Star River is an electronic CD-ROM manufacturing company that is a joint venture between Starlight Electronics Ltd., U.K., and Asian venture-capital firm, New Era Partners. In 2001, Star River’s CEO resigned leaving Adeline Koh as the new chief executive officer. With the growing competition, unit prices have declined. Despite the decline in prices, Star River has been successful in the past decade due to their excellent reputation. In 1999, CD-ROM disc drives accounted for 93% of all optical-disc-drive shipments; however, studies forecasted this number to decline to 41% and the shares of DVD drives to increase 59% by 2005. Although Star River just recently began DVD manufacturing, it only composed of les than 5% of its sales at fiscal year-end 2001.
Purchased five years ago, Star River’s current manufacturing equipment is slow, requires constant monitoring, and frequently needs repairs. Due to the inefficiency of the equipment, Star River uses overtime labor to maintain levels of production. During these times of repairs, Star River can spend up to two-shift days to make up missed production. Star River frequently worries that it will miss deadlines due to the unreliability of its equipment despite the fact that they have no records of it ever happening.
Star River has considered purchasing new equipment to improve the efficiency of their production operations. Adeline Koh has been given the option to either invest in new equipment now or wait until the old equipment is fully depreciated in three years. If Star River decides to invest now, it will have an initial cost of SGD1.82 million; if they choose to invest three years from now it will cost SGD. The increase in cost is due to the expected growth and inflation rate.
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