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Compute the cost of equity for Dell.

Calculate the industry average beta for Dell, and then using the industry average beta compute the cost of equity for Dell. Does it matter if you use the beta for Dell or the beta for the industry in this case?

Company Beta

Dell 1.37

Competitors

Apple 1.29
HP 1.15
Acer Incorporated 1.05
Toshiba 1.45
Sony 1.63
Lenovo Group Limited 1.76
IBM .76
Samsung Electronics Co. LTD 005930.KS .61
Samsung Electronics Co. LTD 005935.KS .61
EMC Corporation 1.08

Assume risk-free rate (Rf) as 5% and expected market return (Rm) as 10% .

Solution Preview

To compute the industry average beta, we will compute the average of beta values of Dell and it's competitors.

Industry average beta = (1.37 + 1.29 + 1.15 + 1.05 + 1.45 + 1.63 + 1.76 + 0.76 + 0.61 + 0.61 + 1.08) / 11
= 12.76 / 11
= ...

Solution Summary

The cost of equity is computed using Capital Asset Pricing Model.

$2.19