BU8201: Arc Knight Ltd. is evaluating 5 independent projects, A to E with a total budget of $1 million: Business finance Assignment, NTU

Question 1 – Capital Budgeting & Valuation

Arc Knight Ltd. is evaluating 5 independent projects, A to E with a total budget of $1 million. The 5 projects involve investing in sustainable energy and technology in different geographical locations. The company’s weighted average cost of capital is 10% per annum, maximum cut-off period for payback is 3 years, and the following end-of-the year cash inflows are forecasted:

**Project E: For Group 1 to Group 5, name your Project E as E1 to E5 respectively. The cash inflow will change according to your group number. In the 5-year period, there will be four equal cash inflows of

$200,000 for four years and $0 cash inflow for one of the years. The year which is the same as your group number will have no cash inflow.

Group 1: Cash inflows for Project E1 is shown in the above table.

Group 2: Cash inflows for Project E2 is $0 in Year 2 and $200,000 for Year 1, 3, 4 and 5.

Group 3: Cash inflows for Project E3 is $0 in Year 3 and $200,000 for Year 1, 2, 4 and 5.

Group 4: Cash inflows for Project E4 is $0 in Year 4 and $200,000 for Year 1, 2, 3 and 5.

Group 5: Cash inflows for Project E5 is $0 in Year 5 and $200,000 for Year 1, 2, 3 and 4.

a. Calculate the Payback Period, Net Present Value (NPV), Internal Rate of Return (IRR) and Profitability Index (PI) for each of the 5 projects. Express your answers up to 2 decimal places and where relevant, state the unit clearly in your answers (year, % or $).

b) Explain which project(s), if any, is/(are) rejected based on all the four evaluation criteria. Briefly explain why it is (or they are)

c) If Arc Knight ’s decision is solely based on maximising the total NPV, which project(s) will be selected within the budget constraint of $1 million?

Support your project selection(s) with the necessary calculations and finally, compute the effective profitability index based on the total NPV and total initial investment costs of the selected project(s) as a whole.

Question 2 (10 marks) – Supplier & Inventory Management

“TESLA raised prices for all its car models in the United States, its latest price hike amid ongoing global supply-chain issues. The electric carmaker increased its Model Y long-range price to US$65,990 from US$62,990… The price hike comes as costs of raw materials have surged, including aluminum that is used in cars.”

Confronted by inflationary pressures and supply chain disruptions caused by the pandemic, Ukraine war, abrupt policy changes made by certain countries, evaluate and recommend four ways how

(a real-life company of your choice) can better manage its inventory and supply chain

Question 3 (25 marks) – Financial Planning

Itacho Sushi Restaurant Holding is one of the leading Japanese restaurant groups in Singapore.

By referring to the Group’s Consolidated Profit & Loss Statement for the year ended 30 June 2022 given on Page 8, prepare a Pro Forma Consolidated Profit & Loss Statement for the Year Ended 30 June 2023 with the following assumptions:

Revenue increases by FG% from 2022 where FG are the 6th and 7th digit of the group leader’s administration number.

For example:

If group leader’s admin. number is 2134567A, revenue increases by 67%.
If the group leader’s admin. number is 2132008J, revenue increases by 8%.
If the 6th and 7th digits of the group leader’s admin number are both 0 (e.g. 2134500J), revenue increases by 18%.

Cost of sales and other operating expenses are variable costs and vary proportionately

with revenue.

Selling & distribution (S&D) expenses consist of fixed and variable costs. $AB,CDE,000 of the total S&D expenses reported for the year ended 30 June 2022 are fixed costs and the remaining are variable costs where ABCDE are the 1st to 5th digits of the group leader’s admin. number.

For example:
o If group leader’s admin. number is 2134567A, the fixed costs for S&D are $21,345,000.

General & administrative (G&A) expenses consist of fixed and variable costs. Of the total G&A expenses reported for the year ended 30 June 2022, $4,800,000 are fixed costs and the remaining are variable costs.
2023 Tax rate remains the same as in 2022.
All other income items and expense items are unchanged (in $ amount) for 2023.

Required:

Use the template provided on Page 9 to prepare the Pro Forma Profit & Loss Statement for the year ended 30 June 2023. Reference the workings on the third column in this template using small letters (a, b, c ….).

Show all workings clearly in the space provided on page 9 and the indicate the reference letters based on what you have indicated on the third column provided on Page 8.

For calculation of variable cost %, use up to 1 decimal place (for example: 4.5%)

b. Calculate the % change in the net profit from 30 June 2022 to 30 June

Explain the reason(s) for the difference in the % change in the revenue and the % change in the net profit from 2022 and 2023. Is the difference always favourable?

Question 4 – Current Trends & Developments

TerraUSD, or UST, which lost its US dollar peg, crashed to US$0.20 on Wednesday…UST-affiliated token Luna plunged by … 99.9% below its all-time high of US$119.18 just last month.
Bitcoin, the world’s largest cryptocurrency, was caught in the fire-sale of risky crypto assets as it fell another 8% to US$26,570, having been near US$40,000 just a week ago and almost US$70,000 just last November.

– The Straits Times 12 May 2022 / Source : Bloomberg

 
a. Explain briefly the three (3) features that make up the crypto ecosystem

b. State and elaborate four (4) risks that most central banks including MAS are concern in the crypto ecosystem.

c. Given the speculative nature of cryptocurrencies, what would you advise an investor who is interested in investing in cryptocurrency?

a. Investors have largely been ignoring climate risks despite the economic damage from climate disasters rising in recent years. The International Monetary Fund predicts natural disasters such as wildfires, floods, droughts and storms may cost $1 trillion annually starting in

As an environmentalist, your friend, En Xiang is interested to know more about sustainability finance in fixed income securities or bonds.

Describe three (3) types of sustainability bonds available for investing to your friend.

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