Ajeng Hanifah – 29121138 – Midterm Exam

1. The Cost of Capital for Goff Computer, Inc. (GCI)

1. Look on the balance sheet to find the book value of debt and the book value of equity.
“Long-term Debt” or “Long Term Debt and Interest Rate Risk Management”
Book Value of Long-Term Debt (2021, in millions)
Long-term debt $41,622
Long-term deferred revenue $14,276
Other non-current liabilities $5,360
TOTAL $61,258

2. Estimate the cost of equity for Dell

- The most recent stock price listed for Dell?

- What is the market value of equity or market capitalization?

Market Capitalization of Dell = $45.459 B
- How many shares of stock does Dell have outstanding?

- What is the beta for Dell? 0.95

- Yield on 3-month treasury bills?
 Ajeng Hanifah – 29121138 – Midterm Exam

0.3380
- Using a 7 percent market risk premium, what is the cost of equity for Dell using the
CAPM?
Rf +¿
= 0.338% + 0.95 x (7%)
= 0.338% + 6.65%
= 6.988%
3. Find the competitors, find the beta, and calculate the average beta
- Using the average beta, what is the cost of equity?
- Does it matter if we use the beta for Dell of the beta for the industry in this case?
4. Find the YTM for each of Dell’s bonds
- What is the weighted average cost of Debt for Dell using the book value weights and
the market value weights?
- Does it make a difference in this case if we use book value weights or market value
weights?
5. Calculate the WACC for Dell using book value weights andd market value weights,
assuming Dell has 35 percent marginal tax rate. Which cost of capital number is more
important?
6. We used Dell as a representative company to estimate the cost of capital for GCI.
- What are some potential problems with this approach in this situation?
- What improvements might be suggested?