Calculate the intrinsic value of Apple on a free cash flow basis assuming the following - FCF for the next year will be $100 billion - the company has $110 billion in long-term debt - the company has $210 billion in marketable securities and cash - the company has 17.0 billion shares outstanding - the WACC is 8% -Free cash flow is expected to grow at 2.5% forever NOTE EV if growth is constant EV (n) = FCF (n+1) / (WACC g) Value of equity = EV + Cash Debt Value of Shares = Value of equity / Shares outstanding To simplify your work just express everything in billions so FCF expected is $100 etc 2) Calculate the intrinsic value of ABC Corp using a three-stage dividend model assuming - The current dividend D(0) is $5 per share and the current payout ratio is 25%, EPS (0) = $25 -starting next year the company will increase the payout ratio by 10% points per year (ex. from 25% to 35% to 45% to 55%) for the next 3 years. - The earnings per share is expected to grow 25% per year for the next 3 years - The earnings per share is expected to grow 15% for years 4-6 (the payout ratio will not change from year 3. -The earnings per share in year 7 and beyond is expected to grow at a constant rate of 4% - The required rate of return is 10% Recall that DPS = EPS X POR HINT set this up in excel you have 7 years of dividends to extrapolate Horizon Value P(6) = D(7) / (r g); constant growth is in year 7 and beyond 3) What is the current valuation of XYZ if you expect EPS in 2023 to be $14. The stock pays a dividend of $3.00 which you assume will remain steady. The market multiple is 18x and XYZ should be valued at a 10% premium to that (at the end of 2023). The risk-free rate is 3%, the market risk premium is 7% and the beta of XYZ is 1.1 assume it is the end of 2022. HINT you are arriving at a valuation for the end of 2023 once you have that you discount that and the dividend back 1 year to the present. Relative Valuation: P/E = Market Multiple X (1 + Premium) Stock Value = P/E X EPS