1. Most publicly traded corporations must submit quarterly (10-Q) and annual (10-K) reports to the SEC detailing the company's financial operations over the past quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the "Search Company and Individual Filings" link, and search for SEC filings made by Dell Computer(DELL). Find the most recent 10-Q or 10-K, and download the form. Look at the balance sheet to find the book value of debt and the book value of equity. Is this the actual cost of capital for Dell Computer?
2. To estimate Dell's equity cost, go to finance. yahoo.com and enter the ticker symbol DELL. Follow the links to answer the following questions: What is the most recent stock price listed for DELL? What is the market value of equity or market capitalization? How many shares of stock does DELL have outstanding? What is the forward annual dividend? What is the estimated growth rate for dividends? What is the cost of equity for DELL using the DOM? What is the beta for DELL? Now go back to finance.yahoo.com and follow the "Bonds" link. What is the yield on three-month Treasury bills? Using the historical market risk premium, what is the cost of equity for DELL using CAPM? What is your final estimate for the cost of equity?
3. You now need to calculate the cost of debt for DELL. Go to finra-markets.morningstar.com, enter DELL as the company, and find the yield to maturity for each of DELL's bonds. What is the weighted average cost of debt for DELL using the book value weights and the market value weights? Does it make a difference in this case if you use book value weights or market value weights?
4. You now have all the necessary information to calculate DELL's weighted average cost of capital. Calculate the WACC using book value weights and market value weights. What is Dell's tax rate? Which number is more relevant?
5. You used Dell as a pure-play company to estimate the cost of capital for TC. Are there any potential problems with this approach in this situation?