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Technology Stocks : Dell Technologies Inc.

DELL 138.94

0.0%

Dec 5 9:30 AM EST

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To: Jim Patterson who wrote (32652)	3/6/1998 4:36:00 PM
From: Chuzzlewit	Read Replies (2) of 176387

Jim, let me take a crack at explaining why book value is totally irrelevant to the value of the asset. Suppose I have a machine that generates $100 in cash (US greenbacks -- not counterfeit!) year after year. Not only that, but the machine requires no maintenance and never breaks. Suppose that it cost me $1 to build it. Question: how much would you pay me for that machine? Second question: is it relevant to the price of the machine my historic (book value) cost? When you buy stock in a company you are buying a future earnings stream, not the historic value of the assets. If the latter were the case you'd only be buying companies at break-even with no prospects for future earnings. Furthermore, book value may be wildly different than market value. For example, if a company bought land 100 years ago, the value of the land would be carried on the books at the historic cost. Hope this helps, Regards, Paul

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