During the pandemic, Singapore saw a significant jump in pet ownerships, many of whom were first$-$time pet owners. According to Animal Veterinary Service$$s group director Jessica Kwok, the number of dog licences increased from about $70,000$ in $2019$ to about $87,000$ in $2022.$ Based on a Euromonitor International report, the pet dog population in Singapore $($including unlicensed dogs$)$ is around $114,000$ in $2023,$ up by almost $3$ per cent from $2019.$ On the other hand, pet cat population hovers around $94,000$ in $2023,$ a jump of almost $10$ per cent compared with $2019.$ According to Mr$.$ Kam Kok Yen, head of animal health at Boehringer Ingelheim, pet owners are spending more on their beloved $$furkids$,$ fuelled by the humanisation of pets. He remarked that more pet owners are looking into the animals$$ health and wellbeing as they treat the animals more like family rather than just a pet. Meanwhile, as Singapore and other countries exit from the pandemic phase and embrace COVID$-19$ as endemic, countries have opened up their borders and international travels are on the rise again. Mr$.$ Steven Ler, president of the National Association of Travel Agents Singapore $($NATAS$)$ reckoned that the travel industry is in the midst of a $$huge comeback$.$ He further commented, $$The appetite for overseas travel is high as many desire to explore the world again and go $$revenge travelling$,$ in hopes of making up for lost time.$$ As pet owners plan for their overseas trips, they are faced with the problem of arranging for the care of their $$furkids$$ in their absence$.$ While this is an issue for pet owners, you see this as an opportunity. You believe there is an attractive business proposition to start a pet hotel to meet the growing demand for pet boarding services, particularly in the mid$-$to$-$high tier segment as $$pawrents$$ are now more willing to splurge on pampering their $$furkids$,$ ensuring that their pets will be well$-$taken care of whilst they are away. Starting and operating a pet hotel requires significant investment and good planning before commencing on this venture. You shared this idea at a recent networking event and an interested potential investor has requested for a preliminary proposal prior to further discussion

There are $3$ units for rental, each unit is at $$5000$ per month, fixed for a minimum $3-$year lease. The landload has offered a discount of $15\%.$ Rental Deposit required is equivalent to $2$ months' rental, to be paid together with the fist month's rental upon commenement of the lease.

You are able to invest $

$6$

$0$

$,$

$0$

$0$

$0$

$$of the Total Investment Required

$($

TIR

$)$

$$as your Equity Capital. The Balance of the TIR would be funded by the potential investor. However, the investor is only willing to invest between

$4$

$0$

$\%$

$$to

$7$

$0$

$\%$

$$of the Balance of the TIR as his Equity Capital

$($

you will need to propose the amount and subsequently determine the corresponding shareholding offered to the investor

$)$

$.$

$$

The remaining shortfall in the Balance of the TIR will be extended as a loan from the investor 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

$3$

$6$

th month.

You are required to analyse the case study given below and present a

$3$

$-$

year forecast financial analysis. Your answer should include the following:

$1$

$.$

$3$

$-$

Year Income Statement

$-$

$($

$1$

st to

$3$

rd year on monthly basis

$)$

$$

$2$

$.$

$3$

$-$

Year Cash Flow Statement

$-$

$($

$1$

st to

$3$

rd year on monthly basis

$)$

$$

$3$

$.$

$$Key Assumptions Made

$4$

$.$

$$Determine the total investment required, proportion & justification for equity

$-$

debt ratio required from investor.

$5$

$.$

$$Expected Financial Returns

$$

$$Weighted Average Cost of Capital

$($

WAC

$)$

$$

$$Valuation

$($

based on the discounted cash flow method

$)$

$$

$$Net Present Value

$($

NPV

$)$

$$

$$Internal Rate of Return

$($

IRR

$)$

$6$

$.$

$$Percentage Shareholding Offered to Investor