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Technology Stocks : Dell Technologies Inc.

DELL 122.55

+4.4%

3:59 PM EST

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To: Paul Merriwether who wrote (98318)	2/12/1999 7:27:00 PM
From: Chuzzlewit	Read Replies (1) of 176387

Paul, there are false assumptions implicit in you analysis. The most obvious is that you have assumed that there will be no value to the company at the end of 10 years other than the return of the initial $100,000 you invested. But let's look at it this way. Suppose you had a slow or 0 growth company, what would you pay for it? Let me wave my ands and say an earnings yield of 10% (providing some risk premium). So what would the company earn in 10 years? 1.50^10= 57.67*.93/.1 = $536.28 per share. Now if a current share is worth $89 that implies an annual appreciation of 19.7% which is certainly better than 5%. The second error you make is that even in your model you have failed to reinvest the cash flows spun off in the interim. For example, the initial cash flow is $0.93 in your model, but this is exactly the future value your model places on the $.93. In fact, if you were to simply invest that at 5% it would be worth $1.44 after 10 years. Either error by itself completely invalidates your conclusion. TTFN, CTC

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