Running head: RISK ANALYSISRisk synopsis on Investments DecisionUniversity of PhoenixOctober 12, 2008Week Three PaperGap Analysis: Intersect InvestmentsFirms should invest in proposals that generate maximum judge for the company and its deal outholders. Financial managers and CEO?s should invest in a purpose that is worth more than the bell of the go steady. The elect project should be the one that results in a higher(prenominal) Net Present Value (NPV), which is the difference between the project?s prize and the cost. This paper will discuss working capital budgeting for Silicon Arts, Inc (SAI) and the inherent risks associated with the investment decision-making. Additionally, valuation techniques for the internal and extraneous investment strategies will be discussed.
Capital BudgetingThe financial analyst at SAI was provided with two capital investment proposals that were prepared by a task force set up by company Chairman, Hal Eichner. The investment goal was to increase market share and keep pace with technology. SAI is a 4-year-old start-up firm generating 70% of sales in North America, 20% sales in Europe, and 10% of sales generated in Southeast Asia. SAI has growth plans and wants to pursue introducing bare-ass product lines. The firm?s sales turnover is $ clxxx million from manufacturing ?digital imaging integrated circuits that are utilize in digital cameras, DVD players, computers, and medical and scientific instruments? (Scenario, 2008).
The analyst evaluated two mutually exclusive capital investment proposals and do recommendations to the CFO, Kathy Lane, to select the project that generated the highest NPV. To determine the proposal that generated the maximum value for the SAI and its investors, the analyst reviewed market research data, forecasts, estimated future cash flows, competition, and cost estimates and determined the NPV and the Internal Rate of Return (IRR). ?The IRR is the rate that causes the NPV of the project to be zero? (Ross, et.
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