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9 April, 10:06

IBM expects to pay a dividend of $6 next year and expects these dividends to grow at 4% a year for the foreseeable future. The price of IBM is $110 per share. What is IBM's cost of equity capital

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  1. 9 April, 10:11
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    9.45%

    Explanation:

    Data provided in the question

    Current year dividend = $6

    Expected growth rate = 4%

    Price of the IBM = $110

    The computation of the cost of equity capital is shown below:

    Cost of equity capital = Current year dividend : price + Growth rate

    = $6 : $110 + 4%

    = 9.45%
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