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Case Description: The primary subject matter of HDTV Systems is capital budgeting within a mid-size electronics firm, and analysis of a possible merger with a large firm of international scale. HDTV Systems is recommended for students who have already had exposure to capital budgeting, cost of capital, and valuation techniques; thus, it is most appropriate for upper-level undergraduate students and second year graduate students. The case can be taught in two class hours, and student preparation should require no more than two hours. Case Synopsis: This case involves both quantitative and qualitative aspects of capital budgeting in a firm whose principal owner desires growth and new products but finds constraints primarily due to the size of the company. The case begins with a description of HDTV Systems as a closely-held company with limitations to growth. It presents limitations to funding and shortfalls in analytical processes. Cash flow estimates for a new consumer television product are presented as well as the project's internal rate of return and payback period. The student will learn that capital budgeting is a complex process going beyond calculations of investment worth. As the analysis of the capital expenditure is carried out, HDTV Systems entertains being acquired by Global Electronics. The combination is seen as perhaps offering a more realistic setting for the large capital expenditure for manufacturing the new television project. The case draws out financial motivations for the potential merger, as well as projections of free cash flow for HDTV Systems as a division of Global. © 2009 by the DreamCatchers Group.

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Journal of the International Academy for Case Studies





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School of Business Administration


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