize the trend in the dividend growth rates.
Have the dividend growth rates increased or decreased? By how much? Has the increase or decrease been steady or varied from year to year?
Determine two distinct estimates of the future dividend growth rate for this company: a high-end growth rate and a low-end growth rate. You are to choose these growth rates based on what is reasonable from the data you have on the company’s dividend growth in prior years, as presented in your table. The two future dividend growth rates can be any of following:
the most recent year growth rate;
the average growth rate over the 8-year period;
the average growth rate over the most recent 5 years;
the average growth rate of the most recent 3 years; or
a growth rate you select that is reasonable, given the 8-year, 5-year, and 3-year averages, as well as the recent year growth rates.
Sample Solution
