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MGMT002 Technology and World Change

Prepared by: (G3)Chia Teck Kim BenjaminChiang Poh Yin ValerieCho Wei PingChua Zhiwei AlvinGuo WeiminNeo Huiqiang

MPIL – The Mobile Phone Item Locator

Brief Contents

Section Description Page

1 Introduction 1

1.1 Mission Statement1.2 Functions of Company

2 Product Concept 2 - 82.1 Product Details2.2 Security and Additional Functions2.3 User Interface

3 Market and Strategic Analysis 9 - 133.1 Survey Analysis3.2 SWOT Analysis3.3 Porter’s 5 Forces

4 Strategies 14 - 164.1 Business Strategy4.2 Marketing Strategy4.3 Target Market

5 Finances 17 - 195.1 Research and Development Costs5.2 Pro Forma Statements

6 Potentials of MPIL 20 – 216.1 Contribution to Social Good6.2 Future Prospects

7 Conclusion 22

Appendix I: Survey Results 23 - 25Appendix II: Research and Development Costs 26Appendix III: Expenses 27Appendix IV: Revenue and Profit Statements 28Appendix V: Cash Flow from Assets 29

References 30

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1. Introduction

1.1 Mission Statement

To meet the domestic needs of modern living through the use of cutting-edge technological

innovations, so as to enhance the effectiveness and quality of lives.

1.2 Functions of Company

Our company functions as a design house that seeks to provide technological solutions to the

problems people face in their daily lives, so as to improve their lifestyles. Hence, our

company focuses on research and development to create the technology for external house

projects such as Mobile Phone Item Locator (MPIL).

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2. Product Concept

Our product concept is to provide the technology to incorporate item locators into mobile

phones, helping to locate the users’ items. It is an incremental innovation which builds on the

existing Radio Frequency Identification (RFID) technology. By doing research and

development on the current RFID technology, we realize the feasibility of embedding RFID

reader chips into mobile phones. Once the mobile phone is embedded with our chip, MPIL, it

will be able to serve the function of an item locator.

2.1 Product Details

Background on RFID Technology

An RFID system consists of 3 components:

1. An RFID Tag. (Passive or Active)

2. Reader

3. Antenna

The reader is the device that extracts information from the tags and keeps the tags powered

up. The reader sends signals at a specified frequency to the RFID tag which transmits desired

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information back to it. This enables a RFID reader and a RFID tag to communicate with each

other through a specified radio frequency. The antenna is the conductive element that acts as

a medium between a tag and reader and it is found in both the tag and the reader.

Product Specifications

For our product, we have chosen to use passive tags since they do not need to be powered by

an internal battery and are able to operate with an external power source instead. The desired

tag size would be as small as 0.6mm by 0.4mm by 0.2mm, such that it can be conveniently

attached onto any personal belonging. Each intricately-designed tag consists of a radio

transmitter and radio receiver, and is able to read through a variety of matter.

An antenna enables the tag to receive and send data and it couples with the antenna of the

reader to form a magnetic field with a range of up to 20 metres. The current maximum read

range of a RFID Tag is only 6 metres. However, through research, developing a tag that can

read a range of 20 metres is highly feasible. (The research and development will be elaborated

in section 5.)

The reader initiates and receives the incoming signals, processing them into directions given

to the user such that he can follow in order to find the item

Integration of Item Locator into Mobile Phones

MPIL will be embedded into the mobile phones instead of being a separate device. (This is

achievable because the Printed Circuitry Board (PCB), which is responsible for processing the

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instructions, already exists in the phone.) Previously, reader chips were affixed on PCBs in

the reading devices.

2.2 Security and Additional Functions

Password Protection & Transferability

To address the issue of the lack of privacy, the locator program will be password protected

and the user will be prompted to enter his password before proceeding on to use the program.

Another feature of the device is the transferability function, where one can easily transfer

information stored in the various tags with their designated names through either GPRS,

Infra-red or Bluetooth to the user’s new mobile phones. Thus, they do not need to re-

configure a new phone.

