Question 1 (55 marks) XYZ Bargain Store Pte Ltd is a local grocery business that focuses on low-cost as its competitive advantage. It has a chain of 5 retail outlets located in different parts of Singapore. It is now in the process of reviewing its business for the next financial year. Table 1 below shows the annual sales from all 5 outlets in the previous year. You are required to create appropriate models to analyse the sales data to support decisionmaking. XYZ operates consistently on a Gross Margin Percentage of 30% of Annual Sales. Its group Annual Operating Expenses, an indirect overhead, is 12% of Sales. The owners of XYZ have so far invested $2 million in the business. Based on the data in table 1, create a sub-model to review its Net Profit and Return on Investment (ROI) percentage for the entire business. What is the ROI percentage given that its investment in the business is $2 million? [Hint: Net Profit = Gross Margin - Operating Expenses, ROI \% = Net Profit ] Investment] (6 marks) The owner of a rival business called Lelong Store is planning to emigrate overseas. He is prepared to sell his business for $1.5 million. Lelong Store has 5 outlets and a cost structure that is very similar to XYZ. The owner has projected annual sales over the next 7 years to be $2.3m,$2.4m,$2.5m,$2.55m,$2.6m,$2.62m and $2.65m, respectively. XYZ has accumulated huge cash reserves over the years and its CEO is interested to expand his business by acquiring Lelong Store. For investment purposes, XYZ uses a time horizon of 7 years and requires the Return on Investment (ROI) of the intended acquisition to be equivalent or better than XYZ's own business ROI. Create a model to analyse whether it is viable for XYZ to buy over Lelong Store. State any assumption(s) used by your model. Use your model to make a recommendation to the CEO of XYZ. Justify your recommendation quantitatively. [Hints: Yearly outflows consist of Cost of Goods Sold (COGS) and Operating Expenses, COGS%+ Gross Margin %=100%] (12 marks) Question 1 (55 marks) XYZ Bargain Store Pte Ltd is a local grocery business that focuses on low-cost as its competitive advantage. It has a chain of 5 retail outlets located in different parts of Singapore. It is now in the process of reviewing its business for the next financial year. Table 1 below shows the annual sales from all 5 outlets in the previous year. You are required to create appropriate models to analyse the sales data to support decisionmaking. XYZ operates consistently on a Gross Margin Percentage of 30% of Annual Sales. Its group Annual Operating Expenses, an indirect overhead, is 12% of Sales. The owners of XYZ have so far invested $2 million in the business. Based on the data in table 1, create a sub-model to review its Net Profit and Return on Investment (ROI) percentage for the entire business. What is the ROI percentage given that its investment in the business is $2 million? [Hint: Net Profit = Gross Margin - Operating Expenses, ROI \% = Net Profit ] Investment] (6 marks) The owner of a rival business called Lelong Store is planning to emigrate overseas. He is prepared to sell his business for $1.5 million. Lelong Store has 5 outlets and a cost structure that is very similar to XYZ. The owner has projected annual sales over the next 7 years to be $2.3m,$2.4m,$2.5m,$2.55m,$2.6m,$2.62m and $2.65m, respectively. XYZ has accumulated huge cash reserves over the years and its CEO is interested to expand his business by acquiring Lelong Store. For investment purposes, XYZ uses a time horizon of 7 years and requires the Return on Investment (ROI) of the intended acquisition to be equivalent or better than XYZ's own business ROI. Create a model to analyse whether it is viable for XYZ to buy over Lelong Store. State any assumption(s) used by your model. Use your model to make a recommendation to the CEO of XYZ. Justify your recommendation quantitatively. [Hints: Yearly outflows consist of Cost of Goods Sold (COGS) and Operating Expenses, COGS%+ Gross Margin %=100%] (12 marks)
