High Mountain Technologies Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

High Mountain Technologies Case Study Solution

According to the situation illustrated in the case, there were two investment opportunities available to High Mountain technologies.With respect to its investment budget at $3 million, related to manufacture of GPS transmitters used by the parents to keep track of their children or Surveillance Aircraft, used by the military to provide valuable battlefield intelligence. To evaluate the investment opportunities, discounted cash flow methodology was incorporated to estimate the relevant cash flows, after identifying the relevant sales generation capabilities and cost of the investment projects, proposed or under consideration by Edmunds and five other committee members.Therefore, with respect to the first opportunity relating to GPS transmitters, the cost of capital was estimated at 5.7%.Whereas, the weighted average cost of capital was estimated at 2.7% in which, 3% extra was added, as an extra provision for risk. However, after calculated the NPV of GPS transmitters at 5.7% discount rate, it was estimated that, the cash flows generated after all the relevant deductions such as production costs, selling and administration expenses, maintenance costs and tax amount were insufficient. As for GPS transmitters the NPV estimated was a negative $1,555,600. On the other hand, for the second investment project relating to surveillance Aircraft. In which, the cost of capital was estimated at 9.9%, calculated by considering the industrial average of Beta, and then estimating its cost of equity. Furthermore, after estimating the NPV of surveillance aircraft,it was estimated that, the cash flows generated, deducting all the relevant cost such as production cost, selling and administration cost, overhead cost and tax amounts. They were more than sufficient to provide benefit to HMT in the long-term. As the NPV estimated for the surveillance Aircraft investment project amounted to a positive $4,591,317.

High Mountain Technologies Harvard Case Solution & Analysis

Therefore, it can be recommended to HMT that, it could consider and accept the second investment opportunity, relating to surveillance Aircraft. As it was assessed that, the total initial investment of the project amounted to $ 2,850,000, and it was determined through the discounted cash flow valuation analysis.That, if the company decided to invest in this project, then it would stand to make $4,591,317 on its initial investment and the end of the projects life.While, the other project relating to GPS transmitters required an initial investment amounting to $2,950,000 and it was determined that, if the company would have decided to invest in this project then it would have lost $1,555,600 at the end of the project life. Which would have been significantly unbeneficial for HMTs future growth and profitability in the market. Hence, from the analysis, it can be evaluated that, surveillance was a far better choice for HMTs future growth and profitability, while ensuring its survival in the market.................

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