Investment Analysis and Portfolio Management Case 2
Ada Lam is the founder and sole stockholder of AL Gifts, Co. Ltd., Ada is a recent divorcee and realizes that her finances may need to be revised now that her divorce has been settled. Her former husband, Kelvin, is the father of her two children and the major stockholder of GOOD Manufacturing, Co. Ltd., GOOD Manufacturing has been in business 15 years, is financially stable, and currently has a book value in excess of $380M. Kelvin has agreed to pay for 50% of their children’s education.
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Personal Information
Name
Age
Health
Occupation
Ada Lam
39
Good
President – AL Gifts, Co. Ltd.
Susan Lam
14
Excellent
Student
Candy Lam
9
Excellent
Student
Kelvin Lam
42
Excellent
President – GOOD Manufacturing, Inc.
Ada Lam
STATEMENT OF FINANCIAL POSITION
As at Aug 31, 2018
ASSETS
LIABILITIES
Cash/Cash equivalents
$ 100,000
Credit cards 1
$ 260,000
NAV of AL Gifts, Co. Ltd.
576,000
Mortgage 2
8,432,529
Residence (bought 5 yrs ago, 763 sq. ft 3-Bedroom apt)
13,800,000
Auto loan3
423,137
Auto (BMW 325is, bought 1/2 year ago)
530,000
TOTAL LIABILITIES
$ 9,115,666
NET WORTH
$ 5,890,334
TOTAL ASSETS
$15,006,000
TOTAL LIABILITIES
AND NET WORTH
$ 15,006,000
1 Variable rate, currently 35.71% APR.
2 25 years left with P-2.95% (2.05%)
3 2.5 years left with fixed flat rate at 2.15% for 3 years
Ada Lam
PROJECTED MONTHLY CASH FLOW STATEMENT
Current Monthly
CASH INFLOWS
Gross salary
$ 60,000
Child support
25,000
Total
$ 85,000
CASH OUTFLOWS
Savings and investments
$ 0
Mortgage payment (P+I)
35,948
Maintenance and repairs on the home
2,000
Textbook and miscellaneous (2 Kids)
600
Food and supplies
6,500
Utilities (Electricity, water, gas)
3,500
Transportation (gas, oil, repairs)
9,000
Car payment
14,105
Clothing
2,000
Travel and entertainment
3,500
Credit card payments
4,500
Total
$ 81,653
SURPLUS/(DEFICIT) CASH FLOW
$3,347
AL GIFTS, CO.LTD.
BALANCE SHEET
As at March 31, 2018
ASSETS1
LIABILITIES
Cash/Cash equivalents
$ 200,000
Accounts payable
$298,000
Accounts receivable
400,000
Loan2
500,000
Inventory
600,000
TOTAL LIABILITIES
$798,000
Furniture and fixtures, net of depreciation
130,000
STOCKHOLDER EQUITY
$576,000
Prepaid expenses & other
44,000
TOTAL ASSETS
$1,374,000
TOTAL LIABILITIES AND SHAREHOLDER EQUITY
$1,374,000
1 All assets are listed at fair market value (FMV)
2 $2,000 a month payable to Kelvin Lam at 4.8% interest, which is the going market rate on similar loans.
AL GIFTS, CO. LTD
PROJECTED MONTHLY INCOME STATEMENT
TOTAL SALES
$215,000
EXPENSES
Cost of goods sold
$ 75,250
Advertising and promotion
1,500
Depreciation
2,400
Interest on loan
2,000
Insurance – business
250
Rent (300 sq. ft.)
11,000
Salaries (1part time staff & herself)
68,500
Supplies and miscellaneous
3,500
Utilities
1,200
(165,600)
NET INCOME
49,400
Ms. Lam’s investment objective is to ensure financial security for herself, her business & her children. She plans to send her children to Australia for 5 years (last 2 year of high school and 3 years university) to receive western education.
Ms. Lam wants to pay off the $500,000 loan borrowed from Kelvin (her ex-husband) and be able to save enough funding (approx. $1.5M) to expand her business. She finally would like to retire when she turns 65 years old.
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