THE COST OF CAPITAL FOR GOFF COMPUTER, INC. You have recently been hired by Goff
ID: 463448 • Letter: T
Question
THE COST OF CAPITAL FOR GOFF COMPUTER, INC. You have recently been hired by Goff Computer, Inc. (GCI), in the finance area. GCI was founded eight years ago by Chris Goff and currently operates 74 stores in the Southeast. GCI is privately owned by Chris and his family and had sales of $97 million last year. GCI sells primarily to in-store customers. Customers come to the store and talk with a sales representative. The sales representative assists the customer in determining the type of computer and peripherals that are necessary for the individual customer’s comput- ing needs. After the order is taken, the customer pays for the order immediately, and the computer is assembled to fill the order. Delivery of the computer averages 15 days but is guaranteed in 30 days. GCI’s growth to date has been financed from its profits. Whenever the company had sufficient capital, it would open a new store. Relatively little formal analysis has been used in the capital budgeting process. Chris has just read about capital budgeting techniques and has come to you for help. The company has never attempted to determine its cost of capital, and Chris would like you to perform the analysis. Because the company is privately owned, it is difficult to determine the cost of equity for the company. You have determined that to estimate the cost of capital for GCI, you will use Dell as a representative company. The following steps will allow you to calculate this estimate
1. Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the “Search for Company Filings” link and the “Companies & Other Filers” link, enter “Dell Computer,” and search for SEC filings made by Dell. Find the most recent 10Q and 10K and download the forms. Look on the balance sheet to find the book value of debt and the book value of equity. If you look further down the report, you should find a section titled either “Long-Term Debt” or “Long-Term Debt and Interest Rate Risk Management” that will list a breakdown of Dell’s long-term debt.
Explanation / Answer
1) The latest report that i could find in the website for the Dell computer is - November 2012. According to the latest reports, Dell computer's stock price is $13.88 per share.
10k book value equity (for 2 Feb 2012) = total assets - total liabilities
= $44,533 - $35,616
= $8,917 (Value is for assets, Feb 3, 2012)
10k book value equity (for Nov 2012) = Total assets - total liabilities
= $45,446 - $35,248
= $10,198
Long term debt :
10Q = $5310 million (Dell 10Q, November 2,2012)
10K = $6387 million (Dell 10K, February 3, 2012)
Book value of debt :
10K = $44,533 (Dell 10K, February 3, 2012)
10Q = $45,446 (Dell 10Q, November 2,2012)
Pls note: I could not attach the tables here, due to some technical issues.
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