 First, let us illustrate the difference between the company’s possible liabilities under the three

choices of loan provided.

Option 1 Option 2 Option 3

Alex’s offer Short term loan (1 year) Long term option(5 years)
Current asset 10,000,000 10,000,000 10,000,000
(loan)

Current liabilities 45% of the entire (10,000,000)(.06)=600,000 (10,000,000)(.1)=1,000,000

(interest of loan) stocks (1,000,000)(5)= 5,000,000

Unknown but will be

Total liabilities literally has a bigger 10,600,000 15,000,000
value than the other
choices

 Base on the illustration above as well from the situation under Mr. Anthony Cruz’s company and
various terms of investors, we suggest to implement/ apply for the long term loan. The question
now is why, why would we prefer the long term loan when there is still another option which
offers lower interest?
 Despite of the larger amount of liability on the long term loan, it is still more convenient and
easier to pay back. Thanks to the 5 year time span it has offered, both the borrowed capital and
its interest will be likely returned in time, because of the proper maximization and accumulation
of profits and sales.
 Comparison to the short term loan, the interest might appear in a smaller amount but the time
that has required to pay back the interest is too short, where the company cannot simply cope
with their sales to accumulate enough profit to cover the debt yet.
 Debt for capital has also a positive effect on profitability, it allows companies to leverage
existing funds thereby enabling more expansion that would otherwise be possible, yet you
should be more careful and precise on choosing your source.
  Now that we have determined the appropriate capital structure of the business , let us also
know the profitability of the company in able for us to know will the company resolve their debt
in their capital.

Considering the facts under Mr. Anthony Cruz’s Zapatoes Inc., it was mentioned that young
professionals and college students are their main target market customers. Due to that, the prices of
their products must remain affordable and should at least at the range of Php 1000 – Php 2000 per pair.

By the year 2013, they have sold 3300 pairs, 4800 at 2014 and 6200 pairs in 2015. The chart below
shows the total amount of cash they have generated with those year and number of sales.

Year Quantity of shoes sold Price per pair Total sales

2013 3,300 Php 1,500 Php 4,950,000

2014 4,500 Php 1,500 Php 6,750,000
2015 6,200 Php 1,500 Php 9,300,000

 Because the value of the product was not entirely specified, we used the standard price
Php 1500 which appears to be in the middle of the said price range to calculate the total
sales within each year.
 We have also noticed the increase of shoes sold where;

year Quantity of shoes sold Increase of sales per year

2013 3300 Gap
2014 4500 1200 500
2015 6200 1700

 By the visibility of the accurate progress in sales we can openly predict future sales unto
the next 5 years by just basing on the increase of sales per year starting from 2013.

Year Quantity of Product’s initial cost Selling price Total profit for 5
shoes sold [(quantity) (475)] [(quantity)(1,500)] years
2016 8,400 3,990,000 12,600,000 75,850,000 –
2017 11,100 5,272,500 16,650,000 15,000,000=
2018 14,300 6,792,500 21,450,000 60,850,000
2019 18,000 8,550,000 27,000,000
2020 22,200 10,545,000 33,300,000

 With this kind of strategy, we can now further prove that long term loan is the best choice
among all and that, manufacturing his own product will surely give him more profit basing from
the charts we made.
 ANTHONY CRUZ SHOULD TAKE “DEBT FINANCING”