CFO IBM. You Successful Years, Concerned Sources Essay

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CFO IBM. You successful years, concerned sources funds, cost funds. With changing business conditions, costs . At IBM, issued $100,000,000 Corporate Bonds carry a 6% interest rate, $200,000,000 Equity offers a 10% dividend, $100,000,000 Retained Earnings opportunity cost 9%.

The cost of capital at IBM

IBM is one of the oldest and most prosperous companies within the technological community. The organization has led the industry through innovation, which has in turn been supported by a strong internal strategy. One crucial pillar of the organization's success has been represented by its wide access to financial resources, through which IBM was able to develop and integrate new technologies that advanced their products.

Still, in the modern day business climate, the access to funds becomes more restricted, as borrowing becomes more expensive. While the organization is in dire needs of funds, a question is being posed relative to the sources of the future funds.

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Specifically, emphasis is being placed on the means to be used by the company in order to still have access to financial resources, but to do so in a cost efficient manner.

A first issue to consider in this setting is represented by the computation of the weighted average cost of capital. The weighted average cost of capital represents a computation method by which the economic agents assess the cost of their capitals in a proportionate manner. In other words, the formula for the weighted cost of capital includes all categories of costs and the proportions they hold in the overall capitals. The formula is as follows:

WACC = E/V x Re + D/V x RD x (1 -- TC), where

Re is the cost of equity

Rd is the cost of debt

E is the market value of the firm's equity

D is the market value.....

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