Mr Tommy Tan is considering starting an organic food retail business in Singapore. He targets to have 8 retail outlets island-wide by end 2021. To maintain its target capital structure, the firm estimates that it will need to borrow $10 million to finance this growth. As the firm is tight on cash, it prefers to repay the loan in full only at the end of 10 years and only wants to service the interest on an annual basis.

The firm has approached several banks in the Singapore and 2 banks have signalled interest to be its main financier. JuneBank proposes an annual interest rate of 6.9% and the underwriting spread is 2%. BHR Bank offers the loan at an annual interest rate of 6.5% and the underwriting spread is 2.9%.

(a) What is the effective cost of borrowing from JuneBank?

(b) What is the effective cost of borrowing from BHR Bank?

(c) Using the estimations in (a) and (b), determine the bank that the firm should borrow from. (1 mark)

Herman has a honey bee hive. The hive starts with a population of 50,000 bees, but because of environmental stresses the population decreases by 10% every year. Each bee lives exactly one season, and produces 1 gram of honey over its lifetime.

a) How many bees are left at the end of the fifth year?

b) How much total honey does the hive produce over five years?

Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $28,800 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year. Other important information includes the following:

• The fair value of the equipment is $195,000.
• The applicable discount rate is an 8 percent annual rate.
• The economic life of the asset is 10 years.
• Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term.
• The asset is a standard piece of equipment.

a. Is the lease an operating lease or a financing lease?

• Operating lease

• Financing lease

b. What will be the lease expense shown on the income statement at the end of year 1?

c. What will be the interest expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.)

d. What will be the amortization expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.)

Please search case study “Orange County Bankruptcy” in Google. First, do some self-learning, and then write an essay to give me some directions on:

1. Who is Robert Citron? (1 mark)
2. What was the Orange County Governance Structure? (1 mark)
3. What was the political and economic background before the bankruptcy? (1 mark)
4. What was the Orange County Investment Pool and balance sheet (1994)? (1 mark)
5. What was Citrons Strategy? (1 mark)
6. How the Fed action affects the interest rate in 1994? (1 mark)
7. Describe the crisis following the Fed action. (1 mark)
8. Describe the outcomes. (1 mark)
9. Finally what are the lessons to learn? (1 mark)
10. Please list all the references. (1 mark)

Healthcare Financing reference cite needed

Discuss the differences between second-party payment and third-party
payment. What led to the creation of the third-party payment system?

 ​(Bond valuation)  ​Pybus, Inc. is considering issuing bonds that will mature in 18years with an annual coupon rate of 8percent. Their par value will be ​$1 comma 000

​,and the interest will be paid semiannually. Pybus is hoping to get a AA rating on its bonds​ and, if it​ does, the yield to maturity on similar AA bonds is 7.5

percent. ​ However, Pybus is not sure whether the new bonds will receive a AA rating. If they receive an A​ rating, the yield to maturity on similar A bonds is 8.5

percent. What will be the price of these bonds if they receive either an A or a AA​ rating?

Below are the prices on the first and last day of the year for Netflix common stock for several recent years.

Netflix paid no dividends over this period. Calculate the return that an investor would have earned in each calendar year. What is the average of these annual​ returns? Next, calculate the average annual growth rate in Netflix stock from the first day of 2014 to the last day of 2017. Compare these two answers.

The rate of return for 2017 is _____​%. ​(Enter as a percentage and round to the nearest whole​ percent.)

The rate of return for 2016 is _____​%.​(Enter as a percentage and round to the nearest whole​ percent.)

The rate of return for 2015 is _____​%. ​(Enter as a percentage and round to the nearest whole​ percent.)

The rate of return for 2014 is _____​%.​(Enter as a percentage and round to the nearest whole​ percent.)

The average of these returns is _____​%.​(Enter as a percentage and round to two decimal​ places.)

The average annual growth rate is _____% ​(Enter as a percentage and round to two decimal​ places.)

Suppose you just have had your 55th birthday and you plan to retire in five years. As far as your retirement goal is concerned, all you want is to maintain your living standard at the same level as when you start your retirement. You expect to “stick around” until 90 and you plan to leave nothing to no one”. Therefore, your “sole” concern is maintaining your living standard during your retirement years.
Your current living expense per month is $20,000 (which include everything that you can possibly lay your fingers on) and you expect it to go up in exactly the same pace as the Composite CPI (Of Hong Kong) The average yearly rate of increase of the index for the next five years is 3% You do, however,
expect the index to pick up its (yearly) pace afterwards (indeed, throughout your entire retirement period) by 2 percentage points. That is, the expected yearly inflation rate as measured by the CPI is 5% per year during your retirement years.

