- Pages: 3
- Word count: 724
- Category: Company
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RoboCorp’s is a company whose system infrastructure is well-established, runs on a high-grade budget, and has the capability to make high-end purchases in the market. At the current time, RoboCorp is facing two basic options. It is either to purchase either of the two companies which will produce optic scanners for Montex: Electronic Innovations and World Optics.
There are, however, considerable risks involved. If RoboCorp decides to accept this venture and Montex runs into an unprecedented failure such as backing out, dissolving or bankruptcy, RoboCorp shall be stuck with a 50-60 million dollar project with no potential buyers. It is further important for the risk assessment that the technique of internal rate of return is used. It is perhaps the most sophisticated capital budgeting technique (Kerzner, 2003) where the discount rate where the present value of cash inflow is exactly equal to the initial investment. If, in the near future, it manages to return the amount that has been invested in it through RoboCorp, it will then prove to be a sound choice for the company.
With the current scenario in mind, the company recommended to be purchased is WO or World Optics. Since RoboCorp has the financial capability to purchase a 60$ million company, it is safer in buying a company that has already manufactured the required goods as demanded by Montex. In the case of EI, the layoffs and the fact that it has not yet produced the optic scanners are points which do not go in EI’s favor. At this point in time, with such a large investment at stake, RoboCorp should minimize risks and bank on the visible benefits.
The response from the company regarding buying a company for the production of optic scanners could be divided on the bases of the stockholders’ mindsets. There could be a divided type in the nature of the shareholders: high-risk, high-gain type, who would want the company to grow and would allow spending a significant amount of capital into what seems like a future gain; and the low-risk, low-gain type who would want their dividends in quick intervals of time and they would not be in the favor of a risk of buying a 60 million dollar company, in fact would rather choose to let go of the option of doing business with Montex altogether. Jacob and Grape will always want to enlarge the scope of the company and broaden the horizon for RoboCorp. Since they are the founding members and control 50% of the shares, they fully assess that once they are able to control the market monopoly by purchasing this expertise, RoboCorp’s market value would increase significantly, which would surely boost the company’s stand in the market. The expected course of action would be of Jacob and Grape convincing the rest of the ambivalent stockholders into voting in approval. Once it does produce the demanded goods RoboCorp will bring a reputation to itself that it is capable of meeting customer needs and has the financial stability to sustain itself despite making significant purchases.
The further information required in order to recommend purchasing this company would be the technical know-how that the company bears at this time. It would be beneficial for WO to remember that before the customer signs the order, requisition or recommendation, he must be convinced that he has made the right decision. He must be convinced beyond doubt that less risk, or no risk is involved (Hutton, 2006). WO should provide RoboCorp with the necessary information and assurance through the technical setup, managerial and technical skills being sound in WO.
Success for is expected if WO is bought for the production of optic scanners for Montex’s needs. In Electronic Innovation’s case, there would be a higher risk involved: the laying off prospect clearly signifies a weakness in the company’s infrastructure and the fact that they have never produced the aforementioned optic scanners is also a fact that weighs against them. In order to invest a grand sum of 60 million dollars, a company needs to be sure of the choices it is banking upon.
Hutton, James R. How to Sell Technical Equipment and Services. Tulsa, Okla: PennWell Corp, 2006.
Kerzner, H. (2003). Project management a systems approach to planning, scheduling, and controlling. Hoboken, NJ: Wiley.