Star River Electronics

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In Partial Fulfillment Of the Course Requirement In Management Financial Planning Submitted to: Professor Raymond Queddeng Submitted by: Group 3 Alfabeto, Carmela Conos, Via Leal, Diva On: November 17, 2007 I. CASE BACKAGROUND Star River Electronics (SRE) was a joint venture company between Starlight Electronics Ltd., and an Asian venture-capital firm, New Era Partners. The company was based in Singapore, and was engaged into the manufacturing of CD-ROMs which it supplied to major software companies. The CD-ROM manufacturing industry grew rapidly in the mid-1990s due to the popularity of optical and multimedia products. Because of the emergence of small, but aggressive players,…show more content…
• Any external funding needed is in the form of debt. • Any other assumptions are based on the historical analysis of reports. • To find the rate of interest of New Era Loan, multiply the borrowings of bond issue and short term borrowings to their rates then deduct the total of the two interest amounts from the total interest expense in 2001 (SGD7,818). The given interest rates are: a) 6.7% was computed as Prime Lending rate of 5.2% + 1.5% (City Bank); b) interest rate on bond issue was stated at 5.75% which is paid semi-annually. The interest expense attributed to the New Era loan of SGD10,000 is a balancing figure. The interest rate to be used for all short-term borrowings should be 7.58%.. 3. What is the company’s sustainable growth rate based on the projections for 2002 and 2003? Is the company growing beyond its financial capabilities? Based on the company’s 2001 performance, the computed sustainable growth rate is at 10.95%. This means that the forecast 15% sales growth per year for 2002 and 2003 is above the maximum growth rate that SRE can maintain without resorting to additional borrowings. Given this, it can be surmised that if SRE is compelled to target this annual growth for the next two years, then it will have to be prepared to increase the level of its short-term
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