A B D CAPM: S&P 500 AND DELL Below you will find the monthly data for Dell's share price and the S&P 500 index during 1997: A) Use the data to compute Dell's bota (use both simple regression and the covariance formula). B) Suppose that at the end of 1997 the risk free rate is 5.5%, and the risk promlum (E(R) - R.)) i 8% and the corporate tax rate In 40%, calculate Dell's cost of equity using the classical CAPM C) At the end of 1987, Dell had 589,483,287 shares outstanding and $15.8 billions in debt, its cost of debt is 6.8%. Use your estimations from part B) to derive WACC estimated for Dell. 3 9 10 S&P 500 Dell S&P 500 DELL 11 index price ($) return return 72 1/1/97 786.16 86.12 1/1/97 13 2/1/97 790.82 71.12 2/1/97 0.01 0.08 14 3/1/97 757.12 67.62 3/1/97 -0.04 -0.05 15 4/1/97 801.34 83.69 4/1/97 0.06 0.24 16 5/1/97 848.28 112.50 5/1/97 0.06 0.34 -17 6/1/97 885.14 117.50 6/1/97 0.04 0.04 18 7/1/97 954.31 85.50 7/1/97 0.08 -0.27 19 8/1/97 899.47 8206 8/1/97 -0.06 -0.04 20 9/1/97 947.28 96.87 9/1/97 0.05 0.18 21 10/1/97 914.62 80.12 10/1/97 0.03 -0.17 22 11/1/97 955.40 84.19 11/1/97 0.04 0.05 23 12/1/97 970.43 84.00 12/1/97 0.02 0.00 24 25 Parta DELL beta 26 27 Part b 28 Risk-free, 5.50% 29 Market risk-premium, E. 8% 30 Corporate tax rate, TO 40% 31 32 Classic CAPM cost of equity 33 34 35 Parte 36 Shares outstanding 37 1 589,463,287 Debt billion $) 38 15.8 Market value of equity billion ) 39 Cost of debt 40 6.60% 41 Weighted average cost of capital (WACC) 42