Risk Analysis on Investment Decision

University of PhoenixSilicon Arts, combine (SAI) manufactures digital imaging Integrated Circuits (IC) that are employ in various electronic equipment (University of Phoenix Simulation, 2008). The company?s initial startup occurred during the boom of the semiconductor business, but the revenues in conclusion decreased by 40% (University of Phoenix Simulation, 2008). SAI survived by raw costs and freezing groovy expenses. Currently, SAI?s Chairman, Hal Eichner, wants to invest in a project that will increased the company?s foodstuff share and keep ace with new engineering (University of Phoenix Simulation, 2008). SAI has two different opportunities to maximize shareholders wealth.

Silicon Arts, Incorporated (SAI) has to analyze whether it would give the company a emulous service to don W-Comm. The erudition would be considered an external investment strategy. match to Ross, Westerfield and Jaffe (2005), there are three legal ways to acquire a firm 1) merger or consolidation, 2) acquisition of stock, and 3) acquisition of assets (par. 797). The acquisition of W-Comm would be a merger that will be incorporated into Silicon Arts as a intricate acquisition because they are non-related industries (Ross et al, 2005, par. 797).



The acquisition of W-Comm gives the company a competitive advantage of entering the wireless communication market, revenue enhancement, market gain, cost reduction, tax gains, and reduction in the cost of capital (Ross et al 2005, par 802-806). However, there are disadvantages in acquisition through a merger.

The conglomerate acquisition of W-Comm has the risk of SIA producing lacklustre financial performance due to the lack of expertise and familiarity of the industry. The shareholders stock may be reduced. According to Ross et al (2005), ? ? two firms merge, the variability of their combined values is usually less than would be true if the firms remained separate entities ? shareholders are likely to be worsened off [because]...

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