IBM's 1,385.2 million outstanding shares traded at $102 each when its 2007 financial statements were published. Those statements reported common shareholders' equity of $28,470 million and net financial obligations of $19,619 million. Footnotes reveal that the firm's net borrowing cost (after tax) is 3.3 percent.
a. Calculate the levered price-to-book and enterprise price-to-book ratios at the time. What explains the difference between the two multiples?
b. Analysts were forecasting earnings per share of $8.73 for 2008. Calculate the forward levered P/E and forward enterprise P/E ratio.