Chapter IV

FINANCIAL STUDY

Sources of Funds
Considering the scale of the industry, proponents agreed not to borrow
money from the bank. The total capital requirements for the project will amount
P60, 000.00. The equity shall be the owner’s investment without borrowing
money from any financial institutions. The proponent’s capital is enough to
operate the project. The following table shows the detail of the total capital
requirement of the proposed business.

Assumptions
Operating Expenses

Salary and Wages. The average pay raise is around 3% according to one
survey. The average pay raise from top employees ranges from 4.5% -5% and
for the low performance’s ranges from 0.7%-1%. Table7 shows that the Current
Salary and Wages is equal to the Old Salary multiplied by 4% pay raise plus
the old Salary.

Utilities. Water, light, computers, telephone and internet are considered as

utilities. Water and light is 6,000 pesos, computer set Dell 17 inches is 11,200
pesos, telephone wireless is 570 pesos and mx9 pro android 78.1 internet tv
set 1959 pesos with the total of 19,729 pesos. Utilities are assumed to raise 1%
every year as well as the supplies.

Delivery Expenses. Expenses is assumed and the interest rate for every year
is 4% as well as the License and Permit with a rate of 2%.

Income Before Tax. The difference between Sales and the Operating
Expenses. The Annual Income in this statement is belong to P 250,000 and
below with the tax rate of none (0%) based from the New TRAIN Income Tax
table (for the years 2018-2022) under the approved TRAIN Tax Law effective
last January 1, 2018. Therefore, there is no after tax payable.
 TOTAL PROJECT COST
PARTICULARS AMOUNT
Advanced Deposit for Rentals
(2 months – P3,500 per month) 7,000.00
Equipment 8,000.00
Labor + Materials (GI sheet, tie wire ) 25,000.00
Total Project Cost 40,000.00

Table3. Total Project Cost

SCHEDULE OF REVENUE
PARTICULARS UNIT COST MONTHLY ANNUALLY
Design and
8,500.00 34,000.00 408,000.00
Fabrication
TOTAL REVENUE 408,000.00

Table4. Schedule of Revenue

Sample Computation:

Production = 4pcs. Per month

Fabrication = 8,500 x 4 pcs per month

Fabrication = 34,000.00 per month

SCHEDULE OF DEPRECIATION
EXPECTED SALVAGE
PARTICULARS COST LIFE VALUE DEPRECIATION

Equipment 8,000.00 5 1,600.00 1,280.00

Total 1,280.00

Table5. Schedule of Depreciation

Sample Computation:

Salvage Value = Cost / Expected Life

Salvage Value = P 8, 000.00 / 5 = P 1,600.00

Depreciation = Cost - Salvage Value / Expected Life

Depreciation = 5,000.00 - 1,600.00 / 5

Depreciation = 1,280.00

SCHEDULE OF SALARIES AND WAGES

1 Manager/Owner 8,000.00
1 Secretary 4,000.00
1 Welder 2,500.00
1 Helper 1,000.00
Total Salaries and Wages P 15,500.00/month
P 186,000.00/year
Table6. Schedule of Salaries and Wages

SCHEDULE OF OPERATION EXPENSES

YEAR
PARTICULARS 1 2 3 4 5

Salaries & Wages 186,000.00 193,440.00 201,177.60 209,224.70 217,593.69

Rent 42,000.00 42,420.00 42,844.20 43,272.64 43,705.37

Utilities 19,729.00 19,926.29 20,125.55 20,326.81 20,530.08

Supplies 12,000.00 12,120.00 12,241.20 12,363.61 12,487.25

Delivery Expenses 10,000.00 10,200.00 10,404.00 10,612.08 10,824.32

Licenses and
Permit 2,200.00 2,310.00 2,425.50 2,546.78 2,674.11

Total Operating
Expenses 271,929.00 280,416.29 289,218.05 298,346.62 307,814.82

Table7. Schedule of Operation Expenses

 PROJECTED INCOME STATEMENT
YEAR
PARTICULARS 1 2 3 4 5
Design and
Fabrication 408,000.00 428,400.00 449,820.00 472,311.00 495,926.55
Gross Revenue 408,000.00 428,400.00 449,820.00 472,311.00 495,926.55
Less: Operating
Expenses 271,929.00 280,416.29 289,218.05 298,346.62 307,814.82
Income before
tax 136,071.00 147,983.71 160,601.95 173,964.38 188,111.73
Less: Prov. For
Income Tax 0 0.00 0.00 0.00 0.00
Net Income tax 136,071.00 147,983.71 160,601.95 173,964.38 188,111.73

Table8. Projected Income Statement

FINANCIAL ANALYSIS
The following are the indicators used in the study in order to test the
profitability of the proposed project. Average rate of return cash payback period
and the present value analysis

1. Average Rate of Return

Average/Annual Income
𝐴verage Rate of Return =
Total Investment

P 54,693.69
𝐴verage Rate of Return =
60, 000
𝐴verage Rate of Return = 91.16%

2. Payback Period
Payback period indicates the number of years required to fully recover the initial
investment. This figure shows in the following computations.

Total Project Cost

CPP =
Net Income + Depreciation
 P 60, 000.00
CPP =
P 38,271.00 + P 2,080.00

CPP = 1.487 x 12 months

CPP = 1 years and 8 months

3. Return on Investment
Return on investment, or ROI, is the ratio of a profit or loss made in a fiscal year
expressed in terms of an investment and shown as a percentage of increase or
decrease in the value of the investment during the year in question. The basic
formula for ROI is: ROI = Net Profit / Total Investment * 100.

Gains − Investment Costs

ROI = 𝑋 100
Investments Cost