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    Dell Computers: The Cost of Capital (WACC)

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    Based on the attached Dell Computers annual reports, answer the following question:

    a. Compute the weighted average cost of capital (WACC) for both years.

    b. Discuss your findings and how the weighted average cost of capital can impact the company's financial standing.

    © BrainMass Inc. brainmass.com December 15, 2022, 6:51 pm ad1c9bdddf


    Solution Preview

    Market premium = 9%
    Beta = 1.53
    Risk free rate (3-month US Treasury bills) = 1.614%
    Hence, by the CAPM model,

    Cost of Equity = Risk-free rate + beta*MarketPremium = 0.15384 or 15.384%
    Cost of Debt = 7.10% (from the issued bonds)

    See attached Excel file for the computation ...

    Solution Summary

    This solution provides instructional advice on how to calculate the weighted average cost of capital.