To facilitate the planning of your retirement, you listed out the following relevant questions which you would like to think over’
a) To achieve your “sole” retirement goal, how much money do you need at the beginning of the first
year, 10th year and the last year of your retirement period [Note that as the expected inflation rate
provided in the question is assumed to be yearly, simply assume the overall price level remains unchanged throughout each year BUT jumps at the end of the year (i.e., at the beginning of the coming year],

b) i) State the approximate and exact relationships between nominal rate of return, real rate of return and (expected) inflation rate. What is the name of this relationship?

ii) Given the inflation figures provided in the question, what is the average yearly investment rate of return (based on the exact relationship in part (i)) that you need to achieve to maintain your living standard during the retirement years? (3 mans)

c) Using the PVA formula. estimate how much money do you need to have in your investment account at the beginnlng of youf retirement to achieve your “sole” retirement goal lF the expected yearly investment return is
- 7%
- 10%
- 40%

[Note: Marks would only be given for using the PVA formula in the calculations. Although some of you may be tempted to use the present value growing annuity formula (which was NOT covered in the lFM course) to answer this question, I would strongly urge you NOT to use that formula Instead, please draw on the insights derived from Part (bi) above to construct the relevant equation and carry out the calculations ]

d) Based on your answer to Part (c) above, what conclusion can you draw with respect to the relationships between (i) nominal cash flow, (ii) real (inflation-adjusted) cash flow, (iii) nominal interest rate and (iv) real interest rate when using the PVA formula to answer Part (c)*

CHAPTER 6
CORPORATE-LEVEL STRATEGY

CHAPTER 7
ACQUISITION AND RESTRUCTURING STRATEGIES

MITSloan Management

CEMEX: Globalization “the CEMEX way”

Donald R. Lessard and Cate Reavis

1. As we read in Chapters 6 &7, mergers & acquisitions are a major form of corporate diversification strategy. Using the lecture slides on Chapter 7, identify and discuss the top three reasons why most (50-60%) of acquisitions fail to create shareholder value.

2. What are the five major components of “CEMEX Way” and why has this approach been so successful in post-acquisition integration?

3. In your opinion, what can other companies learn from the “CEMEX Way” as a benchmark     for acquisition management?

Read the article posted under this week’s media links.   

While it is in regard to firms in India. Much of it applies to small retailers in the U.S. Which of the “Approaches he presents do you think would be most successful in optimizing working capital management?

Every business requires capital on an ongoing basis to operate at better margins and achieve increased turnover. In today’s scenario when large retail players and e-commerce companies are expanding their presence to every nook and corner of the country, the need of working capital has become more pronounced for smaller businesses to survive and thrive in the market. However, with suppliers demanding payments more frequently than before, the management of working capital has become increasingly difficult for offline Indian retailers.

Let us better understand the prevailing market disparity and find out ways for retail businesses to better manage their working capital:-

Straining supply chain: The challenge of extending credit to customers by retail outlets

Retail businesses are driven by different market dynamics vis-à-vis their manufacturing counterparts. They have a relatively small area of reach, generally a neighbourhood or two, which considerably limits their targetable market and potential customers. The advent of online tech-driven e-commerce marketplaces, with their offerings ranging from groceries to consumer durables, is further bleeding their revenues. In order to maintain their business, retail merchants have to build a good rapport with their regular customers beyond normal transactional relationship. In most cases, a regular retail shop owner has to be well-acquainted with families and even the household staff of his or her patrons. He/She also has to extend credit to such customers as an act of favour, which effectively decreases the working capital. From time to time, retailers also receive mass orders from business corporations, in which they have to extend debt on invoices that is settled within 30 to 90 days – further reducing their working capital.

How do retail businesses get working capital?

Businesses ideally divert a fixed component of their generated revenues towards working capital and/or on the basis of their anticipated financial need. However, when the need of working capital outmatches the available reserves, a retail outlet has to turn towards supply chain-based merchant credit to avail the same or to execute an order. But such merchant credits are quite disadvantageous for businesses as they involve a tedious and time taking process. Lately, a few tech-driven platforms have begun extending merchant credit with an unmatched flexibility. They allow businesses to digitally avail collateral-free loan products, ranging from term loans to readily available line of credit with minimal documentation. Some cutting-edge platforms such as Indifi even provide revolutionary offerings such as POS machine swipe-based merchant cash advance (enabling businesses to receive loan based on their sales volume) and invoice discounting (wherein, businesses can encash the extended debt on invoice to their business partners). Such platforms have been quite successful in transforming the scenario and empowering capital-starved retail outlets in countering the negative impact of capital unavailability.

