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IBM expects to pay a dividend of $5 next year and expects these dividends to grow at 7% a year. The price of IBM is $90 per share. What is IBM's cost of equity capital

Respuesta :

Tundexi

Based on the information given, IBM's cost of equity capital is 12.56%

Share Price = Dividend Next Year / [Cost of Equity - Growth Rate]

$90 = $5 / [R - 0.07]

$90 * {R - 0.07] = $5

{R - 0.07] = $5/$90

R - 0.07 = 0.055556

R = 0.055556 + 0.07

R = 0.125556

R = 12.56%

In conclusion, IBM's cost of equity capital is 12.56%

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