Program: MBA

INDIVIDUAL ASSIGNMENT

COURSE: BUSINESS ACCOUNTING AND FINANCE

STUDENT: XIANG XULIN

ID card: I7012442

LECTURER: MR. Salaar Faroor

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 ACC 6202 Business Accounting and Finance
NPV: Individual Assignment (A#2) (40%)
2018
Note: Attach this FORM as COVER SHEET (1st Visible Page)
AWARD: SINGLE/DOUBLE_____
Name of Student: xiang xulin________Single/Dual_single_______ID I7012442

Criteria Marks Comments Marks Given

40
Economic &
Industry analysis  Poor Quality
 Ok work but can improve significantly
Business selection,  Good piece of work / comprehensive
SWOT, &
Financial
prjections

Assumptions used

Risk Analysis  Poor Quality

50  Ok work but can improve significantly
Valuation of  Good piece of work / comprehensive
project

Critical Analysis

Presentation/  Poor Quality

10  Ok work but can improve significantly
Decision thought  Good piece of work / comprehensive
process/

Page Limits

*) NO BUSINESS  LIMITED / Poor (<60)

FACT SHEET (-
20)  Overall OK/Can Improve (60-80) _________
*) Other Format
Penalty _______
100
 Good Piece of work / Comprehensive
(80-100)
______/ 40
Total

INo.__________________

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 Table of Contents

1.Executive summary ............................................................................................ 4

2 Economic and Industry Analysis ....................................................................... 4

3. Business Idea..................................................................................................... 5

3.1 Description of business ................................................................................... 5

3.2 SOWT Analysis .............................................................................................. 6

3.3 Suppose 5-year financial status ....................................................................... 6

4.0 Valuate ............................................................................................................ 8

4.1 Risk Analysis （CAPM） .............................................................................. 8

4.1.1 Defined of CAPM..................................................................................... 8

4.1.2 Discuss of business ................................................................................... 9

4.2 Determine cost of capital ................................................................................ 9

4.3 valuation of project ......................................................................................... 9

4.3.1 NPV（Net Present Value） ...................................................................10

4.3.2 Internal Rate of Return (IRR) .................................................................10

4.3.3 Payback ...................................................................................................10

4.3.4 Profitability index ...................................................................................11

5 Recommendation .............................................................................................11

6 reference ...........................................................................................................13

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1.Executive summary

More recently, INTI International students have a slight taste of school cooking, and the
restaurants outside are too expensive and too small to meet student needs. Most students
prefer a variety of cheap food dishes. If you can open a variety of affordable dishes cafeteria,
INTI students are very much needed. Therefore, I would like to invest in a self-service hotpot
restaurant near INTI University to meet the needs of INTI students.

2 Economic and Industry Analysis

Gross Domestic product GDP

(GDP, 2017)

From these two icons, we can see the change in per capita GDP in Malaysia. From 2009 to
2014 GDP per capita is on the rise. It can be shown from the figure that Malaysia's GDP still
shows positive growth in these five years. Although GDP has dropped from 2014 to 2015,
GDP has risen from 2015 to 2016. As a result, 2014 reached a historic high of $ 33.806
billion. GDP for 2015 is 296.43.2, while GDP for 2016 is 296.54, up 0.11% for the period
from 2015 to 2016. From Figure 2, we can see that Malaysia made 38th in global GDP in
2017. The International Monetary Fund also said Malaysia's gross domestic product will
continue to increase at an annual rate until Malaysia has recently faced some obstacles.

From an investment perspective, economic conditions can be analyzed by the stock market.
As sales are gradually increasing, the company's revenue is also increasing. When the
company wins more profits, the company will attract more people to invest. Because the
company has sufficient ability to pay dividends to shareholders (Ben, 2012). From a long-

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term perspective, the economy will show a rising trend as the stock market goes up. The
stock market declined between 2014 and 2016, but stocks started to pick up gradually from
2016 to 2017. However, the stock market showed an upward trend at the end of 2016, and the
rise of the stocks drove the economy up. When people's economic income increases. People's
consumption level increased. From the interest rate analysis, the increase in interest rates will
lead to an increase in people's income (Maverick, 2016). Because of the reasons for raising
interest rates lead to rising costs of service loans (RUSSONELLO, 2016). From Figure 4, the
interest rate in Malaysia from 2012 to 2016 rose from 3% to 3.25%. Decline to 3% in 2016-
2017. 2018 shows that the rate of interest starts to rise from 3% to 3.25%, which means that
economic growth will stimulate the expenses of consumers as the interest rate rises
(Pettinger, 2016).

