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Finance Assignment 2
Name: Wong Chang Qi
Student ID: B1900712
Section A
1.
Mr. Ramses has been working with an annual salary of RM60,000 and at a growth at 5%
per year. Mr. Rameses’s current salary gain for 30 years, worth RM 1,296,716.67 in the present
time. It is a decent amount that should be enough for him to support his life after he retire.
However, he wants to boost up his income, he came out with two options, either to start up a
financial consulting firm (Option A) or plant nursery business (Option B).
Option A: Startup a financial consulting firm
He attended a CFA course cost RM22,500 per year, for 3 years. The total amount that Mr.
Ramses must pay for the course is RM63,180.41.
Then, he needs to accumulate 4 years of approved working experience. He plans to work
in the investment banking sector with a minimum salary of RM4,000 per month with an
RM6,000 signing bonus per year. Mr. Ramses will get his salary from the investment bank
RM182,909.41, which will worth RM182,909.41 in the present time.
After he become a CFA Charterholder, he starts his own consulting firm, with expecting
earnings of RM20,000 per month with a 4% growth rate per year, with a 7% discount rate.
Mr. Ramses will get his salary when he starts his own consulting firm of
RM3,840,607.50, which worth RM2,391,737.33 in the present time. The total present value of
option A that worth in the present time will be RM2,499,865.48.
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Finance Assignment 2
Option B: Plant nursery business
Mr. Ramses need to pay an initial starting cost of RM20,700 with an additional cost of
RM13,500 for installation and it takes 1 year before beginning the operation.
The cost for him to startup his business worth RM31,962.62 in the present time. As he
starts to operate his business, his earnings will be RM12,000 per month with a growth of 4% per
year. His salary when he starts his business will worth RM2,519,477.71 in the present time.
Therefore, the total present value of option B is RM2,487,515.09.
In conclusion, the best option that Mr. Ramses should consider is option B. This is due to
the present value of option B is slightly higher than option A. The expenses in option A is higher
compared to option B, causing the present value of option A to be lower. We should choose a
higher present value option because of the finance principle 2: Money has Time Value, the dollar
we receive today is more valuable than the dollar we receive later. With this, we can have more
opportunity to invest and it will have less risk.
2. Factors that may influence Ramses’s future cash flow projection is the change in
receivables. As in the future, there may be many uncertainties such as bad debts, delay
on paying receivables or even some natural disasters like the recent outbreak of COVID19. All this factor may influence a business’s future cash flow projection. Besides, the
increasing of inventories may also influence the future cash flow projection. This is
because as company increase its inventory, it may increase their liability and causing the
payout of a month to increase. Moreover, the factor that may influence the future cash
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Finance Assignment 2
flow projection is the credit terms, as the customers have more time to payoff their
purchases, this increases the risk and affect the value of the money.
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Finance Assignment 2
Section B
a)
At the end of February, the market sentiment was already hammered by the political
situation happened in Malaysia, due to the collapse of the Pakatan Harapan government. Then,
the sudden outbreak of the Covid-19 in Malaysia causing the market to be hammered once again,
leading Malaysia to fall into a bad share market situation. The markets are struggling to cope with
the fallout from the Covid-19, the oil war released by the Saudi Arabia sent markets in Europe to
Asia and Malaysia reeling.
The FBM KLCI was down 58.94 points or 3.97% to 1424.16 on the 9th of March 2020,
making this to be the lowest points since November 2011. At Bursa, the oil and gas stocks were
cut out by the price war and causing the Bursa Malaysia to suspend the short-selling counters.
The oil war and the outbreak of Covid-19 has affected the market price all around the world
including Malaysia. At Bursa, not only the oil sector, but also many different sectors were affected
due to the Covid-19. For the industrial products and services sector, the Petronas Chemical fell
RM 1.25 to RM 4.40; the financial service sector, Maybank lost 26 sen to RM 8.24 As for the
plantation sector, Sime Darby Plantation had fell 47 sen to Rm 4.40.
In conclusion, the global pandemic can bring great impact to the market price. This is
because throughout the period as there is no supply and demand and have no income, leading them
to face a great financial issue.
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Finance Assignment 2
b)
The recent outbreak of the Covid-19 disease has brought great impact on the business
sectors worldwide, while the inevitable global slowdown, it may be a crisis for the businesses,
but this may also be an opportunity for the companies.
