Cost Project Report for Dell Inc.

COST PROJECT REPORT
DELL INC.
[DATE]
STUDENT’S NAME
[Company address]

Executive Summary
A cost study report has been prepared for the company Dell Inc. The company is planning to set up a laptop manufacturing
plant in one of its location for which various variables have been given like selling price, initial investment, depreciation, cost
of production, tax, etc. the project has been analysed based on the Net present value, the payback period and the internal
rate of return and based on the results of the same, the result has been arrived at and communicated to the management. In
part 2 of the assignment, the Chief Financial Officer of the company has laid the condition that the entire project is to be
funded from the loan capital and the project will be acceptable only if the yearly cash flows are able to meet the monthly
cash outflow requirement of the loan funds which are to be repaid in equal annual instalments. Simulation was done for this
scenario as well as the conclusion was communicated in the reply to CFO.

Table of Contents
Introduction.................................................................................................................................................................................. 3
Discussion and Analysis............................................................................................................................................................... 3
Question 1................................................................................................................................................................................. 3
Question 2................................................................................................................................................................................. 8
Conclusion and Recommendations.............................................................................................................................................. 9
Appendix.................................................................................................................................................................................... 10
References................................................................................................................................................................................. 12

Introduction
In the given case, Dell Inc. is planning to opening up the new laptop manufacturing plant and the new plant will require the
investment of $ 500 Mn and the same will be depreciated over 10 years useful life on the diminishing balance method. The
company is also expecting to produce 500000 laptops in the first year of operation with the growth of 2% each year. The
plant will be sold after 10 years of operation at $150 Mn (Arnott, et al., 2017). The plant is expected to be built on the area
that the company owns currently with the after tax market value being $ 250 Mn but the same is expected to yield $350 Mn
at the end of the 10th year. The selling price per laptop expected by Dell is fixed at $ 700 with the variable cost estimation
being $ 140. The operation of the plant would also require the investment in inventory amounting to $ 100 Mn which will be
recovered at the end of the 10th year. It is also estimated that the company will be incurring the cost of $ 25 Mn every year as
the fixed cost. The required rate of return is estimated to be 16% in the given case and the marginal rate of taxation will be
45%.
Discussion and Analysis
Question 1
a. The yearly depreciation expenses for all the 10 years has been shown below. The amounts are in $Mn.
Calculation of yearly depreciation for the project period
Year 0 1 2 3 4 5 6 7 8 9 10 Total
Initial Value
500.0
0
450.0
0
405.0
0
364.
50
328.0
5
295.
25
265.7
2
239.1
5
215.
23
193.7
1
3,256.
61
Depreciation on
Plant 50.00 45.00 40.50
36.4
5 32.81
29.5
2 26.57 23.91
21.5
2 19.37 325.66
Written down
value
450.0
0
405.0
0
364.5
0
328.
05
295.2
5
265.
72
239.1
5
215.2
3
193.
71
174.3
4
2,930.
95
Tax shield @ 45% 22.50 20.25 18.23
16.4
0 14.76
13.2
9 11.96 10.76 9.69 8.72 146.55
Post tax
depreciation 27.50 24.75 22.28
20.0
5 18.04
16.2
4 14.61 13.15
11.8
4 10.65 179.11