CHAPTER IV

FINANCIAL STUDY

This chapter presents the total cost and total investment needed for the project. It

displays the financial ability of the business in terms of financial aspects, the expected

profit, the modes of financing the business, the preparation of the financial statements

and schedules.

A. Project Cost

Project cost consists of the total investment cost and other financial considerations for

the operation of Happy Housekeeping. It includes the total expenses needed for the

operation of the business. The initial investment of Happy Housekeeping costs Php

4,079,963.91.
 Table 24
Happy Housekeeping Investment Cost

Description Annual Cost (Php)

Fixed Cost:
Rent Expense 120,000.00
Machines and Equipment 544,800.00
Furniture 13,995.00
Total Fixed Cost 678,795.00
Variable cost:
Office Supplies 13,561.00
Office Appliances 27,768.00
Advertising Expense 180.00
Cleaning Supplies 128,502.00
Service Vehicle 340,000.00
Fuel Expense 58,212.00
Permits and Licenses 7,275.00
Utilities Expense 62,630.91
Employees Benefit 58,240.00
Salary and Wages 2,704,800.00
Total Variable Cost 3,401,168.91
Total Investment Cost 4,079,963.91

Table 24 shows all the expenses of the establishment of Happy Housekeeping that

will be needed for the operation of the business. The items listed above are the fixed cost

which includes the rent expense, machines and equipment and the furniture cost. The

variable cost includes the office supplies, Office Appliances, Advertising Expense,

Cleaning Supplies, Service Vehicle Fuel Expense, Permits and Licenses, Utilities

Expense, Employees Benefit and Salary and Wages

 B. Source of funds

The initial investment for the establishment of Happy Housekeeping will be funded by

the five the potential investors.

Table 25
Source of Funds of Happy Housekeeping
Source Amount
Asi, Loren Grace A. Php 1,019,990.978

Bautista, Raynell Ivan C. Php 1,019,990.978

Magbuhat, Jhovy A. Php 1,019,990.978

Pagsinohin, Rhealyn C. Php 1,019,990.978

Total 4,079,963.91

Table 25 shows the source of funds that will be used as an initial investment for

this venture. The owners will contribute Php 816, 049.03 equally for the start of the

business. One potential investor will contribute Php 200,000 and the other four investors

will contribute Php 153,941.95 equally.

C. Major Assumptions

Major assumptions will be the basis of the estimation of possible revenues and future

financial projections to be able to test the changeability of the proposed business. The

following shows the major assumptions needed in the preparation of the financial report:

a. The business project will be having 355 working days in a year.

b. Salaries and wages of the employee will increase by 2.97% based on the

current amount of salaries stated by DOLE.

 c. The cleaners will be paid according to a commission basis while the manager

and the employee staff will be paid after 15 working days and at the end of

each month.

d. Fringe benefits will increase 2.97% every year.

e. Consumables office supplies are expected to have 2.08% annual increase

based on the suppliers.

f. The non-consumable office supplies are expected to have 0.97% annual

increase based on the suppliers.

g. The permits and licenses have a fixed annual cost.

h. The utilities are expected to have 1% annual increase.

i. Advertisements are expected to have no annual increase.

j. The furniture has a life span of 10 years.

k. Machineries and equipment have a salvage value of 2.4% and has a life span

of 5 years.

l. The building has a life span of 50 years.

The payback period will be 2 years.

D. Financial Statement

The Income Statement, Cash Flow Statement and Balance Sheet are prepared to

individually evaluate financial variability.

a. Projected Income Statement

The Income Statement records all income and expenses of the Happy

Housekeeping during a specified time period. The income statement will

determine if the business is profitable or not. The projected income statement is

the estimate financial results of Happy Housekeeping and shows the business

profitability when sales and expenses have been acquired.

