Feasibility of Manufacturing Plant for Dell Inc.

Running head: MANAGERIAL FINANCE
Managerial finance
Name of the student
Name of the university
Student ID
Author note

1MANAGERIAL FINANCE
Executive summary
The report is prepared for carrying out the feasibility of the manufacturing plant that is analysed
by Dell Inc. for starting up. It is found from the project evaluation that the NPV of the project is
$ 258,659,222.81. It is signifying that the project will be able to generate the amount of initial
investment for the project IRR of the project is 26% whereas the cost of capital of the company
is 16%. Looking into the payback period computation it is found that the payback period is 3.66
years and the discounted payback period is 5.88 years. Hence, the project is able to recover the
amount of initial expenses within the useful life of the project. From all the aspect the project is
therefore acceptable. Further, from the computation in question 2 it is found that for the project
to meet financial discipline it can borrow the amount maximum at interest rate of 15%.

2MANAGERIAL FINANCE
Introduction
The main objective of this professional report is to answer some question related to
evaluation of the project that is projected to be started by Dell Inc. It is planning for setting up of
new plant for manufacturing laptop. The report will analyse the profitability of the project
through considering different approaches like Net present value, internal rate of return and
discounted payback period. Based on the results from these approaches recommendation will be
provided regarding acceptability of the projects (Žižlavský 2014)
Question 1
Answer (a)
Yearly depreciation expenses for the project are as follows –
Depreciation schedule
Year Depreciation Book value
0 $ 500,000,000.00
1 $ 50,000,000.00 $ 450,000,000.00
2 $ 45,000,000.00 $ 405,000,000.00
3 $ 40,500,000.00 $ 364,500,000.00
4 $ 36,450,000.00 $ 328,050,000.00
5 $ 32,805,000.00 $ 295,245,000.00
6 $ 29,524,500.00 $ 265,720,500.00
7 $ 26,572,050.00 $ 239,148,450.00
8 $ 23,914,845.00 $ 215,233,605.00
9 $ 21,523,360.50 $ 193,710,244.50
10 $ 19,371,024.45 $ 174,339,220.05
Answer (b)
Yearly cash flow from year 1 to year 9
Year 1 2 3 4 5 6 7 8 9

3MANAGERIAL FINANCE
Initial
investme
nt
Value of
land
Sales in
units
500000.
00
510000.0
0
520200.
00
530604.
00
541216.0
8
552040.4
0
563081.
21
574342
.83
585829.6
9
selling
price per
unit
$
700.00
$
700.00
$
700.00
$
700.00
$
700.00
$
700.00
$
700.00
$
700.00
$
700.00
Sales
revenue
$
350,000
,000.00
$
357,000,0
00.00
$
364,140
,000.00
$
371,422
,800.00
$
378,851,2
56.00
$
386,428,2
81.12
$
394,156
,846.74
$
402,03
9,983.6
8
$
410,080,7
83.35
Variable
cost
$ -
70,000,
000.00
$
-
71,400,00
0.00
$ -
72,828,
000.00
$ -
74,284,
560.00
$
-
75,770,25
1.20
$
-
77,285,65
6.22
$ -
78,831,
369.35
$ -
80,407,
996.74
$
-
82,016,15
6.67
Fixed
cost
$ -
25,000,
000.00
$
-
25,000,00
0.00
$ -
25,000,
000.00
$ -
25,000,
000.00
$
-
25,000,00
0.00
$
-
25,000,00
0.00
$ -
25,000,
000.00
$ -
25,000,
000.00
$
-
25,000,00
0.00
Deprecia
tion
$ -
50,000,
000.00
$
-
45,000,00
0.00
$ -
40,500,
000.00
$ -
36,450,
000.00
$
-
32,805,00
0.00
$
-
29,524,50
0.00
$ -
26,572,
050.00
$ -
23,914,
845.00
$
-
21,523,36
0.50
investme
nt in
inventor
y
Cash
flow
before
tax
$
205,000
,000.00
$
215,600,0
00.00
$
225,812
,000.00
$
235,688
,240.00
$
245,276,0
04.80
$
254,618,1
24.90
$
263,753
,427.39
$
272,71
7,141.9
4
$
281,541,2
66.18
Tax @
45%
$ -
92,250,
000.00
$
-
97,020,00
0.00
$ -
101,615
,400.00
$ -
106,059
,708.00
$
-
110,374,2
02.16
$
-
114,578,1
56.20
$ -
118,689
,042.33
$ -
122,72
2,713.8
7
$
-
126,693,5
69.78
Cash
flow
after tax
$
112,750
,000.00
$
118,580,0
00.00
$
124,196
,600.00
$
129,628
,532.00
$
134,901,8
02.64
$
140,039,9
68.69
$
145,064
,385.07
$
149,99
4,428.0
7
$
154,847,6
96.40
Add:
Salvage
value
Plant
Land
Add:
Deprecia
tion
$
50,000,
000.00
$
45,000,00
0.00
$
40,500,
000.00
$
36,450,
000.00
$
32,805,00
0.00
$
29,524,50
0.00
$
26,572,
050.00
$
23,914,
845.00
$
21,523,36
0.50
Recover
y of
inventor
y
Free $ $ $ $ $ $ $ $ $