Taking an indirect, total firm value approach to valuing equity, suppose you have the inputs for estimating

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Taking an indirect, total firm value approach to valuing equity, suppose you have the inputs for estimating the cost of capital shown in Exhibit 10. Based only on the information given, estimate IBM’s WACC.

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Equity Asset Valuation

ISBN: 9781119850519

3rd Edition

Authors: Jerald E Pinto, CFA Institute

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Question Posted: Mar 22, 2024 02:03 PM

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Taking an indirect, total firm value approach to valuing equity, suppose you have the inputs for estimating

Question:

EXHIBIT 10 Cost of Capital Data: IBM Panel A: Capital Structure Long-term debt as a percent of total capital, at market value Tax rate Panel B: Component Costs of Capital Cost of equity: CAPM estimate YTM of IBM long bond Value 36% 25% Value 7.1% 4.4%

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Equity Asset Valuation

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