 Table 26
Happy Housekeeping
Projected Income Statement
For the projected years ending Dec. 31 2021-2030
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Revenue
Service 1 2,662,500.00 2,928,750.00 3,221,625.00 3,543,787.50 3,898,166.25 4,287,982.88 4,716,781.16 5,188,459.28 5,707,305.21 6,278,035.73
Service 2 1,065,000.00 1,171,500.00 1,288,650.00 1,417,515.00 1,559,266.50 1,715,193.15 1,886,712.47 2,075,383.71 2,282,922.08 2,511,214.29
Service 3 710,000.00 781,000.00 859,100.00 945,010.00 1,039,511.00 1,143,462.10 1,257,808.31 1,383,589.14 1,521,948.06 1,674,142.86
Total Revenue 4,437,500.00 4,881,250.00 5,369,375.00 5,906,312.50 6,496,943.75 7,146,638.13 7,861,301.94 8,647,432.13 9,512,175.34 10,463,392.88
Less: Operating expenses
Office Supplies 8,568.00 8,687.95 8,809.58 8,932.92 9,057.98 9,184.79 9,313.38 9,443.76 9,575.98 9,710.04
Advertising Expense 180.00 180.00 180.00 180.00 180.00 180.00 180.00 180.00 180.00 180.00
Cleaning Supplies 4,993.00 5,112.83 5,235.54 5,361.19 5,489.86 5,621.62 5,756.54 5,894.69 6,036.17 6,181.03
Permits and Licenses 7,275.00 7,275.00 7,275.00 7,275.00 7,275.00 7,275.00 7,275.00 7,275.00 7,275.00 7,275.00
Utilities Expense 120,842.91 122,051.34 123,271.85 124,504.57 125,749.62 127,007.11 128,277.18 129,559.96 130,855.56 132,164.11
Employees Benefits 18,019.60 18,462.40 18,462.40 18,904.00 18,904.00 18,904.00 18,904.00 18,904.00 18,904.00 18,904.00
Salary and Wages 2,704,799.83 2,951,267.02 3,162,568.44 3,323,122.12 3,563,051.89 3,822,176.04 4,102,030.12 4,404,272.53 4,730,694.33 5,083,229.88
Total Operating Expense 2,864,678.34 3,113,036.54 3,325,802.82 3,488,279.80 3,729,708.34 3,990,348.56 4,271,736.22 4,575,529.95 4,903,521.03 5,257,644.07
Add: Depreciation expenses
Machineries and Equipment 181,136.30 181,136.30 181,136.30 181,136.30 181,136.30 181,136.30 181,136.30 181,136.30 181,136.30 181,136.30
Total Expenses 3,045,814.64 3,294,172.84 3,506,939.12 3,669,416.10 3,910,844.64 4,171,484.86 4,452,872.52 4,756,666.25 5,084,657.33 5,438,780.37
Total Income before tax 1,391,685.36 1,587,077.16 1,862,435.88 2,236,896.40 2,586,099.11 2,975,153.27 3,408,429.42 3,890,765.89 4,427,518.01 5,024,612.51
Less: 8% Income tax 111,334.83 126,966.17 148,994.87 178,951.71 206,887.93 238,012.26 272,674.35 311,261.27 354,201.44 401,969.00

Net income for the period 1,280,350.53 1,460,110.99 1,713,441.01 2,057,944.69 2,379,211.18 2,737,141.00 3,135,755.06 3,579,504.61 4,073,316.57 4,622,643.51
b. Projected Cash Flow

The projected cash flow of Happy Housekeeping shows all the listing expected

cash inflows and cash outflows throughout the first 10 years of operation. It

includes the cash flow of Happy Housekeeping starting from the year of

establishment, 2021 up to 2030 from operating activities, investing activities and

financing activities.
 Table 27
Happy Housekeeping
Projected Cash Flow
For the projected years ending Dec. 31 2021-2030
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Cash Flow from Operating Act

1,461,486.83 1,641,247.29 1,894,577.31 2,239,080.99 2,560,347.48 2,918,277.30 3,316,891.36 3,760,640.91 4,254,452.87 4,803,779.81
Annual Cash Return

