An investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Usually the strategy will be designed around the investor's risk-return tradeoff: some investors will prefer to maximize expected returns by investing in risky assets, others will prefer to minimize risk, but most will select a strategy somewhere in between. Passive strategies are often used to minimize transaction costs, and active strategies such as market timing are an attempt to maximize returns. In the week three scenario, Silicon Arts Inc. (SAI) is a four-year old company that manufacturers digital imaging Integrated Circuits (IC's) that are used in digital cameras, DVD players, computers, and medical and scientific instrumentations. SAI is looking to expand. The CEO of SAI (Hal Eichner) has a two point agenda for the company: 1.Increase market share.
2.Keep pace with technology.
This paper will discuss techniques to external investment strategies, techniques to internal investment strategies, and analyze risks associated with investment decisions. External Investment Strategies
According to Ross, Westerfield, & Jaffe (2005), "capital budgeting is the decision-making process for accepting or rejecting projects" (p. 144). The decision-making process consists of various external and internal investment strategies, including the NPV of an acquisition, source of synergy from acquisitions, reducing the cost of capital, and the cost of equity capital.
NPV of an Acquisition
The net present value is defined as the section suggested calculating the difference between the sum of the present values of the project's future cash flows and the initial cost of the project (Ross, Westerfield, & Jaffe, 2005, p.144). The NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. NPV compares the value of a dollar today to the value of that same dollar in the future,...