FIN 203 ESSENTIAL OF FINANCIAL MANAGEMENT Homework- Singapore University of Social Sciences
Question I
Sharon, a long-time classmate, contacted you recently. She is thinking of setting up a business with two other ex-colleagues, Mandy and Terence, to design and sell a specialised posture corrector belt for women. All three of them are expected to be involved in running the day-to- day operations and will fund the business with their own savings. They do not wish to lose more money than the amount they invest.
If the business goes according to plan over the next 12 to 18 months (where sales and customer based have grown significantly, and payments to suppliers are voluminous), she envisages that a finance manager will need to be recruited. Several months down the road, certain decisions relating to procurement of new machinery and renovation of a factory in Tuas will need to be made. Based on her preliminary computations, the cash flows from assets in the first three years is estimated to be -$360,000.
While there is a vision to expand into neighbouring countries like Malaysia, Thailand and Vietnam (where significant funds need to be raised externally), this is not an immediate priority. At some point in time, Sharon would like to divest a portion of her business interest, and donate the proceeds to Singapore Children's Society, a charitable organisation.
You have been appointed by Sharon as a consultant. She has requested for you to draft a memorandum to advise her on the matters set-out below.
i. Examine which of the three forms of business should be used.
ii. Prioritise the roles and responsibilities of the finance manager who will be hired within the next year or two.
iii. Discuss why negative cash flows from assets during the first three years is not necessarily a bad sign for the business.
Question II
800 Super Holdings Limited ("800 Super") is an established environmental services provider for both the public and private sectors in Singapore. The Company's environmental services include waste management and waste treatment, cleaning and conservancy, horticultural services and industrial laundry processing.
The financial statements for the two most recent financial years are denominated in SGD, 000 (thousands) and appended below:
|
Income Statement
|
2018
|
2017
|
|
Revenue
|
151,115
|
156,923
|
|
Other income
|
497
|
427
|
|
Other losses - net
|
(198)
|
(104)
|
|
Purchase of supplies and disposal charges
|
(26,939)
|
(23,730)
|
|
Sub-contractor charges
|
(3,596)
|
(2,796)
|
|
Depreciation of property, plant and
|
(10,085)
|
(9,019)
|
|
Equipment Other expenses
|
(24,559)
|
(21,233)
|
|
Employee benefits expenses
|
(73,587)
|
(78,855)
|
|
Interest expenses
|
(901)
|
(853)
|
|
Profit before income tax
|
11,747
|
20,760
|
|
Income tax expense
|
(2,629)
|
(3,665)
|
|
Net profit
|
9,118
|
17,095
|
|
Balance Sheet
|
2018
|
2017
|
|
Current Assets
|
|
|
|
Cash and cash equivalents
|
5,605
|
25,086
|
|
Trade and other receivables
|
34,698
|
30,312
|
|
Inventories
|
1,367
|
680
|
|
Other assets
|
1,786
|
1,687
|
|
Non-Current Assets
|
|
|
|
Other assets
|
1,464
|
1,495
|
|
Property, plant and equipment
|
166,023
|
99,429
|
|
Total Assets
|
210,943
|
158,689
|
|
Current Liabilities
|
|
|
|
Trade and other payables
|
31,894
|
20,173
|
|
Current income tax
|
1,127
|
2,887
|
|
Borrowings
|
18,545
|
11,009
|
|
Non-Current Liabilities
|
|
|
|
Borrowings
|
70,523
|
41,001
|
|
Deferred income tax
|
3,770
|
2,323
|
|
Equity
|
|
|
|
Share capital
|
22,772
|
22,772
|
|
Other reserves
|
3,079
|
48
|
|
Retained profits
|
59,233
|
58,476
|
|
Total Liabilities and Equity
|
210,943
|
158,689
|
As a financial analyst of 800 Super, you are required to write a report to the board of directors covering the areas set out below.
i. Appraise the liquidity, leverage, efficiency and profitability over the last two years.
ii. Deconstruct the return on equity for both years and discuss your observations.
Question III
You are 30 years old today and have $50,000 to invest until you retire at 62. Tim, your financial planner, advises you to invest in real estate investment trusts (REITs) which generates 7% return each year. On reaching 50, he advises to re-allocate the investment to a safer investment
i.e. Singapore government securities, which yields 3% return each year.
i. Solve the amount you will have on retirement.
ii. Formulate three different strategies to increase the amount on retirement.
iii. On retirement, you intend to use a portion of your investment to purchase an annuity. Two options have been presented to you:
• Standard plan: $9,000 per year
• Escalating plan: $7,500 in first year, pay-out increase by 2% every year
Pay-outs for both plans start from 65 years onwards and the upfront premium for both plans are the same. Life expectancy in Singapore is 90 years and the discount rate is assumed to be 3%.
Compare both annuities and prioritise your options.
iv. Due to unforeseen events, there is an urgent need to borrow $15,000 to pay for your family member's medical bills. You could borrow through your credit cards, which charge an interest of 18.5% per year (compounded daily). Alternatively, you can draw down on a cash line facility which charges interest of 20% per year, calculated on a monthly basis.
Solve the effective annual rate for the credit cards and cash line facility. Examine which is your preference.
Format your homework according to the following formatting requirements:
i) The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
ii) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
iii) Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.