Add (Deduct)

2,999.74 599.95 389.97 401.96 439.46 483.14 531.42 584.56 643.02 707.32
Increase in Accounts Payable

11,093.75 1,109.38 1,220.31 1,342.34 1,476.58 1,624.24 1,786.66 1,965.33 2,161.86 2,378.04
Increase in Other Percentage Taxes

1,475,580.32 1,642,956.61 1,896,187.59 2,240,825.30 2,562,263.52 2,920,384.68 3,319,209.45 3,763,190.80 4,257,257.75 4,806,865.18
Net Cash Provided (used) by Operating

Cash Flow from Investing Activity

926,563.00 926,563.00
Acquisition of Fixed Asset

20,881.50
Selling of Fixed Asset

(926,563.00) - - - - (905,681.50) - - - -
Net Cash Used by Investing

Cash Flow from Financing

 4,079,963.92
Initial Investment

- - - - - - - - - -
Withdrawal

4,079,963.92 - - - - - - - - -
Net Cash Provided by Financing

4,628,981.24 1,642,956.61 1,896,187.59 2,240,825.30 2,562,263.52 2,014,703.18 3,319,209.45 3,763,190.80 4,257,257.75 4,806,865.18
Net Increase in Cash

4,628,981.24 6,271,937.84 8,168,125.43 10,408,950.73 12,971,214.25 14,985,917.42 18,305,126.87 22,068,317.68 26,325,575.43

Cash Balance Beg

4,628,981.24 6,271,937.84 8,168,125.43 10,408,950.73 12,971,214.25 14,985,917.42 18,305,126.87 22,068,317.68 26,325,575.43 31,132,440.60
Cash Balance Ending

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Cash Flow from Operating Act

1,461,486.83 1,641,247.29 1,894,577.31 2,239,080.99 2,560,347.48 2,918,277.30 3,316,891.36 3,760,640.91 4,254,452.87 4,803,779.81
Annual Cash Return

Add(Deduct)

2,999.74 599.95 389.97 401.96 439.46 483.14 531.42 584.56 643.02 707.32
Increase in Accounts Payable

11,093.75 1,109.38 1,220.31 1,342.34 1,476.58 1,624.24 1,786.66 1,965.33 2,161.86 2,378.04
Increase in Other Percentage Taxes

1,475,580.32 1,642,956.61 1,896,187.59 2,240,825.30 2,562,263.52 2,920,384.68 3,319,209.45 3,763,190.80 4,257,257.75 4,806,865.18
Net Cash Provided (used) by
Operating
Cash Flow from Investing Activity

926,563.00 926,563.00
Acquisition of Fixed Asset

20,881.50
Selling of Fixed Asset

(926,563.00) - - - - (905,681.50) - - - -
Net Cash Used by Investing

Cash Flow from Financing

4,079,963.92
Initial Investment

- - - - - - - - - -
Withdrawal

4,079,963.92 - - - - - - - - -
Net Cash Provided by Financing

4,628,981.24 1,642,956.61 1,896,187.59 2,240,825.30 2,562,263.52 2,014,703.18 3,319,209.45 3,763,190.80 4,257,257.75 4,806,865.18
Net Increase in Cash

4,628,981.24 6,271,937.84 8,168,125.43 10,408,950.73 12,971,214.25 14,985,917.42 18,305,126.87 22,068,317.68 26,325,575.43

Cash Balance Beg

4,628,981.24 6,271,937.84 8,168,125.43 10,408,950.73 12,971,214.25 14,985,917.42 18,305,126.87 22,068,317.68 26,325,575.43 31,132,440.60
Cash Balance Ending

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Cash Flow from Operating Act

1,461,486.83 1,641,247.29 1,894,577.31 2,239,080.99 2,560,347.48 2,918,277.30 3,316,891.36 3,760,640.91 4,254,452.87 4,803,779.81
Annual Cash Return
c. Projected Balance Sheet

Balance sheet is a statement that shows the financial condition of business by

listing the assets, liabilities and shareholder’s equity at a specific date.

