Question
Just answer question 3 and 4, question 1 and 2 are content related to question 3 and they are already calculated.. 1.IBM ended trading on
Just answer question 3 and 4, question 1 and 2 are content related to question 3 and they are already calculated..
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) r=6*(1+5%)/154+5%= 0.0909=9.09%
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? Bond value=1065.59
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 = $500MAll Costs (excluding taxes) = $300M
Taxes = $50MAssets = $2B
Equity Multiplier = 2.0
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started