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Managerial Finance As Of The Thesis

67% on the 2028s and 22.2% on the 2038s. Using market value the weighted-average cost of debt is 6.798%. The weights are 35.42% on the 2013s; 28.39% on the 2018s; 16.14% on the 2028s and 20.03% on the 2038s. Thus, it does make a difference if book or market value weights are used. In this case, the market value weights skew more towards the short maturities, which have the lowest yields. This gives the weighted-average cost of debt for market value weights a slightly lower figure.

5) by book value, the weight for debt is 30.85% and equity 69.45%. This gives a weighted average cost of capital of:

We (Re) + Wd (Rd) (1 - T) =.6945(9.94) + (.3085)(6.854)(.65) = 8.277%

By market value, the weight for debt is 7.345% and the weight for equity is 92.645%. This gives a weighted average cost of capital of:

9265(9.94) + (.0735)(6.798)(.65) = 9.534%

The cost of capital that is more relevant is the book value. The market value takes into account market perceptions of future growth, where only past performance and existing intrinsic value are included in book value. When calculating cost of capital, it is best to omit any speculation about how the market will perceive the firm's growth potential.

6) There are many potential problems with using Dell as a representative company for GCI. One is that Dell is a much larger company. As such, they will enjoy a stronger...

They will also have much better access to equities markets. Dell's size may also give them a technological advantage on account of superior research and development funding. Additionally, the Dell business model is not the same as the one GCI is using. GCI is a storefront retailer whereas Dell operates strictly online. The turnaround time for a computer is much faster at Dell, due to their technological advantage.
In order to improve the output, it is advised that GCI search for a more suitable comparative company. Ideally such a company would have a bricks and mortar retail component, but also the comparable should be of relatively equivalent size. There are significant differences in the cost of capital between a massive company like Dell and a small company like GCI. A similarly-sized bricks and mortar company selling something else technical would be a better comparison, for example, than a company like Dell.

Works Cited

Dell Computer Form 10-Q for Quarter ended October 31, 2008. Retrieved December 26, 2008 at http://idea.sec.gov/Archives/edgar/data/826083/000095013408021635/d65443e10vq.htm

Dell Computer Form 10-K for Year ended February 1, 2008. Retrieved December 26, 2008 at http://idea.sec.gov/Archives/edgar/data/826083/000095013408005718/d55156e10vk.htm

Yahoo! Finance.…

Sources used in this document:
Works Cited

Dell Computer Form 10-Q for Quarter ended October 31, 2008. Retrieved December 26, 2008 at http://idea.sec.gov/Archives/edgar/data/826083/000095013408021635/d65443e10vq.htm

Dell Computer Form 10-K for Year ended February 1, 2008. Retrieved December 26, 2008 at http://idea.sec.gov/Archives/edgar/data/826083/000095013408005718/d55156e10vk.htm

Yahoo! Finance. Retrieved December 26, 2008 at http://finance.yahoo.com/q?s=dell

Dell bond rates from FINRA. Retrieved December 26, 2008 at http://cxa.marketwatch.com/finra/BondCenter/SearchResult.aspx?q=DELL
Treasury bond yield from Yahoo! Finance. Retrieved December 26, 2008 at http://finance.yahoo.com/bonds
Competitor information from Reuters. Retrieved December 26, 2008 at http://www.reuters.com/finance/stocks/overview?symbol=DELL.O
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