Table 27 shows the projected balance sheet of the Happy Housekeeping for

projected fiscal years 2021-2030.

 Table 27
Happy Housekeeping
Projected Balance Sheet
For the projected years Dec. 31, 2021-2030
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

ASSETS
Currents Assets
Cash 4,628,981.24 6,271,937.84 8,168,125.43 10,408,950.73 12,971,214.25 14,985,917.4 18,305,126.87 22,068,317.68 26,325,575.43 31,132,440.60
2
Total Current Assets 4,628,981.24 6,271,937.84 8,168,125.43 10,408,950.73 12,971,214.25 14,985,917.4 18,305,126.87 22,068,317.68 26,325,575.43 31,132,440.60
2
Non Current Assets
Property, Plant and 5 745,426.70 564,290.40 383,154.10 202,017.80 20,881.50 745,426.70 564,290.40 383,154.10 202,017.80 20,881.50
Equip.
Total Non Current 745,426.70 564,290.40 383,154.10 202,017.80 20,881.50 745,426.70 564,290.40 383,154.10 202,017.80 20,881.50
Assets

TOTAL ASSETS 5,374,407.94 6,836,228.24 8,551,279.53 10,610,968.53 12,992,095.75 15,731,344.1 18,869,417.27 22,451,471.78 26,527,593.23 31,153,322.10
2

LIABILITIES
&PARTNER'S EQUITY
Current Liabilities
Accounts Payable 6 2,999.74 3,599.68 3,989.65 4,391.61 4,831.07 5,314.21 5,845.63 6,430.20 7,073.22 7,780.54
Other Percentages 11,093.75 12,203.13 13,423.44 14,765.78 16,242.36 17,866.60 19,653.25 21,618.58 23,780.44 26,158.48
Taxes Payable

Total Current Liabilities 14,093.49 15,802.81 17,413.09 19,157.39 21,073.43 23,180.81 25,498.89 28,048.78 30,853.66 33,939.02
Partner's Equity
Partner 1 (MP) 1,340,078.61 1,705,106.36 2,133,466.61 2,647,952.78 3,242,755.58 3,927,040.83 4,710,979.60 5,605,855.75 6,624,184.89 7,779,845.77
Partner 2 1,340,078.61 1,705,106.36 2,133,466.61 2,647,952.78 3,242,755.58 3,927,040.83 4,710,979.60 5,605,855.75 6,624,184.89 7,779,845.77
Partner 3 1,340,078.61 1,705,106.36 2,133,466.61 2,647,952.78 3,242,755.58 3,927,040.83 4,710,979.60 5,605,855.75 6,624,184.89 7,779,845.77
Partner 4 1,340,078.61 1,705,106.36 2,133,466.61 2,647,952.78 3,242,755.58 3,927,040.83 4,710,979.60 5,605,855.75 6,624,184.89 7,779,845.77
Total Partner's Equity 5,360,314.45 6,820,425.44 8,533,866.45 10,591,811.14 12,971,022.31 15,708,163.3 18,843,918.38 22,423,423.00 26,496,739.57 31,119,383.08
2

TOTAL LIABILITIES & 5,374,407.94 6,836,228.24 8,551,279.53 10,610,968.53 12,992,095.75 15,731,344.1 18,869,417.27 22,451,471.78 26,527,593.23 31,153,322.10
EQUITY 2
- - - - - - - - - -
E. Financial Viability Criteria

The financial variability criterion shows the business profitability, liquidity and

cash solvency and growth overtime.

1. Financial Ratios

1.1 Liquidity

Liquidity ratio is a process of analyzing the financial viability through

computing financial ratios of the business in order to determine the liquidity

of the project. This measures how much assets can cover up the current

liabilities of the business.

1.1.1 Current Ratio

The current ratio is an interpretation of the capability to pay back its assets

which it can give the ability to become its product into cash and a sense of the

efficiency of a company’s operating cycle.