This would provide easy transferability for owners and due to the password protection,

owners need not fear unknown users transferring their locator data into other devices for other

uses.

Program Protection & Failsafe Against Loss of Mobile Phone

The MPIL software is tied to the SIM card in the same way that the phone recognizes the SIM

card. Without the pre-programmed SIM card, the locator software will not start up. In the

event that the mobile phone is lost, all the user has to do is to call the service provider and

deactivate his SIM card just like he would usually do. The lack of the specified SIM card will

then disable the program.

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Figure 2.1

2.3 User Interface

Next, we shall illustrate how the software works. The item-locator program software installed

in the phone itself as shown (Figure 2.1):

In our example, the new item found has been renamed to “finance text”.

In searching for this particular item, the reader will initiate electromagnetic (EM) waves of a

certain frequency unique to the “finance text” tag only. Finally, the screen will show an arrow

indicating the location of the item. The location of the item will be constantly updated.

To illustrate, when a user, Robson, attempts to enter the “Search Item Locator” program, he

will be prompted to enter his pin number (Figure 2.2), which is to be verified by the system

(Figure 2.3).

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Next, Robson will be given a list of actions from which he can choose to add a new search-

item, view the list of search-items, or change his pin number. (Figure 2.4 and 2.5)

Robson proceeds

Upon the addition of a new search-item, he is provided with a list of actions for the new

search-item. (Figure 2.6 and 2.7)

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Figure 2.2 Figure 2.3

Figure 2.4Figure 2.5

Kindly refer to (Figure 2.8 and 2.9) for illustration on how the new search-item is renamed to

a desired name.

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Figure 2.6 Figure 2.7

Figure 2.8 Figure 2.9

Figure 2.12

If Robson misplaces his finance textbook, he selects “Search” under the list of actions for

“finance text”. The reader next initiates a specified frequency of electromagnetic (EM) waves

unique to the “finance text” tag only. (Figure 2.10 and Figure 2.11)

Upon receipt of the EM waves, a minute current is induced in the “Finance Text” tag

sufficient to generate a response back to the reader. The screen will show an arrow indicating

the location of the item. (Figure 2.12)

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Figure 2.10 Figure 2.11

(The generation of EM waves is a continuous process to help to update the location of the

search-items.).As the proximity between the phone and the tag decreases, the arrow will blink

with increasing frequency and finally stops when the item is found.

3. Market and Strategic Analysis

3.1 Survey Analysis

To better understand the needs of our product’s end-users, we have conducted a survey with a

sample of 80 people. Following is an analysis of the responses generated by the survey:

From the response to Question 1 (Figure 3.1, Appendix I), 73% of the people surveyed

often forget or misplace their daily items. Hence, there is a significant potential in the

consumer market which is untapped. Thus, our company aims at providing technological

solutions which will solve this problem for them.

From the response to Question 2 (Figure 3.2, Appendix I), 79% of the people are unaware

of any existing products in the market which can help them to locate lost items. This is

mainly due to the fact that such products were not readily available and that they

necessarily mean that each individual owner would have an additional item. Also, we

believe that we will be able to create awareness for our RFID item locator technology by

incorporating the idea into mobile phones as they they are almost a necessary

commodity for consumers.

With regards to Question 3 (Figure 3.3, Appendix I), 72% of the people indicated that they

are likely to prefer to buy a new mobile phone with our RFID item locator technology over

models which do not have this function. This represents that mobile phones with our

technology will be able to distinguish from other mobile phone model, thus creating a

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competitive edge. This could be strong motivating reason in convincing mobile phone

manufacturers to buy the license for our technology.

Pertaining to Question 4 of our survey (figure 3.4, Appendix I), the result shows that

consumers are only willing to pay less than SGD50 for the extra features of such mobile

phone. However, as the cheapest RFID readers existing in the market cost USD17 to

produce, coupled with the fact that locator tags cost USD0.20 or less when produced in

bulk. Mobile phone manufacturers’ main concern, additional costs, would thus be justified

since most consumers are willing to pay up to SGD50.

