Question

Michael Dell is considering investing $4.5 billion today to take Dell Inc. private. If he takes...

Michael Dell is considering investing $4.5 billion today to take Dell Inc. private. If he takes Dell Inc. private, he will not receive any benefits for 4 years. Then he will receive $225 million per year for 4 years starting exactly five years from today. After that, he will receive $275 million per year for the following 3 years. At that point, the cash flows will increase at 4% per year forever. If Michael Dell has a discount rate of 9%, what is the NPV of this investment and should Michael Dell make it?

Business   Operations-Management   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Initial Investment (Co) $4.5 Billion
Co $4,500,000,000.00
Rate 9.00%
Year Cash Inflow
Year 1 0
Year 2 0
Year 3 0
Year 4 0
Year 5 $      225,000,000.00
Year 6 $      225,000,000.00
Year 7 $      225,000,000.00
Year 8 $      225,000,000.00
Year 9 $      275,000,000.00
Year 10 $      286,000,000.00
Year 11 $      297,000,000.00
Present Value= $878,921,715.18
Net present Value= -$3,621,078,284.82
Since the NPV is negative Micheal Dell should not invest.
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
ALiBaba industries is considering to start new project! The Project either start today or exactly in...
ALiBaba industries is considering to start new project! The Project either start today or exactly in two years. The project will cost £10.8 million to start today. The cost of starting project in two years is £12 million. You expect the project to generate £1,250,000 in free cash flow per year forever. The risk free rate is 4.5%. The expected return on the market is 9%, and beta for projects of similar risk is 1.5. The variance of the project's...
You can purchase an oil pipeline for $3 million today. It is forecasted to generate $2...
You can purchase an oil pipeline for $3 million today. It is forecasted to generate $2 million a year, with the first payment one year from today. The pipeline’s operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped through this pipeline is expected to decline, and the cash flows are expected to decline by 4% per year. Further, to comply with environmental regulations, it will need a $1.2...
1. Net present value. You are considering investing in solar panels for your home. The upfront...
1. Net present value. You are considering investing in solar panels for your home. The upfront cost today of purchasing the panels is $12,000. The benefit you receive from the panels is equal to $1,000 per year starting next year and continuing in perpetuity. Calculate the year that these solar panels pay for themselves (i.e., have a positive NPV). Consider three different discount rates: 3%, 5%, and 10%. (a) Write an equation for the net present value of the investment...
Suppose today is Dec 31st, 2020, and as always, today is time t=0. Prithu wants to...
Suppose today is Dec 31st, 2020, and as always, today is time t=0. Prithu wants to buy a $20 million yacht. The dealer is offering the following scheme. Pay $2 million as down payment today and borrow $18 million from the dealership at 18% per year and payoff the loan in 4 yearly installments, the first installment is due one year from now, meaning December 31, 2021. If he agrees to the scheme, he will receive the delivery of the...
Square Manufacturing is considering investing in a robotics manufacturing line. Installation of the line will cost...
Square Manufacturing is considering investing in a robotics manufacturing line. Installation of the line will cost an estimated $9.8 million. This amount must be paid immediately even though construction will take three years to complete (years 0, 1, and 2). Year 3 will be spent testing the production line and, hence, it will not yield any positive cash flows. If the operation is very successful, the company can expect after-tax cash savings of $6.8 million per year in each of...
Eddie is thinking about investing in stocks of IDK Inc. IDK just announced its earnings per...
Eddie is thinking about investing in stocks of IDK Inc. IDK just announced its earnings per share of $6 today, but the company currently pays no dividends. The earnings are expected to grow at 12% per year for the following three years. After that, the earnings will grow at 8% per year for five years and then slow down to 2% forever. IDK plans to pay its first annual dividend at the end of Year 4 by distributing 50% of...
Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project....
Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt-equity ratio of .70, but the industry target debt-equity ratio is .75. The industry average beta is 1.10. The market risk premium is 6.5 percent and the risk-free rate is 4.5 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 21 percent. The project requires an initial outlay...
HEALTHY OPTIONS INC. Healthy Options is a Pharmaceutical Company which is considering investing in a new...
HEALTHY OPTIONS INC. Healthy Options is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardiovascular diseases. The company has to invest in equipment which costs $2,500,000 and falls within a MARCS depreciation of 5 years, and is expected to have a scrap value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents...
Intermediate 1. Multiple compounding periods: Find the future value of an investment of $2,500 made today...
Intermediate 1. Multiple compounding periods: Find the future value of an investment of $2,500 made today for the following rates and periods: a.            6.25 percent compounded semiannually for 12 years b.            7.63 percent compounded quarterly for 6 years c.            8.9 percent compounded monthly for 10 years d.            10 percent compounded daily for 3 years 2. Multiple compounding periods: Find the present value of $3,500 under each of the following rates and periods. a.            8.9% compounded monthly for five years. b.          ...
1. A construction company desires to accumulate GH¢25,000 over a ten-year period to enable it to...
1. A construction company desires to accumulate GH¢25,000 over a ten-year period to enable it to replace its ageing excavator. For an interest rate of 10% per annum compounded semi- annually, what is the required semi-annual payment? 2. A small construction company is considering the purchase of a used bulldozer for GH¢61,000. If the company purchases the bulldozer now, the equivalent future amount in year 4 that the company is paying for the dozer at 4% per year interest is?...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT