Question 1 Singapore Land Authority (SLA) recently announced that it will be calling for tenders for vacant units at Dempsey over the next few months. With a plan to turn Dempsey into a green lifestyle destination, SLA is looking for more innovative concepts, including sustainability initiatives in the new rounds of tenders. SLA wants to further enhance the appeal of the Dempsey area by introducing broader uses which could include artisan craft and wellness, local and international cuisines. At the same time, there has been a growing interest in how to implement sustainable practices in the food and beverages (F&B) industry, ranging from procurement, production, packaging to food waste management. This aligns well with your belief that a successful F&B business should engage in sustainable practices and not just focus on making profits. Prompted by the latest announcement from SLA, you are keen to explore the possibility of establishing a F&B business with sustainability initiatives at Dempsey. However, you are also cognizant of the significant investment required and the need for good planning before embarking on this venture. Through your contacts and network, you have spoken with several potential investors who have requested for a preliminary proposal prior to further discussion. [Sources: Adapted from Metteo (2022)].

Guidelines and Assumptions:

1. The primary activities of the proposed business must be F&B-related, which may include food preparation for dining on-site and takeaway, retail, etc. It must not be a (i) Franchise or (ii) Wholesale/Distribution business concept.

2. The proposed business must include sustainability initiatives which are to be clearly articulated. However, you cannot include composting of food waste ideas in your proposal as there is currently an existing business in the process of coordinating with the National Environment Agency (NEA) to implement a central food composting system for the management of food waste for the Dempsey area.

3. There are three adjoining single-storey vacant units located in one of the blocks at Dempsey, each unfurnished at 1,000 square feet (comprising of 800 square feet for indoor and 200 square feet for outdoor use). Rental for each unit is at $12,000 per month, fixed for a minimum 3-year lease. There is a discount of 10% if you rent two adjoining units or 15% if you rent all three units.

4. In deciding the space required, you need to consider the current requirements of the proposed business, the maximum foreseeable operating capacity and ability to accommodate future expansion of the business. Changes to the space leased during the tenancy term is not permitted.

5. Rental deposit required is equivalent to 2 months rental, to be paid together with the first months rental upon commencement of the lease. Sub-letting is not allowed.

6. The first month of operations is the gestation period of the new business, e.g., staff recruitment, renovation, staff training and etc. The first revenue can only be received by the new business from the second month onwards in the financial forecast.

7. The depreciation for any capital investment is a straight line over three (3) years.

8. You are able to invest $80,000 as your initial equity capital. The potential investor is willing to invest between 40% to 70% of the balance of capital required as his equity stake (you will need to propose the amount). The remaining shortfall in capital will be extended as a loan to the business at the start, with only interest payable each month (see further for cost of debt) and the full repayment of the principal on the 36th month.

9. The following Cost of Capital (Weighted Average Cost of Capital, WACC) formula must be used (no marks will be awarded if any other WACC formula is used): WACC = E x Re + D x Rd x (1 Tc) V V Re = Cost of Equity Rd = Cost of Debt E = Funding from Equity D = Funding from Debt / Loans V = E + D (i.e., total funding) E/V = Percentage of Financing that is Equity D/V = Percentage of Financing that is Debt Tc = Corporate Tax Rate

10. Specific Tax Exemptions, Credits and Reliefs (e.g., Tax Exemption Scheme for New Start-Up Companies), Concessions, Rebates, Loss-Carrying Forward and similar Schemes are to be ignored in computations.

11. The financial statements, together with the key major assumptions made, must be included in the main report. Other information and supporting evidences can be in the Appendix.

Help me to do up these financial statements:

1. 3-Year Pro-forma Income Statement (1st to 3rd year on monthly basis)
2. 3-Year Pro-forma Cash Flow Statement (1st to 3rd year on monthly basis)