The following problems are interrelated and involve the steps
necessary to calculate the WACC for Dell Computer. 15.1 Financial
Statements Most publicly traded corporations are required to submit quarterly
(10Q) and annual (10K) reports to the SEC detailing the financial operations of
the company over the past quarter or year, respectively. These corporate filings
are available on the SEC web site at www.sec.gov.
Go to the SEC web site, follow the "Search for Company Filings" link,
the "Quick Forms Lookup" link, enter "Dell Computer" and search
for SEC filings made by Dell. Find the most recent 10Q or 10K and download the
form. Look on the balance sheet to find the book value of debt and the book value
of equity. If you look further down the report, you should find a section titled
"Long-term Debt and Interest Rate Risk Management" that will contain
a breakdown of Dell’s long-term debt. 15.2 Cost of
Equity You wish to calculate the cost of equity for Dell. Go to finance.yahoo.com
and enter the ticker symbol "DELL." Now follow the "Profile"
link. What is the most recent stock price listed for Dell? What is the market
value of equity, or market capitalization? How many shares of stock does Dell
have outstanding? What is the most recent annual dividend? Can you use the dividend
discount model in this case? What is the beta for Dell? Now go back to finance.yahoo.com
and follow the "Bonds" link. What is the yield on 3-month Treasury bills?
Assuming a 9.1 percent market risk premium, what is the cost of equity for Dell
using CAPM? 15.3 Cost of Debt You now need to
calculate the cost of debt for Dell. Go to www.bondsonline.com,
follow the "Bond Search" link, and the "Corporate" link. Enter
Dell as the company and find the yield to maturity for each of Dell’s bonds. What
is the weighted average cost of debt for Dell using the book value weights and
using the market value weights? Does it make a difference if you use book value
weights or market value weights? 15.4 WACC You
now have all the necessary information to calculate the weighted average cost
of capital for Dell. Calculate the weighted average cost of capital for Dell using
book value weights and market value weights assuming Dell has a 35 percent marginal
tax rate. Which number is more relevant? |