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Question 1

SmartFunds Pte Ltd (SmartFunds) provides wealth management services. Its customers are mainly high net-worth individuals who invest in a variety of financial products managed by the company. Based in Singapore, the company grows its funds by investing in stocks, bonds and the money market for the long term. It is well-known for its uncanny ability to consistently achieve better returns than the average market. Its team of wealth analysts uses market analytics to make very accurate predictions of market movements. Its digital systems are now ageing, and the company is looking to tap on Artificial Intelligence (AI)-based systems to further improve its market performance.

Towards this end, it has benchmarked 4 (four) different AI-systems by running some analytics tests on these systems. These tests are representative of the kind of analyses carried out by their wealth analysts.

Table 1 below shows the results of running one such test on AI System A (SysA).

Table 1. Test Results for System A (SysA)

The table above shows the results of 2 metrics. Temperature is some kind of setting used on AI systems. It is measured in units from 0 to 100. Accuracy measures how well the system is able to predict market trends. It is also measured in units from 0 to 100 and can be interpreted as a percentage. Accuracy level 100 means perfectly correct predictions. Accuracy level 0 means all wrong predictions. The same basket of tests is carried out on all the systems.

SmartFunds wants to use the results of the tests to procure the AI system that best fits their business needs.

(a) You are required to develop appropriate models to analyse the questions that follow. Your answers must be justified quantitatively. All such models must contain formulae and functions. Hardcoding is not allowed.

(i) Extend Table 1 to compute the following statistics for all the metrics: Average, Highest value, Lowest value, Standard Deviation. If SysA was the only system ever evaluated by SmartFunds, comment on whether it is suitable for their business. You may ignore the effects of the Temperature metric.

(ii) Plot a scatter graph of Accuracy versus Temperature. Comment on the relationship between these 2 (two) metrics. Hence, deduce the meaning of “Temperature” for AI-type of systems.

(iii) Estimate the level of Accuracy if the Temperature value had been set to 68. Explain how you derive your answer.

(iv) Table 2 below shows the results of the benchmark tests for all the AI Systems. Fill in the missing data for SysA from Q1(a)(i). Then, extend Table 2 to create a second model that can be used to compare the 4 systems.

You may add additional rows and columns as needed. Processing power measures how fast the AI system runs. It is measured in terms of tflops which stands for teraflops. One teraflop is one trillion real-number calculations per second. Price is in terms of millions of dollars.

The CEO of SmartFunds has said that budget is not a problem. Recommend which of the four AI systems the company should procure. Justify your answer quantitatively.

[Hints: Consider value for money and accuracy in your analysis]

Table 2. Comparison of Test Results and other metrics for all AI Systems

(b) Eventually, SmartFunds chose SysB. SysB was developed by the GovTech Agency and the Singapore Government wanted to promote its adoption by industry players. The Government will provide a grant of $3 million to help SmartFunds defray the cost of procuring the system. The useful life of the system is expected to be 5 years and the grant will be claimable in 5 equal instalments starting from the first year. It is expected that there will be no residual value at the end of this period.

AI systems use up substantial amounts of energy and add to carbon emissions. The annual carbon output of SysB is rated at 5 tCO2e (tonnes of carbon dioxide equivalent). The carbon tax in Singapore is $50 per tCO2e.

Apart from the sticker price of $7 million, SmartFunds will need to sign up for annual maintenance services costing a total of 15% of the SysB price for the lifetime of the system. This maintenance contract cost can be paid in equal amounts each year. Additionally, technical AI specialists will add to the operating cost of the system. This is expected to be $300,000 per year and it will increase by 12% each year.

With the application of AI, SmartFunds is looking forward to its annual trading profit increasing by $1.4 million in the very first year of implementation. Thereafter, this marginal growth in profit is projected to increase by 10% each year.

SmartFunds operates on a cost-recovery basis when investing in IT systems. Its financial policies require it to hedge against inflation. The current inflation rate is 6% and this is expected to hold steady for the next 5 years

. (i) Create an appropriate NPV-based model to analyse whether it is viable for SmartFunds to procure SysB.

(ii) Using your model, examine whether SmartFunds should procure SysB. Explain why.

Question 2

Kevin Goh operates a network of 3 vending machines selling soya bean drinks located in open walkways in 3 different heartland locations. The price of each cup dispensed by the machine is $1.50. He managed to source for these drinks from a local supplier at just $0.40 per cup. However, there is a delivery charge of $10 per location to restock the vending machines every day. He has instructed his supplier to restock 100 cups at each location. Unsold drinks are discarded.

Table 3 below shows his monthly operating costs and sales. For planning purposes, Kevin considers each month to be 30 days.

(a) Create a model to help Kevin analyse this vending machine business. Use your model to determine his total monthly profit from this business.

(b) Kevin met his university professor recently and proudly explained his business model and how he created a virtually passive income stream. His professor congratulated Kevin on his entrepreneurial endeavour. He also remarked that Kevin could further increase his profit without expanding his network or changing his current price and cost structures! Kevin was intrigued. Comment on how Kevin could accomplish this. Justify your answer quantitatively.

Question 3

Answers to the two questions below should not exceed 300 words each.

(a) Drawing upon your past or present work experience, describe the core product or service of your company. Explain customer value proposition and relate two (2) compelling value propositions of your company’s product. You may draw upon your work experience or your MonsoonSIM game experience.

(b) Describe capacity planning. Illustrate with two (2) examples from your MonsoonSIM game.

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