1) Compute financial ratios in the case study given. 2) Evaluate investment proposal 3) Application of financing plans and dividend policy Please include index citation in the answer AND reference list at the last page of the assignment.Eu Yan Sang International Ltd, which is listed on Singapore Exchange, is a trusted integrative health and wellness company with a heritage in Traditional Chinese Medicine

(TCM). Currently, it offers more than 300 products under the Eu Yan Sang brand name and over 1,000 different types of Chinese herbs and other medicinal products. It has an extensive distribution network comprising 249 company-operated Eu Yan Sang and Healthy Life retail

outlets in China, Hong Kong, Macau, Malaysia, Singapore and Australia. The Company's latest financial highlights as well as the five year EPS and DPS data are presented below: Income Statement

For the financial year ended 30 June 2014 FY 2014 FY 2013 $'000 $'000 Revenue 366,267 326,921

Cost of goods sold -181,995 -161,324 Gross profit 184,272 165,597

Distribution and selling expenses -122,996 -110,528 Administrative expenses -37,752 -33,848

Other operating expenses -475 -1,207 Profit before interest and tax 23,049 20,014 Interest expense -5,410 -2,675 Profit before tax 17,639 17,339

Income tax -7,594 -6,665 Profit after tax 10,045 10,674 FIN303 Assignment 2 SIM UNIVERSITY Assignment 2 – Page 3 of 5 Statement of Financial Position

As at 30 June 2014

FY 2014 FY 2013

$'000 $'000 Non-current assets 202,125 176,026 Current assets Inventories 83,171 69,091

Trade receivables 17,221 21,980 Cash and cash equivalents 45,118 98,076 Other current assets 2,039 2,813

147,549 191,960 Total assets 349,674 367,986 Current liabilities Trade payables 38,327 38,682 Borrowings 55,072 57,899 Other current liabilities 12,148 9,783

105,547 106,364 Non-current liabilities Borrowings 76,610 102,187

Other non-current liabilities 9,710 9,758 86,320 111,945

Equity Share capital 40,639 39,598 Reserves 116,999 109,587 Non-controlling interest 169 492 157,807 149,677 Total liabilities and equity 349,674 367,986

5-Year EPS and DPS FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Earnings per share (cents) 4.47 5.77 3.70 4.09 3.38

Dividend per share (cents) 1.83 2.08 2.20 2.00 2.20 During 2013, the company issued $75 million 5-year unsecured fixed rate notes due in 2018 i.e. about 4 years from today. Interest is payable semi-annually at 4.1% per annum. Currently, the market value of these notes is $78 million. Management has indicated that it intends to

maintain a target debt-to-equity ratio of 1 over the next few years. FIN303 Assignment 2

SIM UNIVERSITY Assignment 2 – Page 4 of 5 Revenue has been growing at a compound annual growth rate of 12% over the last five years. In order to maintain this growth rate, the Board wishes to continue increasing the number of company-operated outlets and focus on increasing the sale of our private label products. Specifically, they plan on increasing its outlet footprint in Australia. Currently, it operates 36

stores and intends to double this number over the next two years. The initial capital expenditure required for this expansion is estimated to be $30 million, which is to be depreciated equally over three years to zero net book value. No salvage value is expected. Based on a market feasibility study which cost $2 million to undertake, it anticipates that

sales will be $20 million, $40 million and $60 million for the first three years. Thereafter, it will grow at 3% per year indefinitely. Gross profit will be 50% of sales. Fixed overheads in the first three years is estimated to be $12 million per year and this will increase to $28 million from year four onwards. Net

working capital is estimated to be 15% of sales, which is required at the start of the year. As the firm expects to fully implement a just-in-time inventory system, the net working capital will be fully recovered at the end of year three.

For the purpose of investment appraisal, the company uses a market risk premium of 6% and risk-free rate of 4%. Its historical beta is 0.6 and marginal tax rate is 25%. Question 1 Compute relevant accounting ratios for FY 2014 and 2013 and evaluate Eu Yan Sang's liquidity, profitability, asset utilisation and financial leverage. (25 marks)

Question 2 Calculate Eu Yan Sang's cost of equity, cost of debt and weighted average cost of capital (WACC).

(20 marks) Question 3 Compile the 4-year financial projections, namely the forecasted income statement and forecasted cash flows, for the expansion plan.

Calculate the net present value (NPV) and appraise whether Eu Yan Sang should proceed with this growth strategy.