The strong financial performances in the second quarter of 2008, published at the end of August 2008, will most likely increase the stock prices in the next coupe of weeks. The 52 weeks range for Dell stock was between $18.13 and $30.77, with a one year target estimate aimed at $26.53. The earnings per share ratio was $1.34.
In order to calculate the weighted average cost of capital, we will use the following formula: WACC = Wd (Kd)(1-t)+(Wpfd)(Kpfd) +(We)(Ke), where Wd= the proportion of the financing taken on by debt; Wpfd= the proportion of the financing taken provided by preferred stock; We= the proportion of the financing provided by equity
Kd= the interest rate that the bank requires (we will use the average yield for the debt); Kpfd= dividend/share price; Ke= R (r)+ Beta (Market Risk Premium). Dell currently doesn't issue preferred stock, so the WACC formula will resume to WACC = Wd [Kd x (1-t)] + We (Ke)
In order to calculate Ke, we will use CAPM, where Beta = 1.13, Rm = 11% and Rf = 4.6% based on 30-year treasury yield. Thus, Ke =(4.61%...
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