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Risk Analysis Silicon Arts

Risk Analysis on Investment Decision
Silicon Arts Incorporated (SAI) is a digital imaging company which has been in business for four years. Silicon Arts manufacture digital circuits which can be used in computers, DVD players, scientific instrumentation and medical equipment. SAI wants to increase their market share by offer a competitive advantage in today’s technology industry. Two alternatives are projected by SAI. One alternative is to increase the current market share. A second alternative is present in the wireless communication market. An analysis of the opportunity cost, cash flow projections, IRR and NPV for each proposal presented was performed. This paper will review the best investment decision for SAI by evaluating the internal and external valuation techniques, and risks connected to the proposed decision to accept or reject the project.

External Investment Valuation Strategies
After reviewing the external investment approaches submitted by W-Comm and Dig-image a determination was made to expand in the wireless market as this will increase revenue. The best external approach is to acquire a company in the wireless industry. The acquisition will increase revenue for SAI and this is the anticipated goal. Techniques to external investment strategies are called synergies. “An acquisition has four sources of synergy: revenue enhancement, cost reduction, lower taxes, and lower cost of capital.” (Ross and Westfield, 2005). According to Ross and Westfield, synergies are hard to estimate using discounted cash flow techniques. Before acquisition an understanding of the firm’s financials, tax and legal concerns in relation to the effects of one business to another is established. After the acquisition the financial analysts will calculate the value of the business to determine the source of the synergy.
A review by Silicon Arts to determine the decreased risk in the Net Present Value (NPV) to the stockholders cost from the merger. Shareholders...