Newton Electronics Limited

After three age of development, the fraternity has finally been able to arrant(a) research on and development of the new hearing aid and the product, having successfully passed by dint of all statutory and voluntary tests and procedures, is in a flash ready for commercial doing. In this regard, the friendship has three viable survivals in battlefront of it. These are 1. Commence commercial production on its own accord. 2. Outsourcing manufacturing and foodstuffing to a trey companionship under a license array. 3. Selling Patent rights to a thirdly party.This reports aims to undertake a holistic fiscal analysis of these three excerptions and, from a financial management perspective, conclude which pick is in the best interests of the troupes shareholders. Results The results of the NPV analysis reveal the fol crusheding results Analysis, superfluous Considerations & Verdict The NPV analysis (see appendix) all the behavior reveals that picking 2 (allowing a thi rd party to bring to pass the product and market it under a license arrangement) is financially the best option as it allows for a greater inflow of cash.This is also in line with the connections fondness competencies. The company has been generally geared at research and development and may pretermit the entrepreneurial skill and expertise when it comes to manufacture and market the product. Moreover, another plus sharpen is that the company would not have to sum in any capital like a shot if it chose option 2. Thus, as rational investors, the company would prefer less risk per whole of tabulator. When comparing option 2 with option 1, the company finds itself taking less risks and accordingly generating more returns.The decision between option 2 and option 3 is a tricky one, although seemingly straightforward. With option 3, the company effectively shifts the whole element of operational risk on the third party, against a guaranteed payment in two be installments. BPP s tates that this reduces the return but also the risk, as financial management theory contends the return and risk relationship (2007, pp. 95-98). From a financial risk management point of view, the unless risk that the company is then receptive to is the default risk of the third party failing to extend to a apropos payment of the second installment.Here is where the interesting panorama comes in. Although default risk also exists with Option 2, that is, the third party would fail to make timely royalty payments, Rasheed states that a licensing arrangement and an outright barter of the patent rights would resist legally as to what resort hotel the company would have in the case of default. (2009, pp. -54). From the ascend of it, if the third party defaults under a license arrangement to pass on royalty payments, the company could always quash the license or initiate penalizations on the third party by way of the licensing agreement.Thus, the company can compel the third p arty, on its own accord, to resume payments or to offer something else in return, maybe an integrity stake at attractive levels. However, a default on a sale would be a long displace out legal battle that would make up the time frame of the proceeds macrocosm received altogether, incurring legal cost and making NPV fall. Thus, for the high return and low risk profile and the legal recourse that it offers, option 2 is the best option that the company should undertake.