3. Business Idea

3.1 Description of business

I would like to open a self-service pot company, there are several Chinese restaurants and
western restaurants near INTI International University, there is no cafeteria. So, I want to
open a self-service hot pot restaurant, so that consumers through a better choice. The
investment is also based on the mix of students tastes and local tastes. The dishes should not
only be full but also have the quantity. Open the university shop near the cauldron and pay
attention to the very important benefits of the student party. Under such circumstances, only a

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good reputation can be established to make profitable small profits but quick turnover. The
characteristics of the hot pot, the taste must be distinctive, college students are now picky
eaters, taste no way to make them satisfied, most likely not to patronize next time. So, you
must have good pot technology. Off-season hot pot business is very obvious, so in the off-
season when we need to do some corresponding measures. For example, you can increase the
funds for barbecue supplies, self-service hot pot season to do self-help hot pot, when self-
service hot pot barbecue. In the beverage and beverage can be discounted, customers often
can the appropriate discount wine prices. As an INTI University student, you can enjoy the
same delicious self-service hot pot without having to go downtown. It's also a great place to
hangout with your classmates.

3.2 SOWT Analysis

Strength： Weakness：

1. Convenient transportation 1. Employed employees make too

2. Small profits but quick turnover much profit.
3. Healthy product 2. Some students waste, resulting in
economic losses

Threat
Opportunist

1. Popularize the hotpot self-service 1.Competitors will do the same at the

shop through the student's word of same time.
mouth.
Convenient transportation
2.Consumer demand for hot pot is
2.Discounts on INTI students can getting higher and higher
attract more students.

3.3 Suppose 5-year financial status

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 Table1 US ($)

First, let's say that sales in 2018 will be 60,000 ringgits, with an increase of 5,000 in the next
four years. Therefore, the average monthly sales volume in the first year should be RM5000,
with at least 1000 customers consuming self-service hot pot every month. In addition, non-
residents have a tax rate of 25%. I think the net profit will increase from 24650 to 32650 by
the end of 2022. At the end of the fifth year, the cumulative profit will be 143,250.

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 Assuming that the cost of self-service hotpot sales will increase by 1,000 per year, cash
flow will increase from 25650 in 2018 to 144250. This income is also very substantial.

4.0 Valuate

4.1 Risk Analysis （CAPM）

Risk calculation formula：Ra=Rf+Ba(Rm-Rf)

4.1.1 Defined of CAPM

In the capital asset pricing model based on risk asset prediction model and expected
equilibrium return model based on CAPM, investors are explained using Markowitz
investment management market equilibrium theory, expected asset return rate and risk theory
under forming conditions (Perold, 2004). Is a simple linear relationship between asset
expected return and asset risk measurement is a positive correlation between (Mehrara1,
2014). It should be said that as a theory of risky asset equilibrium price decision, based on the
single index model or CAPM, it not only simplifies the choice of operating portfolio, but also
applies the theory to the real world (Alexander, 2017). Markowitz's portfolio selection,
forwarding important steps, securities also make theoretical analysis, from qualitative to
quantitative analysis, from the securities investment securities standardization, theoretical
research and practical experience in the operation of change, as well as the entire financial

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theory and practice have a significant impact on the development, Is the foundation of
modern financial theory (Wang, 2013).

4.1.2 Discuss of business

First, INTI part of the foreign students don't like to eat hot pot buffet, Malaysia local in INTI
college students may want to home will return to home in the weekends and holidays, which
in the middle of the semester and greatly reduce the potential customer personnel during the
break. Therefore, according to the above discussion, I would like to assume that the Rf is 3%,

Ba is 1.1, and Rm is 12% to calculate the expected return. Ra = 0.03 + 1.1（0.12-0.03）=

12.9%
From the data available, 12.9 percent of expected returns should be considered low risk, and
the project could continue.

4.2 Determine cost of capital

The weighted average cost of capital refers to the total capital cost of an enterprise calculated
by taking the proportion of various kinds of capital in the total capital of the enterprise as its
weight and the capital cost of various long-term funds. This means that the amount of the
company should depend on the existing assets to satisfy the security holder.

It is assumed that E / (D + E) = 0.3, D / (D + E) = 0.4, Re

= 12.9%, Rd = 9%, and tax rate = 20%. Therefore,
calculations show that: WACC = 0.3 (12.9%) + 0.4 (9%)
(1-25%)
WACC = 6.57%
From the hypothetical calculations, the WACC's interest rate will be 6.57%, which is lower
than my expected return of 12.9%. So theoretically investment is rewarded.

4.3 valuation of project

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 4.3.1 NPV（Net Present Value）
Net present value represents the net cash flow of the investment plan. The difference
between the present value and the present value of the cash discount rate of the original
investment discounts the initial investment cost (WikiCFO, 2013). Positive NPV means that a
particular investment is a profitability, and a net present value of less than 1 means that the
investment is not profitable.
R=6.57%

According to the total net present value of the calculation, RM36520.2 indicates that the
project's profitability is relatively high.

