1. IBM ended trading on 7/18/2017 with a stock price of $154.00, and it’s most recent year of dividend payments

was $6.00 per share. If dividend payments are expected to grow at a constant annual rate of 5% following last year’s dividend of $6.00, what is the expected annual return of an investment in this stock at today’s price? (NOTE: this is the company cost of common equity capital)

2. Calculate the retention rate required for the following company to have a sustainable growth rate of 10%. Assume all ratios (profit margin, debt/equity, ROE, etc) will remain constant.

2014 Company Data

Sales = $500M                                            All Costs (excluding taxes) = $300M

Taxes = $50M                                             Assets = $2B

Equity Multiplier = 2.0

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