1. Assess the current financial health and recent financial performance of the company. What strengths and/or weaknesses would you highlight to the CEO, Ms. Koh?2. Forecast the firm's financial statements for 2002 and 2003. What will be the external financing requirements of the firm in those years? Can the firm repay its loan within a reasonable period?3. What are the key driver assumptions of the firm's future financial performance? What are the managerial implications of those drivers? What aspects for the firm's activities should Koh focus on?4. What is Star River's weighted-average cost of capital (WACC)? What methods did you use to estimate WACC? What are the key assumptions that influence the WACC?5. What are the free cash flows of the packaging machine investment? Should Koh approve the investment?6. What is your assessment of how long it might take to restore Star River to a healthy financial basis? What might be necessary to make this happen? STAR RIVER ELECTRONICS LTD. On July 5, 2001, her first day as CEO of Star River Electronics Ltd., Adeline Koh confronted a host of management problems. One week earlier, Star River’s president and CEO had suddenly resigned to accept a CEO position with another firm. Koh had been appointed to fill the position—starting immediately. Several items in her in-box that first day were financial in nature, either requiring a financial decision or with outcomes that would have major financial implications for the firm. That evening, Koh asked to meet with her assistant, Andy Chin, to begin addressing the most prominent issues. Star River Electronics and the Optical-Disc-Manufacturing IndustryStar River Electronics had been founded as a joint venture between Starlight Electronics Ltd., United Kingdom, and an Asian venture-capital firm, New Era Partners. Based in Singapore, Star River had a single business mission: to manufacture CD-ROMs as a supplier to major software companies. In no time, Star River gained fame in the industry for producing high-quality discs. The popularity of optical and multimedia products created rapid growth for CD-ROM manufacturers in the mid-1990s. Accordingly, small manufacturers proliferated, creating an oversupply that pushed prices down by as much as 40%. Consolidation followed as less efficient producers began to feel the pinch. Star River Electronics survived the shakeout, thanks to its sterling reputation. While other CD-ROM manufacturers floundered, volume sales at the company had grown at a robust rate in the past two years. Unit prices, however, had declined because of price competition and the growing popularity of substitute storage devices, particularly digital video discs (DVDs). The latter had 14 times more storage capacity and threatened to displace CD-ROMs. Although CD- ROM disc drives composed 93% of all optical-disc-drive shipments in 1999, a study predicted that this number would fall to 41% by 2005, while the share of DVD drives would rise to 59%.1 Star River had begun to experiment with DVD manufacturing, but DVDs still accounted for less than 5% of its sales at fiscal year-end 2001. With newly installed capacity, however, the company hoped to increase the proportion of revenue from DVDs.