The formula for calculating a company’s current ratio is

Total Current Asset

Current Ratio =
Total Current Liability
 Table 28
Current Ratio

Year Current assets Current Liabilities Current Ratio

2021 4,628,981.24 14,093.49 328.45
2022 6,271,937.84 15,802.81 396.89
2023 8,168,125.43 17,413.09 469.08
2024 10,408,950.73 19,157.39 543.34
2025 12,971,214.25 21,073.43 615.52
2026 14,985,917.42 23,180.81 646.48
2027 18,305,126.87 25,498.89 717.88
2028 22,451,471.78 28,048.78 800.44
2029 26,325,575.43 30,853.66 853.24
2030 31,132,440.60 33,939.02 917.31

Table 28 shows the current ratio of increase of both current assets and current

liabilities of Happy Housekeeping from year 2021 to 2030.

 1000

900

800

700

600

500

400

300
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Figure 24. Current Ratio

Figure 24 shows the graph of the current ratio of the Happy Housekeeping in the ten-

year period. The trend of the graph shows an increasing trend which indicated that the

business is capable of paying the assets back.

1.2 Profitability Ratios

Financial ratios measure the profitability of the business based on certain accounts.

These are also used to estimate the business’s ability and other relevant costs incurred

during a specific period of time to generate income as compared to its expenses.

Profitability ratio includes net profit margin, return on assets and return on equity.
 1.2.1. Net Profit Margin

Net profit margin serves as an indicator of how the business is effective at cost

control. The higher the net profit margin, the more effective their revenue into actual

profit.

It is computed as:

Earnings after tax

Net Profit Margin =
Sales

Table 29
Net Profit Margin

Year Earnings after Tax Sales Net Profit Margin

2021 1,280,350.53 4,437,500.00 28.85%

2022 1,460,110.99 4,881,250.00 29.91%

2023 1,713,441.01 5,369,375.00 31.91%

2024 2,057,944.69 5,906,312.50 34.84%

2025 2,379,211.18 6,496,943.75 36.62%

2026 2,737,141.00 7,146,638.13 38.30%

2027 3,135,755.06 7,861,301.94 39.89%

2028 3,579,504.61 8,647,432.13 41.39%

2029 4,073,316.57 9,512,175.34 42.82%

2030 4,622,643.51 10,463,392.88 44.18%

 Table 29 shows the net profit margin of Happy Housekeeping from year 2021 to

2030. The net profit income is increasing and the net profit margin ranges from 28.85%

to 44.18%.

50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Figure 25. Net Profit Margin

Figure 25 shows the graph of the net profit margin of the Happy Housekeeping. The

trend in the year 2021 to 2030 shows on the graph and has an increasing projection of net

profit margin. It indicates that as the business run, it is more effective in converting its

revenue into actual profit.

1.2.2. Return on Assets

Return on assets can be determined by dividing the net income by the total assets and

it helps to measure how productive an investment is.

Net Income
Return on Assets = x 100
Total Asset
 Table 30
Return on Asset

Year Net Income Total Assets Return on Assets (%)

2021 1,280,350.53 5,374,407.94 23.82%

2022 1,460,110.99 6,105,318.09 23.92%

2023 1,713,441.01 7,693,753.89 22.27%

2024 2,057,944.69 9,581,124.03 21.48%

2025 2,379,211.18 11,801,532.14 20.16%

2026 2,737,141.00 14,361,719.94 19.06%

2027 3,135,755.06 17,300,380.70 18.13%

2028 3,579,504.61 20,660,444.53 17.33%

2029 4,073,316.57 24,489,532.50 16.63%

2030 4,622,643.51 28,840,457.66 16.03%

Table 30 shows the return on assets from year 2021 to 2030. The net income of the

business from year 2021 to 2030 is continuously increases, while the total assets also

increases continuously from year 2021 to 2030.

