trying to make sense of your logic
When I said the opportunity cost was 6%, I didn't mean QCOM should invest in GSK, which pays 6% on the basis of its current price. What I did mean was they should give me a larger dividend and I'll invest it in GSK. In other words, the choice is what QCOM should reasonably do with the cash or what shareholders could use the cash, letting them decide what's best for themselves. Some shareholders might even use the cash to buy more QCOM shares, as there is an automatic program for distributing dividends in the form of more shares.
As to Flarion itself, what I pointed out was that the cost is not the initial, up front cost of buying the company but the opportunity cost of the investment. If you can get a 6% return on an investment other than Flarion, then you must be able to show that Flarion is worth the initial investment, augmented by 6% compound interest. If it takes 10 years for Flarion to generate significant profits, then the original investment should be considered not simply as the original $800 million, but that amount plus 6% compounded annually for ten years. If you think that Flarion can generate only, say, $10 million additional revenue annually, then it's not a very good investment. If it generates, directly or indirectly $100 million annually, that's quite acceptable.
Is this explanation more logical?
Art |
