TUGAS MANAJEMEN KEUANGAN

Mini Case: THE COST OF CAPITAL FOR GOFF

COMPUTER, INC.

Oleh
Halvis 1921011017

DOSEN:
Dr. Sri Hasnawati, S.E, M.M

MAGISTER MANAJEMEN
ANGKATAN 2019
FAKULTAS EKONOMI DAN BISNIS
UNIVERSITAS LAMPUNG
2020
Golf Computers, Inc. (GCI) estimated Cost of equity using Dell computers as

representative company.

1.(a) Capital budgeting - refers to the process of determining whether available long

term ventures are worth investing by evaluating inflows and outflow for each

project relative to anticipated returns over a given period (Dayananda, 2002).

(b) The following information was obtained from Balance sheet of Dell in SEC

website at www.sec.gov

3rd February 2012

2nd May 2012(millions)
(millions)
Book value of total debts $9,034 $9,254
Book value for equity $ 112 $107
Dell total long term debt $5,310 $6,387
Source: (United States Securities & Exchange Commission, 2012)

2. (i) Estimating Dell cost of equity from finance.yahoo.com.(Enter Dell

Symbol & find the following)

(a)What is the most recent stock price listed for Dell?

Dell stock price =$10.56

(b) What is the Market Value of equity, or market capitalization?

Market capitalization= $18.54B

(c)How many shares of stock does Dell have outstanding?

Number of outstanding Shares= 1,737.27

(d) What is the beta for Dell?

Beta for Dell (β) = 1.36

Source: (Yahoo Finance, 2012)

(i)Back to finance.yahoo.com using the bond link find

(a) What is the yield on 3-month Treasury bills?

=2.949%

(b) Using a 7% market risk premium, what is the cost of equity for Dell using the

CAPM?

CAPM=Ks=Krf+ (Rm-Krf) β

Ks=2.949 %+( 7%) 1.36=12.01%

Source: (Yahoo Finance, 2012)

3. from www.reuters.com

(a)Find the list of the competitors in the industry.

Competitors Beta (β)

Samsung Electronics Co., Ltd (005930.KS) 0.68

Samsung Electronics Co., Ltd (005935.KS) 0.68

Sony Corporation (6758.T) 1.66

Toshiba Corp (6758.T) 1.59

International business Machines.Corp. (IBM.N) 0.67

Apple Inc. (AAPL.OQ) 1.21

Acer Incorporated (2353.TW) 0.98

EMC Corporation (EMC.N) 1.08

Hewlett-Packard (HPQ.N) 1.07

Lenovo Group Limited (0992.HK) 1.35

Total beta for dell competitor’s β10.97

Source: (Reuters.com, 2012)

(b)Find the beta for each of these competitors, & calculate the industry average beta
 Industrials average beta (β) =beta for all competitors + Beta for Dell = 10.97+1.36=

1.1209 Number of competitors 11

(c)Using the industry average beta, cost of equity for dell?

Ks=Krf + (Rm-Krf) β

Ks=2.949 %+( 7%) 1.1209

= 10.80%

(d) Does it matter if you use the beta for Dell or the beta for the industry in this

case?

Industrial beta is lower than beta for Dell with a difference of 0.2391. It can be

scrutinized that Dell cost of equity is higher when Dell beta is used. On the contrary,

Dell cost of equity is lower when industrial beta is used.

4. From cxa.marketwatch.com/finra/BondCenter/Default.aspx,enter Dell as a

company

(a) Find the yield to maturity for each of Dell’s bonds.

Dell Bonds Yields

Treasury 0% & 3%

Corporate 3.01% & 5.0%

Municipal 5.01% & 10%

(b) What is the weighted average cost of debt for Dell using the book value weights and

the market value weights?

 The Book value weight was 2.94% while that of market value weight was 3.00 %

(Finra, 2012).

(c) Does it make a difference in this case if you use book value weights or market value

weights?

There is only a slight difference that can be scrutinized and therefore no much great

difference between the two.

5. Using the information you already have,

(a) Calculate the weighted average cost of capital for Dell using book value weights and

market value weights assuming Dell has a 35 percent marginal tax rate

Weighted average cost of capital WACC= Kd (D/V) (1-T) + Ke (E/V)

Whereby,

Kd=cost of debt=3%=0.03

Ke=cost of equity=10.80%=0.1080

D=debt market value=$1,624,650,000

E=equity market value=$21,728,000,000

V=total value of debt and equity=$1,624,650,000+$21,728,000,000=$23,352,650,000

Therefore, WACC=0.03($1,624,650,000÷$23,352,650,000) (1-0.35) +

0.1080($21,728,000,000 ÷$23,352,650,000) =

=0.001357+0.100486=0.101843

=10.18%

(b) Which cost of capital number is more relevant?

 The value of market cost of capital is more relevant than the book value because it

reflects all the actual events in the market unlike book value cost of capital.

6. What are some of the potential problems of using Dell as a representative

company for GCI to estimate cost of debt and which improvements you May

suggest?

The basic potential problem is that the two companies operate differently whereby,

Dell operate through online while GCI operate in a store. Additionally, Dell

Company can be able to raise more capital than GCI because it has listed its stocks in

the stock market unlike GCI (Yahoo Finance, 2012). I would therefore, suggests GCI

Company to embrace online commerce and publicize its stocks in the stock exchange

market in order to raise more capital just like Dell.

 References

Dayananda, D. (2002). Capital budgeting: Financial appraisal of investment projects.

Cambridge [u.a.: Cambridge Univ. Press.

Finra. (2012).Bonds. Retrieved :< http://cxa.gtm.idmanagedsolutions.com /finra/Bond

Center/ Default.aspx>on 14th December 2012.

Yahoo Finance. (2012). Dell Inc. (DELL). Retrieved :< http://finance.yahoo.com/q?

s=DELL> on 13th December 2012.

United States Securities & Exchange Commission. (2012 May, 4).Dell Quartery Report

Pursuant to Section 12 or 15 of Securities Exchange Act Of 1934.Washinton,

D.C.20549.Retrieved :

<http://www.sec.gov/Archives/edgar/data/826083/000082608312000011/dellq1fy131

0q.htm>on 13th December 2012.

Reuters.com (2012). Dell Inc. (DELL).

Retrieved :<http://www.reuters.com/finance/stocks/overview?symbol=DELL.OQ>on

14th December 2012.