CASE STUDY CHAPTER 3

*Initial Capital Investment

Initial Capital Investment (Equity): Php 600,000

*Projected Sales per quarter

YG Rice Mill obtained 1,500,000 php sales from January 1 March 31, 2016 while their
annual sale is 6,000,000 php.

PHP
500,000
400,000
600,000

Sales
Sales
Sales

Minimum Labor cost: Php 800

Total Sales: Php 1,500,000
Total Annual Sales: Php 6,000,000

*Expenses per quarter

YG Rice Mill obtained php 919,000 quarterly expenses and php 3,676,000 annual
expenses.

20,000
10,000
3,000
10,000
800,000
5,000
8,000
5,000
58,000

Rent
Utilities
Advertising
Gasoline
Rice Supplies
Miscellaneous
Sacks
Insurance
Salaries and Wages

Total Expenses: Php 919,000

Total Annual Expenses: Php 3,676,000

CASE STUDY CHAPTER 3

*Cash Flow Diagram

Bases from the obtained data:
The initial capital investment: Php 600,000
Yearly Revenue: Php 6,000,000
Yearly Expenses: Php 1,500,000
The resulting cash flow diagram for the business entity is shown below:

*Present Worth Method

Minimum Attractive Rate of Return (MARR) is equivalent to 10%.

PW = 6,000,000 (P/A, 10%, 5) 3,676,000 (P/A, 10%, 5) 600,000

PW = 6,000,000 (3.7908) 3,676,000 (3.7908) 600,000
PW = Php 8,209,819.2 > 0 (The project is desirable)

*Future Worth Method

FW = -600,000 (F/P, 10%, 5) + 6,000,000 (F/A, 10%, 5) 3,676,000 (F/A, 10%, 5)
FW = -600,000 (1.6105) + 6,000,000 (6.1051) 3,676,000 (6.1051)
FW = Php 13,221,952.4 > 0 (The project is desirable)

*Annual Worth Method

AW = R E CR
AW = 6,000,000 3,676,000 [600,000 (A/P,10%,5)]
AW = 6,000,000 3,676,000 [600,000 (0.2638)]

CASE STUDY CHAPTER 3

AW = Php 2,165,720 > 0 (The project is desirable)

*Internal Rate of Return Method

The desirability measure of internal rate of return method is the i, calculated is greater
than or equal to the MARR.
PW = 6,000,000 (P/A, %, 5) 3,676,000 (P/A, %, 5) 600,000
0 = 6,000,000 [(1+)51/ (1+)5] 3,676,000 [(1+)51 / (1+)5] 600,000
= 0.6868; 68.68% > MARR (The project is desirable)

*External Rate of Return Method

The external reinvestment rate is assumed to be 10%.

PWO = I + E (P/A, i*%, 5)

PWO = 600,000 + 3,676,000 (3.7908)
PWO = Php 14,534,980.8
FWI = R (F/A, i*%, 5)
FWI = 6,000,000 (6.1051)
FWI = Php 36,630,600
FWI = PWO (F/P, i*%, 5)
36,630,600 = 14,534,980.8 (1 + i*)5
i* = 0.2074 ; 20.74% (The project is desirable)

CASE STUDY CHAPTER 3

*Simple Payback Period

EOY
0
1

Cash Flow
-600,000

Revenue

Expense

Net Cash Flow

6,000,000

3,676,000

2,324,000

Cumulative Cash Flow

-600,000
1,724,000

It will need to take less than a year to recover the initial investment ignoring the time
value of money.

*Discounted Payback Period

EOY

Cash Flow

0
1

- 600,000

Revenue

Expense

Factor
(P/F, 10%,N)

Net Cash
Flow

6,000,000

3,676,000

0.9091

2,1127,48.4

Cumulative Cash
Flow
- 600,000
1,512,748.4

It will need to take less than a year to recover the initial investment ignoring the time
value of money.

*Benefit Cost Analysis

conventional
BD
=
C

B
c
6,000,000

A
3,608,000+600,000 ( 10 , 5)
P

=1.60> 1

B
c
BDM O costs 6,000,0003,608,000
=
=16.84 >1
initial investments
A
6000,000( 10 , 5)
P

modified

(The project is desirable since both conventional and modified are greater than 1.)

CASE STUDY CHAPTER 3