 30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Figure 26. Return on Assets

Figure 26 shows the ten-year projection of return on assets of the Happy

Housekeeping. From year 2021 to 2030, the trend of the graph is continuously

decreasing. It indicates that the investment of the business is not productive.

1.2.3 Return on Equity

The return on equity is the percentage provided by the owners which is the

total assets that processes the resources they provide. Within the invested money,

it deals with the firm’s profitability as how much profit does the firm gets.

The following formula is used:

Net Income
Return on Equity = x 100
Total Equity
 Table 31
Return on Owner’s Equity

Year Net Income Owner’s Equity Return on Owner’s

Investment (%)
2021 1,280,350.53 5,360,314.45 23.89%

2022 1,460,110.99 6,090,369.94 23.97%

2023 1,713,441.01 7,677,145.94 22.32%

2024 2,057,944.69 9,562,838.79 21.52%

2025 2,379,211.18 11,781,416.73 20.19%

2026 2,737,141.00 14,339,592.82 19.09%

2027 3,135,755.06 17,276,040.85 18.15%

2028 3,579,504.61 20,633,670.69 17.35%

2029 4,073,316.57 24,460,081.28 16.65%

2030 4,622,643.51 28,808,061.32 16.05%

Table 31 shows the ten-year period from 2021-2030 return on equity. To identify the

profitability of the investment over the period of time, the return on equity is used. It

shows that from year 2021 to 2030 the net income and the owner’s equity are

continuously increasing. The low percentage in return of the equity means that there is

high capital invested in the business.

 30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Figure 27. Return on Owner’s Equity

Figure 27 shows the Happy Housekeeping ten year projection of the return on owner’s

equity. The percentage of the returns increase in year 2022 on owner’s equity because the

net income on that year increases. From the year 2022 to 2030, the trend of the graph is

continuously decreasing. The decreasing percentage of the return on equity as the

business operates means that it cannot immediately return the capital invested with the

given income. It is decreasing, but still within acceptable range of 16.05% - 23.97%.

1.3 Risk Ratios

Risk ratios include debt ratio and debt-to-equity ratio.

1.3.1. Debt Ratio

It measures the extent of a company’s or consumer’s leverage

The following formula is used:

Total Liabilities
 Debt Ratio =
Total Asset

Table 32
Debt Ratio

Year Total Liabilities Total Assets Debt Ratio

2021 14,093.49 5,374,407.94 0.26%
2022 15,802.81 6,836,228.24 0.23%
2023 17,413.09 8,551,279.53 0.20%
2024 19,157.39 10,610,968.53 0.18%
2025 21,073.43 12,992,095.75 0.16%
2026 23,180.81 15,731,344.12 0.15%
2027 25,498.89 18,869,417.27 0.14%
2028 28,048.78 22,451,471.78 0.12%
2029 30,853.66 26,527,593.23 0.12%
2030 33,939.02 31,153,322.10 0.11%

Table 32 shows the debt ratio that specifies the venture’s liquidity from 2021-2030 for

a ten-year period. As the business operates, the total liabilities of the Happy

Housekeeping are continuously increasing and the total assets are also continuously

increasing. It indicates that the venture can pay its current obligations from the bank. The

lower the debt ratio of the business, the liabilities decreases and the assets increases. As a

result, the Happy Housekeeping can pay the loan borrowed from the bank.
 0.30%

0.25%

0.20%

0.15%

0.10%

0.05%

0.00%
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Figure 28. Debt Ratio

Figure 28 shows the Happy Housekeeping graph representation of the debt ratio in the

year 2021 to 2030. The venture has the capability to pay the current obligations from the

bank because it shows the decreasing percentage of debt ratio.

1.3.2. Debt-to-Equity Ratio

A Debt-to-Equity Ratio is determined by dividing the total liabilities by

the total equities. It is show that the venture can rely on debt to the

financial investments and operations.

