Question

1. As of November 2019, Qualcomm Inc. had $28 billion in​ debt, 1.21 billion shares outstanding at a price of $83.55 per share, and an equity beta of 1.38 (as reported on​ Yahoo! Finance). Included in​ Qualcomm's assets was $11.8 billion in cash and​ risk-free securities. Assume that the​ risk-free rate of interest is 0.9% and the market risk premium is 3.9%.  

   1. What is​ Qualcomm's enterprise​ value?  

   2. What is the beta of​ Qualcomm's business​ assets?   

   3. What is​ Qualcomm's WACC?

Answer 1

Given,

Debt = $28 billion

Shares outstanding = 1.21 billion

Price per share = $83.55

Equity beta = 1.38

Assets = $11.8 billion

Risk free rate = 0.9%

Market risk premium = 3.9%

Solution :-

Enterprise value = (shares outstanding x price per share) + debt - assets

= (1.21 billion x $83.55) + $28 billion - $11.8 billion

= $101.0955 + $28 billion - $11.8 billion = $117.30 billion

Beta of business assets = [(shares outstanding x price per share) enterprise value] x equity beta

= [(1.21 billion x $83.55) $117.30 billion] x 1.38

= [$101.0955 billion $117.30 billion] x 1.38

= 0.8618542199 x 1.38 = 1.19

WACC = Risk free rate + (beta of business assets x market risk premium)

= 0.9% + (1.19 x 3.9%)

= 0.9% + 4.641% = 5.54%