Dn Case #25

Finance 465 Emma Hinds

Case #25 Star River Electronics 10/12/14

1. State the main problems or issues in the case:

- One of the problems is deciding whether or not to obtain the new packaging machine and whether to invest now or wait three years to buy this new packaging equipment.

-Another issue is using the "right" discount rate that is the most accurate in this case in order to evaluate the weighted average cost of capital.

- Making the right decision regarding market trends and investment decision within the company itself and competitors.

- Deciding in which way they should finance the two separate projects (DVDs and CDs)

2. Major supporting points that will help in solving the problems:

Supporting points in this case that will help in solving the issue is evaluating the weighted average cost of capital. Using the information from the exhibits given in order to analyze capital budgeting decisions. Also, finding the difference in the NPV's in investing now or investing in 3 years or possibly not at all. Performing sensitivity analysis on the different possible cases that Star River can do. Using the ratio analysis (exhibit 3) when taking into consideration which investment decision they should make.

3. Method of Analysis to be used:

Finding the NPV would be one of most important ways of analyzing this case and take the project/investment with the highest NPV. Also performing sensitivity analysis in order to predict the outcomes of the investment. Also making a financial model on excel and performing different situations of "what if" in order to have a idea whether to invest now or wait a couple of years. Ratio analysis can also tell you a lot of information. If we take a look at the quick ratio it is under 1 in the ratio analyses of historical financial statements, and this suggests that Star River may be unable to meet its short term liabilities. Also looking at their debt/equity ratio which increases over time,...