The formula for calculating debt-to-equity ratio is:

Total Liabilities
Debt-to-Equity =
Total Equity

Table 33
 Debt-To-Equity Ratio

Year Total Liabilities Total Equity Debt-To-Equity Ratio

2021 14,093.49 5,360,314.45 0.26%
2022 15,802.81 6,820,425.44 0.23%
2023 17,413.09 8,533,866.45 0.20%
2024 19,157.39 10,591,811.14 0.18%
2025 21,073.43 12,971,022.31 0.16%
2026 23,180.81 15,708,163.32 0.15%
2027 25,498.89 18,843,918.38 0.14%
2028 28,048.78 22,423,423.00 0.13%
2029 30,853.66 26,496,739.57 0.12%
2030 33,939.02 31,119,383.08 0.11%

Table 33 shows the debt-to-equity ratio from 2021-2030 for a ten-year period. The

Happy Housekeeping projected total liabilities and the total equity is continuously

increasing. From the year 2021 to 2030, the debt to equity ratio is continuously

decreasing. It indicates that the business is financially stable.

 Figure 29. Debt-To-Equity Ratio
Figure 29 shows the Happy Housekeeping graphical presentation of debt-to-equity

ratio. The trend of the graph is continuously decreasing, it means the museum is being

lesser dependent on the money loan from the bank.

1. NPV (Net Present Value)

Net present value determines if the venture is an acceptable investment or

not. A 25% internal rate is use in determining the net present value which can

be computed using the formula.

Income after tax

Net Present Value =
(1+ r) ⁿ

Table 34
Net Present Value

Item Year Cash flows Factor PV of cash Flow

(Php)

Cash Outflows

Fixed Cost 0 (4,079,963.92) 1.00 (4,079,963.92)

Cash Inflows

1
1,475,580.32 1.10 1,341,436.65
2
1,642,956.61 1.210 1,357,815.38
 3
1,896,187.59 1.3310 1,424,633.80
4
2,240,825.30 1.46410 1,683,565.21
5
2,562,263.52 1.610510 1,925,066.50
6
2,920,384.68 1.7715610 2,194,128.23
7
3,319,209.45 1.94871710 2,493,771.19
8
3,763,190.80 2.143588810 2,827,340.95
9
4,257,257.75 2.3579476910 3,198,540.76
10
4,806,865.18 2.59374246010 3,611,468.95
Total Cash inflows
22,057,767.63

NPV 17,977,803.72

Table 34 shows a positive net present value with Php 17,977,803.72 which is

acceptable because it aptitudes a return greater than the required rate of return.

1. FIRR (Financial Internal Rate of Return)

The FIRR deals with the rate of which the investment made will return in terms of the

savings and benefits the project can give.

Table 35
Financial Rate of Return

Investment cost Annual Cash Inflow FIRR Factor FIRR

4,079,963.92 22,057,767.63
 Table 35 shows that the computed FIRR is ______%. Through putting the initial

amount of investment, it indicates that the business has a positive present value to start

the business.

4. Payback Period

Payback period determines the length of time required to recover the initial

investment. To obtain the payback period of the venture, accumulated, simple

payback and interpolation method are used.

4.1 Using Accumulated Method

Table 36
Accumulated Method for Payback Computation

Year Investment Cost Income after Investment Cost Income

Tax After Tax (Php)
2021 4,079,963.92 1,280,350.53 2,799,613.39

2022 2,799,613.39 1,460,110.99 1,339,502.40

 2023 1,399,502.40 1,713,441.01 (373,938.61)

2024 (373,938.61) 2,057,944.69 (2,431,883.30)

2025 (2,431,883.30) 2,379,211.18 (4,811,094.48)

2026 (4,811,094.48) 2,737,141.00 (7,548,235.48)

2027 (7,548,235.48) 3,135,755.06 (10,683,990.54)

2028 (10,683,990.54) 3,579,504.61 (14,263,495.15)

2029 (14,263,495.15) 4,073,316.57 (18,336,811.72)

2030 (18,336,811.72) 4,622,643.51 (22,959,455.23)

Total Initial Investment

Payback Period =
Total Net Income/Number of Years
4,079,963.92
=
27,039,419.15/10

Accumulated Method

Payback Period = 1.51 years = 1 years and 6 months

Table 36 shows the computation using the accumulated method for payback

period. With the initial investment of Php 4,079,963.92 and total net income of Php

27,039,419.15 in 10 years, the calculated payback period is 1 years and 6 months.