On impact, many companies are suffering and some even have to shut down. According
to China Briefing (2020), Many goods have been leaved at the ports for weeks, hundreds of
cities worldwide are in lockdown, civil and commercial transportation are experiencing cuts,
delays, and cancellations. The businesses are experiencing sales and production largely
negative, the decreasing of revenue in their businesses.
However, some companies take this pandemic as an opportunity, they adapted the situation
and stretched their brand, reshuffled their product lines and catered to new needs. They have
used this opportunity to make new growth in some sectors. For instance, China had brought
many systems online which could get rid of some of the accumulation of works. The outbreak
of this virus has made more opportunities for those companies in various sectors and relocate
their businesses. As the international route is currently not an option, many businesses have
starts to evaluate the advantages and relocate their business.
As a conclusion, this pandemic had caused a great impact on the businesses, many business
have more supplies but there is no demand and causing them to loss profit, but many companies
had also made this as an opportunity for them to shuffle their company and move to a better
path.
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Finance Assignment 2
c)
During the COVID-19 period, Malaysian government has implemented an economic
stimulus package that worth a total of RM250bil, which is almost twenty percent of the
country’s GDP. This is expected to cause Malaysia’s fiscal deficit to widen to 4.9% of GDP
this year.
The key measures in the package are cash handouts to eligible households and affected
businesses. The package has reserved almost RM128bil to protect the welfare of the people;
RM100bil to support the businesses and RM2bil to strengthen the country’s economy. This
package is also made up of RM100bil loan moratorium measures by the Bank Negara,
Danajamin guarantees and household EPF savings (TheStar, 2020). With the bank’s
moratorium, it could build confidence on the domestic financial system by extending the loans
and debts maturity period. The Malaysia’s economy has now been put on an induced semicomatose state since the MCO has started, which cause financial pain to the Malaysians. The
government act decisively to provide a financial assistance support to households and
businesses to manage cash flow challenges. They have imposed this package to support the
aggregate demand to prevent the private consumption from falling further, which will also lead
to the tax revenue losses and causing further pressure on the government’s financial position.
As the pandemic is still spreading, this will cause the businesses that have been stop from
working for a long period to face liquidity issues. With this stimulus package imposed by the
government, it can help the households and businesses to face the virus.
To conclude, businesses should always have a precautionary motive to prevent such issues
to happen so that the businesses could get through the hard times. Also, the government should
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Finance Assignment 2
have many precaution steps like this to protect the citizens of their country from these natural
disasters in the future.
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Finance Assignment 2
d)
As the confirmed cases of the COVID-19 is increasing all around the world, it is
causing many uncertainties and it brings a huge global economic impact. This disease has
disrupted the supply chain and increased the uncertainty that has led to financial market
volatility.
The COVID-19 will bring impact on the economy as it cut off the supple chain and
causing the sales to decrease. The outbreak of this disease has generated both demand and
supply shocks reechoing across the global economy and has affected many different sectors
such as the aviation industries, hospitality and tourism industries and so on.
Besides, while affecting the economy, it will also affect the energy sector as the
low energy demand caused by the economic slowdowns. This cause the oil-supplying
countries to cut the price of the oil to help the oil-importing countries. Furthermore, the
economic slowdown could also give an impact on the financial markets. The fear of the
further outbreak and the economic impact spread to financial markets, stimulating a circuit
break that briefly suspending trading. According to CSIS (2020), even the US treasury
bonds, lead to recording low yields, which is low borrowing cost for the governments, but
low interest rates.
In conclusion, the outbreak of the virus not only affect some country’s economic,
but the global economic as one is interconnected with the other. The government in each
country plays an important role on controlling and facing the disease to cope the economic
impact in every country.
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Finance Assignment 2
Reference
China Briefing. (2020, April 4). COVID-19’s Grim Milestones: Impact on business is
real but opens up new growth areas. Retrieved from https://www.chinabriefing.com/news/covid-19-impact-business-real-opens-new-growth-areas-op-ed/
Chin, J. (2020, March 9). Oil war, Covid-19 batter Bursa as KLCI hits lowest since Nov
2011. The Star Online. Retrieved from https://www.thestar.com.my/business/businessnews/2020/03/09/oil-war-covid-19-batter-bursa-as-klci-hits-lowest-since-nov-2011
Kok, C. (2020, March 28). Saving Malaysia’s economy. The Star Online. Retrieved from
https://www.thestar.com.my/business/business-news/2020/03/28/saving-malaysias-economy
Segal, S., Gerstel, D. (2020, March 10). The Global Economic Impacts of COVID-19.
Retrieved from https://www.csis.org/analysis/global-economic-impacts-covid-19