1. Stryker PCB In-sourcing Analysis
Angela Marie K
Sharwin Navaratnam
Devi Tri K
Rafidha Amira M

2. Option #3 Calculation

3. Option #3 Manufacture own PCB by building new plant/facility
Require large capital
Start-up expenses are listed on next slide
If go on with this project, transition from outsource to insource will take place (buy + produce in-house), and completely finish by end of 2005
Offer better A/P payment terms (120 days instead of 30 days)

4. Initial Outlay 6,009,258 Site prep. & construction 3,030,000
Furnishing & non-manuf. equip ,000
Comm & IT infrastructure ,000
Equipment ,643,258
We exclude Architecture & Engineering because at the footnote it is categorized as expense
6,009,258

5. PCB transition purchases 10,237,918 3,799,665
2003
2004
2005
2006
2007
2008
2009
Archi & eng exp
278,000
PCB transition purchases
10,237,918
3,799,665
Manuf. cost
1,712,087
7,847,541
9,553,863
10,498,507
11,706,178
13,650,762
Depreciation
50,500
590,608
478,608
Total expenses
328,500
12,540,613
12,237,814
10,144,471
10,977,115
12,184,786
14,129,370
Tax (36%)
118,260
4,514,620
4,405,613
3,652,009
3,951,761
4,386,523
5,086,573
After Tax (36%)
210,240
8,025,993
7,832,201
6,492,462
7,025,354
7,798,263
9,042,797
Depreciation (add back)
Change in A. Payable -
9,952
281,952
232,137
204,827
345,475
CASH FLOW
(159,740)
(7,435,384)
(7,231,641)
(5,619,901)
(6,314,608)
(7,114,828)
(8,218,714)

6. CF for NPV Calculation CF CF CF CF CF CF SV (IO)+any CF
NPV = (IO) + CF
2003
2004
2005
2006
2007
2008
2009
(IO)+any CF CF CF CF CF CF CF SV
(159,740)
(7,435,384)
(7,231,641)
(5,619,901)
(6,314,608)
(7,114,828)
(8,218,714)
835,292
(6,009,258)
(6,168,998)
(7,383,421)

7. CF without the project

8. Less: Salvage value A. Payable
2003
2004
2005
2006
2007
2008
2009
PCB purchase
10,237,918
11,773,605
14,363,798
16,518,368
20,152,409
Tax (36%)
3,685,650
4,238,498
5,170,967
5,946,612
7,254,867
After tax PCB purchase
6,552,268
7,535,107
9,192,831
10,571,756
12,897,542
A. Payable Change -
126,221
212,892
177,088
298,688
Less: Salvage value A. Payable
1,656,362
Cash flows
(6,552,268)
(7,408,886)
(8,979,939)
(10,394,668)
(14,255,216)

9. Incremental CF Incremental CF = CF with project – CF without project
So, subtract each year’s CF
Excl. sunk cost; incl. opportunity cost (value of land, but not mentioned)
2003 : (6,168,998)
2004 : (883,117)
2005: (679,373)
2006: 1,788,985
2007: 2,665,330
2008: 3,279,840
2009: 6,871,794

10. NPV Using 15% discount rate (6,168,998)+ + + + … NPV = $148,905
(6,168,998) …
NPV = $148,905
883,117
1.15

11. IRR Is interest rate that makes NPV equal to zero. Rate NPV 14 %
480,127
IRR
16 %
(113,813)
IRR = 14% +
IRR = %

12. Payback period = 6 + 0.843 = 6.843 years Year Cash inflow
Cummulative cash in.
0 (2003)
(6,168,998) 1
(510,567)
(6,679,565) 2
(679,373)
(7,358,938) 3
1,788,985
(5,569,953) 4
2,665,330
(2,904,623) 5
3,279,840
375,216 6
6,871,794
7,247,011
We can payback at year 6, so we stop at year 5
= = years

13. Which option is best? Option #3
Even though start-up costs are high, it guarantees control of quality and delivery consistency
Not threatened by weak financial of current suppliers (as in Option #1)
Not threatened by bargaining power of supplier (as in Option #2)
Can utilize just-in-time supply method
Better credit terms