Question

Your company has two divisions: One division sells software and the other division sells computers through a direct saleschannel, primarily taking orders over the internet. You have decided that Dell Computer is very similar to your computerdivision, in terms of both risk and financing. You go online and find the following information: Dell's beta is

1.16,

the risk-free rate is

4.6%,

its market value of equity is

$66.4

billion, and it has

$703

million worth of debt with a yield to maturity of

6.4%.

Your tax rate is

38%

and you use a market risk premium of

5.9%

in your WACC estimates.

a. What is an estimate of the WACC for your computer sales division?

b. If your overall company WACC is

11.2%

and the computer sales division represents

40%

of the value of your firm, what is an estimate of the WACC for your software division?

Note: Assume that the firm will always be able to utilize its full interest tax shield.

a. What is an estimate of the WACC for your computer sales division?

The weighted average cost of capital for your computer sales division is

11.4411.44%.

(Round to two decimal places.)b. If your overall company WACC is

11.2%

and the computer sales division represents

40%

of the value of your firm, what is an estimate of the WACC for your software division?The WACC for your software division is

nothing%.

Answer #1

Your company has two divisions: One division sells software and
the other division sells computers through a direct sales channel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computer division, in terms
of both risk and financing. You go online and find the following
information: Dell's beta is 1.22, the risk-free rate is 4.7%,
its market value of equity is $65.6 billion, and it has $694
million worth of debt with...

Your company has two? divisions: One division sells software and
the other division sells computers through a direct sales? channel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computer? division, in terms
of both risk and financing. You go online and find the following?
information: Dell's beta is 1.16, the? risk-free rate is 4.4%?, its
market value of equity is $65.8 billion, and it has $699 million
worth of debt with...

Your company has two divisions: One division sells software and
the other division sells computers through a direct sales channel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computer division, in terms
of both risk and financing. You go online and find the following
information: Dell's beta is 1.18, the risk-free rate is 4.3 %,
its market value of equity is $ 65.6 billion, and it has $ 709
million worth...

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the other division sells computers through a direct sales channel,
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both risk + financing. You go online and find the following info:
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