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 pre-tax WACC?

Answer 1

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Answer:

Answer a.

Debt = $28
Capitalized Equity = $101.0955 billion (1.21*83.55)
Cash and Risk-free Securities = $11.8 billion

Enterprise Value = Debt + Capitalized Equity - Cash and Risk-free Securities
Enterprise Value = $28 billion + $101.0955 billion - $11.8 billion
Enterprise Value = $117.2955 billion

Answer b.

Beta = Capitalized Equity / Enterprise Value * Equity beta
Beta =$101.0955 billion/ $117.2955 billion *1.38
Beta = 1.1894

Answer c.

WACC = risk-free rate + beta * market risk premium
WACC = 0.9% + 1.1894 * 3.9%
WACC = 5.54%