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Risk Analysis in Investment Decision
Gina Collins
November 3, 2008

Risk Analysis in Investment Decision
Silicon Arts, Inc (SAI) is a four-year-old manufacturer of digital imaging integrated circuits. The circuits are used in digital cameras, DVD players, computers, and other digital equipment. Silicon Arts have products across North America, Europe, and South East Asia earning annual sales of $180 million. The company has an agenda to increase profit shares and keep the pace with today's technology. SAI presented two capital investment proposals to their Financial Analyst to make a final decision. The first proposal involved expanding the existing Digital Imaging market share (Digi-image) and the second involved entering into the Wireless Communication market (W-Comm). The Company will only have the financial and human resources for one of these projects.   This paper will analysis the external and internal risks associated when making a decision to accept or reject a particular project. The decision made will be from a complete review of cash flow projections, opportunity costs, NPV, IRR, and the Profitability Index.
Net Present Value is an indicator of how much a project will add value to the company.   Internal Rate of Return is a measure of how efficient the project is to the company and Profitability Index considers the ratio between future cash flows and initial investment of the project. These terms indicate of how well an investment will perform for the company will help generate a final decision.  
The first proposal is the expansion of SAI’s existing digital imaging market share. Expanding the department has the potential to increase market share from 18% and provide a good competitive advantage in the IC manufacturing market. The expansion will account for 30% of the Company’s annual revenue during a 5-year period and would be an immense external investment strategy....

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