2. In Apples just-released financial report, it had an earnings per share of E0 = $4. It has also

just paid dividend per share of D0 = $1. The risk-free rate is 0%, Apple stock's beta is 1, and

the expected market return is 10%. Currently, Apple has a stock price of $100. You assume

Apple's dividend grows at a constant rate.

a. What is Apple's ROE implied by the dividend discount model? (That is, you need to use the

dividend discount model to solve Apples ROE)

After reading Apple's financial statements, you find that Apple's net income is 9 million and its shareholders' equity is 100 million.

b. What is Apple ROE calculated from its financial statement

c. What is Apple's intrinsic value? Is Apple undervalued or overvalued

d. Assume you are the advisor to Tim Cook, the CEO of Apple, you tell him the stock's intrinsic

value will increase to $40 if he starts now to pay all earnings as dividends. Show him the

calculation.