Capital Budgeting Simulation
By:
Letitia Hoch
University of Phoenix
Introduction
Silicon Arts Inc, (SAI) is a 4 year old company that manufactures digital imaging integrated circuits (University of Phoenix, 2007). These circuits are used in digital cameras, DVD players, computers, and many instruments used in the medical and scientific world. SAI is a global company with North America accounting for 70% of their sales, Europe accounts for 20% of sales, and South East Asia accounts for a mere 10% of total sales (University of Phoenix, 2007). Over the past several years, SAI has had strong growth and has had big losses due to changes in the market and economy. All during this time, new technologies were being researched and the IC 1032 chip was developed. This chip could promote internal growth if it was able to generate sales. This chip works in data embedded mobile phones, and pilot testing showed good results with the chip. In 2002, SAI had very strong financial positioning and the board of directors made the decision to promote growth either internally or externally.
Growth Options
SAI has ideas for growth to occur in two possible ways. One option will increase market share by raising production of already existing products and the other will cause growth through internal channels by entering a new market with the IC 1032 chip (University of Phoenix, 2007). The first option to be analyzed is that of internal growth. Cash flow would be invested in internal growth projects by working with another company, Dig-Image. This company would use their existing plant in Sunnyvale California and would begin manufacturing all of SAI’s current products on a much larger scale. This option boasts a growth of 20% ov ...