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Question # 2 : IBM has the following capital structure, which it considers to be optimal: Debt = $ 2 5 , 0 0 0
Question #: IBM has the following capital structure, which it considers to be optimal:
Debt $
Preferred Stock $
Common Equity $
$
IBM's expected net income this year is $ its established dividend payout ratio is its federalplusstate tax rate is and investors expect earnings and dividends to grow at a constant rate of in the future. IBM last dividend was $ per share and its stock currently sells for $ per share.
IBM can obtain new capital in the following ways:
Preferred: New preferred stock with a dividend of $ can be sold to the public at a price of $ per share.
Debt: Debt can be sold at an interest rate of percent.
a Determine the cost of each capital component.
Cost of Debt:
Cost of Preferred:
Cost of Common Stock:
b Calculate WACC
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