Risk Analysis Paper
RUNNING HEAD: RISK ANALYSIS AND MITIGATION PAPER
Risk Analysis and Mitigation Paper for Silicon Arts Inc.
Travis Spiker,
University of Phoenix
MBA 540 Maximizing Shareholder Wealth
Paul Stevens
Introduction Risk is apart of any business decision. The amount of risk involved helps managers decide the optimal resolution to the decision making process. In the Capital Budgeting Simulation, an important decision is to be made on which investment proposal should be chosen in relationship to the NPV, IRR, and PI. This following text will describe the risks associated with the decisions made and any possible mitigation techniques that may be introduced to help neutralize the risk.
Silicon Arts Inc. Silicon Arts Inc. is looking to invest for future growth of the company. Chairman, Hal Eichner has two proposals that need to be analyzed in order to determine which one would be the best return on the investment. The optimal goal of the investment is to increase market share and keep current on the growing technology trends. The first proposal is for the company to itself into the digital imaging semiconductor market. With significant potential growth in the first year and complete takeover of the technology in five years, this proposal seems to be quite promising. The second proposal is to take the newly developed IC 1032 chip and widen its range into the wireless communication industry. This proposal has a projection of acquiring 3-4% of the twelve and a half million units sold in the market in the fourth year with increase over the proceeding years for the life of the project.
Risks/Mitigation
While analyzing both potential proposals for investment, it was found that both companies had the potential for relatively the same NPV and IRR when taking into consideration the market research for both proposals. An important risk that would involved for both investment proposals would be the bias that can be created when
Risk Analysis and Mitigation Paper for Silicon Arts Inc.
Travis Spiker,
University of Phoenix
MBA 540 Maximizing Shareholder Wealth
Paul Stevens
Introduction Risk is apart of any business decision. The amount of risk involved helps managers decide the optimal resolution to the decision making process. In the Capital Budgeting Simulation, an important decision is to be made on which investment proposal should be chosen in relationship to the NPV, IRR, and PI. This following text will describe the risks associated with the decisions made and any possible mitigation techniques that may be introduced to help neutralize the risk.
Silicon Arts Inc. Silicon Arts Inc. is looking to invest for future growth of the company. Chairman, Hal Eichner has two proposals that need to be analyzed in order to determine which one would be the best return on the investment. The optimal goal of the investment is to increase market share and keep current on the growing technology trends. The first proposal is for the company to itself into the digital imaging semiconductor market. With significant potential growth in the first year and complete takeover of the technology in five years, this proposal seems to be quite promising. The second proposal is to take the newly developed IC 1032 chip and widen its range into the wireless communication industry. This proposal has a projection of acquiring 3-4% of the twelve and a half million units sold in the market in the fourth year with increase over the proceeding years for the life of the project.
Risks/Mitigation
While analyzing both potential proposals for investment, it was found that both companies had the potential for relatively the same NPV and IRR when taking into consideration the market research for both proposals. An important risk that would involved for both investment proposals would be the bias that can be created when
References: Ross, S.A., Westerfield, R.W., Jaffe, J. (2005). Corporate Finance, (7th ed). New York. The McGraw-Hill Companies. Retrieved on July 27, 2008. University Of Phoenix, (2008). Capital Budgeting Simulation,. Retrieved on July 27, 2008 from https://ecampus.phoenix.edu/secure/aapd/vendors/tata/sims/finance/finance_simulation2.html