I was asked to edit my question. Since I can't leave a comment, I don't know what you mean by time. Can you be a bit more clearer so I can provide you with the information to help you solve this problem. Thank you.

Hey Chegg,

Question:

I did research myself. I found that from 1998-2005, the sale CD-ROMs declined each year while the sale of DVDs increased each year. Now it seems to me that Star River Electronics, being an electronic company, understands the potential of DVDs, which is why they are shifting away from CD-ROMs and producing more and more DVDs. What kind of impact do you think the sales of DVDs increasing will have on Star River's sales? Is it a positive or negative impact? Why?

Looking at the income statement, it seems to me that Star River's sales increase every year from 1998-2001, and with the 15% sales growth for 2002 and 2003, it appears that an increase in the sales of DVDs would only improve Star River's sales in total.

I'm sorry for too much information. Please, let me know if I'm on the right page or not. If not, what am I missing. Any expanation you provide me will direct me on the right track. Thank you.

Below is the case:

Star River Electronics and the Optical-Disc-Manufacturing Industry

Star River Electronics had been founded as a joint venture between Starlight Electronics Ltd., United Kingdom, and an Asian venture-capital firm, New Era Partners. Based in Singapore, Star River had a single business mission: to manufacture CD-ROMs as a supplier to major software companies. In no time, Star River gained fame in the industry for producing high-quality discs.

The popularity of optical and multimedia products created rapid growth for CD-ROM manufacturers in the mid-1990s. Accordingly, small manufacturers proliferated, creating an oversupply that pushed prices down by as much as 40%. Consolidation followed as less efficient producers began to feel the pinch.

Star River Electronics survived the shakeout, thanks to its sterling reputation. While other CD-ROM manufacturers floundered, volume sales at the company had grown at a robust rate in the past two years. Unit prices, however, had declined because of price competition and the growing popularity of substitute storage devices, particularly digital video discs (DVDs). The latter had 14 times more storage capacity and threatened to displace CD-ROMs. Although CD- ROM disc drives composed 93% of all optical-disc-drive shipments in 1999, a study predicted that this number would fall to 41% by 2005, while the share of DVD drives would rise to 59%.1 Star River had begun to experiment with DVD manufacturing, but DVDs still accounted for less than 5% of its sales at fiscal year-end 2001. With newly installed capacity, however, the company hoped to increase the proportion of revenue from DVDs.

Also, for the fiscal years ending 2002 and 2003. I think it is reasonable to expect that Star Rivers sales will grow at 15% each year. Also, you should assume capital expenditures of SGD 54.6 million for DVD manufacturing equipment, spread out over the next two years and depreciated over seven years.

Below is an image of the balance sheet and income statement to help you:

art Four Capital Budgeting and Resource Allocation EXHIBIT 1 I Historical Income Statements for Fiscal Year Ended June 30 (SGD 000) 1999 2000 2001 1998 71924 860,11592,613 106.042 106,042 Sales Operating expenses Production costs and expenses Admin. and selling expenses Depreciation 33,70338,393 17,787 9,028 58,512 65,208 46,492 21,301 10,392 78,185 53,445 24,177 11,360 88,983 16,733 8,076 Total operating expenses Operating profit Interest expense Earnings before taxes Income taxes* Net earnings Dividends to all common shares Retentions of earnings 13,412 5,464 7,949 2,221 5,728 14,908 6,010 8,897 2,322 6,576 14,429 7,938 6,491 1,601 4,889 17,059 7,818 9,241 2,093 7,148 2,000 5,148 2,000 3,728 2,000 4,576 2,000 2,889 The expected corporate tax rate was 24.5% art Four Capital Budgeting and Resource Allocation EXHIBIT 1 I Historical Income Statements for Fiscal Year Ended June 30 (SGD 000) 1999 2000 2001 1998 71924 860,11592,613 106.042 106,042 Sales Operating expenses Production costs and expenses Admin. and selling expenses Depreciation 33,70338,393 17,787 9,028 58,512 65,208 46,492 21,301 10,392 78,185 53,445 24,177 11,360 88,983 16,733 8,076 Total operating expenses Operating profit Interest expense Earnings before taxes Income taxes* Net earnings Dividends to all common shares Retentions of earnings 13,412 5,464 7,949 2,221 5,728 14,908 6,010 8,897 2,322 6,576 14,429 7,938 6,491 1,601 4,889 17,059 7,818 9,241 2,093 7,148 2,000 5,148 2,000 3,728 2,000 4,576 2,000 2,889 The expected corporate tax rate was 24.5%