Home » Accounting Question

Accounting Question

rong>Write:

In your paper, address the following five parts in a Word document:

Part 1: (two paragraphs)

Explain the three types of risk and beta, and how these concepts relate to a company’s required rate of return.

Part 2: (two paragraphs)

Find your company’s beta from a credible source.

You can get this information from the Mergent database or by looking it up on a financial website like

Yahoo! Finance

  • Compare your company’s beta to the market beta of 1.0.
  • Calculate the company-specific required rate of return using the CAPM formula.

    Show all calculations.

    Use the beta you determined for your chosen company

  • Use a risk-free rate of 2.0%.
  • For the market risk premium, use the following assumptions:

  • For a large capitalization company (greater than $10.0 billion in market capitalization) use 6.0% as the market risk premium.
  • For a mid-cap company (between $2.0 billion and $10.0 billion in market capitalization) use 8.0% as the market risk premium.

    For a small-cap company (less than $2.0 billion in market capitalization) use 11.0% as the market risk premium.

  • Compare the company-specific required rate of return you calculated to the required return based on size you used in Section 3: Dividend Analysis and Preliminary Valuation in Week 3 for the constant growth formula.
  • Determine whether the company-specific required rate of return higher or lower than the rate of return based on size that you used in Section 3 in Week 3 for the constant growth formula.
  • Recall that in the required rate of return (r) in Week 3 was assumed to be:

  • 12.0% for a large capitalization company.
  • 15.0% for a mid-cap company.
  • 18.0% for a small-cap company.
  • Explain the difference in required rate of returns.
  • Part 3: (two to four paragraphs)

  • Recalculate the estimate of the stock price that you completed in Week 3 using the constant growth formula.
  • Use the company’s specific required rate of return you determined using the CAPM in Part 2 of this assignment.
  • Review your selected growth rate from Week 3.
  • If the growth rate is higher than the new CAPM discount rate, you must reduce your selected growth rate.
  • Your growth rate cannot be higher than the discount rate, because the calculations will result in a negative stock price, which is not meaningful.

  • Include a short, written explanation to explain the revised growth rate.
  • Show your stock price calculation.

  • Compare the recalculated stock price to the current stock price per share of the company.
  • State whether the recalculated stock price is above or below the current market price.

    State whether the recalculated stock price indicates if the stock price is currently under-valued or over-valued in the market.

  • (See Section 9.3: Required Returns in your course text.)
  • State your recommendation for your concluded stock price for the company.
  • Use either the stock price from the constant growth formula using the CAPM required rate of return or the current market price.
  • Justify the conclusion of value for your stock based on the most important financial facts from the prior weeks’ analysis.
  • The Section 4: Valuation Conclusion paper

