IBM expects to pay a dividend of $4 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. Your estimate of the market risk premium is 6%. The risk-free rate of return is 5% and IBM has a beta of 1.2.What is IBM's cost of equity capital using the two methodologies, DGM and CAPM respectively?
A firm has a capital structure with $10 in equity and $9 of debt. The cost of equity capital is 0.2 and the pretax cost of debt is 0.07. If the marginal tax rate of the firm is 0.37 compute the weighted average cost of capital of the firm.
Which of the following is NOT a step in the WACC valuation method?
a. Discount the incremental free cash flows of the investment using the weighted average cost of capital.
b. Determine the mean weighted average cost of capital for the firm's industry.
c. Compute the weighted average cost of capital.
d. Determine the incremental free cash flows of the investment.