FINANCIAL

MARKETS
INTEREST CASES
C060
GARBIDA, JANE CARLA C.
-BSA III

A requirement under the instruction

of

Mr. Albert Roces PhD

ii
Financial Markets
Midterm Period

CASE 1. CESSATION OR DEBT

Last 2010, Jazzy started her small retail business on women products with the name

Forever 22. She was able to gather the most efficient suppliers allowing her business to

flourish in the next years. Over the last few years, it has made an impressive name for itself in

the fashion industry. It was able to build a few branches nationwide. In just five years, it was

able to create its value on Filipino consumers. However, after the succeeding years, it

experiences a slow loss of prosperity. By the year 2020, it undergoes a significant downfall in

sales, mainly due to pandemic. Jazzy and her management team were not able to keep up

with the drastic change in the market. Its retail stores cover large space at malls, which is a

waste, and the marketing is weak online. Its sales drop from 5 million to 1 million per annum.

Its losses resulted in deep indebtedness from its significant lenders, which specifically

amounted to 10 million. Undeniably, this debt means for the business to cease in operation.

Garbida corporation, one of its primary lenders, has acknowledged this situation and granted

Jazzy and the management options. The corporation offers them to pick between borrowing

another 15 million with 7 percent fixed interest payable after seven years or selling the

business for 5 million as a whole together with its asset and liabilities.

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Financial Markets
Midterm Period

CASE 1 SOLUTION

Jazzy and her management are in the middle between two reasonable options.

Weighing both options shall be done to come up with a rational decision, given that it will result

in a significant change for the company. As stated in the case, we shall include the fact that it

has a healthy name in the market, and it has 10 million debt on its lenders. The first option is a

15 million debt with a 7 percent fixed interest.

Final Amount = Principal + Interest ; Interest = Principal x Rate

Final amount = ₱ 15 000 000 +( ₱ 15 000 000 x 7%)

= ₱ 15 000 000 + ₱ 1 050 000

= ₱ 16 050 000

Option 1 computation

We can adhere that the final amount of ₱ 16 050 000 will be the required payment to

settle the debt with Garbida’s corporation from the computation above. The business can use

this amount of money to restructure, pay its debt, and continue its operations. The other option

is to sell the company as a whole, releasing the owner from the obligation of 5 million money.

However, Jazzy losses the business, and she needs to start again from zero.

Looking at all of these, the option to borrow another 20 million is a better choice. Risking

for the business is part of how things work in this environment. If Jazzy and her management

can restructure and create a strategic plan for the company with each member of the

organization’s maximum effort, it can achieve its goal in 7 years. This choice is also a long

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Financial Markets
Midterm Period

term plan which will lead not only for survival but for growth. The cessation of business is a

reasonable option, but it is too negative for me, and giving up on something you once built is

not a wise choice.

The option I picked may sound optimistic, but with all the great inventions and

techniques in the business world, it is impossible to keep up. If one would also assess, the

Garbida Corporation still believes with Forever 22; we can adhere to how it would risk its

money to save it or to change its management. This assessment proves that the company is

not a hopeless case. It would be a pity if it succeeded in others’ hands than its real and primary

proprietor. With a clear vision, hard work, and perseverance, nothing is impossible. Nobody

can really be sure if risks will pay off, no matter how calculated they may be. But this should

not stop you from taking risks. If you want your business to succeed, chances are necessary.

According to a quote by Frederick Wilcox, “Progress always involves risks. You can’t steal

second base and keep your foot on first.”

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Financial Markets
Midterm Period

CASE 2. WITHRAWABLE OR NOT; SIMPLE

OR COMPOUND

Jane is a mixed-income earner. She owns an accounting and consultancy firm and an

employed professor in a university. The year 2020 has brought many blessings to this

entrepreneur, CPA, allowing her to have a five hundred thousand worth of disposable income.

She then decided to place it on one of her trusted bank Garbida Banco de Norte. The bank

then offers two reasonable options. First is to put in a withdrawable account with a 1% simple

interest, and the other one is a 5-year non-withdrawable account with a 3% quarterly

compounding interest. On the first option, Jane will be receiving the interest income yearly

while on the second option, Jane will receive the principal and interest after five years, and

when breached, only the principal.

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Financial Markets
Midterm Period

CASE 2 SOLUTION

Choosing between these two choices is not an easy decision, for it includes how

do you plan on keeping your money on a long-term basis. Jane’s personal economy

needs to be handled well, for it involves a lot of money. To come up with a decision, we

ought to compute the final amount of both options after five years.

Final Amount = Principal + Interest; Interest = Principal x Rate x Time

Final amount = ₱ 500 000 +( ₱ 500 000 x 1% x 5 years)

= ₱ 500 000 + ₱ 25 000

= ₱ 525 000

Option 1 computation

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Financial Markets
Midterm Period

𝒓
𝑭𝑽 = 𝑷(𝟏 + 𝒏)𝒏𝒕

FV = future value of the deposit

P = principal or amount of money deposited
r = annual interest rate (in decimal form)
n = number of times compounded per year
t = time in years.

3% 4(5)
𝐹𝑉 = ₱ 500 000 (1 + )
4

= ₱ 500 000 (1.0075)20

= ₱ 500 000 (1.1611841423)

= ₱ 580 592.071

Option 2 computation

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Financial Markets
Midterm Period

From the computation above, we can see that from option one; we can earn an

interest amounting to ₱ 525 000 and ₱ 580592.071 for option two. Undeniably, in terms

of the amount of interest, option 2 is better than the first option. However, both options

have their conditions, which can be found in the case. Personally, assessing both

possibilities, I suppose that option two is the better choice for Jane. As we all know, she

is a businesswoman and a professional allowing her to have an income from her

business and employment; this will enable us to understand that the five hundred

thousand is meant for her savings alone. The massive difference in interest is a

significant factor in this decision. It might be non-withdrawable, but you can secure a

high return after five years. It is a wise choice to have a restricted amount of money

which is placed in a safe account. One might say that emergencies might come which

may result in withdrawal, however, if Jane would pick this option she shall have a clear

vision not to withdraw no matter what happens and again she both have a passive and

active income which would not jeopardize that amount of money to be placed in Garbida

Banco de Norte. Thus, with the positive outlook putting the five-hundred thousand is

more profitable and will contribute a lot to Jane’s economy.

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