1)IBM ended trading on 7/18/2017 with a stock price of $154.00, and its most recent year of dividend payments was $6.00 per share. If dividend payments are expected to grow at a constant annual rate of 5% following last years dividend of $6.00, what is the expected annual return of an investment in this stock at todays price? (NOTE: this is the company cost of common equity capital)

2)IBM currently has one bond in the Liabilities section of its Balance Sheet. This 10-year bond with 6 years to maturity and a 5.5% coupon paying semi-annually, has a yield to maturity (NOTE: the cost of this form of debt capital for IBM) of 4.25%. What is the current price of the bond if par value is $1,000?

3)Using the previous two questions, calculate the WACC for IBM assuming common equity and the 10-year bond are the only two forms of capital. Further, assume the relevant tax rate is 25%, the market value of common equity is $135B and the market value of debt is $75B.

4)Calculate the retention rate required for the following company to have a sustainable growth rate of 10%. Assume all ratios (profit margin, debt/equity, ROE, etc) will remain constant.

2014 Company Data

Sales = $500M All Costs (excluding taxes) = $300M

Taxes = $50M Assets = $2B

Equity Multiplier = 2.0

5)You win the lottery and select the option to receive 20 annual payments of one million dollars (an ordinary annuity). If today is January 1, 2018, and the first payment is made January 1, 2019, what will be the value of the remaining payments as of January 2, 2030 if the interest rate is 5%? (Hint: use the ordinary annuity formula with the number of payments remaining from January 2, 2030 until the 20^th overall payment.)

6)Assume Microsoft just paid a dividend of $1.56 per share. Your required rate of return is 10%, and the analysis youve done tells you that Microsoft should be able to grow its dividend by a rate of 7% per year. What is the most you should be willing to pay for this stock? Now lets say you go on a two year trip around the world and come back to find that your analysis of Microsoft has not changed. What is the most you should be willing to pay per share of Microsoft stock after your two year vacation?