Question
In: Finance
Your company has two divisions: One division sells software and the other division sells computers through...
Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Dell 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 1.22, the risk-free rate is 4.8 %, its market value of equity is $ 66.3 billion, and it has $ 695 million worth of debt with a yield to maturity of 5.9 %. Your tax rate is 35 % and you use a market risk premium of 5.7 % in your WACC estimates.
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 sales division represents 44 % 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.
Solutions
jeff jeffy answered 11 months agoRelated Solutions
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Your company has two divisions: One division sells software and
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primarily taking orders over the internet. You have decided that
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information: Dell's beta is 1.23?, the? risk-free rate is 4.7%?,
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Your company has two divisions: One division sells software and the other division sells computers through...
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the other division sells computers through a direct sales channel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computer division, in terms
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Dell Computer is very similar to your computer division, in terms
of both risk and financing. You go online and find the
followinginformation: Dell's beta is 1.18, the risk-free rate is
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Salsa Grocery has two divisions. One division, STORES, sells groceries through traditional grocery stores. The second...
Salsa Grocery has two divisions. One division, STORES, sells
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STORES
CYBER
Total
assets
$
120,000,000
$
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Current
liabilities
4,500,000
2,500,000
Net income
(loss)
10,000,000
1,000,000
Weighted-average
cost of capital
8
%
10
%
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Consumers are more likely to say positive things about companies
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