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Mba 540 Analysis On Investment Decision For Silicon Arts, Inc. Sai

854 words - 3 pages

Silicon Arts, Inc. (SAI) is a four year old company which manufacturer's digital imaging integrated Circuits which are used within digital cameras, DVD players, computers, and medical and scientific instruments. Hal Eichner, SAI's Chairman, has a two-point strategic agenda that he wants to enact. One of his agendas is for the company to increase market share and the other is to keep up with current technology. As the Financial Analyst for SAI, one of the duties that need to be performed is to analyze two mutually exclusive capital investment proposals. The two options SAI is facing are to expand within the existing Digital Imaging market share or to enter into the Wireless Communication market.Digital Imaging AnalysisIn analyzing the first of the two proposals, the option would be to increase the existing Digital Imaging semiconductor market share. The tempting aspect of the project is that there is an estimated product market increase of 20% in the first year plus a 7% increase every year there after for five years. SAI currently owns 18% of the current semiconductor market. By increasing its production output for the first year to 400,000 chips, SAI can tap into this projected market growth. If the numbers can be justified, this would mean that SAI would increase its market share by 3.6% which turns out to be 20% of 18% in the first year. In 2-5 years this ratio turns is expected to increase market share by 1.26% which turns out to be 7% of 18%. The overall projected increase in revenues is 30% or $54 million in year one. To boost production, SAI will have to set up an addition plant in California and spend cash of $40 Million as an investment. Increased revenues can now be adjusted at $14 million, with regards to the $54 Million in cash and $40 Million in investment for the first year. The plant maximum output is expected to be 10,000 units per day. Common sense will dictate that that someone has over-estimated the space and machinery needed for such a project. There is roughly 261 working days in one year. This means that the plant would be capable of producing 2,610,000 chips in one year excluding weekends.Wireless Communication AnalysisIn analyzing the Wireless Communication proposal, this approach would have SAI venture into the wireless market. The lifespan of this project is approximately seven years. The company will have to sell chips for data enabled mobile phones and is currently testing the prototype chip with positive results, so far. SAI...

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