bizfin_ica2_report
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Industry Research
On the 16th February 2009, Bintan Resorts announced the total number of visitor arrivals in 2007 and 2008 as
333,771 and 397,833 respectively. This has shown a significant increase of 19.2% in the number of arrivals to
Bintan Resorts in 2008.
The number of visitor arrivals from Singapore in Bintan Resorts in 2008 was 111,985 which make up nearly 1/3
of the total arrivals. This figure shows a growth of 5.4% when compared to the previous year.
Ministry of Manpower (MOM) reflects Singapores wages and earnings per employee based on 4th quarter of
year 2008 as $4,229. This figure was the monthly average for the quarter earned by each employee. This
figure has the least growth rate of 2.4% and the highest growth rate for the year was at the 1st quarter of the
year with 10.6%.
Based on the above research, we can see that Singapores economy is slowing down from 2007 to 2008 due to
natural disasters and economic crisis, which can be seen from the wages growth rate. Despite the drop in
average wages and earnings of each employee, you can see that the number of Singaporeans travelling to
Bintan Resorts is still increasing with a total of 111,985 in 2008. This shows that even many people will cut
back on their leisure travel; they will not give up on travelling as Bintan Resorts offers an excellent and
affordable holiday package that attracts them from going back for leisure.
From the above conclusion, it is worth to invest in the project as the visitors arrival trend is proving good.
Nevertheless, we also have to look at the potential risks that we will face when investing Ferry Co.s ferries
operation business. Such risk includes the slowdown in Singapores economy, competition from existing
ferries operators, potential competition for Bintan tourism and other relevant risks.
As upon the research that we did, we found out that Singapores external trade is dropping over the quarters.
Singapore being the trading country, a drop in the external trade simply means our revenue is dropping too.
The percentage dropped for previous quarter was 9.6 to 28 in the first quarter in 2009.
There are competitions from the existing ferries operators which also offer ferry service in Singapore, namely
the Pasir Panjang Ferry Terminal and World Trade Centre Ferry Terminal. Not only that, we will also face
competition for Bintan tourism which is outside of Singapore. Indonesia also provides ferry service to Bintan
Resorts at Nongsa Ferry Terminal and Telaga Punggur Ferry Terminal in Batam.
Other relevant risks are competition with agencies providing travelling service to Bintan. After conducting the
research, I have roughly found out that there are 500 over agencies in Singapore providing such service, which
consists of air travel and ferry.
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Statistics of Tourist Arrival in Bintan
Yr/Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2005 15,006 18,857 22,713 19,864 23,470 26,755 28,411 30,065 26,151 23,228 22,829 30,73
2006 24,011 20,992 25,923 25,804 25,597 29,872 30,698 30,778 25,910 26,814 23,216 33,99
2007 19,507 23,191 23,775 25,248 27,099 32,455 30,483 34,074 27,417 27,388 27,599 35,53
2008 27,313 29,656 33,191 25,980 34,651 36,031 35,876 38,274 30,440 32,062 30,973 43,38
Statistics of Earnings & Wages ofSingaporeans
Average (Mean) Monthly Nominal Earnings 2005 2006 2007 2008
Singapore $ Per Employee
Annual 3,444 3,554 3,773 3,977
1st Qtr 3,592 3,700 3,903 4,316
2nd Qtr 3,175 3,297 3,578 3,690
3rd Qtr 3,166 3,256 3,481 3,674
4th Qtr 3,843 3,961 4,130 4,229
Growth Rate (%) for 4th Qtr 2.2 3.1 4.3 2.4
2008 Visitor Arrivals (Jan-December) Breakdown by Nationality of Major Markets
Country Korea Japan UK China Australia India Malaysia USA
8% 6% 4% 4% 4% 3% 4% 2%
