Financial Management

Case Study LGAOP02

Submitted by: Almario G. Parco Jr., CPA

MBA 104
Two new companies will be created and
compared for this case study.

Powerful City Sunrise City

Development Development
Corporation Corporation
Powerful City
Development
Corporation
Powerful City Development
Corporation is the largest property
developer in the Philippines with a
solid track record in developing
large-scale, integrated, mixed-use,
and sustainable estates that are
now thriving economic centers.
Financial Planning for 2020 (Powerful City Development
Corporation)

Sales growth : g 15%

Interest rate on all debt (s.t. + lt) 10%
Source for additional funds (AFN) Short/long term debt
Fixed assets capacity utilisation 100%
Fixed asset growth rate 7.00%
Tax Rate 35%
Dividend Ratio 40%
Financial Planning POWERFUL CITY DEVELOPMENT CORPORATION
STATEMENTS OF COMPREHENSIVE INCOME
for 2020 (Powerful
City Development Current Year Forecast Year
Corporation) Revenue
Sales 2,000,000,000 2,300,000,000
Operating Cost 9,644,733 11,091,443
EBIT 1,990,355,267 2,288,908,557
Income Statement
Interest 583,333 875,000
EBT 1,989,771,933 2,288,033,557
Less tax 596,931,580 686,410,067
Net Income 1,392,840,353 1,601,623,490
Dividends 557,136,141 640,649,396
Addition to retained earnings 835,704,212 960,974,094
Financial Planning POWERFUL CITY DEVELOPMENT CORPORATION
STATEMENTS OF FINANCIAL POSITION
for 2020 (Powerful
City Development Current Assets
Current Year Forecast Year

Corporation) Cash And Cash Equivalents 5,463,800 6,283,370

Net Receivables 15,976,200 18,372,630
Inventory 5,880,000 6,762,000
Other Current Assets 500,000 575,000
Balance Sheet Total Current Assets 27,820,000 31,993,000
Long Term Investments 200,000,000 214,000,000
Property Plant and Equipment 224,430,000 240,140,100
Goodwill 300,000,000 321,000,000
Other Assets 256,280,000 274,219,600
Deferred Long Term Asset Charges 101,790,000 108,915,300
Total Noncurrent Assets 1,082,500,000 1,158,275,000
Total Assets 1,110,320,000 1,190,268,000
Financial Planning
for 2020 (Powerful
City Development Current Liabilities
Accounts Payable 701,365 806,570
Corporation) Short Term Debt 23,542,109 15,694,739
Accruals 303,600 349,140
Total Current Liabilities 24,547,074 16,850,449

Balance Sheet (con’t) Long Term Debt 89,342,300 97,189,670

Other Liabilities 1,000,000 1,000,000
Total Liabilities 114,889,374 115,040,119
Common Stock 966,000,000 966,000,000
Retained Earnings 29,430,626 109,227,881
Total Common Equity 995,430,626 1,075,227,881
Total Liabilities Stockholders' Equity 1,110,320,000 1,190,268,000
 Project Budget / Capital Expenses for Powerful City Development Corporation
Expenses
Salaries Description Quantity Cost Total
Staff/Faculty title % of Time on Project 275000 8,000 2,200,000,000
Benefits 23% total staff/faculty salaries275000 1,000 275,000,000
Consultants Consultant fee (hourly or flat) 20 6,000 120,000
Guest speakers Honoraria rate 10 5,000 50,000
Sub - total Salaries 2,475,170,000

Travel Description Quantity Cost Total

Lodging cost per person/per room 20 350 7,000
Capital Expenditure Airfare/Train
Gas
cost per person/per fare
.485 per mile
20
20
2,000
100
40,000
2,000
for Powerful City Per Diem
Other
meal stipend
(i.e. taxi, subway, light rail fare)
20
20
100
50
2,000
1,000
Development Sub-total Travel 52,000

