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? 

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:

\[
P_0 = \frac{D_1}{r - g}
\]

Where:
- $P_0$ is the fair present value of the stock.
- $D_1$ is the expected dividend in the next year.
- $r$ is the required rate of return.
- $g$ is the dividend growth rate.

### Step 1: Calculate the expected dividend for next year
The most recent dividend is $D_0 = 1.25$, and the growth rate is $g = 9.5\%$ or 0.095. So, the expected dividend next year $D_1$ is:

\[
D_1 = D_0 \times (1 + g)
\]

\[
D_1 = 1.25 \times (1 + 0.095) = 1.25 \times 1.095 = 1.36875
\]

### Step 2: Apply the DDM formula
Now, using $r = 12.0\%$ or 0.12 and $g = 9.5\%$ or 0.095:

\[
P_0 = \frac{1.36875}{0.12 - 0.095}
\]

\[
P_0 = \frac{1.36875}{0.025} = 54.75
\]

### 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:
1. How does the Dividend Discount Model handle non-constant growth rates?
2. What factors could affect the required rate of return for a company?
3. How would an increase in the growth rate affect the stock's value?
4. What are the limitations of the Dividend Discount Model?
5. 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.

Financial 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?

Determine the fair present value of Apex Technologies Inc.'s stock using the Dividend Discount Model (DDM). Given a growth rate of 9.5%, a recent dividend of $1.25, and a required rate of return of 12%, this problem illustrates how to apply the DDM formula to find a stock's present value. Perfect for finance students and professionals.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation