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, 2020, 2:57 pm ad1c9bdddf
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 ...
This solution provides instructional advice on how to calculate the weighted average cost of capital.