4.3.2 Internal Rate of Return (IRR)

The internal rate of return is the discount rate to the present value of capital inflows, with
the same capital flows and a net present value equal to zero (Investopedia, 2014). In the
process of project management is to track the annual income, if the internal rate of return and
prediction of real earnings vary widely, has been showing signs of a loss, enterprises should
be bold and contraction, sell the efficiency of project in time, to ensure that the business
management.

According to the internal rate of return by Microsoft Excel and IRR identified as 50% of
my company, indicating that my company's plan is feasible.

4.3.3 Payback

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 CF1 CF2 CF3 CF4 CF5
25650 52300 80950 111600 144250
Accumulated Cash Flow 25650 77950 158900 270500 414750

CF1<$6000 CF1+CF2>$60000
60000-25650=$34350
34350/52300 =0.57
1+0.57=1.57
By calculation and my hypothesis, the payoff is 1.57 years.

4.3.4 Profitability index

The relationship between initial investment and future earnings is determined by the
profitability index (Wilkinson, 2013). The profitability index ignores project size. As a result,
a large influx of cash will lead to a decline in profitability as profit margins fall. Let's say that
in the next five years the discount rate is 20% to calculate the present value of the cash flow.

CF1 CF2 CF3 CF4 CF5 Total

25650 52300 80950 111600 144250
(1+0.2)^ (1+0.2)^2 (1+0.2)^3 (1+0.2)^4 (1+0.2)^5
21375 36319.4 46846.1 53819.4 57971 216330.9

216330.9/60000=3.61

5 Recommendation
Through the capital budget, business environment, profitability, risk and other factors to
analyze the project. The results show that the project is generally profitable with CAPM of
12.9% and WACC of 6.57%. In addition, the investment value of the business because NPV
is RM. In addition, the project can experience currency devaluation and inflation as the IRR
is 50%. In addition, the project is less risky because the project can be rewarded within 1.5

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years, and the profitability index for this project is 3.61. In short, the project should be based
on an analysis of the next five years of performance.

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6 reference

Alexander, 2017. The Capital asset pricing model and the Arbitrage pricing theory. [Online]
Available at: http://www.math.chalmers.se/Stat/Grundutb/CTH/mve220/1617/CAPT.pdf

Ben, 2012. [Online] Available at:

https://www.investopedia.com/articles/fundamental/04/010704.asp

Forum, W. E., 2015. [Online] Available at:

http://www3.weforum.org/docs/WEF_Global_IT_Report_2015.pdf

GDP, 2017. Malaysia GDP Growth Rate. [Online] Available at:

https://tradingeconomics.com/malaysia/gdp-growth

Investopedia, 2014. Net Present Value and the Internal Rate of Return. [Online] Available at:
https://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-
cash-flow-npv-irr.asp

Journal, 2014. [Online] Available at: http://jacf-pub.com/wp-

content/uploads/2016/02/JACF_264.pdf

Maverick, 2016. [Online] Available at:

https://www.investopedia.com/ask/answers/071715/how-do-changes-interest-rates-affect-
spending-habits-economy.asp

Mehrara1, 2014. [Online] Available at: https://www.scipress.com/ILSHS.21.26.pdf

Mitchell, T., 2015. [Online] Available at: https://www.ft.com/content/1bf693dc-24f9-11e5-

9c4e-a775d2b173ca

Morgan, 2016. [Online] Available at:

https://www.jpmorgan.com/country/US/en/cib/investment-banking/corporate-finance-
advisory/a-primer

Morgan, 2016. [Online] Available at:

https://www.jpmorgan.com/jpmpdf/1320725865930.pdf

OECD, 2017. [Online] Available at:

http://people.stern.nyu.edu/adamodar/pdfiles/acf3E/book/ch9thru12.pdf

Perold, 2004. The Capital Asset Pricing Model. [Online] Available at:
http://www1.american.edu/academic.depts/ksb/finance_realestate/mrobe/Library/capm_Perol
d_JEP04.pdf
Pettinger, 2016. Effect of lower interest rates. [Online] Available at:
https://www.economicshelp.org/blog/3417/interest-rates/effect-of-lower-interest-rates/

RUSSONELLO, 2016. [Online] Available at:

https://www.nytimes.com/2016/12/14/business/economy/how-the-feds-interest-rate-increase-
can-affect-you.html

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Stanley, M., 2016. Financials. [Online] Available at:
http://financials.morningstar.com/ratios/r.html?t=MS

Wang, 2013. [Online] Available at: https://file.scirp.org/pdf/IB_2013110814464376.pdf

WikiCFO, 2013. [Online] Available at: https://strategiccfo.com/net-present-value-method/

Wilkinson, 2013. [Online] Available at: https://strategiccfo.com/profitability-index-method-

formula/

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