FIN 501 TUI Module 4 Leverage Capital Structure and Dividend Policy Paper

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Module 4 - SLP

LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY

Review the 1) dividends for the past three years and 2) capital structure of the company you have been researching for your SLP assignment. Then answer the following questions in a Word document (except for the Excel portion specifically noted). The paper should be 2 pages in length.

  1. What has occurred with your selected company’s dividend payout, dividend yield, and dividend per share over the past three years? Do you have any explanations for what has occurred? Also, has this company had any stock splits or stock repurchases in recent years?
  2. How does your selected company’s dividend payout, dividend yield, and dividend per share compare with other companies in its industry? Has the company’s dividend strategy been similar to other companies in its industry?
  3. Use Excel to plot your selected company’s earnings and dividends over the past three years. Do you notice any patterns? What dividend policies from the background readings best match these patterns?

SLP Assignment Expectations

  • Answer the assignment questions directly.
  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.

Module 4 - Background

LEVERAGE, CAPITAL STRUCTURE, AND DIVIDEND POLICY

Required Reading

Please read through the following book chapters. Pay special attention to the concepts of operating leverage, financial leverage, business vs. financial risks, and the major theories of capital structure choices.

Vishwanath, S. (2007). Chapter 19: Optimal capital structure. Corporate finance: Theory and practice. SAGE Publications India. Available in the Trident Online Library.

Finally, take a look at the following book chapter on dividend policy. Take a close look at the concepts of regular dividend policy and low-regular-and-extra dividend policy, as well as stock splits and stock repurchases:

Clive, M. (2012). Chapter 15: Dividend policy. Financial management for non-financial managers. Kogan Page. Available in the Trident Online Library.

