Dell Data Case

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Université Catholique de Louvain LSMS 2100 Advanced Finance Professor : Marc Deloof Assistant : Gaël Imad Eddine First Assignment : Dell Data Case Group : Bauchau Laurent : 23890600 Janus Guillaume : 41140600 Lenoble Daphné: Van Ossel Sébastien : 27850600 Academic Year 2009-2010 1. Introduction In this first assignment, we have been asked to value a new Dell’s project. In order to do this, we will use two of the most-used measures for evaluating projects which are respectively the Net Present Value (NPV) and the Internal Rate of Return (IRR). However, if we want to be able to calculate such measures we will have to first compute the Free Cash Flows that the project will generate now and in the future. Now, to compute these cash flows, we will to work step-by-step. First, we will determine the Unlevered Net Income for each year. This will be done by calculating the Gross Profit, subtracting the Depreciations and then taking into account the Income Tax. Then, once we will have the Unlevered Net Income for each year, we will compute the Free Cash Flows by adding the Depreciations and subtracting the Capital Expenditures and the Changes in Net Working Capital. After that, we will use a discount factor on these Free Cash Flows in order to find their Present Values. Using these Present Values of our Free Cash Flows, we will compute the Net Present Value and the Internal Rate of Return of the project. Finally, we will make some recommendations about the project. Now before we start our calculations, two comments need to be made: First, we will set up the timeline over 16 years (Year 0 to 15) as the main investment takes place in year 0, and the depreciation of the last investment ends in year 15. Indeed, the last investment is made in year 5 and therefore its depreciation ends in year 15. Secondly, note that the whole analysis we do here is

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