Silicon Arts Inc.
Silicon Arts Inc. (SAI) is a manufacturer of circuits that are used in a number of different electronic equipment (University of Phoenix, Simulation, 2006). In their first years, they saw first a huge soar in the industry, but that was swiftly followed by a 40% downfall in subsequent years. SAI dealt with this by tightly controlling their expenses. Current markets trends indicate that the industry may be on the rise. Consequently, and with the help of their new CFO, the company now wants to develop some new capital investment projects. SAI's current goals are to increase their market share and to keep pace with new technology (University of Phoenix Simulation, 2006).
Part 1
The first task on the agenda was to examine the probable future scenarios that could potentially accept the cash flows for SAI and their two potential projects, Dig-Image and W-Comm. Included in SAI's plans are the need to make $54 million in their first year by selling at least 400,000 units produced in Sunnyvale; they need to determine their working capital. "Working capital rises over the early years of the project as expansion occurs. However, all working capital is assumed to be recovered at the end," (Ross, Westerfield & Jaffe, 2006, p. 183). They are expecting that the growth will be 20% in the first three years, and then they are predicting a sales decrease of 10% to a total of 0% in years 4 and 5 (University of Phoenix Simulation, 2006). SAI is expecting some challenges with this new venture; not only is there intense competition, they are expecting priced to drop year to year, and they are also expecting this technology to be replaced soon, perhaps even before the lifespan on their project has run out.
Althoug ...