Question 1

(a) If the annual interest rate is 3 percent, how long would you have to wait before a $24,000 investment at least doubles in value?

Assuming annual compounding, compute the minimum number of years required.

(b) Jack is celebrating his 24th birthday today. He wants to start saving in one year’s time and retire after his 70th birthday. He decides to deposit the same amount of money on his birthday each year in a bank that offers 3% interest per year, compounded annually.

Jack hopes to be able to accumulate SGD 700,000 for his saving account after he made his scheduled deposit on his 70th birthday).

Determine the amount he must deposit annually. Round to the nearest dollar.

(c) You can invest SGD 100,000 in a fixed deposit with a bank. The term of the deposit is 6 years, and the deposit rate quoted is 3.6%.

Calculate the amount (round to 2 decimal places) you will have in 6 years, upon maturity of this fixed deposit, if the 3.6% is an APR but compounded quarterly.

(d) You own a company. This company’s projected revenue is $30,000 for year 1, $31,000 for year 2, and $32,000 for year 3. From the 4th year onwards, revenue is expected to be 5% higher than the previous year. Assume the appropriate nominal discount rate is 8%, and all revenue is collected at the end of each year.

Determine the present value of your sales revenue for the first 15 years, round to 2 decimal places.

Question 2

(a) Aviation is among the industries that were adversely impacted by Covid. The below table shows the selective financial ratios of Singapore Airlines (SIA), for five semi-annual fiscal periods, including both before and after the Covid outbreak (period of March 2020 – September 2020, highlighted with bold font). Financial Statements are also provided.

Analyze the impact of the Covid outbreak on SIA’s FIVE categories of financial ratios (i.e. Liquidity, leverage, turnover, profitability, and market value).

The presentation of the answer should be well-organized.

(b) Examine the effect of the actions below on the current ratio. Assume that the prevailing current ratio is higher than 1.0.

(i) Use cash to pay off the current liability of $10,000
(ii) Purchase raw materials amounting to $10,000 on credit
(iii) Sale of inventory
(iv) Paying a dividend

Analyze the effect of the actions below on the debt/equity ratio. Assume the current debt/equity ratio is 0.5.
(v) Issuing new equity
(vi) Account receivable collected
(vii) Sell goods on book value, on a cash basis
(viii) Pay off the company’s long-term bank loan

Question 3

Gree Electric is a Chinese major appliance manufacturer headquartered in Zhuhai, Guangdong province. It is the world’s largest residential air-conditioner manufacturer. It was listed on the Shenzhen Stock Exchange.

On June 20, 2021, Gree Electric announced its draft Employee Stock Ownership Plan (ESOP). The plan allows ESOP participating employees to buy shares, if they meet certain performance targets, at the price of 27.68 CNY per share. At that time, Gree Electric’s share price was 53.68 CNY per share.

The performance target is set at only 10% higher in profit, from the previous year. Among over 80,000 employees, the total number of eligible employees to participate in the ESOP shall not exceed 12000. Among them, Dong Mingzhu, chairman and president of the board of directors, plans to subscribe up to 30 million shares, accounting for about 27.68% of the ESOP.

Examine the issues in Gree’s ESOP plan that would potentially give rise to agency problems. Note: The presentation of the answer should be concise and clear.