Corporation Supplies
Materials
Description
Renovations
Quantity
38000
Cost
200,000
Total
7,600,000,000
Other  Additional Servicees 38000 15,000 570,000,000
Sub-total Supplies 8,170,000,000

Events Description Quantity Cost Total

Catering event & # attendees 100 300 30,000
Flowers centerpieces, plants, etc 100 50 5,000
Gifts give aways - cards, pens 100 50 5,000
Awards citations, trophies 20 50 1,000
Other -
Sub-total Events 41,000
 Marketing/Communications Description Quantity Cost Total
Graphic Design/printing posters, flyers, program 5000 300,000 1,500,000,000
Advertisements print or television advertisements 4 1,000,000,000 4,000,000,000
Mailing expenses envelopes, postage 5000 5 25,000
Other Social Media 19 15,000,000 285,000,000
Sub-total Marketing/Communications 5,785,025,000

Other MICA Depts/Services Description Quantity Cost Total

Exhibitions services needed 15 2,000 30,000
Campus Tech services needed 15 2,000 30,000
FacMAN services needed 15 2,000 30,000
Security # security guards needed 15 2,000 30,000
Other -
Capital Expenditure Sub-total Other MICA Departs/Services 120,000

for Powerful City Training

Work Study
Description Quantity
# work study students and tasks 5000
Cost
5,000
Total
25,000,000
Development Other
Sub-total Training
space rental fee 4999 1,000 4,999,000
29,999,000
Corporation (con’t) MICA Indirect Costs Quantity Cost Total
Indirect 15% of total expenses 50,000 2 100,000
Sub-total Indirect 100,000

Total Expenses 16,460,507,000

Income
Program Income Description Quantity Cost Total
Sales Store Income 38000 1,000,000 38,000,000,000
Rental Fees 38000 20,000 760,000,000
Total Income 38,760,000,000

Net Income Income-Expenses 22,299,493,000

 OPEX of Powerful City Development Corporation

2020 2021 2022 2023

INCOME

Gross Receipts on Sales 2,000,000,000 2,400,000,000 2,880,000,000 3,456,000,000

Dividend and Interest Income 3,379,018 4,054,822 4,865,786 5,838,943
TOTAL INCOME 2,003,379,018 2,404,054,822 2,884,865,786 3,461,838,943

EXPENSES

Operating Expenditure Cost of Goods

Raw materials and supplies 9,000,000 10,800,000 12,960,000 15,552,000
for Powerful City Salaries and wages
Payroll taxes
5,400,000
810,000
6,480,000
972,000
7,776,000
1,166,400
9,331,200
1,399,680
Development Facilities
Total Cost of Goods
150,000
15,360,000
180,000
18,432,000
216,000
22,118,400
259,200
26,542,080
Corporation Sales, General, and Administration
Salaries and wages 540,000 648,000 777,600 933,120
Payroll taxes 81,000 97,200 116,640 139,968
Rent and lease expenses 150,000 180,000 216,000 259,200
Utilities 150,000 180,000 216,000 259,200
Insurance 20,000 24,000 28,800 34,560
Web site hosting 20,000 24,000 28,800 34,560
Advertising 5,400,000 6,480,000 7,776,000 9,331,200
Vehicle expenses 50,000 60,000 72,000 86,400
Accounting and legal services 50,000 60,000 72,000 86,400
Total Sales, General, and Administration 6,461,000 7,753,200 9,303,840 11,164,608
 Buildings and Equipment
Building renovations 1,750,000 1,837,500 1,929,375 2,025,844
Manufacturing machinery and equipment 50,000 52,500 55,125 57,881
Office equipment and computers 20,000 21,000 22,050 23,153
Vehicles 20,000 21,000 22,050 23,153
Depreciation 5,000 5,250 5,513 5,788
Total Buildings and Equipment 1,845,000 1,937,250 2,034,113 2,135,818