While the rise of such platforms has created a level playing field within the market, efficient management and utilization of capital becomes all the more imperative for retail outlets to ensure growth and broader market success.

In order to manage their working capital more efficiently, retail merchants can follow these approaches:

Upgrading technology:Technology is remodelling the shopping experience for both customers as well as retailers. A majority of retail operations can now be seamlessly conducted using advanced (and easily deployable) systems such as ERP and CRM. Doing so enables retailers to achieve greater visibility (with regard to supply chain and customer touchpoints), speed up decision making, penetrate the online market, and upskill their workforce to boost efficiency. A one-time investment in technology can help ensure greater revenue generation, customer retention and satisfaction, as well as higher working capital to work with in the longer run.

Higher Turnover & Margins- With access to increased working capital, small retailers can increase their category spread resulting in higher turnover. They can also invest in better store planning & assortments providing them with better margins.

Better Planning & Negotiating Power: Access to capital allows retailers to plan their inventories more efficiently. Being equipped with the desired capital also enables retailers to negotiate higher margins with the distributor.

Lean inventory: Retailers can also decrease their working capital requirement by making their inventory lean. For example, if 50 units of a particular consumer good, say a two-minute noodle, are consumed every week, buffer stock of additional 50 units can either be avoided or decreased to 10. This saves procurement and warehousing costs of about 40 to 50 units, thus decreasing the overall operational expenditure and increasing the working capital. This approach can be adopted for the entire inventory, thereby making working capital available for other more significant business ventures.

Discount on credit: An operating business, while extending credit to its patrons, can offer special discount to them on early repayment of the credit. This encourages customers to pay their debts earlier, thereby shortening the credit cycle for retailer and ensuring availability of funds. But this tactic must only be selectively used as it can also negatively affect other cash-based transactions.

Timely payment to distributors: Paying your distributor on time can have multiple merits besides having superlative supply chain management. Timely payment to the distributor is more likely to extend exclusive discounts to you. It will, moreover, give you higher bargaining power while negotiating deals and concessions.

E-procurement and bulk ordering: Retail businesses can discover online e-procurement marketplaces that offer quality products at affordable rates and provide good discounts on bulk ordering. This can increase their working capital.

While extending credit has always been a feature of conventional retail operations, the newfound challenges posed by the advent of online marketplaces has made the survival of brick-and-mortar stores quite difficult. Today, retailers need to rethink their financial strategy in order to ensure availability of working capital. Thankfully, an array of technology-driven evolved digital alternatives, including credit lending platforms, are there to help.

DISCLAIMER: The views expressed are solely of the author and ETRetail.com does not necessarily subscribe to it. ETRetail.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.

About Rana Vikram Anand

Prior to joining Indifi, Rana has held a host of leadership positions in ANZ Grindlays Bank, ABN AMRO Bank, the Royal Bank of Scotland and RBL Bank. He played a pivotal role in creating and executing the RBS India, Retail & Commercial (R&C) Change and Transformation strategy.

What are the attributes of a sound capital budgeting process?

1. You're buying a used car for $8000 but paying $1500 in cash immediately. You’ll be borrowing the difference from a local bank. Your first payment to the bank will occur at the end of the 8th month. The last payment will occur at the beginning of the 43rd month. The payments will all be equal in size.   

The interest rate on the car loan is 0.50% per month (the equivalent of 6% per year - when annualized as an APR). i.e. Use r = 0.50% (per month) in your computations.

A) What is the size of the first payment?

B) Now assume that the size of the car payments increases by 2% every month. What is the size of the first payment?

C) Now assume that the size of the car payments decreases by 2% every month. What is the size of the 4th (fourth)  payment?

D) Now assume that the size of the car payments decreases by 0.50% every month. What is the size of the 9th (ninth) payment?

E) Now assume that the size of the car payments increases by 0.50% every month. What is the size of the 9th (ninth) payment?

Your client, Jeff, would like to have $500,000 in today’s dollars 10 years from now for retirement. You mutually agree that inflation will stay constant at 3% and you could achieve an average annual return of 10%. Jeff would like the investments to increase each year by inflation. How much would his first payment be if he invested at the end of each year? How much would his first payment be if he invested at the beginning of each year?

Assume the following daily closings for the Dow Jones Industrial Average:

1. Calculate a four-day moving average for Days 4 through 12. Round your answers to two decimal places.

   Day	Moving average
   4
   5
   6
   7
   8
   9
   10
   11
   12

2. Assume that the index on Day 13 closes at 13,260. Would this signal a buy or sell decision?

   This would signal a (-Select-) buy sell Item 10 decision.