Exceeding our expectations as illustrated by the response to Question 5( Figure 3.5,

Appendix I), 82% of the people believed that mobile phones incorporated with our

technology have the potential of helping them to improve their daily lifestyle. This shows

that our technology is able to create social goodwill besides being just a additional

function in the mobile phones.

3.2 SWOT Analysis

Strengths

Our product is an innovative product as it is the first searching device integrated in a mobile

phone. Mobile phone market would comprise of 2 billion mobile phone users by the end of

2005 and this number may even increase to 3.2 billion by 2010. Thus this makes the market

lucrative and considering the number of hand phone companies currently in the market, this

market do has a lot opportunities.

Using our product is easy as user friendliness is one of the strength of our product as

instructions are clear and easy to follow. It complements the fast paced lifestyle of

Singaporeans, as it enables to locate your items faster.

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As the electronics industry in Singapore is already very advanced, RFID technology used in

our product would be easily accepted as it is already in use in Singapore. In addition, the

research base and manufacturing infrastructure is also readily available.

Lastly, our location has a political advantage as our government is very supportive as it has

been putting in efforts to build up Singapore’s capability in RFID in order to position us as the

choice location for RFID.

Weaknesses

As we are a new startup, our company lacks the experience and credibility in the industry.

Secondly, limited budget is also one of our weaknesses as the source for budget needed to

fund our project is still unsure. Customer reaction towards our product not been tested too.

The current search range of 6m is still considered as small to certain users, hence we would

have to do research and development to increase the search range.

Opportunities

Firstly, opportunities still lie in the market as our competitors do not have products which are

of similar features to our product and they do not address all the needs of the customer. The

items locators available on the market all involve an external reader which users have to carry

around. There is also an opportunity for our product to extend to overseas.

Threats

Being a design company, the threat which is the most detrimental to the survival of our

company is that our concept is easily copied.

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3.3 PORTER’S FIVE FORCES ANALYSIS

Bargaining Power of Suppliers

The suppliers which we need for our product are manufacturers which would have the

technology to help us produce the prototype as well as the board needed for our testing

purposes. As these manufactures have highly identical technology and are highly

undifferentiated in nature, we believe switching from one manufacturer to another would not

be costly to our company. Customers of these manufacturers are also highly fragmented.

However, one factor to note is that there is a possibility of supplier integrating forward in

order to obtain higher prices and margins. Overall, our group feels that the bargaining power

of suppliers is quite low.

Bargaining Power of Customers

Although our product is highly undifferentiated and is not easily replaced by substitutes, the

bargaining power of our customers is still rather high as our product is not of a strategic

importance to the hand phone companies. In addition, hand phone companies would have the

ability to integrate vertically by coming up with the solution themselves. Although research

and development costs involved are high, it may prove to be insignificant to larger hand

phone companies with strong financial standing.

Threat of New Entrants

Our product faces a huge threat of new entrants based on the fact that the concept is easily

copied. Hence in order to counter this, our company signs non disclosure agreements with all

the other companies we collaborate with.

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Another deterrent to new entrants would be the high start up costs involved, mainly due to

high research and development cost involved during the product development stage. On the

whole, the market in which we are in is relatively easy to enter; the only main deterrent is the

high research and development costs involved.

Threat of Substitutes

Pertaining to our product, currently there are no substitutes on the market which could

perform the same role of our product to the customers.

Competitive Rivalry between Existing players

Products currently in the market do not fully serve the needs of the customers and are not user

friendly. The products which they offer are also of different nature to our product. Due to the

high differentiation of product, less price competition is expected.