France Germany Taiwan
Hong
Kong
New
Zealand Russia Singapore Indonesia Others
2% 2% 2% 1% 1% 1% 28% 21% 7%
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year 0-
Beg of 2010
year 1-
2010
year2-
2011
year 3-
2012
year 4-
2013
year 5-
2014
workings references
(below)
Initial
investment $(24,200,00
0)
*CALCULATION 1
Revenue
Ferry Fare
Income
Workings:
Number of
Passenger
per Annum
190400 228480 266560 304640 342720 *CALCULATION 2
Fare Per
Trip
40 40 40 47.5 47.5
Revenue
from Fare $ 7,616,000 9,139,200 10,662,400 14,470,400 16,279,200
No. of passenger per
annum*Fare Trip
Food And
BeverageIncome $ 190,400 228,480 266,560 304,640 342,720
No. of passenger per
annum*Revenuefrom
food and
beverage($1)
Total
Revenue $ 7,806,400 $ 9,367,680 $ 10,928,960 $ 14,775,040 $ 16,621,920
Revenue from fare+
revenue from f&b
Expenses:
Advertising
expense $ 20,000 20,000 20,000 20,000 20,000
fixed advertising
expense=$20 000
Advertising
Agent
Commissio
n
$ 152,320 182,784 213,248 289,408 325,584
Revenue from
fare*0.02
Fuel
Expense
544000 544000 544000 544000 544000 $400*(Total no. of
trips
annually)CALCULATIO
N3*
Manageme
nt wage 592,060.00 603,901.20 615,979.22 628,298.81 640,864.78
CALCULATION 4*
CPF
Contributio
n
$ 85,848.70 $ 87,565.67 $ 89,316.99 $ 91,103.33 $ 92,925.39
Annual budgeted
salaries*0.145
operational
staff wage $ 400,000 $ 400,000 $ 400,000 $ 400,000 $ 400,000
Fixed stage wage $20
000*20 staff
ferry
operatinglicenses
fees
$ 40,000
40,000 40,000 40,000 40,000
operating license
fee($20 000)* 2ferries
depreciatio
n expense
(ferries)
$ 1,200,00
0
1,200,000 1,200,000 1,200,000 1,200,000
CALCULATION 5*
Ferries
maintenan
ce and
repair cost
$ 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000
maintenance and
repair cost per
ferry($100 000)*2
Total
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Expenses $3,740,440.
00
$3,794,586.4
0
$3,849,206.4
5
$ 3,950,005.
62
$4,011,313.5
7
Net Profit
Before Tax $4,065,960.
00
$5,573,093.6
0
$7,079,753.5
5
$ 10,825,034.
38
$ 12,610,606.
43
Total revenue for yea
-Total expense for
year
Tax/Saving
s @ 18% $(731,872.8
0)
$(1,003,156.
85)
$(1,274,355.
64)
$(1,948,506.1
9)
$(2,269,909.1
6)
Net profit before
tax*0.18
Net Profit
After Tax $3,334,087.20
$4,569,936.75
$5,805,397.91
$ 8,876,528.19
$10,340,697.27
Total revenue for yea
-Tax expense
After tax
Operating
Cash Flow
$4,534,087.
20
$5,769,936.7
5
$7,005,397.9
1
$ 10,076,528.
19
$11,540,697.
27
Net profit after tax +
depreciation expense
Terminal
Value $14,000,000.
00
7000000*2
Overall
Net Cash
Flow
$(24,200,00
0)
$4,534,087.
20
$5,769,936.7
5
$7,005,397.9
1
$10,076,528.1
9
$25,540,697.
27
REFERENCES
CALCULATION 1
set up cost $ 200,000
ferry cost (2 ferries) $ 24,000,000
Total Initial cost $ 24,200,000
CALCULATION 2
INFO 1 ferry 2 ferries trips
No. of
Psg
/2trips/2
ferries
No. of
operational
days
No. of psg
in a year
Each ferry capacity (100%) 280 560 2 1120 340 380800
at 50% capacity 140 280 2 560 340 190400
at 60% capacity 168 336 2 672 340 228480at 70% capacity 196 392 2 784 340 266560
at 80% capacity 224 448 2 896 340 304640
at 90% capacity 252 504 2 1008 340 342720
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CALCULATION 3
No. of trips a day(1 ferry) 2
No. of trips a year(1 ferry) 680
No. of trips a year(2 ferry) 1360
CALCULATION 4
2010 2011 2012 2013 2014
Monthly Management
wage $ 4,229 $ 4,313.58 $ 4,399.85 $ 4,487.85 $ 4,577.61
No of management staff 10 10 10 10 10
Bonus of 2 months $ 8,458 $ 8,627.16 $ 8,799.70 $ 8,975.70 $ 9,155.21
Annual Wage Per Staff $ 59,206 $ 60,390.12 $ 61,597.92 $ 62,829.88 $ 64,086.48
Total Management
Wage $ 592,060 $ 603,901.20 $ 615,979.22 $ 628,298.81 $ 640,864.78
CALCULATION 5
Cost per ferry 12000000
useful life 20 years
depreciation per year (per ferry) 600000
depreciation per year (2 ferries) 1200000
EVALUATION DECISION Why?
