Math Problem Statement
inancial analysts forecast Apex Technologies Inc. (ATX) growth for the future to be 9.5 percent. ATX’s most recent dividend was $1.25.
What is the fair present value of Apex Technologies Inc.’s stock if the required rate of return is 12.0 percent?
Solution
To determine the fair present value of Apex Technologies Inc.'s stock using the Dividend Discount Model (DDM) with constant growth, we can use the following formula:
Where:
- is the fair present value of the stock.
- is the expected dividend in the next year.
- is the required rate of return.
- is the dividend growth rate.
Step 1: Calculate the expected dividend for next year
The most recent dividend is , and the growth rate is or 0.095. So, the expected dividend next year is:
Step 2: Apply the DDM formula
Now, using or 0.12 and or 0.095:
Conclusion:
The fair present value of Apex Technologies Inc.'s stock is $54.75.
Would you like further details or clarification?
Here are some related questions for further exploration:
- How does the Dividend Discount Model handle non-constant growth rates?
- What factors could affect the required rate of return for a company?
- How would an increase in the growth rate affect the stock's value?
- What are the limitations of the Dividend Discount Model?
- How does this valuation method compare with Price-to-Earnings (P/E) ratio analysis?
Tip: The Dividend Discount Model assumes that dividends will grow at a constant rate forever, so it's ideal for companies with stable growth.
Ask a new question for Free
By Image
Drop file here or Click Here to upload
Math Problem Analysis
Mathematical Concepts
Finance
Dividend Discount Model (DDM)
Growth Rate
Formulas
P_0 = D_1 / (r - g)
D_1 = D_0 * (1 + g)
Theorems
Dividend Discount Model
Suitable Grade Level
Undergraduate Finance/Business Courses
Related Recommendation
Calculate ABC Corporation's Stock Intrinsic Value with DDM
Required Return on Stock Using Dividend Discount Model for Constant Growth
Stock Valuation Using Dividend Discount Model with a Limited Time Horizon
Calculate XYZ Stock Value Using Dividend Discount Model
Dividend Discount Model: Calculating Stock Price Today