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Unformatted text preview: Exercise 3 In September 2003, IBM traded at $89 per share with a total market capitalization of its equity of $153.97 billion. It reports $14 billion of debt, and sales for its latest year were $81.2 billion. Calculate the price-to-sales ratio. (Refer to p. 69) Solution Price-to-sales ratios must be unlevered for leverage does not affect sales. That is, they must be enterprise value -- the value of the assets without regard to financing by debt or equity -- relative to sales: P/S = ($153.97 + 14)/81.2 = 2.07 Exercise 4. An analyst forecasts that a stocks dividends per share will be $2.00 in the coming year, and further expects dividends to grow at a rate of 3% per year indefinitely after that. Investors require a return of at least 9% for the stock. Value this stock. (Refer to p. 90) Solution Because dividends are expected to grow at a constant rate, the dividend discount model can be used: 03 . 09 . 00 . 2-= E V = $33.33...
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- Spring '10