NPV $18,161,580.00 Dont invest NPV6%
Payback Period 3.78years Invest 3.78 years
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Capital Budgeting
Year 0 - At
beginning of 2010
Year 1 -
2010
Year 2 -
2011 Year 3 - 2012 Year 4 - 2013 Year 5 - 2014 Workings/ Formulae
Initial
Investment ($24,200,000) 24000000 + 200000
Revenue:
Ferry Fare
Income $7,616,000.00 $9,139,200.00 $12,661,600.00 $14,470,400.00 $16,279,200.00
No. of passengers
per annum*fare per trip
(Workings)
Number of
passengers
per annum 190,400 228,480 266,560 304,640 342,720
280*2*2*340*
% of ridership
(multiply by)
fare
per trip $40.00 $40.00 $47.50 $47.50 $47.50 Given
Food and
BeveragesIncome $190,400.00 $228,480.00 $266,560.00 $304,640.00 $342,720.00 No. of passengers *1
Total revenue $7,806,400.00 $9,367,680.00 $12,928,160.00 $14,775,040.00 $16,621,920.00
Ferry fare income+
F&B
Expenses:
Advertising
annual
commision $152,320.00 $182,784.00 $253,232.00 $289,408.00 $325,584.00 ferry fare income*2
Advertising
expense $20,000.00 $20,000.00 $20,000.00 $20,000.00 $20,000.00 Given
Fuel Cost $272,000.00 $272,000.00 $272,000.00 $272,000.00 $272,000.00 (400*2)*340
Management
Team wages $592,060.00 $602,209.60 $602,209.60 $602,209.60 $602,209.60
Staff cost+ Bonus
+Salary Increment
(Workings)
Staff Cost $507,480.00 $507,480.00 $507,480.00 $507,480.00 $507,480.00 (4229*12)*10
Bonus $84,580.00 $84,580.00 $84,580.00 $84,580.00 $84,580.00 (4229*2)*10
Salary
Increment $10,149.60 $10,149.60 $10,149.60 $10,149.60 507480*2%
CPF
Expenditure $85,848.70 $87,320.39 $87,320.39 $87,320.39 $87,320.39
14.5%
*management team wages
Operational
Staff
wages $400,000.00 $400,000.00 $400,000.00 $400,000.00 $400,000.00 20000*20
Ferryoperating
licenses $40,000.00 $40,000.00 $40,000.00 $40,000.00 $40,000.00 20000*2
Depreciation $1,200,000.00 $1,200,000.00 $1,200,000.00 $1,200,000.00 $1,200,000.00 24000000/20
Maintenance
and
repair cost $200,000.00 $200,000.00 $200,000.00 $200,000.00 $200,000.00 100000*2
Total
Expenses $2,790,531.30 $2,829,673.21 $2,900,121.21 $2,936,297.21 $2,972,473.21
Net profit
before tax $5,015,868.70 $6,538,006.79 $10,028,038.79 $11,838,742.79 $13,649,446.79
Total revenue-
Total expenses
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Tax @ 18% $902,856.37 $1,176,841.22 $1,805,046.98 $2,130,973.70 $2,456,900.42 18%*NPBT
Net profit
after tax $4,113,012.33 $5,361,165.57 $8,222,991.81 $9,707,769.09 $11,192,546.37 NPBT-Tax
After tax
operating
cash flows $5,313,012.33 $6,561,165.57 $9,422,991.81 $10,907,769.09 $12,392,546.37 NPAT + depreciation
Terminal
value $14,000,000.00 7000000*2
Overall net
cash flows ($24,200,000) $5,313,012.33 $6,561,165.57 $9,422,991.81 $10,907,769.09 $26,392,546.37
NPV $22,925,436.17
Internal Rate
of
Return (IRR) 28%
Payback
Period 3.27
Workings for
paybackperiod: Year 1 to 3 $21,297,169.71
Amt to recover $2,902,830.29
Remaining Years 0.266125022
NPV
By using the NPV to calculate, we should not invest as the NPV of $22,925,436.17 is lesser than $24,200,000
IRR
By using the IRR method, we can invest in the company as the rate of return of 28% is more than 6%
Payback period
This project can be taken when we use the payback period method as the payback period is 3.27 which is lesser than the
company maximum payback period of 5 years
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Part 3
b i) Amount of cash to be financed
= 70% X 2420000= $16940000
50% of financing needed
= 50% X $16940000= $8470000
Number ofbonds to be issued
