1) From the SEC website, the balance sheet of Dell Computer reveals a
Book value of debt = $3,394,000,000 and
Book value of equity = $4,625,000,000
The same balance shows the breakdown of the long-term debt (book values) in table 1.
Table 1
Coupon Rate
(%) Maturity Book Value
(Face Value in million $)
3.38 06/15/2012 400
4.70 04/15/2013 599
5.63 04/15/2014 500
5.65 04/15/2018 499
5.88 06/15/2019 600
7.10 04/15/2028 396
6.50 04/15/2038 400
2) From finance.yahoo.com,
• The most recent (Oct 30 2009) stock price (Po) = $14.45
• Market value of equity or market capitalisation = $28,260,000000
• Shares outstanding (28,260,000,000/14.45) = 1,955,709,343
• No dividend is paid recently. In this case, the dividend discount model cannot be used
• The three-month treasury bill yield = 0.03%
Cost of Equity
Risk free rate (Rf)= 0.03%
Systematic risk of Equity (Beta, BE) = 1.36
Assuming market risk premium = 8.6%
Using the Capital Asset Pricing Model (CAPM),
Cost of equity (RE) = Rf + BE(RM - Rf)
Where,
RM is expected return on the overall market
(RM - Rf) is the market risk premium
Cost of equity (RE) = 0.0003 + 0.086 x 1.36 = 0.1173 = 11.73%
Therefore, the cost of equity is 11.73%
3) Cost of Debt
From www.nasdbondinfo.com, the yields to maturity (YTM) for DELL bonds are shown in table 2.
Table 2
Price (%) Yield to maturity (%)
103.236 2.102
106.224 2.800
109.157 3.395
105.219 4.889
107.526 4.884
111.230 6.079
101.480 6.386
Table 3 is generated by combining tables 1 and 2
Table 3
Coupon Rate Book Value ($) % of Total Market Value ($) % of Total Yield to Book Values Market Values
(%) (Face Value in million) (in million) Maturity (%) (%) (%)
3.38 400 0.118 412.9 0.114 2.102 0.25 0.24
4.70 599 0.176 636.3 0.176 2.800 0.49 0.49
5.63 500 0.147 545.8 0.151 3.395 0.50 0.51
5.65 499 0.147