In conclusion, infrastructure and resources needed for research and development is already in

place due to advancement in the electronics industry in Singapore. The main threat which we

need deal with is the ease of our concept being copied. This makes our product vulnerable to

entrance of new players. As for the current players in the market, competition level is low as

the products they offer serve a different target group as compared to our product. The

products are also highly different in terms of features and level of user friendliness. Hence,

the strategy in which our company should pursue is to focus on our core competency

(designing of solution) and leverage on other companies for resources needed.

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4. Strategies

Having assessed the risks, we now implement strategies to leverage on our strengths,

enhancing our competencies.

4.1 Business Strategy

To reiterate, our vision is to establish MPIL as a standard in the increasingly-competitive

telecommunications industry. However, as a relatively young innovation company, we lack

the manufacturing expertise to produce the innovation in-house. In addition, we also lack

credibility and marketing capabilities. Thus, developing a sound and effective business

strategy is essential.

Firstly, we intend to collaborate with telecom giants such as Nokia, Sony Ericcson and

Motorola to build up the market. As our alliances, their role is to help in the marketing and

distribution of MPIL. We will sell the intellectual property rights to our innovations through

passive licensing strategy. With the property rights, they will have complete rights to our

designs and also access to new generations of our technology in the future. In return, we will

receive revenue in the form of upfront payments. Through the forming of agreements, we

hope to be able to receive further funding for R&D and other future development projects.

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4.2 Marketing Strategy

According to our survey, we found our nearly 73% of the population surveyed have the

common habit of misplacing their belongings frequently. A significant 71% of population

agree to buying a mobile phone with MPIL technology so that they are able to retrieve their

misplaced belongings more effectively. Thus, we can see that there is a huge potential market

that is yet to be tapped into. Of course, it may seem biased to state our conclusions solely on

the survey results since they may not be an accurate reflection of the entire market. However,

it is widely known to all for the application of RFID technology in the commercial and

industrial sectors, the domestic market is currently still untapped. Thus, with MPIL, investors

can expect huge potential returns as well as gaining significant market share, setting

themselves as market leaders.

Also, we foresee long-term benefits to RFID technology. Many other different applications

can be developed with further R&D. Currently, mobile phones work on infra-red and

Bluetooth technology. However, with RFID mobile phones, both effectiveness and efficiency

can be greatly increased as RFID technology is able to work over a longer distance and

applicable to many different uses. With the recent introduction of 3G mobile phones, we

believe there is a great potential of a possible emergence of another new generation of RFID

mobile phones.

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4.3 Target Market

We have identified 3 main groups of possible target audience. Firstly, our early adopters will

be the teenagers. An investigation has showed that one of the highest percentage of people

who complained about the hassle faced and time lost due to careless misplacing of items come

from the teenagers. Most teenagers tend to be forgetful at times, thus there is a higher

tendency for them to misplace their items. Therefore, we believe that MPIL will be able to

attract the teenagers as it serves as an efficient means of finding back their lost items in the

house. Also, teenagers are usually more adventurous and trendy, thus a mobile phone with

RFID technology may emerge to be something trendy.

The second group of target audience is the young urban professionals, who fall under the

early majority category. To these people, time is important and valuable. Also, they have

many important belongings and documents that they have to look after. With MPIL, time will

not be lost on unnecessary activities such as searching for misplaced items.

Lastly, the late majority category belongs to the rest of the mobile phone users. These are the

people who are either resistant to changes or indifferent about new innovations. However, as

they get influenced by the teenagers and young urban professionals, MPIL may very soon

become a useful and necessary technology for all as they begin to learn about the benefits and

convenience of MPIL. Although it is predicted that market diffusion will be slow in the

beginning stages, we are very optimistic that MPIL or RFID technology may very soon take

the telecom industry by storm.

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5. Finances

5.1 Research and Development (R&D) Costs

Referring to Appendix II the costs in R&D amount to SGD3,280,000.

Forming Solution

As illustrated in Figure 5.1, this is done by research engineers internally. At this stage, the

evaluation and algorithm development is done. Following which, the verification of

robustness of this solution is conducted. This is estimated to take 6 months.

