Question

Company apple inc, Stock Valuation case study, using dividend gross rate

Calculate the intrinsic value of the stock and compare it with the market value. Draw a conclusion whether it is overvalued or undervalued.

Answer 1

Answer:

Company apple inc, Stock Valuation case study,

Dividend Gross Rate:

Gross Dividend. A stock or mutual fund that pays dividends will return some of its earnings to investors. The amount of the dividend is not as important as the yield, meaning the percentage of return the dividend represents. A 10 cent annual dividend on a $1 stock, for example, means the stock yields 10 percent.

Similar in concept to gross income, gross dividends are the sum total of all dividends received by an investor for tax purposes. Gross dividends include all ordinary dividends that are paid, plus capital-gains distributions and nontaxable distributions received by the taxpayer during the year before taxes, fees, and expenses are deducted.

Gross dividends can be contrasted with net dividends.

The intrinsic value of a stock:

The intrinsic value of a stock is a price for the stock based solely on factors inside the company. It eliminates the external noise involved in market prices. Another widely used method is the discounted cash flow (DCF) method. It uses cash flows from the business rather than dividends to come up with a value

To calculate the intrinsic value of a stock, first calculate the growth rate of the dividends by dividing the company's earnings by the dividends it pays to its shareholders. Then, apply a discount rate to find your rate of return using present value tables.

1. Understanding Investing Basics

2. Considering the Gordon Growth Model

3. Using the Dividend Discount Model

4. Applying the Residual Income Formula

5. Implementing the Discounted Cash Flow Method

Conclusion:

Fundamental analysis helps the investor to analyze the actual value of the share at the stage of disequilibrium in the market by analysing the key quantitative variables which will helps to find out the intrinsic value of share. Investors should assess the relative performance of the economy, the state of the industry and also the financial health of the companies before choosing a particular share as the medium for their financial investment. The present study concludes that dividend pay-out ratio and return on equity is of the important variable to be considered rather than considering all other selected variables before making investment by the investors.

The analyst faced with the task of valuing a firm/asset or its equity has to choose among three different approaches -- discounted cashflow valuation, relative valuation and option pricing models; and within each approach, they must also choose among different models. These choices will be driven largely by the characteristics of the firm/asset being valued - the level of its earnings, its growth potential, the sources of earnings growth, the stability of its leverage and its dividend policy. Matching the valuation model to the asset or firm being valued is as important a part of valuation as understanding the models and having the right inputs. Once you decide to go with one or another of these approaches, you have further choices to make – whether to use equity or firm valuation in the context of discounted cashflow valuation, which multiple you should use to value firms or equity and what type of option is embedded in a firm.