Share
Explore BrainMass

Calculate the cost of equity for Dell Corp.

Assume a world without taxes. Two firms, Max Corp. and Dell Corp. are identical in every way except for their capital structures. Max, an all-equity firm has 200,000 shares of common stock outstanding; each share sells for $30. The cost of equity for Max is 12%. In addition to equity financing, Dell uses leverages; it has 3,000 bonds outstanding with face values of $1,000, paying 7% coupons annually, and maturing in 10 years. The YTM (yield to maturity) on these bonds is 9%. Calculate the cost of equity for Dell Corp.

Solution Preview

Assume a world without taxes. Two firms, Max Corp. and Dell Corp. are identical in every way except for their capital structures. Max, an all-equity firm has 200,000 shares of common stock outstanding; each share sells for $30. The cost of equity for Max is 12%. In addition to equity financing, Dell uses leverages; it has 3,000 bonds outstanding with face values of $1,000, paying 7% coupons annually, and maturing in 10 years. The YTM (yield to maturity) on these bonds is 9%. Calculate the cost of ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the cost of equity for Dell Corp.

$2.19