Hardware Design

The following processes are outsourced. This involves front-end design and back-end design.

While the former consists of the designing, programming and verification of coding, the latter

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Figure 5.1

is comprised of the synthesis of the gates, chip layout and place enroute processes. Once

again, the verification of the design is conducted again. This will take roughly 3 months.

Next, the design is sent by the external company to the foundry, and then a pilot run of the

chip is done. The pilot run is costly due to the high setup costs and the low yield for a

successful chip. The prototype is produced, taking an estimated 2 months.

Research on PCB

While the second stage is initiated, in-house application engineers will design and evaluate a

prototype PCB to be placed in the mobile phones, taking about 3 months. The design is then

outsourced for manufacturers to produce the prototype board for testing the chip’s prototype

(a generic chip is used for various printed circuit boards (PCB)).

Design and Testing of Applications

Next, in-house application engineers will design the applications from drivers to libraries to

end-user interface, taking about 2 months. After which, the prototype should be ready, and the

application engineers can test the compatibility of the applications with the prototype.

The above processes accounts for the R&D costs incurred in developing MPIL. During the

above processes, a non-disclosure agreement will be signed with the research company;

information transfer between the two companies is free. However, information should be kept

confidential and limited to the participating parties only.

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5.2 Pro Forma Statements

(Refer to Appendices II to V to better comprehend the descriptions.)

Expenses are expected to increase with the employment of the two more application engineers

in the 7th month. From the start of the second year, expenses will also increase vastly due to

the allocation of the development costs over 5 years.

The pricing structure is as follow: When companies purchase the technological solution from

us, an upfront payment of SGD300,000 will be required, following a SGD0.50 for every unit

of mobile phone sold.

While the company is expected to have a net loss in the first two years, a net profit expected

to be generated by this project alone from the third year onwards. The cash payback period

will be between 3 to 4 years, i.e. it will break even in the 4th year.

In the projection of the sales, we have, however, used very conservative estimates in the sales

levels of the mobile phones. In the 6th year of the project, the units of MPIL-integrated mobile

phones estimated to be sold is a far cry from 5% of today’s mobile phones total sales figures.

Therefore, we are confident of the robustness of this investment.

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6. Potential of MPIL

6.1 Contribution to Social Good

Even though the hp item locator is a commercial item, there is no doubt that it adds value to

society’s social good as well. People spend minutes to hours every week looking for

important lost items and with the usage of this device, time save could be spent elsewhere like

recreation or quality time with the family.

Present item locators are cumbersome and require large tags whereas the hp item locator

grants added functionality to your mobile phone; thus saving space, effort and item

management on your part.

Last but not least, we foresee our design being a benefit to the elderly for as they grow older,

they tend to grow more forgetful so the easy interface will allow them to keep an important

tool near them (the mobile phone) and also easily find important items that they have lost

while going about their daily lives.

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6.2 Future Prospects

As the company expands and competition possibly increases, our future prospects may

include expanding into the consumer product market. Not only will the locator device have all

the already mentioned functions, it can also serve as a product reader. Product companies can

choose to have their items fitted with an RFID tag which is unique to each product type and

which will contain various types of information regarding their product and which will be

accessible by the locator device although only at very short range (2-4cm). This will allow

users who are browsing to merely tap their phones to the item in question and they will gain

all the information that is stored about the product in its unique RFID tag.

Secondly, in line with the company’s mission and function, we will be seeking to develop our

product with further research on extending the range of the reader and possibly designing new

types of readers and their integration with mobile phones. Lastly, the company could also

look into expanding our R&D scope and look into other ways and means to improve the

quality and effectiveness of lives using technology.

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7. Conclusion

We believe our product to be a truly novel idea which has potential for growth in the

consumer market. We have so far showed how the product will work and how we intend to

bring it from conception to end. We understand that it is one thing to have a good innovation

and another to have a successful one and in the end, it will take good product management

along the whole process to make our innovation a successful one.

