Firm valuation on Apple Inc from a $5-$year perspective

o You have to value the stock using the following methods:

$1.2-$stage Discount Dividend Model $($DDM$)*$

$2.$ Valuation using multiples $($P$/$E ratio$)**$

o A well executed project will clearly explain all assumptions made and the sources for

all parameters. If you need to estimate parameters, clearly state your reasoning

behind the choice of each method of estimation.

o A well executed project will try different alternative estimates of parameters and

discuss the sensitivity of the stock price valuation to assumptions about different

parameters.

o Note that this is the central part of the project.

$*$ DDM Model:

$-$ Please use information on valuation of Harley Davidson $($in PPT slides$)$ for your

guidance.

To value the firm using the DDM model, you will need to estimate$/$obtain the following

parameters: D$1,$ r$,$ and g$.$ Your D$1$ will be the expected dividend per share for $2024.$ You can

use your firm$$s financial statements to analyze its dividends over the past several years and

use its current dividends $($paid out in $2023)$ to compute $2024$ expected dividend. Remember,

D$1=$ Do $*(1+$g$).$ You will need your g calculated in order to obtain D$1.$

You will compute your r from CAPM equation $($please use information from the file

CAPM$+$CompanyValuation.ppt posted on Canvas in folder $$Financial Analyst Report$).$

o Your g estimate will not be a result of a precise calculation, but rather, your best

estimate given your thorough analysis of both quantitative and qualitative

information.

$$ You will pull up the analyst reports to assess what growth rates different

agencies are predicting.

$$ Your will read extensively to assess if your company appears to be a high

growth or a low growth firm. Is it launching a new product some time soon?

What are the growth prospects for your firm? And so forth.

$$ You will look at historical dividends for several years and compute

retrospective annual growth rates for your firm by using the formula D$1=$ Do

$*(1+$g$)$ and solving for g$.$

$$ You can also compute g from the following formula: g $=$ ROE $*$ plowback

ratio.

$$ Finally, you will assess the differing levels of growth rates that you obtained

by the above means, and decide on the growth rate to use in your DDM

formula.

$$ Remember that DDM formula assumes a constant g $$ the growth rate

that will be valid forever. Be careful not to over$/$underestimate your

$4$

growth rate. That is$,$ if your firm is in the industry that will do well

when the economy is not doing well, you may be tempted to tilt

towards an overestimate, especially since public sources will be

reporting high estimates for the next few years. However, do you

believe that such a high growth rate will persist forever? Be careful

with your choice.

$**$ Valuation using multiples $($P$/$E ratio$)$: Please use information for relative valuation from

respective PPT slides for guidance.