Dell Case Questions:
4. What steps do you recommend for the firm for 1997?
With the last couple years Dell has been growing exponentially and is expecting to continuously grow. Taking a larger market share in the computer industry and being involved in the technological field, the first couple steps for Dell in 1997 are to invest in Research and Development. With such success, current competitors and new ones are going to see just how enticing the market is so Dell will need to constantly invest in R&D to keep their products defendable and desirable. Dell cannot afford to become complacent in the technology field so R&D is crucial in order to keep selling innovated products. Dell needs to constantly look into coming up with new and better products. That of course leads to more sales and a higher net income. The next step is to increase their economies of scale. With more cash and net income available to spend, Dell should look into decreasing their costs and achieving maximum efficiency. If they are able to create a competitive advantage in efficiency, they’d be able to gain much more parts of the market by selling cheaper and/or increasing profit margin. Dell is such a big company that they should take advantage of their size and look into more efficient ways for distribution and production.
5. How would your answers to questions 3 and 4 change if Dell also repurchases common stock ($500m) and repays its long-term debt? If Dell repurchases $500m worth of common stock and spends even more money on repaying all of their long-term debt, they won’t have nearly enough money to make a good investment into R&D. The repurchase of common stock would be able to increase the stock price and for the current stockholders, they’d become more loyal due to a higher reward for their stock. So if Dell does this, I wouldn’t suggest concentrating so much on investing in R&D and economies of scale because they just won’t have enough income to make a great...
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