our company has two divisions: One division sells software and the other diVIsion sells computers through a direct sales channel, primanily taking orders over the internet. You have decided that D 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 1.19, the risk-free rate is 4.2%, its market value quity is $66.5 billion, and it has $705 million worth of debt with a yield to maturity of 5.5%. Your tax rate is 35% and you use a market risk premium of 5.5% in your WACC estimates. . What is an estimate of the WACC for your computer sales division? . If your overall company WACC is 12.1% and the computer sales division represents 37% 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.

our company has two divisions: One division sells software and the other diVIsion sells computers through a direct sales channel, primanily taking orders over the internet. You have decided that D 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 1.19, the risk-free rate is 4.2%, its market value quity is $66.5 billion, and it has $705 million worth of debt with a yield to maturity of 5.5%. Your tax rate is 35% and you use a market risk premium of 5.5% in your WACC estimates. . What is an estimate of the WACC for your computer sales division? . If your overall company WACC is 12.1% and the computer sales division represents 37% 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.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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