Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Group names:
Date: 5/5/2020
ANSERS OF MANI CASE OF CORPRET FIANANCE
Golf Computers, Inc. (GCI) estimated Cost of equity using Dell computers as
representative company.
1.(a) Capital budgeting - refers to the process of determining whether available long term
ventures are worth investing by evaluating inflows and outflow for each project relative to
(b)The following information was obtained from Balance sheet of Dell in SEC website at
www.sec.gov
(millions)
2. (i) Estimating Dell cost of equity from finance.yahoo.com.(Enter Dell Symbol & find the
following)
=2.949%
(F) Using a 7% market risk premium, what is the cost of equity for Dell using the CAPM?
CAPM=Ks=Krf+ (Rm-Krf) β
3. from www.reuters.com
(b)Find the beta for each of these competitors, & calculate the industry average beta
Industrials average beta (β) =beta for all competitors + Beta for Dell = 10.97+1.36= 1.1209
Number of competitors 11
(c)Using the industry average beta, cost of equity for dell?
Ks=Krf + (Rm-Krf) β
= 10.80%
(d) Does it matter if you use the beta for Dell or the beta for the industry in this case?
Industrial beta is lower than beta for Dell with a difference of 0.2391. It can be
scrutinized that Dell cost of equity is higher when Dell beta is used. On the contrary, Dell cost of
Treasury 0% & 3%
(b) What is the weighted average cost of debt for Dell using the book value weights and the market
value weights?
The Book value weight was 2.94% while that of market value weight was 3.00 % (Finra, 2012).
(c) Does it make a difference in this case if you use book value weights or market value weights?
There is only a slight difference that can be scrutinized and therefore no much great difference
(a) Calculate the weighted average cost of capital for Dell using book value weights and market
Whereby,
Kd=cost of debt=3%=0.03
Ke=cost of equity=10.80%=0.1080
÷$23,352,650,000) =
=0.001357+0.100486=0.101843
=10.18%
The value of market cost of capital is more relevant than the book value because it reflects all the
6. What are some of the potential problems of using Dell as a representative company for
GCI to estimate cost of debt and which improvements you May suggest?
The basic potential problem is that the two companies operate differently whereby, Dell operate
through online while GCI operate in a store. Additionally, Dell Company can be able to raise
more capital than GCI because it has listed its stocks in the stock market unlike GCI (Yahoo
Finance, 2012). I would therefore, suggests GCI Company to embrace online commerce and
publicize its stocks in the stock exchange market in order to raise more capital just like Dell.
END