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FS - Chapter 5

This document analyzes the financial feasibility of FORBB Enterprise, a manufacturing business. It includes projected costs, sources of financing from partners, and projected financial statements including cash flow, income, and balance sheets. Key metrics like return on investment, payback period, current ratio, and breakeven point in sales are calculated to determine the company's financial viability over a 5 year period. Assumptions used in the projections include annual increases in production, selling prices, costs, and partners withdrawing 50% of net income annually.

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Cha Maderazo
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142 views14 pages

FS - Chapter 5

This document analyzes the financial feasibility of FORBB Enterprise, a manufacturing business. It includes projected costs, sources of financing from partners, and projected financial statements including cash flow, income, and balance sheets. Key metrics like return on investment, payback period, current ratio, and breakeven point in sales are calculated to determine the company's financial viability over a 5 year period. Assumptions used in the projections include annual increases in production, selling prices, costs, and partners withdrawing 50% of net income annually.

Uploaded by

Cha Maderazo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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108

Chapter 5
FINANCIAL FEASIBILITY

In this chapter, the ability of the manufacturing business named FORBB

Enterprise will be determined through financial analysis. The movement of the

assets, liabilities, owner’s equity, revenue and expenses are also included to

determine the factors that will be used in analyzing the financial status of the

business.

A. Project Cost

1. Total Project Cost

Table XX. Table of Total Project Cost


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Included in the total project cost are all the purchases and expenses

generated in the first year. Moreover, it generates the total required capitalization
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and the monthly working capital which will give the total required capitalization for

investment.
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2. Initial Project cost

Variable Costs

Table XX. Table of Variable Costs

Fixed Costs

Table XX. Table of Fixed Costs


109

The initial project cost consists of the variable and fixed cost incurred

during the design and construction process. Therefore, the variable and fixed

costs are included in the said cost.

B. Sources of Financial

1. Major source of Financing

The major source of financing of the FORBB Enterprise are its

partners; Comia, Dela Luna,Maderazo, Platon, Tagle. Each partner

contributes equally amounting to Php 6,034,971.60 with a total of

Php 30,174,857.99.

2. Alternative Source of Financing

The partners’ alternative source of financing will loan for LAND

amounting to 2.25M

C. Projected Financial Statement

1. Projected Cash Flow Statement

Cash flow shows the company’s cash inflows and outflows generated

in a specific period of time.

2. Projected Income Statement

The income statement is the company’s measurement of financial

performance during a certain amount of time. This statement

generates the net sales, gross profit, total operating expense, and the

net income before and after taxes.


110

3. Projected Balance Sheet

The balance sheet is a financial statement that summarizes the

company’s total assets, total liabilities, and the owners’ equity.


108

1. Projected Cash Flow Statement

Table xx. Table of Cash Flow Statement


108

2. Projected Income Statement

Table 41. Table of Income Statement


109

3. Projected Balance Sheet

Table 42. Table of Balance Sheet


110
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D. Profitability Indices

1. Return of Investment (ROI)

Return of Investment measures the gain or loss generated on an

investment relative to the amount of money invested. A high ROI

means the investment’s gain favorably to its cost.

Table 43. Table of Return of Investment

2. Payback Period

Payback period is the amount or length of time required for an

investment to recover an investment. The company’s target payback

period should be less than or equal to 5 years.

Table 44. Table of Payback Period


109

3. Current Ratio

The current ratio is a liquidity ratio that measures a company’s ability to

pay short-term obligations or those due within one year. It compares a

company’s current assets to its current liabilities.

Table 45. Table of Current Ratio


110

4. Breakeven Point in Sales

The breakeven point in sales is a point where the company has neither

a profit nor a loss.

Table 46. Table of BEP in Sales

E. List of Assumptions Used

DELTA PLACOMA Enterprise is a partnership and uses the calendar year in its operations.

Loan the amount of Land P2.25M payable in 3 years with interest rate of 8%

Training expense is P2000 per machine operator x 12

Partners withdraw 50% of their share in the net income.

Materials inventory ending will be 10% of Purchases

Work in process ending will be 15% of Total Manufacturing Costs

Finished Goods ending will be 10% of Goods Manufactured for the year.

Packs (12sachets) to be produced on the first year will be 318,101 based on capacity.

Production will increase by 3% each year thus purchases will also increase by 3%.

No changes in Labor Costs for the first two year since there is only minimal increase in production.There will be
additional 10% on the 3rd to 5th year.

Gross profit will be 40% based on cost

All sales are paid through cash.


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There is an increase of 10% increase in selling price per year and 5% increase in units sold.

Sales Returns and Allowances are assumed to be 8% of Gross Sales

Sales Discounts are assumed to be 2% of Gross Sales.

Partners withdraw 50% of their share in the net income.

The company uses straight line depreciation

Depreciation for tanks/reactors 8 years will be used and the rest will use 10 years.

Depreciation for land improvement 8 years will be used

Depreciation for furnitures and fixtures 8 years will also be used

Useful life of Building is 20 years.

Real Property Tax of Land and Building in the Province is 1% of the assessed value

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