Risk Analysis on Investment Decision
Silicon Arts Inc. (SAI) is a manufacturing organization that specializes in digital imaging Integrated Circuits used in digital cameras, DVD players, and computers, medical and scientific instrumentation. With 70% of their sales in North America, 20% of their sales in Europe and 10% of their sales in South East Asia SAI has quickly become a major player in the industry and has made a tremendous impact in the international marketplace. While their revenues continue to grow, SAI’s annual sales are estimated at $180M.
In the year 2000 SAI experienced a 78% growth rate, however, in 2001 their revenues took a 40% plunge due to the semiconductor industry decline. They continued their research and development in data and devised a specialized chip used in data embedded mobile phones that received rave reviews by B & U, the world’s leading manufacturer of mobile handsets. As a result of the upswing within the industry, by year end SAI were able to record revenue growth in the last two quarters of 2001.
Dig-Image Proposal
Dig-Image proposes to open a plant in Sunnyvale, CA that will produce an existing range of SAI’s Integrated Circuits. This project/location will take about five years and will contribute about 30% of their revenues over the five year time period. A global study of the industry indicates that in year one the market will experience a 20% growth and in year two the demand will grow by 7%. The study shows that by year five new technologies will dominate the market; because SAI controls 18% of the market they can grow their presence with an increase in their production (UOP, Capital Budgeting, 2007).
In Year 1, the project is expec ...