Topics: Net present value, Internal rate of return, Costs Pages: 2 (482 words) Published: March 20, 2011
1. State the business case for option #3, the PCB In-sourcing proposal. In Option#3, Stryker choose to manufacture its own PCB in its own facility. If Stryker take the Option #3: * Facility:
The proposed facility would manufacture all of the various types of PCBs required by Stryker Instruments. * Timeline:
1) For part of 2004-2005, Stryker would be both manufacturing PCBs and buying from outside suppliers. 2) Beginning in 2006, Stryker would be manufacturing all of the PCBs by itself. * Advantages and disadvantages:

The advantage is that Stryker promise to control over the quality and delivery. However, there exist some disadvantages: 1) It required the largest capital outlay.
2) It required the largest increment to Stryker’s headcount and payroll.

2. Use the projections provided in the case to compute incremental cash flows for the PCB project, as well as its NPV, IRR, and payback period.

•Net Cash Flow = NI + Depreciation ± Change in WC

•NPV=-6187178-7499321.151-3013841.152+21669101.153+30276381.154+35861491.155+76768611.156=1190527 •IRR=18.90%
NPV=-6187178-749932(1+r)1-301384(1+r)2+2166910(1+r)3+3027638(1+r)4+3586149(1+r)5+7676861(1+r)6=0 •Payback Period=4.57 years
3. How would you compare this proposal to options #1 and #2? Option #1 was to maintain the status with some changes, such as acquiring safety stocks of key materials and instituting dual sourcing to protect future disruption. Option #2 was to establish a partnership with one single company, which was one of their current suppliers. Whether taking Option#1 or Option#2, Stryker wouldn’t make its own PCBs, they should still rely on their suppliers to provide them the materials they need. Following are some comparison between the three options. Advantages of Option#3 comparing to Option#1&2:

1) Having their own PCBs and facility to manufacture PCBs. 2) The quality and...
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