Capital budgeting involves planning a company’s future investments discovering feasibility whether or not to pursue the investments. A company may be lining up one or several investment options. In any case, several capital budgeting techniques are involved helping arrive at a good, sound financial investment decision. Several techniques include using net present value (NPV), internal rate of return (IRR), profitability index (PI), and equivalent annuity. However the process and the arrival of an ending result, the internal calculations and the actions from the ending result is not without risks. Shareholder stake, cash flow, or the entire company is at stake by making the wrong financial decision to proceed. Likewise, a company may lose opportunity cost if the decision to halt is made. This week’s assignment involves a four-year old technology company, Silicon Arts, Inc. (SAI). Playing a major role in the technology industry, SAI wishes to progress by increasing market share and keeping pace with technology. SAI has two options in two proposals: 1) expand its existing Digital Imaging market share 2) or enter the Wireless Communication market. Two proposals are presented each with their own respective risks. This paper will identify the capital budgeting techniques used and the involved risks. In addition, this paper will present mitigating techniques against the identified risks. Importantly, SAI must choose one, both, or none of the proposals. The ending result concluded W-Comm is the best option. This paper will also present the reasons for the decision.
SAI is looking to increase market share and keep pace with technology by performing capital budgeting processes of two proposals. The two proposals are not without risks. First, each proposal involves a matter of assumption. Specifically, each proposal process asks to assume future sales, future price, and future marketing costs. Thankfully, a market research report is available in the scenario. However,...