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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.

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Solution Summary

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

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a.
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 ...

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