Operating Expenditure Other Expenses

New product development 50,000 52,500 55,125 57,881

for Powerful City Web site development

Debt reduction
25,000
25,000
26,250
26,250
27,563
27,563
28,941
28,941

Development Dividend distribution to owners

Total Other Expenses
20,000
120,000
21,000
126,000
22,050
132,300
23,153
138,915

Corporation (con’t) TOTAL OPERATING EXPENSES 23,786,000 28,248,450 33,588,653 39,981,421

Operating Profit 1,979,593,018 2,375,806,372 2,851,277,133 3,421,857,522

Less: interest expense 296,938,953 326,632,848 359,296,133 395,225,746
Profit Before Taxes 1,682,654,065 2,049,173,524 2,491,981,001 3,026,631,776
Less: corporate taxes 673,061,626 740,367,789 814,404,568 895,845,024

NET PROFIT 1,009,592,439 1,308,805,735 1,677,576,433 2,130,786,752

Sunrise City
Development
Corporation
Sunrise City Development
Corporation is the best provider of
residential communities designed
to create quality lifestyle
responsive to the changing needs
and preferences of the market we
serve.
Financial Planning for 2020 (Powerful City Development
Corporation)

Financial Planning for 2020 (Sunrise City Development Corporation)

Sales growth : g 15%

Interest rate on all debt (s.t. + lt) 10%
Source for additional funds (AFN) Short/long term debt
Fixed assets capacity utilisation 100%
Fixed asset growth rate 7.00%
Tax Rate 30%
Dividend Ratio 40%
Financial Planning SUNRISE CITY DEVELOPMENT CORPORATION
for 2020 (Sunrise STATEMENTS OF COMPREHENSIVE INCOME

City Development
Corporation) Revenue Current Year Forecast Year
Sales 3,000,000,000 3,450,000,000
Operating Cost 723,355,000 831,858,250

Income Statement EBIT 2,276,645,000 2,618,141,750

Interest 775,000 875,000
EBT 2,275,870,000 2,617,266,750
Less tax 682,761,000 785,180,025
Net Income 1,593,109,000 1,832,086,725
Dividends 637,243,600 732,834,690
Addition to retained earnings 955,865,400 1,099,252,035
 SUNRISE CITY DEVELOPMENT CORPORATION
STATEMENTS OF FINANCIAL POSITION
Financial Planning
for 2020 (Sunrise Current Year Forecast Year
City Development Current Assets

Corporation) Cash And Cash Equivalents 350,000,000 402,500,000

Net Receivables 120,000,000 138,000,000
Inventory 60,000,000 69,000,000
Other Current Assets 500,000.00 575,000
Balance Sheet Total Current Assets 530,500,000 610,075,000
Long Term Investments 200,000,000 214,000,000
Property Plant and Equipment 200,000,000 214,000,000
Goodwill 300,000,000 321,000,000
Other Assets 256,280,000 274,219,600
Deferred Long Term Asset Charges 101,790,000 108,915,300
Total Noncurrent Assets 1,058,070,000 1,132,134,900
Total Assets 1,588,570,000 1,742,209,900
Financial Planning
for 2020 (Sunrise Current Liabilities
City Development Accounts Payable 106,518,200 122,495,930

Corporation) Long Term Debt

Accruals
29,542,100
80,036,000
16,881,200
92,041,400
Total Current Liabilities 216,096,300 231,418,530

Balance Sheet (con’t) Long Term Debt

Other Liabilities
79,342,300
1,000,000
85,795,945
1,000,000
Total Liabilities 296,438,600 318,214,475
Common Stock 1,100,000,000 1,100,000,000
Retained Earnings 192,131,400 323,995,425
Total Common Equity 1,292,131,400 1,423,995,425
Total Liabilities Stockholders' Equity 1,588,570,000 1,742,209,900
 Project Budget / Capital Expenses for Project Sunrise City Development Corporation
Expenses
Salaries Description Quantity Cost Total
Staff/Faculty title % of Time on Project 250,000 8,000 2,000,000,000
Benefits 23% total staff/faculty salaries 250,000 1,000 250,000,000
Consultants Consultant fee (hourly or flat) 10 6,000 60,000
Guest speakers Honoraria rate 5 5,000 25,000
Sub - total Salaries 2,250,085,000

