Flash Memory free essay sample

Our team has analyzed the current situation of your firm and its projected financial position for the future years 2010-2012. We then incorporated an analysis of the potential, new investment opportunity and its effects on future financial position, in order to decide whether your firm should pursue this growth opportunity. Based on our analysis, we strongly recommend investing in the new product line due to its positive net present value. Furthermore, we believe that it will help you maintain your competitive advantage in this rapidly changing industry.The project will address your concerns regarding cash needs and competitive pressure, among others. Ultimately, we predict that investing in the new project should be a strategic priority, as it will allow your company to remain a strong competitor in the electronic memory industry. Company Background Flash Memory Inc. operates in the computer and electronic device memory market. Founded during a high tech boom, the company has historically experienced higher returns as a pioneer in the market. We will write a custom essay sample on Flash Memory or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Flash specializes in designing and manufacturing solid state drives and memory modules. These products are then sold to original equipment manufacturers, distributors, and retailers to be used in the end products such as computers and other electronic devices. As a small firm competing for market share against industry giants such as Samsung and Intel, Flash incurred lower profit margins to order to stay competitive. In addition, continuous technological advances 1 and changing customer needs in the memory industry resulted in short product cycles. This required quick reactions from Flash to produce new products and resulted in a focus on research and development.Despite the external factors of competition and changing technology, Flash focused on creating high quality products, creating a significant competitive advantage against their competitors. Current Financial Situation Based on Flash’s current financial situation, we have forecasted financial statements assuming that Flash does not invest in the new product line and does not issue additional common shares . All assumptions were based on overall economic performance and recent reports of robust sales in the smartphones and netbook markets. Please see Exhibit A for a list of assumptions used in projecting the figures, and Exhibit B for a full set of financial statements for the fiscal years 2010, 2011, 2012. The financial statements show that Flash’s profits have grown 10. 8% from 2007-2009 and are expected to grow by 58% from 2009-2011. Comparatively, the SSD market has shown growth of 175% from 20072009 and 155% from 2009-2011. Evidently, there is sufficient market capacity for your firm to pursue further growth and expand your operations. Growth Opportunity The key growth opportunity identified for your firm is to launch a major new product line.This would be a feasible initiative to implement in 2010 due to the positive outcome of our NPV analysis. The net present value of this opportunity is approximately $757,528 (Exhibit C). To arrive at this value, we accounted for all relevant cash inflows, outflows and tax considerations. We based our inflow expectations on sales predictions from our project sponsors, assuming that all sales were collected in the same period. There are also additional assumptions embedded in our analysis of cash outflows in the exhibit.Direct materials and labour costs (COGS) were calculated based on a predicted gross margin of 21% excluding non-cash depreciation of $440,000 per year ($2,200,000/5 years) related to the plant and equipment. Selling, general and administrative expenses were assumed to stay a constant 8. 36% of sales to align with 2009 figures. The one time advertising outflow in 2011 and initial purchase of the plant and 2 equipment in 2010, were considered as well. These values were converted to after-tax values by considering sales taxes and tax shields.The NWC (net working capital) requirement of the project was deemed to be 26. 15% of incremental sales. To translate this into cash flows, we calculated the NWC change year-over -year. Additionally, we assumed management would maintain their commitment to expend 5% of sales towards RD. Although Flash has already incurred a sunk cost of $400,000 to develop the prototypes for this new product line, it is reasonable to assume ongoing RD expenditures to ensure the development of future iterations of this product once the current version becomes obsolete.