Question

In: Finance

Cato Boldon 32, CEO and founder of Optimum Athletics, reside in the island of Trinidad and...

Cato Boldon 32, CEO and founder of Optimum Athletics, reside in the island of Trinidad and Tobago with his wife and children. The business has been in operation since 2008. He decided to start the business during the financial crisis that hit the world in 2008 due his passion for track and field. The company has been experiencing a loss for the last two years and cash flows are beginning to tighten. A major customer owes the company US$100,000 for almost a year. He gets a salary of 5 million per annum from the business. He has savings of US$ 100,000 and his looking to invest to secure his financial future. He wants to enjoy both safety and capital gains. The government of Trinidad is currently in discussion on whether to grant small business in the manufacturing industry an incentive package. Boldon is considering his options. Should I sell the business or go back to management in a corporate enterprise. His has an Masters of Science Degree in Kinesiology.

His two children are aged 9 and 13 yrs old respectively and his wife is six months pregnant. His wife recently completed her Law Degree and is looking to called to the bar in Trinidad and Tobago in the next six months. Her husband had been contributing to her alumni Scholarship Fund for the last 5 years and wishes to continue. His father 60, is not doing well. He was recently diagnosed with diabetes. Boldon recently found out that his father has limited insurance coverage. Boldon is concerned about his retirement and his ability to finance his children education. He wanted the business to be part of his pension plan as he wanted the company to be listed on the Trinidad Stock Exchange. He had to use the deposit that he had saved for his home ownership to fix the family car that was recently damaged by hurricane Irma.

What is the asset allocation in this case study?  

What investment strategy should be taken based on the asset allocation?

Solutions

Expert Solution

In the given scenario, it is clear that Mr. Boldon is facing a tough time but as far as the business is concerned, he should hold on to it. The reasons for this are:

a) Mr. Boldon is only 32 years old and he has a family consisting of father, wife and two kids. Another child will be born in a few months. So, it is clear that he has several responsibilities towards them and that implies he has to bear expenses. In order to meet these expenses, he must continue to hold on to the business as that is the only source of income for the family.

b) The father is ill and he has limited insurance coverage. So, Mr. Boldon will have to keep aside some amount of money to pay the bills of the treatment.

c) One of the customers owes US$100,000 for almost a year. Mr. Boldon should ensure that the customer pays the money at least in smaller amounts so that there is some income for meeting the expenses he has.

d) Leaving the business and going back to a corporate enterprise would be a risky decision now as the expenses and the liabilities are more. A little bit of patience with the business by holding it for the time being will help Mr. Boldon in the long run. Moreover, he has a good amount of money as salary for himself which should be sufficient to sustain his expenses.

The business is one of the main assets of Mr. Boldon. The asset allocation should be such that the business is provided the scope for sustaining itself. Though it has been started during the financial crisis period, the company will perform better when the economy recovers. Till then, the existing sources of income i.e. Mr. Boldon’s salary and an equal amount of money that is yet to be received from a customer. Together the value of this amount is $200,000. A part of this money should be used to meet the day to day expenses of the company and the remaining should be invested for the medical expenses of his father and his wife’s delivery. For this a medical insurance policy can be taken up. Once these expenses are dealt with, then Mr. Boldon can use the remaining amount for listing his company on Trinidad Stock Exchange.


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