Flash Memory, Inc.

is a comprehensive case in applying the

capital budgeting techniques introduced in capital market
theory. The case will be completed in two part. In the first part
of this case, you are asked to answer the following questions:
1. Briefly describe Flash Memory, Inc., its products and business
model, its competitors, and the important characteristics of the
memory industry. (Please use only information found in the case
study.)
Ans 1 Flash memory was a firm operating in computer and
electronic device memory market. Flash focused on Solid

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State drives (SSDs) which were well suited for smart phones,

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laptop computers and net books. Flash specialized in

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designs and manufacture of SSDs and memory modules that

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were sold to OEMs, distributor and retailers. This made up of
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80% of revenue of Flash. The other 20% of revenue came
from another high-performance electronic component sold
through same channel.
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The memory industry was a competitive one with firms like

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Intel, Samsung, SanDisk etc. were fighting for market share.

The industry was changing rapidly with products getting
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obsolete within 6 years. This resulted in companies putting

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money in R&D but also resulted in lower margins and need to

diversify revenue from more products.
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2. Assuming that the company does not invest in the new

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product line prepare a forecasted income statement and balance

sheet at year-end 2010, 2011, and 2012. Use Exhibits 1, 2 and 3
from the case in preparing these statements. Note that Flash’s
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method of calculating interest expense is detailed on page three

of the case. (The exhibits can be found in excel format in the
coursepack.)

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 See Exhibit 1, and 2
3. Based on these forecasts, estimate Flash’s required external
financing. Note that in this case, all required external financing
takes the form of additional notes payable from its commercial
bank for the same period.
Exhibit 2
This assignment is split into two parts since we have not covered
the material in class required to complete the entire
assignment. We will review this part of the submission but only
to check your calculations for part 3.

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The second part of the Flash Memory case requires a full write-

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up and analysis of the project decision that Flash Memory, Inc is

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facing. Please use the information gathered in Flash, Part 1 in
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providing a complete introduction to the case
problem. A complete analysis will also include the following
information:
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1. Should Flash Memory, Inc. accept the proposed investment

in the new product line? (Using incremental cash flows,
calculate the WACC, the NPV, and the IRR for the
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project.).Exhibit 5, Amended Spreadsheet.

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See sheet 4 and 5

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NOTE: Calculate the WACC for Flash Inc., using information from Exhibit 4
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and information from the case text. Sample CAPM/BETA calculations

spreadsheet used during the Q&A session can be downloaded here.

2. How does your recommendation impact your estimate of the

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companies forecasted income statements and balance sheets,

and required external financing in 2010, 2011, and
2012? Exhibits 6 & 7, Amended Spreadsheet.

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 3. How do these forecasted income statements and balance
sheets differ if the company uses a new sale of equity instead of
relying solely on notes payable from its commercial
bank? Exhibits 8 & 9, Amended Spreadsheet.
4. As CEO Hathaway Browne, what financing alternative would
you recommend to the board of directors to meet the financing
needs that you estimate above? Explain your reasoning.
CEO should recommend investing in new business but from
equity funding. This is because on taking on debt, the
interest rate rises, and this increases the interest paid by

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government. As a result, the liabilities also increase, and loan

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is then not guaranteed by receivables.

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Equity finding increases net income on whole and is

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beneficial for company. It also helps the company to reach it
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target capital structure.
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