4.2 Using Simple Method

Table 37
Simple Method for Payback Computation

Year Net Income Present Value

0 - (4,079,963.92)
2021 1,280,350.53 (2,799,613.39)
2022 1,460,110.99 (1,399,502.40)
 2023 1,713,441.01 373,938.61
2024 2,057,944.69 2,431,883.30
2025 2,379,211.18 4,811,094.48
2026 2,737,141.00 7,548,235.48
2027 3,135,755.06 10,683,990.54
2028 3,579,504.61 14,263,495.15
4,073,316.57 18,336,811.72
2029
2030 4,622,643.51 22,959,455.23

Payback Period = 1 years and 6 months

Table 37 shows the computation for payback period using simple method. With the

initial investment of Php 4,079,963.92 and total net income Php 27,039,419.15 in 10

years, the calculated payback period is 1 years and 6 months.

4.3 Using Interpolation Method

Table 38
Interpolation Method

Year Net Income Cumulative Net Income

2021 1,280,350.53 1,280,350.53

2022 1,460,110.99 2,740,461.52

2023 1,713,441.01 4,453,902.53

2024 2,057,944.69 6,511,847.22

2025 2,379,211.18 8,891,058.40

2026 2,737,141.00 11,628,199.40

 2027 3,135,755.06 14,763,954.46

2028 3,579,504.61 18,343,459.07

2029 4,073,316.57 22,416,775.64

2030 4,622,643.51 27,039,419.15

Interpolation Method

Payback Period = 4.5 years = 4 years and 6 months

Table 38 shows the computation for payback period using the interpolation method.

With the initial investment of Php 4,079,963.92, the cumulative of the first year Php

1,280,350.53 and the cumulative of the second year is Php 2,740,461.52 in 10 years, the

calculated payback period is 4 years and 6 months.

Payback period is calculated using accumulated, simple and interpolation methods.

Using accumulated method, it shows that the venture will have its payback period within

1 years and 6 months. Using interpolation method, the payback period will be 4 years and

6 months. And by using simple payback method, the payback period is 1 years and 6

months. The computed payback period is shorter than the expected payback period of 10

years.
 E. Financial Analysis Summary

Table 39
Financial Analysis Summary

Parameters Results Interpret Assessment

ation
1. Financial Ratio
a. Liquidity Ratio
Current Ratio 2.29 to 7.19 Accepted It has an increasing value of current
ratio that indicates the business has a
capability to payback its liabilities with
its assets.
b. Probability Ratios
Net Profit Margin 0.11 to 0.52 Accepted It has an increasing value of net profit
margin that indicates the business has a
high potential to gain profit.
Return on Assets 4% to 16% Accepted It has an increasing value of return of
assets that indicates investment of the
business is productive.
Return owners’ Equity 14% to 18% Accepted It has an increasing value of return
owner’s equity that indicates there is a
high capital invested in the business but
within an acceptable range of 15%-20%.
c. Risk Ratios
Debt Ratio 0.74 to 0.11 Accepted It has a decreasing value indicates that
the business has a higher tendency to
pay off the current obligations
Debt-to-Equity Ratio 2.82 to 0.12 Accepted It has a decreasing value indicates that
the financial stable and using lesser
leverage and having stronger equity
position.

2. Net Present Value Php Accepted It has a positive value.

18,750,932.0
6

3. Financial Internal Rate of 12.304% Accepted It indicates that the business has a
Return positive present value through putting
the initial amount of investment to start
the business.

4. Payback Period 4 years and 7 Accepted It is less than the payback period
Accumulated Method months expected by the organization