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1. IBM ended trading on 7/18/2017 with a stock price of $154.00, and it’s 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 year’s dividend of $6.00, what is the expected annual return of an investment in this stock at today’s 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.
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Which one of the following will decrease the net present value of a project?
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Think about corporate governance and its impact on financial decision making. We've seen how important certain factors and estimates, such as the cost of capital, forecasts of interest rate changes, etc., can be to the reliability of project valuatio..
Assume the following exchange rate quotes on British pounds: - Explain how locational arbitrage would occur. Also explain why this arbitrage will realign the exchange rates.
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