Travel Description Quantity Cost Total

Lodging cost per person/per room 10 350 3,500
Capital Expenditure Airfare/Train
Gas
cost per person/per fare
.485 per mile
10
10
2,000
100
20,000
1,000
for Powerful City Per Diem
Other
meal stipend
(i.e. taxi, subway, light rail fare)
10
10
100
50
1,000
500
Development Sub-total Travel 26,000

Corporation Supplies
Materials
Description
Renovations
Quantity
380,000
Cost
20,000
Total
7,600,000,000
Other  Additional Servicees 380,000 150,000 57,000,000,000
Sub-total Supplies 64,600,000,000

Events Description Quantity Cost Total

Catering event & # attendees 50 30,000 1,500,000
Flowers centerpieces, plants, etc 50 5,000 250,000
Gifts give aways - cards, pens 50 5,000 250,000
Awards citations, trophies 50 5,000 250,000
Other -
Sub-total Events 2,250,000
 Marketing/Communications Description Quantity Cost Total
Graphic Design/printing posters, flyers, program 10,000 800,000 8,000,000,000
Advertisements print or television advertisements 20 9,000,000 180,000,000
Mailing expenses envelopes, postage 5,000 5 25,000
Other Social Media 50 1,500,000 75,000,000
Sub-total Marketing/Communications 8,255,025,000

Other MICA Depts/Services Description Quantity Cost Total

Exhibitions services needed 10 20,000 200,000
Campus Tech services needed 10 20,000 200,000
FacMAN services needed 10 20,000 200,000
Security # security guards needed 10 20,000 200,000
Other -
Capital Expenditure Sub-total Other MICA Departs/Services 800,000

for Powerful City Training

Work Study
Description
# work study students and tasks
Quantity
50,000
Cost
5,000
Total
250,000,000
Development Other
Sub-total Training
space rental fee 49,990 1,000 49,990,000
299,990,000
Corporation (con’t) MICA Indirect Costs Quantity Cost Total
Indirect 15% of total expenses 50,000 20 1,000,000
Sub-total Indirect 1,000,000

Total Expenses 75,409,176,000

Income
Program Income Description Quantity Cost Total
Sales Store Income 90,000 1,000,000 90,000,000,000
Rental Fees 70,000 20,000 1,400,000,000
Total Income 91,400,000,000

Net Income Income-Expenses 15,990,824,000

 OPEX of Sunrise City Development Corporation

2020 2021 2022 2023

INCOME

Gross Receipts on Sales 3,000,000,000 3,600,000,000 4,320,000,000 5,184,000,000

Dividend and Interest Income 2,500,000 3,000,000 3,600,000 4,320,000
TOTAL INCOME 3,002,500,000 3,603,000,000 4,323,600,000 5,188,320,000

EXPENSES

Operating Expenditure Cost of Goods

Raw materials and supplies 7,000,000 8,400,000 10,080,000 12,096,000
for Powerful City Salaries and wages
Payroll taxes
3,400,000
510,000
4,080,000
612,000
4,896,000
734,400
5,875,200
881,280
Development Facilities
Total Cost of Goods
120,000
11,030,000
144,000
13,236,000
172,800
15,883,200
207,360
19,059,840
Corporation
Sales, General, and Administration
Salaries and wages 340,000 408,000 489,600 587,520
Payroll taxes 90,000 108,000 129,600 155,520
Rent and lease expenses 150,000 180,000 216,000 259,200
Utilities 150,000 180,000 216,000 259,200
Insurance 20,000 24,000 28,800 34,560
Web site hosting 20,000 24,000 28,800 34,560
Advertising 5,400,000 6,480,000 7,776,000 9,331,200
Vehicle expenses 50,000 60,000 72,000 86,400
Accounting and legal services 50,000 60,000 72,000 86,400
Total Sales, General, and Administration 6,270,000 7,524,000 9,028,800 10,834,560
 Buildings and Equipment
Building renovations 1,750,000 1,837,500 1,929,375 2,025,844
Manufacturing machinery and equipment 50,000 52,500 55,125 57,881
Office equipment and computers 20,000 21,000 22,050 23,153
Vehicles 20,000 21,000 22,050 23,153
Depreciation 5,000 5,250 5,513 5,788
Total Buildings and Equipment 1,845,000 1,937,250 2,034,113 2,135,818

