Risk Analysis on Investment Decision In capital budget simulation, the net present value (NPV), internal rate of return (IRR) and profitability ratio (PI) two mutually exclusive capital investment proposals can be analyzed. Silicon Arts Inc. (SAI) is a company founded four years ago, producing integrated circuits (ICs) for digital imaging that need to analyze two capital investment proposals to pursue its growth plans. “The president of SAI intends to increase market share and keep pace with technology, which can be achieved by expanding the existing market share of digital imaging or entering the wireless communication market” (Simulation, UOP). An analysis reveals that an expansion in wireless communication can be advantageous over Dig-Image. However, joining this industry comes with a number of risks, both internal and external. This paper will analyze investment risk decisions and risk mitigation using a range of strategies. One risk associated with the cost of capital in W-Comm's proposal will be the excess real estate at the Santa Clara plant that can be used toward the $18 million cost of capital. in the first three years. “The cost of capital is the rate of return that SAI might be able to achieve at the same level of risk as the selected investment” (Ross-Westerfield-Jaffle, 2004). SAI can mitigate this risk through liquidity improvements by attracting uninformed investors. The company should use stock splits that make it much more convenient for small businesses and uninformed investors by making stock purchases easier. SAI can reduce the cost of capital and acquire liquidity by offering its shares via the Internet. Direct stock purchase plans and online dividend reinvestment programs give small investors the opportunity to buy stocks cheaply, disclose more information, and this narrows the gap so that SAI's cost of capital is reduced. According to the marketing research reporting framework, SAI should use the best capital budgeting (NPV) approach that identifies cash flows instead of profits, uses all cash flows, and discounts cash flows appropriately. Cash flow forecasts for SAI underlying revenues, costs and after-tax cash flows. Sales projections for market forecasts can depend on market share, price per product, and market size. Variable costs and fixed costs are also considered. “Variable costs change as production changes, for example the direct cost of labor and raw materials are variable while fixed costs are measured as a cost per unit of time such as time or wages” (Ross-Westerfield-Jaffe, 2004).