Cost of Capital

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The Cost of Capital for Goff Computer, Inc.
Rahul Parikh
BUS650: Managerial Finance (MAH1209A)
Dr Charles Smith
March 18, 2012.

The Cost of Capital for Goff Computer, Inc.:
1. Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year, respectively. These corporate fillings 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 “Companies & Other Filers” link, enter “Dell Computer,” and search for SEC filings made by Dell. Find the most recent 10Q and 10K and download the forms. 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 either “Long-term Debt” or “Long –term Debt and Interest Rate Risk Management” that will list a breakdown of Dell’s long-term debt. Answer:         

The book value of a company's equity is the same as stockholder's equity, which can be computed by subtracting the total value of liabilities from total assets. (Total Assets) = (Total) Liabilities + Stockholder's Equity (book value of equity). Stockholder's Equity (book value of equity) = Total Assets –Total Liabilities. The book value of the company’s liabilities and equity was found from the site http://www.sec.gov . I found Dell’s Form 10K, dated January 28, 2011, and snap shot is attached here with. Dell’s Form 10K shows the following: Book value of equity: 10-k:

Total Assets =38,599 millions; Total Liabilities = 30,833 (Dell 10-K, January 28, 2011, p.57) Book value of equity = Total Assets –Total Liabilities
= $38,599 – $30,833
= $7,766 millions, (Dell 10-K, January 28, 2011, p.57).

The book value of the company’s liabilities and equity was found from the site http://www.sec.gov . I found Dell’s Form 10q, dated October 28, 2011, and snap shot is attached here with. Dell’s Form 10q showed the following (Note: 10q form also shows data of Dell 10K dated January 28, 2011.]: Book value of equity: 10-Q:

Total Assets =42,043 millions; Total Liabilities = 33,380 (Del 10-Q, October 28, 2011) Book value of equity = Total Assets –Total Liabilities
= $42,043 – $33,380
= $8,663 millions, (Dell 10-Q, October 28, 2011).

Book value of debt: It is labeled in the balance sheet as Shareholder's Equity and Liabilities.

Book Value of Debt:  10k = $38,599 millions, (Dell 10-K, January 28, 2011, p.57).                                     10Q = $42,043 millions, (Dell 10-Q, October 28, 2011). Long-term Debt: 10k = $5,146 millions, (Dell 10-K, January 28, 2011, p.57).

10Q = $6,430 millions, (Dell 10-Q, October 28, 2011).
2. To estimate the cost of equity for Dell, go to finance.yahoo.com and enter the ticker symbol “Dell.” Follow the various links to find answers to the following questions: 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 beta for Dell? Now go back to finance.yahoo.com and find the bonds link. What is the yield on 3-month Treasury bills? Using a 7 percent market risk premium, what is the cost of equity for Dell using the CAPM?  Answer: To estimate the cost of equity, I collected various pieces of information dated March 4 2012, to calculate the CAPM. The following information, necessary for my calculations, was gathered from finance.yahoo.com. The screen shots below show this information.        Most recent stock price is: $17.36 (finance.yahoo.com)

Market Capitalization: 30.87B (finance.yahoo.com)
Shares Outstanding: 1,918 millions (Dell 10-K, January 28, 2011). Dell Beta: 1.39 (finance.yahoo.com)
Yield on 3-month Treasury bills: 0.04 (= 4%); (finance.yahoo.com).

Using a 7% market risk premium, what is the cost of equity for Dell using the CAPM? Capital Asset Pricing...
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