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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: John Carragher who wrote (161)	3/8/1998 11:19:00 AM
From: Amber	Read Replies (3) \| Respond to of 4509

alright everyone, here is a question more in lines with the topic of PSFT: i always thought that PSFT and SAP made similar types of software, so i would assume that once a company installs PSFT, it would not need any more ERPs from SAP, ORCL, BAAN, etc. however when i compared PSFT and SAP's client list, i saw that their clients often overlapped. for example, both MSFT and AT&T are clients of both PSFT and SAP. how does this happen?

To: John Carragher who wrote (161)	3/8/1998 11:30:00 AM
From: Chuzzlewit	Respond to of 4509

OT John, I will assume you have Excel, so here is how you would set up a worksheet to analyze the problem. Start with cells B1 through B4. Put 1/4 of the tax-deferred portion of your IRA times your marginal tax rate in each of those cells. Each number should be preceded by a negative sign. Cell C1 should contain the tax deferred portion of your IRA. For example, if cell C1 contains $100,000, then cells B1 through B4 will contain -7000. Now, multiply cell B2 by 1 plus a reasonable growth rate for your IRA. For example, if you choose 12%, then the factor will be 1.12. Now, since you say you are 54 in your profile, lets assume that you would have allowed your IRA to accumulate for 11 years, whereupon you would begin drawing funds. Let's assume that you would opt to draw funds out as an annuity over 20 years. So, use the pmt function for a time period of 20 years on the amount in cell C32, again using an interest rate of 12% (same as before). According to my hand calculator you should have an annuity of $46,570.40 Now calculate the taxes you would have had to pay over each of those 20 years. Again, assuming the 28% tax bracket, that amounts to $13,039.71 for 20 years. So, column A should have 4 negative numbers of -7000 each, followed by 7 zeros followed by 20 positive numbers of 13,039.71. Thus, column A represents the cash flow implicit in the IRA conversion. Now, again using Excel's IRR function, calculate the IRR of these cash flows. The interpretation of these numbers is as follows. View the tax payments that you will make over the next four years as an investment, and view the savings you will make over the final 20 years as the benefits generated by the investment. The IRR will be the rate of return on the taxes you paid. I hope this helps, Paul