Your company has two? divisions: One division sells software and the other division sells computers through...

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Your company has two? divisions: One division sells software andthe other division sells computers through a direct sales? channel,primarily taking orders over the internet. You have decided thatDell Computer is very similar to your computer? division, in termsof both risk and financing. You go online and find thefollowing?information: Dell's beta is 1.18?, the? risk-free rate is4.6%?, its market value of equity is $66.6 billion, and it has $709million worth of debt with a yield to maturity of 5.7% Your taxrate is 40% and you use a market risk premium of 5.3% in your WACCestimates.
a. What is an estimate of the WACC for your computer sales?division?
b. If your overall company WACC is 11.6% and the computer salesdivision represents 36% of the value of your?firm, what is anestimate of the WACC for your software? division?
?Note: Assume that the firm will always be able to utilize itsfull interest tax shield.

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a Total Capital value Value of Debt Value of Equity 0709666 67309 Weight of Debt Value of DebtTotal Capital Value 070967309 00105 Weight of See Answer

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Your company has two? divisions: One division sells software andthe other division sells computers through a direct sales? channel,primarily taking orders over the internet. You have decided thatDell Computer is very similar to your computer? division, in termsof both risk and financing. You go online and find thefollowing?information: Dell's beta is 1.18?, the? risk-free rate is4.6%?, its market value of equity is $66.6 billion, and it has $709million worth of debt with a yield to maturity of 5.7% Your taxrate is 40% and you use a market risk premium of 5.3% in your WACCestimates.a. What is an estimate of the WACC for your computer sales?division?b. If your overall company WACC is 11.6% and the computer salesdivision represents 36% of the value of your?firm, what is anestimate of the WACC for your software? division??Note: Assume that the firm will always be able to utilize itsfull interest tax shield.