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APPENDIX I

Q1: Do you frequently forget or misplace where you placed your everyday items at home? (eg. Spectacles, house keys, wallet, etc.)

Do you frequently forget or misplace where you placed your everyday items at home? (eg. Spectacles, house keys, wallet, etc.)

Yes 73%

No27%

Yes

No

Q2: Are you aware of any existing products for sale in the market which would help you

locate your lost items?

Are you aware of any existing products for sale in the market which would help you

locate your lost items?

Yes 21%

No79%

Yes

No

Q3: Suppose a function is incorporated into the new models of a particular brand's mobile phones, enabling you to locate your misplaced items more easily, is this likely to be one of your reasons in choosing this brand over others?

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Figure 3.1

Figure 3.2

Suppose a function is incorporated into the new models of a particular brand's handphones,

enabling you to locate your misplaced items more easily, is this likely to be one of your reasons in

choosing this brand over others?

Yes 72%

No28% Yes

No

Q4: These new mobile phones will be packaged with locator tags which you can affix onto

your items. How much more would you be willing to pay for such an added feature?

27

40

85

005

10152025303540

No

. of

pe

op

le

Notwilling to

pay

$30 to$50

$51 to$100

$101 to$150

Morethan$150

Price Range

These new mobile phones will be packaged with locator tags which you can affix onto your items. How much more would you be willing to

pay for such an added feature?

Q5: Do you think a mobile phone incorporated with such a function is an innovative

product which has the potential to help improve your daily life?

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Figure 3.3

Figure 3.4

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Do you think a mobile phone incorporated with such a function is an innovative product which has

the potential to help improve your daily life?

Yes 82%

No18% Yes

No

Figure 3.5

APPENDIX IIResearch and Development Costs

Research Activities Conducted Internally

Details of ActivityLabour

RequiredLabour

DescriptionCosts per

man monthTime Required

(in months) Costs Forming of Solution 4 Electronic Engineers 4,500 6 108,000 Prototype Board/ Evaluation Kit2 2 Application Engineers 3,500 3 21,000 Design of Applications 2 Application Engineers 3,500 2 14,000 Testing of Prototype with Applications 2 Application Engineers 3,500 1 7,000 Total Research Costs 150,000

Development Activities Outsourced to External Companies

Details of Activity Labour

RequiredLabour

DescriptionCosts per

man monthTime Required

(in months)Costs to External

Companies Hardware Design 4 Engineers 4,000 3 48,000 Pilot Run by Foundry (Labour) 4 Engineers 4,000 2 32,000 Pilot Run by Foundry (Raw Materials and Equipment) - - - 2 2,000,000 Manufacture of Prototype Board Outsourced - - - - - Total Development Costs

Total Research and Development CostsActivity CostsResearch Activities Conducted Internally 150,000Development Activities Outsourced to External Companies 3,130,000Total Research and Development Costs 3,280,000

1 All costs and valuations are denoted in Singapore Dollar (SGD).2 The same application engineers perform the design of application and prototype board, and the test of the prototype.3 Internal costs are estimated using a 1.5 multiplication factor of the costs to external companies.

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APPENDIX III

Expense Budget

ItemLabour

RequiredCosts per

man monthMonthly Expenses

First 6 mthsMonthly Expenses

Next 6 mthsYearly Expenses

Yr 2 to 6Salary Expense4 4 4,500 18,000 18,000 216,000  2 3,500 - 7,000 84,000  1 1,800 1,800 1,800 21,600  1 5,000 5,000 5,000 60,000Administrative and General Expenses5 100 100 1,200Utilities Expense6 600 600 7,200Rent Expense7 2,000 2,000 24,000Equipment - Depreciation Expense8 500 500 3,000Development - Amortization Expense9 - - 626,000Marketing Expenses10 - - 100,000Total Expenses 28,000 35,000 1,143,000

4 Comprise of 4 Electronic Engineers, 2 Application Engineers, 1 Administrative Clerk and 1 Manager.5 Materials such as papers, stationary and receipts.6 Includes electricity and telephone bills.7 Payment for industrial space required for office use and research processes.8 Machines and equipment purchased for research purposes valued at 36,000 and depreciated over 6 years.9 Development costs are amortized over 5 years, beginning only in year 2 as product is only launched in year 2.10 Marketing expenses incurred in selling product.

