Financial leverage before and after the offering11
Credit Rating11
Rate Of return13
Duration and Convexity13
Comparisons14
Calculation for WACC14
Total long-term debt for the year ending14
WACC18
Comments18
Works Cited19
Bond Analysis
Introduction
Dell Inc. is an American based multinational company deals in information technology products with its head quarter in Round rock, Texas, U.S. it develops, computer related products and services and also provide after sales services. (www.dell.com)The company has taken its name from the name of its owner and founder, Michael Dell. With its operation around the globe the company has employed more than 100,000 worldwide. The company was ranked at the 38th place in fortune 500 companies. It also deals in cameras, mp3 players, printers, and other electronic products.
Dell Capital Structure
Dell is issuing bonds because it wants to invest in cloud computing as computer makers are now moving to cloud computing which helps customers consume data and software over the internet , Normally Dell depend on both type of fund source i.e. equity and Debt we will first discuss both type of financing (Paramasivan, 2009).
Equity financing
There are two fundamental ways of raising equity finance; the issuance of the company stocks to the venture capitalists or investors, and by publicly offering company stocks to the investors. When capital rose through equity financing, it involves the selling of partial interest in the firm to the shareholders. The equity financing done when company is seeking to raise more cash; the company desires to float more shares in the market, and the company desires to increase the market share by issuing and floating shares to the shareholders of other companies. Dell already issued its shares which is now already traded on different stock exchange
Advantages
The company does not have the direct obligation to pay back the invested amount to the shareholders with in a limited time period like in debt financing.
The share holders become the owners and partners of the company and, they share the profit and loss of the company.
No fixed liability on the company as compared to the debt financing.
Disadvantages
It's a time consuming and costly affair.
The involvement of the shareholders in the decision making may potentially disturb then management of the company and its decisions.
The investors will require the information relating to the company affairs in order to track and monitor company performance and it may consume the limited time available to the management for other more productive operations.
The potential complication of the legal affairs of the company and it may raise different compliance issues (Quint, 1998).
Debt financing
The strategy of the debt financing involves the acquisition of funds from the investor or lender with the agreement and understanding that the complete amount will be re-paid in the future by the company on predefined terms. Normally, in debt financing the lender or the investor is not entitled any ownership of the company like we discussed in the equity financing.
Looking at the above picture one can see dell's debt share in its total financing ...