Case Questions:
1. Option #3 suggests Stryker Corporation to build its own facility to manufacture its own PBCs. Under the current situation that some contract manufacturers have weak performance in quality and delivery, the benefits of this option are obvious as following:

First of all, option #3 promised the highest degree of control over quality and delivery, which can solve the major problem that Stryker has faced with recently. On the other hand, self-manufacturing offers an opportunity for Stryker to carry out its own R&D for its specific products. Exclusive products will improve its productivity and competitive advantage in the medical industry, which may offer a chance to hold a larger market share in the medical …show more content…

The incremental EBIT from 2004 to 2009 equals to decrease in purchase minus total increased manufacturing costs. Then, we tax those incremental EBIT by the rate of 36%, and get the unlevered net income.

|Annual Data(2004-2009) |2003 |2004 |2005 |2006 |2007 |2008 |2009 |
|Decrease in purchases |0 |0 |6,438,252 |11,773,605 |14,363,798 |16,518,368 |20,152,409 |
|LESS: Total increased cost |0 |(1,712,087) |(7,847,541) |(9,553,963) |(10,498,507) |(11,706,178) |(13,650,762) |
|Change in EBIT |(278,000) |(1,712,087) |(1,409,289) |2,219,642 |3,865,291 |4,812,190 |6,501,647 |
|LESS: Income Tax at 36% |100,080 |616,351 |507,344 |(799,071) |(1,391,505) |(1,732,388) |(2,340,593) |
|Unlevered Net Income |(177,920) |(1,095,736) |(901,945) |1,420,571 |2,473,787 |3,079,802 |4,161,054 |

There are three steps before we can get the free cash flow. Since FCF= UNI-Capital Expenditure + Depreciation-Chg. In NWC, we will first figure out the total amount of capital expenditure. According to