Intro

Apple has just paid a quarterly dividend of $3.14. Dividends are expected to grow by 10% for the next 4 quarters, and then grow by 1.3% thereafter. Apple has a required quarterly return of 2%.

Part 1

What is the expected dividend in four quarters?

Correct

Dividends during non-constant growth phase:

D1= D0(1+g1)=3.141.1=3.45D1= D0(1+g1)=3.141.1=3.45 D2= D0(1+g1)2=3.141.12=3.8D2= D0(1+g1)2=3.141.12=3.8 D3= D0(1+g1)3=3.141.13=4.18D3= D0(1+g1)3=3.141.13=4.18 D4=D0(1+g1)4=3.141.14=D4=D0(1+g1)4=3.141.14= 4.6

Part 2

What is the terminal value in the fourth quarter (P4P4)?

Correct

P4=D4(1+g)rsg=4.6(1+0.013)0.020.013=P4=D4(1+g)rs-g=4.6(1+0.013)0.02-0.013= 665.29

Attempt 1/5 for 10 pts.

Part 3

What is the value of the stock now?