Silicon Arts Inc. – Investment Opportunity and Risk
Silicon Arts Inc. is in the business of manufacturing digital imaging Integrated Circuits that are used in digital cameras, DVD players, computers, and medical and scientific instrumentation (University, 2009). It has an annual sales turnover of $180 million that comes from product sales in North America, Europe, and South East Asia (University 2009). In its search for increased market shares and a company with an up to date edge on technology, the company has come to the crossroads where it needs to expand its existing Digital Imagine markets share or enter the Wireless Communication market to meet its future goals. The company has to decide whether it will seek investment opportunity with Dig Image by expanding digital imaging or team up with W-Comm in the wireless communication forefront. In Silicon Arts trying to decide which avenue is the best for the company financially, it has to evaluate both the internal and external investment strategies with each opportunity as well as consider those risks that accompany each of the investments.
In Silicon Arts strive to seek the best opportunity for the company a major internal concept that must be analyzed is the cost of equity capital. A company that profits from the business it practices could invest that extra cash in various types of investments. The shareholders main concerns in choosing which investment to make are the rate of return it can see from an investment and at what risk level are the shareholders for such a return. Silicon Arts has the same decisions to make. If Dig Image and W-Comm have the same associated risk then that project that has the highest rate of return would be the best avenue for the company to pursue.
As well as internal strategies the company must evaluate, external strategies must also be evaluated. A couple of the key concepts that are important are the company‘s...