Here is a challenge to all finance students in my U of U classes.
The first one to provide the correct solution will get to write the next blog post :-)
Assume ΔCAPEX=0, ΔNWC=0, Depr=0, no debt.
Before the dividend announcement, we can use the FCFE1=E1 valuation method. Estimated E1=45 and r=18%. So a stock price of P0=600 implies the growth of free cash flow at 10.5%.
After the dividend announcement of D1=11 = 4x2.65+e, still the same r=18%, still the same E1=45, compute what Apple's rate of return on (plowed back) retained earnings has to be to justify the $600 stock price. Do you think Apple can earn it?
Bragging rights and extra credit possible. Don't ask any questions. The race is on.