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  • Topic: Stock, Finance, Generally Accepted Accounting Principles
  • Pages : 3 (476 words )
  • Download(s) : 16
  • Published : November 21, 2009
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1. After looking at the at the financial statement for fiscal year ending January 30, 2009, the book value of debt, total liabilities, is $22,229. The book value of equity for this company is $4,271. Dell’s long-term debt for the fiscal year end is $1,898 (sec.gov).

2. -The most recent stock price listed for Dell is 14.44.

-The market value of equity, or market capitalization for Dell is 28.24 B

-Beta equals the expected rate of return minus the risk free rate divided by the expected market return minus the risk free rate. The beta for Dell is 1.36.

-The yeild on 3-month Treasury bills is 0.01.

-The cost of equity for Dell using the CAPM is 44.12%.

7.93% + 17.26% = 25.19%, Market Risk Premium.

rs=rf + Beta (rm-rf); =.10 + 1.36 (.2509); = .4412; = 44.12%

3. The key competitors of Dell are Apple, IBM, and Hewlett-Packard. The beta for the following companies respectively is 1.58, 0.81, and 1.05 (reuters.com/finance).

-The industry average beta is 1.15.

-Using the industry average beta, the cost of equity is 38.85%

rs=rf + Beta (rm-rf); =.10 + 1.15 (.2509); = .3885; = 38.85%

-Because the beta for Dell and the average beta are different, it does matter which one you use because they will create different cost of equities.

4. The cost of debt for Dell is Interest/1,898.

BondYieldBook ValueMarket Value

Dell.GJ1.739100104.155

Dell.GF2.535100107.100

Dell.GI3.029100110.716

Dell.GG5.025100104.250

Dell.GK4.912100107.296

Dell.GB6.264100109.051

Dell.GH6.242100103.400

Total700745.968

The weighed cost of debt by using the book value is 4.249. The weighed cost of debt when the book value is used is so close to the weighed cost of debt when the market value is used, that it would not...
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