Equity and Debt

This section consists of the capital cost breakdown including the equity and debt ratio of the
plant. The projected capital cost amounts to Php 3,198,212,106.42 encompassing expenses for all
the equipment needed to operate the plant, land acquisition where the plant shall be situated,
labor expenses depending on the latest rate, building permits, and utility expenses. Table _
presents the breakdown of enumerated capital cost needed for the construction of the plant.

Table_: Breakdown of Capital Cost

Capital Cost Amount (Php)
Land Facility 80,400,000.00
Major Equipment 586,278,942.91
Labor 128,486,178
Overall Construction 2,263,047,985.51
Wastewater Treatment Facility 140,000,000
Total 3,198,212,106.42

The table for breakdown of capital cost presents a clear overview of how project funds are
distributed. It details the allocation of capital across various components for a more
comprehensive summary of where investments are being put into. This breakdown acts as an
efficient instrument for budgeting and resource allocation, contributing to effective financial
management for the overall duration of construction.

The debt-to-equity (D/E) ratio, also called risk ratio, is a financial metric used to assess a
company's financial leverage, indicating the proportion of debt and equity a company is using to
finance its assets. It is calculated by dividing a company's total liabilities (debt) by its total
shareholders' equity. A high debt-to-equity ratio indicates that a company has taken an
aggressive approach to financing its growth through debt, potentially increasing its financial risk.
In contrast, a low debt-to-equity ratio signifies a conservative financing strategy, with a greater
portion of financing derived from equity. To summarize, it measures the changes in the
company’s reliance on debt over time. This can be observed in a 60:40 ratio in the company.

Based on numerous factors and the context of the company's operations, the optimal debt-to-
equity ratio tends to vary widely depending on industry. From the data acquired on the website
of British Business Bank, a good debt-to-equity ratio is around 1-1.5. Also, according to general
consensus, it is commonly advised that the debt-to-equity ratio should not exceed 2. This is an
exemption for industries with high capital requirements, such as financial and manufacturing
sectors, that frequently exhibit debt-to-equity ratios that exceed 2.

The formula for D/E ratio is:

Total liabilities
Debt ¿ Equity ratio : '
Total shareholder s equity
'
Assets=Liabilities+ Shareholder s Equity
Shareholders’ equity represents the company’s net worth--the amount shareholders would
receive if the company's total assets were liquidated and all of its debts repaid. The company has
a debt-to-equity ratio of 1.5. This was calculated from the total capital cost of Php
3,198,212,106.42, wherein 60% of the total is the debt amounting to Php 1,918,927,263.85 and
the equity at 40% is Php 1,279,284,842.57.

Wastewater and Treatment Facility Land Facility

4% 3%

Major Equipment
18%

Labor
4%

Overall Construction
71%

Land Facility Major Equipment Labor

Overall Construction Wastewater and Treatment Facility
Figure __: Project's Startup Expenses Summary

The project's initial investments are divided into four main components: land facility cost, major
equipment cost, labor cost, wastewater and treatment facility, and overall construction cost
(including mechanical and electrical). With a total capital cost of Php 3,198,212,106.42, these
investments are carefully calculated and allocated to ensure proper distribution of finances to
foster smooth and successful project development. The largest portion of the capital is designated
for the overall construction costs, which includes the utilities, building permits, insurances, and
the mechanical and electrical construction costs. This majority of the graph is followed by major
equipment cost, labor, wastewater and treatment facility, and land facility cost. This resource
allocation is aimed at maximizing the project's financial efficiency and return on investment.
 Overall Construction Cost (71%): This portion consists of the overall construction cost
amounting to Php 2,263,047,985.51 which is 71% of the total capital cost. This segment
of the graph covers the utility connections, building permits, and insurance of the
workers. It also includes all mechanical and electrical construction costs of the project.
 Major Equipment Cost (18%): This segment amounting to Php 586,278,942.91 holds
18% of the overall cost. This encompasses the expenses needed for the following
equipment needed for the plant operation: distillation columns, compressor, plug flow
reactors, etc.
 Wastewater and Treatment Facility (4%): Amounting to Php 140,000,000, four percent of
the total capital cost is intended for the wastewater and treatment facility. Upon acquiring
Environmental Compliance Certificate (ECC), the company vows to still protect the
 environment from hazardous wastes, hence the inclusion of these facilities which
commonly includes clarifier and aeration tanks.
 Labor (4%): This portion, which makes up 4% of the total breakdown, includes the
salaries of all laborers, workers, and engineers during the duration of the project. This
amounts to Php 128,486,178.
 Land Facility (3%): Three percent of the capital cost encompasses the expenses for land
acquisition and other facilities where the plant will be situated. This amounts to Php
80,400,000.00.