You have been hired by Dell Computer Corporation to advise it on its capital structure.

This $75 billion company would like to raise an additional $25 billion to acquire the assets of one of its competitors. It currently has very little debt, but it is considering borrowing the entire $25 billion. In order to make your recommendation, you have asked the following questions:

a. Is Michael Dell planning on reducing his stake in the business?

b. Do Dell computers require specially trained Dell technicians for servicing, or can the service be acquired from a variety of sources?

c. Does Dell expect to be generating significant amounts of cash in excess of its investment needs in the future, or is it likely to require additional external capital in the future?

Explain how the answers to these questions would affect your advice.

AppendixLO1