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APPENDIX IV

Pro Forma Income Statements

The Revenue Structure is as Follow:Upfront Payment 300,000Royalties per Unit 0.50

RevenueTime Year 1 Year 2 Year 3 Year 4 Year 5 Year 6No. of Upfront Payments Received - 1 2 2 1 1Units of Mobile Phones Sold - 1,000,000 3,000,000 7,000,000 12,000,000 15,000,000Revenue from Upfront Payment - 300,000 600,000 600,000 300,000 300,000Revenue from Royalties - 500,000 1,500,000 3,500,000 6,000,000 7,500,000Total Revenue Received - 800,000 2,100,000 4,100,000 6,300,000 7,800,000

Profit and Loss Statements for Year 1

Item/Time Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Mth 7 Mth 8 Mth 9 Mth 10Revenue - - - - - - - - -Expenses Incurred 28,000 28,000 28,000 28,000 28,000 28,000 35,000 35,000 35,000 35,000Net Income (28,000) (28,000) (28,000) (28,000) (28,000) (28,000) (35,000) (35,000) (35,000) (35,000)

Profit and Loss Statements for Year 1 to Year 6Item/Time Year 1 Year 2 Year 3 Year 4 Year 5 Year 6Revenue - 800,000 2,100,000 4,100,000 6,300,000 7,800,000Expenses Incurred 378,000 1,143,000 1,143,000 1,143,000 1,143,000 1,143,000Net Income (378,000) (343,000) 957,000 2,957,000 5,157,000 6,657,000

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APPENDIX V

Cash Flows From Assets

Cash Flows From Assets in Year 1Item/Time Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Mth 7 Mth 8 Mth 9Net Income (28,000) (28,000) (28,000) (28,000) (28,000) (28,000) (35,000) (35,000) (35,000)Add Depreciation Expense 500 500 500 500 500 500 500 500 500Add Amortization Expense - - - - - - - - -Operating Cashflow (27,500) (27,500) (27,500) (27,500) (27,500) (27,500) (34,500) (34,500) (34,500)Capital Spending on Development - - - - - - 3,130,000 - -Capital Spending on Equipment 36,000 - - - - - - - -Net Working Capital 5,000 - - - - - - - -Total Cash Outflow (68,500) (27,500) (27,500) (27,500) (27,500) (27,500)(3,164,500)(34,500) (34,500)

Cash Flows From Assets from Year 1 to Year 6Item/Time Year 1 Year 2 Year 3 Year 4 Year 5 Year 6Net Income (378,000) (343,000) 957,000 2,957,000 5,157,000 6,657,000Less Depreciation Expenses (not a cash flow) 6,000 6,000 6,000 6,000 6,000 6,000Less Amortization Expenses (not a cash flow) - 626,000 626,000 626,000 626,000 626,000Operating Cashflow (372,000) 289,000 1,589,000 3,589,000 5,789,000 7,289,000Capital Spending on Development 3,130,000 - - - - -Capital Spending on Equipment 36,000 - - - - -Net Working Capital 5,000 - - - - -Total Cash Flow (3,543,000) 289,000 1,589,000 3,589,000 5,789,000 7,289,000Net Cashflow of Project (Payback) (3,543,000) (3,254,000) (1,665,000) 1,924,000 7,713,000 15,002,000

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Patricia Chiang, ST Microelectronics

http://web.ecs.baylor.edu/faculty/newberry/myweb/Ethics/Web%20Pages/Shih

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