The following are key numbers from IBM’s financial statements for 2004.
IBM's shares traded at $95 when 2004 results were announced. Use a required return for operations (rw) of 12.3 percent to answer the following questions:
What growth rate in residual operating income would justify the current stock price if you were sure that 12.3 percent was a reasonable required return?
Prepare a valuation grid showing what the stock is worth for alternative forecasts of return on net operating assets and growth in sales. (Download the Excel template from Canvas and perform a sensitivity analysis on the template.)