Other Expenses
Operating Expenditure New product development 50,000 52,500 55,125 57,881
Web site development 25,000 26,250 27,563 28,941
for Powerful City Debt reduction 25,000 26,250 27,563 28,941

Development Dividend distribution to owners

Total Other Expenses
20,000
120,000
21,000
126,000
22,050
132,300
23,153
138,915

Corporation (con’t) TOTAL OPERATING EXPENSES 19,265,000 22,823,250 27,078,413 32,169,133

Operating Profit 2,983,235,000 3,580,176,750 4,296,521,588 5,156,150,867

Less: interest expense 447,485,250 492,233,775 541,457,153 595,602,868
Profit Before Taxes 2,535,749,750 3,087,942,975 3,755,064,435 4,560,547,999
Less: corporate taxes 1,014,299,900 1,115,729,890 1,227,302,879 1,350,033,167

NET PROFIT 1,521,449,850 1,972,213,085 2,527,761,556 3,210,514,832

Contigency Planning

Position Type of communication Person Responsible Frequency

Chief Executive Offi cer Presentation, Email Almario Parco Monthly
Finance Offi cer Presentation, Email Olga Parco Monthly
Admin Offi cer Presentation, Email Bless Parco Monthly
 Business Risk Impact Likehood Remarks
Inflation Low Likely Price adjustment
Introduce new product and
Competition High Likely services
Focusing on areas where it
already has a strong
Retaining existing customers Low Unlikely foothold

Recommitting to areas like

food taste and quality,
Assessment Regaining lost customers Medium Likely convenience and value
Improve the existing
model and strengthen the
relationship through
Digital Medium Likely technology
Expand the number of of
restaurants offering
Delivery Service Low Likely delivery
Continue looking for
development of products
Research and Development High Likely and services
Dividend Stability
Policy
•The fluctuation of dividends
created by the residual policy
significantly contrasts with the
certainty of the dividend stability
policy. With the stability policy,
quarterly dividends are set at a
fraction of yearly earnings. This
policy reduces uncertainty for
investors and provides them with
income.
Dividend Stability
Policy
•Suppose our imaginary company, Powerful City Development
Corporation (PCDC), earned 100,000 for the year (with quarterly
earnings of 30,000, 20,000, 10,000 and 40,000). If PCDC decided
on a stable policy of 10% of yearly earnings (100,000 x 10%), it
would pay 2,500 (10,000/4) to shareholders every quarter.
Alternatively, if PCDC decided on a cyclical policy, the dividend
payments would adjust every quarter to be 3,000, 2,000, 1,000
and 4,000, respectively. In either instance, companies following
this policy are always attempting to share earnings with
shareholders rather than searching for projects in which to
invest excess cash.
 ANALYSIS

Powerful City Development Corporation (PCDC) is

basically performing well relative of sales. Though its
sales and operating cost is way smaller than Sunrise City
Development Corporation (SCDC), it doesn’t need
additional fund to pay its liabilities unlike SCDC. This
results to a bigger net income.

I will prefer to invest in PCDC Corporation because I

believe that it still has room to grow.

As the finance manager, I will keep the liabilities smaller

or less than its assets and increase sales to get more
profit.