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Running head: VALUATION OF APPLE’S STOCK Trident University International Name Valuation of Apple’s Stock Module 2 SLP FIN501: Strategic Corporate Finance Professor 24 July 2020 1 VALUATION OF APPLE’S STOCK 2 Valuation of Apple’s Stock Apple Inc. has one of the high-profile stocks in the world. While the technology sector has over the last two decades proved to be an undeniable investment opportunity for many investors worldwide, investors in Apple have since then been receiving huge dividends from their investments in the company's stock. In 2019, apple predicted a 3% growth and the same upward trend is expected for the year 2020. Although massive events have occurred since the start of 2020, including the launching of the new iPad Pro, the iPhone SE (2020) and the new 13in MacBook Pro, there have been major turbulent activities that seem to affect the stock valuation. This year the earnings for stock investors in Apple are expected to decrease, considering the impact that the COVID-19 virus has had on the global stock market. However, to understand the stock and bond valuation at Apple Inc. an analysis of the company’s financial information in the last 12 months is done in the subsequent discussion. P/E Ratio Comparison According to yahoo finance, the P/E ratio for Apple’s stock is 28.61 based on the trailing twelve months (Yahoo Finance, 2020). On the other hand, HP has a P/E ratio of 8.6 based on the trailing twelve months. Further, looking at earnings over the last twelve months to March 2019, Microsoft has a P/E ratio of 35.02 (Yahoo Finance, 2020). Finally, Google has a P/E ratio of 31.02 based on the earnings of the trailing twelve months. Therefore, looking at the P/E ratio of Apple Inc., it is evident that its average compared to that of its close competitors in the computer software industry. While the P/E ratios of Microsoft and Google are higher than that of Apple, the P/E ratio of HP is, on the other hand, lower compared to that of Apple Inc. Based on Apple's P/E ratio, the company seems to be majorly undervalued compared to competitors such as Microsoft and Google, which have a higher P/E ratio. However, if Apple’s P/E ratio were to be VALUATION OF APPLE’S STOCK 3 compared with that of HP, we would say that Apple seems undervalued though it is majorly undervalued. Comparison of the Book Value of Shares and the Market Value of Shares Further looking at Apple’s balance sheet for the year that ended 29th September 2019, the book value of each share would be as follows. 𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑠ℎ𝑎𝑟𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠 338,516,000 − 248,028,000 = 18.41 1,641,452,320 𝐵𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑠ℎ𝑎𝑟𝑒 = 18.41 Currently, the share price at Apple is at $373.8. Therefore, we can conclude that the book value of each share in Apple is lower than the current share price. Based on this comparison, Apple's stock is considered to be overvalued as the market value of each share exceeds the book value of each share. Buy or Sell Apple’s Stock According to the Capital.com Research Team (2020), it is advisable not to buy Apple stock but instead sell its stock at its current valuation. The research team advises that the stock price is at its highest in a long time, so selling the shares at the current valuation would be the best idea. Further, the research team also acknowledges that Apple's stock price is always cyclical and therefore, investors should sell their stock fall is expected soon. On the other hand, the Investor’s Business Daily (2020) proposes that the best decision regarding Apple’s stock is to VALUATION OF APPLE’S STOCK 4 sell the stock as the stock is currently valued at its highest and it is on its last proper breakout. Thus to avoid a loss, the best decision would be to sell the stock. Lastly, Market Watch (2020) also proposes that the best decision to make about Apple’s stock is to sell it as the analysts show that the recommendations to sell stock have increased from the last month while those of buying remains constant. Market Watch also shows that the earnings per share are expected to decrease in the next quarter and thus, it is recommendable that investors sell their stock. VALUATION OF APPLE’S STOCK 5 References Capital.com Research Team. (2020, May 12). Is Apple stock a good buy during Covid-19 uncertainty? Capital.com. https://capital.com/is-apple-stock-a-good-buy-in2020#:~:text=It%20is%20advisable%20not%20to,returns%20when%20the% Investor’s Business Daily. (2020). Is Apple Stock A Buy Ahead of June-Quarter Earnings Report? Investors.com. https://www.investors.com/research/apple-stock-buy-now/ MarketWatch. (2020, July 24). Apple Inc. MarketWatch: Stock Market News - Financial News MarketWatch. https://www.marketwatch.com/investing/stock/aapl/analystestimates Yahoo Finance. (2020, July 24). Apple Inc. (AAPL). Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/quote/AAPL/ Yahoo Finance. (2020, July 24). Microsoft Corporation (MSFT). Yahoo Finance - Stock Market Live, Quotes, Business & Finance News. https://finance.yahoo.com/quote/MSFT/
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Running head: LEVERAGE, CAPITAL STRUCTURE AND DIVIDEND POLICY

Leverage, Capital Structure and Dividend Policy
Student’s Name
Course Title
Institution
Date

1

LEVERAGE, CAPITAL STRUCTURE AND DIVIDEND POLICY

2

Leverage, Capital Structure and Dividend Policy
Dividend Payout and Dividend Yield
Over the last decade, Apple's overall performance has been exceptional, with a revenue
of over 210 million annually in the last five years. While the company's success has been
attributed by numerous factors, including its related diversification strategy, as noted in our
previous discussion, the company's equity investors have also greatly benefited from this.
According to Macrotrends (2020), Apple's dividend payout (TTM) has been rising in the last
three years. As per 19th August 2020, Apple Inc. had a dividend payout of $3.13. Further, as per
9th August 2019, its dividend payout was a bit lower as it was $3.00 (Macrotrends, 2020). To
complete the analysis of Apple’s dividend payout in the last three years, its dividend payout as
per the 10th of August 2018 was $2.68. On the other hand, Apple’s dividend yield in the last
three years has been unstable, where it has been increasing and decreasing during the period. As
per 19th August 2020, Apple Inc. had a dividend yield of 0.68%, which fell from 1.49% as
recorded on 9th August 2019. Further, Apple's dividend yield as per the 10th of August 2018 was
1.3% (Macrotrends, 2020).
Apple’s Dividend per Share, Explanations and Dividend Strateg...


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