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Unformatted text preview: With this said, I believe Id choose the industry beta. 4) Dell.GF Dell.GI 3.399 Dell.GG 5.644 Dell.GK 5.335 Dell.GJ About 11.8%. WACC = Wd [Kd x (1-t)] + We (Ke) Where: Wd = Weight of Market Value of Debt (as a % of market value of capital) Kd = Pre-tax cost of debt t = effective tax rate We = Weight of Market Value of Equity Ke = Cost of Equity (post tax) Market cap of Dell: US$27.08b Market cap of Dell debt: assuming at par (US$0.50b) CAPM to determine Ke: (4.61% + (11%-27.08%)*1.41) = 11.8% Beta = 1.41 Rm = 11% Rf = 4.6% based on 30 year treasury yield Kd (n/a in preliminary 2Q statements due to no balance sheet and n/a in 1Q due to not enough breakdown for interest expense). WACC = 0.8% x (7.3%) (1-23.8%) + 99.2% (11.8%) = 11.8% Sensitivity is really going to depend upon the Rm (market risk) mostly....
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