FIN203 Tutor-Marked Assignment
You must answer ALL questions. (Total 100 marks)
At a recent board meeting of Bedok Limited, the CEO made the following remark ‘When it comes to making financial decisions, our primary goal is to increase our market share.’
(a) Discuss, in a balanced manner, your views regarding the CEO’s remark.
Bedok Limited is one of the major supermarket chains in Singapore and is listed on SGX Mainboard. Pioneer Pte. Ltd. is Bedok’s competitor, but it is a private company that is closely owned by the Tan family.
(b) Examine which company will suffer from the agency problem, and the costs associated.
The Statement of Profit or Loss and Statement of Financial Position of Bedok for FY 2020 and 2019 are shown below. An extract of the Statement of Cash Flows is also included.
Statement of Profit or Loss
Cost of sales
Selling and distribution expenses
Profit before tax
Profit for the year
Statement of Financial Position
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Deferred tax liabilities
Trade and other payables
Current tax payable
Total equity & liabilities
Statement of Cash Flows (Extract)
Cash flows from opearting activities
Cash flows used in investing activities
Cash flows used in financing activities
Net increase/(decrease) in cash
Cash at the beginning of the year
Cash at the end of the year
(c) Compose a memorandum to the Board analyzing Bedok’s liquidity, leverage and asset management ratios for FY 2020 and 2019. In doing so, you should at least include the following ratios:
(i) Current ratio
(ii) Quick ratio
(iii) Debt-equity ratio
(iv) Times interest earned
(v) Inventory days
(vi) Receivable days
(d) Hypothesize the reason(s) why Bedok’s FY 2020 operating profit of $166M is significantly different from cash flows from operating activities of $274M. (Note: Cash flows from operating activities is not in our lecture notes. You might rely on online resource to understand the concept.)
(e) Decompose Bedok’s FY2020 and 2019 return on equity using the DuPont equation and discuss your observations.
You are planning for retirement over the next 20 years and intend to invest $400 a month in an equity index fund and $200 a month in a bond index fund. The expected annual return on the equity and bond index fund is 9% and 3% respectively. When you retire, you will combine your money from both the equity and bond index funds into a bank account that pays an interest of 1.2% per year.
(a) Solve the amount you will have on retirement.
(b) Solve the amount you can withdraw each month assuming a 15-year retirement period.
strategies you can adopt to increase the monthly withdrawal amount during retirement period.
An insurance company is offering a new product in the market. This policy is intended to be bought by a parent for their child at birth. The purchaser shall make five annual payments, starting with $1,000 on the child’s first birthday and increasing $200 in subsequent years. No further payments are required. When the child reaches the age of 60, he or she will receive $100,000. The annual interest rate is 5%.
(d) Judge whether this policy is worth buying.
You are trying to choose among three investments described below:
· Investment A: Up-front investment of $45,000 and returns $120,000 in six years.
· Investment B: Up-front investment of $60,000 and returns $8,000 per year forever.
· Investment C: Invest $10,000 per year for three years starting today and returns $15,000 each year for 10 years starting at the end of year 8.
(e) Prioritize the investments in the order of return.
Raffles Bank pays 4% simple interest on its deposit account, whereas Bugis Bank pays interest on its deposit account compounded monthly.
(f) Formulate the quoted and effective interest rates that Bugis Bank should set if it wants to match Raffles Bank, assuming a 5-years horizon period.
—- END OF ASSIGNMENT —-
SINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 2 of 5
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