Hey, I resemble that remark! <gg>
I know you said 'under certainty', but there is no certainty for residual owners, so I would not discount at 6.5%. Using your assumptions, the indifference point for that investment occurs at a discount rate of just over 7.7%. I'd rather buy a nice, safe, high-grade bond.
For Dell, I'd discount "dividends" (share buybacks). Dell repurchases are almost 100% of net income, but I'll charitably assume 80% payout. Assume five years of 40% growth (questionable), and perpetual "stable" GDP-like growth of 2.5%. Indifference with the present price is at a discount rate of around 11% -- not exactly world-beating.
At your 6.5% discount rate, Dell is a fat buy, of course -- but using less-aggressive, 5-year growth of 20% cuts it to a sell (PV $40), and that's at your bond-like discount. At 11%, PV drops to $21 or so -- which explains my puts.
mb |
