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 the following?information: Dell's beta is 1.21?, the? risk-free rate is 4.5 %?,its market value of equity is $ 67.0 ?billion, and it has $ 700million worth of debt with a yield to maturity of 6.0 %. Your taxrate is 25 % and you use a market risk premium of 5.0 % in yourWACC estimates. a. What is an estimate of the WACC for yourcomputer sales? division? b. If your overall company WACC is 12.0 %and the computer sales division represents 40 % of the value ofyour? firm, what is an estimate of the WACC for your software?division? ?Note: Assume that the firm will always be able toutilize its full interest tax shield.

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a Since the dell computer has similar risk and financing structure as Computer sales division So WACC of Dell computers WACC of Computer sales division According to Capital Asset Pricing Model Cost of equity of Dell computers Risk free rate Beta x Market 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 the following?information: Dell's beta is 1.21?, the? risk-free rate is 4.5 %?,its market value of equity is $ 67.0 ?billion, and it has $ 700million worth of debt with a yield to maturity of 6.0 %. Your taxrate is 25 % and you use a market risk premium of 5.0 % in yourWACC estimates. a. What is an estimate of the WACC for yourcomputer sales? division? b. If your overall company WACC is 12.0 %and the computer sales division represents 40 % of the value ofyour? firm, what is an estimate of the WACC for your software?division? ?Note: Assume that the firm will always be able toutilize its full interest tax shield.