= $8470000/5000= 1694 bonds
ii) Par value = $5000
n= 10Coupon rate= 4%K= 6%
Value of shares
= (interest X PVIFA (k%, n)) + (Par value X PVIF (k%, n))= ((4%X$5000) X PVIFA (6%, 10)) + ($5000 X PVIF (k%, n))= ($200 X 7.3601) + ($5000 X 0.5584)
=$4264
Number of shares to be issued
= $47966000/$4264= 11249 shares
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Part 4: Financing Decisions
Given now that if KOH Brothers Group Limited wants to make an investment to set up and operates a new
ferry operating company (Ferry Co) that operates ferries between Singapores Tanah Merah Ferry Termina
and Bintan, Indonesia. Out of the company set-up costs and ferries purchase costs of $24.2 million, 70% need
to be financed.
Basically, there are 2 sources of capital; it is either Debt Capital or Equity Capital. Debt Capital is cheaper as
compared to other forms of financing because lenders take lower risks than other long-term contributors ocapital. Whereas, Equity Capital is long-term funds provided by the firms owners and it is expected to remain
in the firm forever.
To decide on whether to use Debt Capital or Equity Capital, we use Debt Ratio as a gage to make our decision
Debt ratio measures theextent which the firms activities are financed by borrowing and the firms ability to
service the debt. Based on the Debt Ratio calculated between 2007 & 2008, the Debt Ratio for KOH Brothers
Group Limited is 0.7194, and between 2006 & 2007, the Debt Ratio is 0.7025.
In this case, there is a 0.0169 increase in the Debt Ratio, which means that the higher the Debt Ratio is, the
higher will be its risk and the greater the chances of a higher return.
Hence, if Equity Capital is use for financing, an increase in the Required Rate of Return (k%) would result in a
decrease in a share price. Based on the Debt Ratio calculated, there is an increase. Therefore, there would be
a high risk investing through Equity Capital which then result a decrease in share price, and therefore, less
money would be received for the financing.
Also, if Debt Capital is use for financing, the price ofbond would be affected by the interest rate (k%) and the
number of years to maturity (n). If the Required Rate of Return (YTM) is less the Coupon Rate, the presen
value of thebond would be greater than the par value. This means that thebond would be sold at a premium
and additional capital would be raised for financing.
Therefore, it would bebetter for KOH Brothers Group Limited to use Debt Capital for financing for the company
based on their current financial leverage. Debt Capital is cheaper to use as compared to Equity Capita
financing. This is because lenders take lower risk than other long-term contributors of capital. Also, in the
viewpoint of KOH Brothers Group Limited, there is tax deductibility of interest payment. This would be cost
saving for KOH Brothers Group Limited as they are able to conserve more cash.
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Appendices
Most of the information:
http://203.81.55.53/brcms/ImageRepository/Corporate%20Info/News%20Release/VA%2008.pdf
Earnings and Wages:
http://www.mom.gov.sg/publish/momportal/en/communities/others/mrsd/statistics/Earnings_and_Wages.html
Other Webpage commenting on KOH BROS:http://www.asiabuilders.com/asiabuilders/KOH-BROTHERS-GROUP-LIMITED_Singapore_Company_80025803.aspx
Homepage of KOH BROS:
http://www.kohbrothers.com/Default1.html
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