    Dividend Analysis and Preliminary Valuation of Apple Inc.
    Jazmen Davis
    The University of Arizona Global Campus
    BUS401: Principles of Finance
    Professor Leon Daniel
    6/2/24
    2
    Introduction
    Apple Inc. (AAPL) is a leading technology company based in Cupertino,
    California, known for designing, manufacturing, and marketing innovative products
    like the iPhone, Mac, and iPad, along with various services such as Apple Music and
    Apple Pay (Apple Inc, 2024). This analysis examines Apple’s dividend growth over
    the past eight years to determine its future dividend growth rate, aiding in stock
    valuation.
    Part 1: Dividend Analysis
    Dividend Table and Growth Rates
    A dividend is a portion of a company’s profits distributed to its shareholders
    (Saini, D., & Sharma, P., 2022). The table below showcases Apple’s annual dividends
    per share for the past eight years, along with the calculated growth rates for each year.
    Table 1: Annual Dividends per Share and Growth Rates for Apple Inc. (2016-2023)
    Year
    Dividend per Share (USD)
    2016
    0.55
    2017
    Calculation
    Growth Rate (%)
    0.60
    (0.60 / 0.55) – 1
    9.09%
    2018
    0.68
    (0.68 / 0.60) – 1
    13.33%
    2019
    0.75
    (0.75 / 0.68) – 1
    10.29%
    2020
    0.80
    (0.80 / 0.75) – 1
    6.67%
    2021
    0.85
    (0.85 / 0.80) – 1
    6.25%
    2022
    0.90
    (0.90 / 0.85) – 1
    5.88%
    2023
    0.94
    (0.94 / 0.90) – 1
    4.44%
    The table shows a 4.44% growth rate from 2022 to 2023, with each year’s rate
    calculated similarly, providing a comprehensive view of Apple’s dividend growth
    over the period.
    3
    The graph further illustrates Apple’s annual dividend growth rates from 2016
    to 2023, highlighting significant increases in 2017 and 2018, followed by a gradual
    decline, with the trend line indicating an overall downward trend.
    Calculation of Average Growth Rates
    The table below presents the average dividend growth rates for Apple Inc.
    over the most recent 8 years, 5 years, and 3 years, along with the detailed calculations.
    Table 2: Average Dividend Growth Rates for Apple Inc.
    Period
    Calculation
    Average Growth
    Rate (%)
    8 Years
    (0.0909 + 0.1333 + 0.1029 + 0.0667 + 0.0625 + 0.0588 + 0.0444) / 7
    7.99%
    5 Years
    (0.1029 + 0.0667 + 0.0625 + 0.0588 + 0.0444) / 5
    6.71%
    3 Years
    (0.0667 + 0.0588 + 0.0444) / 3
    5.52%
    Trend Analysis
    The dividend growth rates for Apple Inc. have exhibited a declining trend over
    the past eight years. The 8-year average growth rate stands at 7.99%, the 5-year
    average at 6.71%, and the 3-year average at 5.52%, as depicted in Graph. Initially, the
    growth rates were higher, notably in 2017 and 2018, but have gradually decreased
    each year, indicating a more conservative growth trajectory. This trend suggests that
    while Apple continues to increase its dividends, the growth rate is slowing, reflecting
    a maturation in its dividend policy.
    4
    Estimate of Future Dividend Growth Rate
    Based on historical data and current trends and above trend analysis, a future
    dividend growth rate of 5% for Apple Inc. is a prudent estimate. The average growth
    rates over the past 8 years (7.99%), 5 years (6.71%), and 3 years (5.52%) illustrate a
    clear downward trend. Plus, Apple’s robust financial position, characterized by strong
    earnings growth and substantial cash flow, supports this projection. The company’s
    consistent high revenue generation and strategic reinvestments in innovation and
    market expansion further validate the feasibility of a 5% growth rate. This
    conservative estimate aligns with recent patterns and ensures a realistic outlook for
    future dividend increases.
    Part 2: Preliminary Valuation
    Calculation of Stock Price Using the Constant Growth Formula
    Stock price is the current price of a single share of a public company on the
    stock exchange, determined by market demand and supply (Turnip, H., 2022). The
    most recent annual dividend per share (𝐷0 ) is $0.94. The estimated future dividend
    growth rate (𝑔) is 5%(0.05). With the required rate of return for a large-cap
    5
    company (𝑟) is 12%(0.12) the estimated stock price of Apple Inc. is calculated as
    follows:
    Step
    Calculation
    Result
    1
    2
    3
    Calculate future dividend: 𝐷0 × (1 + 𝑔)
    Calculate difference between required rate of return and growth rate: 𝑟 − 𝑔
    0.94 × 1.05
    0.12 − 0.05
    Apply constant growth formula:
    0.987
    0.07
    0.987
    0.07
    Clearly the calculation shows that the estimated stock price for Apple Inc.
    using the constant growth formula is $14.10 per share.
    Comparison with Current Market Price
    The market price of a stock is the current price of a single share of a public
    limited company listed on the stock exchange (Mustafa, Z., Ramakrishnan, S., Ali, A.,
    & Iqrayn, A., 2023). The calculated stock price of $14.10 is significantly lower than
    the current market price of $192.32 (Apple Inc, 2024). This indicates that, according
    to the constant growth formula, Apple Inc.’s stock is overvalued in the market. The
    substantial difference suggests that market factors and investor expectations are
    contributing to a much higher valuation than the formula-based estimate.
    Conclusion of Stock Value
    Given the significant discrepancy between the calculated stock price of $14.10
    and the current market price of $192.32, it is evident that market factors and investor
    sentiment play a substantial role in Apple’s valuation. Despite the lower calculated
    value, the strong financial performance, consistent dividend growth, and robust
    market position of Apple Inc. justify the higher market price. Therefore, the current
    market value of $192.32 per share reflects a more accurate and realistic valuation,
    considering the company’s overall financial health and future growth prospects.
    Clearly, dividend analysis is important for making investment decisions, interpreting
    6
    asset price variations, predicting returns, understanding managerial adjustments, and
    guiding corporate financial behavior (Chen, L., Da, Z., & Priestley, R., 2010).
    7
    References
    Yahoo Finance. (2018). Apple Inc. (AAPL) Company Profile & Facts.
    @YahooFinance. https://finance.yahoo.com/quote/aapl/profile/
    Chen, L., Da, Z., & Priestley, R. (2010). Dividend Smoothing and
    Predictability. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1280833
    Mustafa, Z., Ramakrishnan, S., Ali Fadhil Ali, & Abdulrahman. (2023). Bibliometric
    Analysis on Stock Prices through Historical Indexed Review by using Scopus
    Database from 1930 to 2020. International Journal of Academic Research in
    Business & Social Sciences, 13(10). https://doi.org/10.6007/ijarbss/v13i10/18889
    Saini, D., & Sharma, P. (2022). A Systematic Literature Review of Factors
    Influencing the Dividend Policy. Australian Journal of Business and
    Management Research, 07(01), 45–63.
    https://doi.org/10.52283/nswrca.ajbmr.20220701a04
    Turnip, H. (2022). Determination of Fundamental and Technical Factors on Share
    Prices in Large-Capitalized Companies Listed on the Indonesia Stock
    Exchange for the 2015-2019 Period. International Journal of Research and
    Review, 9(11), 168–177. https://doi.org/10.52403/ijrr.20221124

    Place your order
    (550 words)

    Approximate price: $22

    Calculate the price of your order

    550 words
    We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
    Total price:
    $26
    The price is based on these factors:
    Academic level
    Number of pages
    Urgency
    Basic features
    • Free title page and bibliography
    • Unlimited revisions
    • Plagiarism-free guarantee
    • Money-back guarantee
    • 24/7 support
    On-demand options
    • Writer’s samples
    • Part-by-part delivery
    • Overnight delivery
    • Copies of used sources
    • Expert Proofreading
    Paper format
    • 275 words per page
    • 12 pt Arial/Times New Roman
    • Double line spacing
    • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

    Our guarantees

    Delivering a high-quality product at a reasonable price is not enough anymore.
    That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

    Money-back guarantee

    You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

    Read more

    Zero-plagiarism guarantee

    Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

    Read more

    Free-revision policy

    Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

    Read more

    Privacy policy

    Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

    Read more

    Fair-cooperation guarantee

    By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

    Read more