Apple Inc. (AAPL) Prev Close: Info above. 1. Use the following three methods to

Question

Apple Inc. (AAPL)

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Info above.

1. Use the following three methods to determine if you will purchase this stock at current market price. Assume market interest rate ( r) as 12%, constant dividend growth rate (g) as 10%, EPS will increase 10% next year, and industry average P/E ratio as 20 times

(1) True value method (Gordon dividend valuation model )

(2) Annual rate of return method (Gordon dividend valuation model)

(3) P/E multiples approach

2) If you purchased this stock at 52 week range low, sold it at current market price, and you also received dividend during this holding period; calculate holding period rate of return.

Can Anybody Help me Thanks!

Prev Close:

118.88 Open: 119.14 Bid: 118.02 x 100 Ask: 118.10 x 1000 1y Target Est: 148.64 Beta: 0.99547 Next Earnings Date: N/A

Explanation / Answer

True value method (Gordon dividend valuation model)

This model requires the following:

Here in our case, the assumed dividend growth rate is 10% which is 0.10

                             the rate of return (market interest rate) is 12% which is 0.12

                             the expected dividends from one year is 10% increase in 9.22 which is 10.142

Therefore, True value method is calculated as:

= D1/ (RR-GR)

= 10.142/ (0.12-0.10)

= 10.142/0.02

= $507.10

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