Intel Corporation: Sources of Funds and Capital Structure for Innovation

This report discusses the sources of funds and capital structure for Intel Corporation's innovation project of producing cell phone processors. It analyzes the cost of capital and proposes a new capital structure. The report also highlights the potential benefits and market opportunities for the company.

PROPOSAL

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Present report is based on the Intel corporation. In this dynamic business environment
companies cannot survive bringing continuous innovations in its product and services. Company
performance is strong and is serving the industry from years successfully. In this project
company is planning to expand its business by bringing innovations for cell phone processors.
Previously company was producing processors for only computers and laptops. It has a brought a
new idea for making cell phone processors. This report covers the sources of funds and other
issues and challenges that will be faced.
MAIN BODY
The company for making investment and bringing new innovations requires funds. They
are the essential source for any project without this it could not be achieved. There are various
sources of funds available to an enterprise. Before raising the funds it is required to analyse the
most appropriate source i.e. debt or equity. Company can raise loans through both the sources
(Phills, Deiglmeier and Miller, 2018). It should have ensure that it is having the most
appropriate mix of debt and capital. It has to analyse the cost of capital before the investments
and that will be after raising funds from different sources. Weighted average cost of capital
should be such that the profits of company are not highly affected.
Present WACC of Intel company.
Calculations of WACC.
Particulars 2019 2018
EBT 24058 23317
Shares Outstanding 4290 4516
Cash Interest paid 469 448
Total debt 29001 26359
EAT 21048 20753
Variable Value Description
E 255899
Company's current market cap :
Last day closing price * Common shares outstanding
= 59.65 * 4290
D 27680
2 year average
Total Debt :
(26359 * 29001) / 2
EV 283579 Company value : E+D
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Re 13.20%
Cost of equity.
It is also known as required rate of return on equity
Rd 1.69%
Cost of debt :
Yield over company debt,
Formula – Interest paid / Total Debt (2 years
average) = 469 / 27680
Tc 12% Corporate tax rate
Cost of Equity
Variable Value Description
Rf 1.33% It is based on UK Treasury bonds
B 1.24 Beta of Intel
Rm 10.93% It is compounded annual return
Re = Rf +(Rm -Rf) * B
13.23%
Weighted Average Cost of Capital
WACC = (E/ EV) * Re + D/ EV * Rd * (1-Tc)
(E/EV)* Re 0.119115548
D/EV 0.0976094845
Rd*(1-Tc) 0.014872
WACC = 12.06%
The present cost of capital is 12.06%. It is having adequate cost structure where the
overall cost of debt and equity (Annual Report Intel, 2018). It is essential for the business
enterprise to ensure that the overall cost of capital do not raises high (Schilling, 2019). For the
innovation project company will be required to raise funds from equity as well as bonds.
Capital structure for the innovations and WACC
Company has to maintain the cost of capital. It will be raising 500 million as debt
securities and 1500 million as equity capital. This is the most optimal structure that will keeping
its cost to minimum.
New capital structure
Equity 1500
Debt 500
Variable Value Description
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E 257399
Company's current market cap :
Last day closing price * Common shares outstanding
= 59.65 * 4290
D 28180 2 year average Total Debt :
= (26359 * 29001) / 2
EV 283579 Company value : E+D
Re 14.00% Cost of equity.
It is also known as required rate of return on equity
Rd 1.69%
Cost of debt : Yield over company debt,
Formula – Interest paid / Total Debt (2 years average) = 469 /
27680
Tc 12% Corporate tax rate
New Cost of Capital
WACC = (E/ EV) * Re + D/ EV * Rd * (1-Tc)
(E/EV)* Re 0.1270752066
D/EV 0.0993726616
Rd*(1-Tc) 0.014872
WACC = 12.86%
The innovation of processors for the mobile phones is a purely new concept that will
help company in reaching new heights. This will become a competitive advantage for the
company. Along with these funds company will be carrying out all the expenses for
manufacturing the micro chip. The costs and expenses will be properly structured according to
the requirement of the projected expansions (Camisón and Villar-López, 2014).
CONCLUSION
On this innovation company will raise the demand for its share increasing its share price.
By collaborating with the cell companies it will be serving larger. This will increase the market
share of company as this will increase the demand for processors. For competing other cell
phone companies will also demand for the processors increasing its market share. The revenues
of the company show rising trend and this will be supporting the innovation.
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REFERENCES
Books and Journals
Phills, J.A., Deiglmeier, K. and Miller, D.T., 2018. Rediscovering social innovation. Stanford
Social Innovation Review. 6(4). pp.34-43.
Schilling, M.A., 2019. Strategic management of technological innovation. Tata McGraw-Hill
Education.
Camisón, C. and Villar-López, A., 2014. Organizational innovation as an enabler of
technological innovation capabilities and firm performance. Journal of business
research. 67(1). pp.2891-2902.
Online
Annual Report Intel. 2018. [Online]. Available through :
<https://s21.q4cdn.com/600692695/files/doc_financials/2018/Annual/Intel-2018-Annual-
Report_INTC.pdf>.
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