Reference no: EM133696540
Assignment:
Valuing "Apple Inc. (APPL)"
You can use multiple sources of information for this project, such as: Value Line, Yahoo Finance, Reuters, Wall Street Journal, etc.
The Treasury yield curve is available
Use the information from Reuters to answer Questions 1-3.
1) First calculate the market capitalization (annual) rate assuming a risk free rate equal to the 10yr Treasury yield and a forecasted 7% market risk premium. Use the beta from the Reuters page. According to the Reuters page, what is the consensus forecast on Apple's long-term growth of earnings per share? Is there a lot of disagreement between the analysts? What is Apple's plowback ratio? Given Apple's ROE, do you agree with the management's choice of the plowback ratio?
2) Now use the ROE and the plowback ratio, calculate the growth rate of the company. How does this compare to analysts' long-term earnings growth forecast? Is it realistic for Appleto sustain this growth rate forever? (Your answer to this question can be subjective.) Based on the analysts' forecasts what is your forecast for earnings in each of the next 5 years?
3) Now assume both Apple earnings and dividends grow at the above calculated rate for 5 years but then dividend growth slows down. Approximately what growth rate would dividends need to grow at from year 5 on to rationalize current share prices (closing price on March 30th)? (Hint: Use the two-stage growth model.)
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