Feasibility Analysis about R2-

AXN Emission Testing Center

Submitted by:

Destajo, Grose Mary Joy

Dapal, Krissia Lyn
Ebero Lynjoy
Monson, Jickmarie
 About
Table this
of contents
template

I. Identify the industry economic characteristics.

II. Identify the company strategies
III. Assess the quality of financial statements
IV. Analyze the profitability and risk
V. Prepare a forecasted financial statement
VI. Value the firm
ECONOMIC CHARACTERISTICS
 VALUE CHAIN ANALYSIS

We use value chain analysis to set activities that the organization carries out to
create value for its customer. Porter’s value chain focuses on systems, and how inputs
are changed into the outputs purchased by consumers using primary and support
activities.
The R2-AXN emission center will be accommodating the demand of the vehicle
owners from City of Mati and other municipalities nearby. The demand of the business
was considered from the total registered vehicles in Mati who needs an emission
testing center that is fast, reliable, eco-friendly in doing emission testing and sanitized
environment.
 PRIMARY ACTIVITIES

◉ INBOUND LOGISTICS ◉ OUTBOUND LOGISTIC

•Customer Information Inquiry •Quality Control
•Process the transaction •Ensuring service efficiency
•Render the services
•Release Result
◉ OPERATION
•The business operates from Monday to
Saturday
•The service capacity of the business can only
cater 15 vehicle per day.
 MARKETING AND SALES

 Sign board/tarpaulin – post sign-board along the street to announce the opening
of R2-AXN Emission Center.
 Facebook Page- a social media account for the store containing all information
about R2-AXN Emission Center, advertising it to the netizen to access online.
 Flyers – this was given to the target customers.

HUMAN RESOURCES
 Flexible Schedule
 Double Payment on Regular Holidays
 Free Meal on Break
 PORTER FIVE FORCES PORTER FIVE FORCES

Threat to New Entrants - high

capitalization, similar services
offered, access to latest
technology

Bargaining power of Bargaining power of buyers

suppliers- number of - More options due to a
Rivalry-
suppliers, supplier number of competitors,
concentration price sensitivity

Threat from substitutes- relative

price performance, switching cost
COMPANY STRATEGIES
 SWOT Analysis

STRENGTHS WEAKNESSES
 Low Labor Cost  Lot of Competitors
 Specialized Technology
 Lack of Capital for
 Good relationship with
expansion
customers

 Attract investor to
possible business
Large competitors get
venture
majority market share
 Create employment
THREATS
OPPORTUNITIES
ASSESS THE QUALITY OF FINANCIAL
STATEMENT
 Horizontal Analysis.

BALANCE SHEET
CY-PY Amount change/base year
Assets YEAR 1 YEAR 2 Amount Change Percentage Change
Cash 620,472.50 1,434,237.36 813,764.86 56.74%
Building 90,000.00 80,000.00 (10,000.00) -12.50%
Store Equipment 393,429.60 349,715.20 (43,714.40) -12.50%
Furniture and Fixture 22,500.00 20,000.00 (2,500.00) -12.50%
Total Assets 1,126,402.10 1,883,952.56 757,550.46 40.21%

Liabilities and Owner's Equity

Long-term debt payable 138,584.88 138,584.88 - 0.00%
Issuance of Bonds
Total Liabilities 138,584.88 138,584.88 - 0.00%
Partners Equity
Initial Investment 987,817.22 1,745,367.68 757,550.46

Total Liability & Owner's Equity 1,126,402.10 1,883,952.56 757,550.46 40.21%

INCOME STATEMENT CY-PY Amount change/base year

YEAR 1 YEAR 2 Amount Change Percentage Change
Sales Revenue 1,188,000.00 1,346,400.00 158,400.00 11.76%
Less: Operating Expenses 633,975.40 462,163.45 (171,811.95) -37.18%
Income Before Tax 554,024.60 884,236.55 330,211.95 37.34%
Less: Income Tax Expense(30%) 166,207.38 265,270.97 99,063.59 37.34%
Net Income 387,817.22 618,965.59 231,148.37 37.34%
 Vertical Analysis

BALANCE SHEET

Assets YEAR 1 year 1 common size YEAR 2 year 2 common size

Cash 620,472.50 55.08% 1,434,237.36 76.13%
Building 90,000.00 7.99% 80,000.00 4.25%
Store Equipment 393,429.60 34.93% 349,715.20 18.56%
Furniture and Fixture 22,500.00 2.00% 20,000.00 1%
Total Assets 1,126,402.10 100.00% 1,883,952.56 100%

Liabilities and Owner's Equity

Long-term debt payable 138,584.88 12% 138,584.88 7.36%
Issuance of Bonds
Total Liabilities 138,584.88 12% 138,584.88 7.36%
Partners Equity
Initial Investment 987,817.22 88% 1,745,367.68 92.64%

Total Liability & Owner's Equity 1,126,402.10 100% 1,883,952.56 100%

INCOME STATEMENT
YEAR 1 year 1 common size AS 1` PESO YEAR 2 year 1 common size AS 1 PESO
Sales Revenue 1,188,000.00 100.00% 1 1,346,400.00 100% 1.00
Less: Operating Expenses 633,975.40 53.36% 0.53 462,163.45 34% 0.34
Income Before Tax 554,024.60 46.64% 0.47 884,236.55 66% 0.66
Less: Income Tax Expense(30%) 166,207.38 14% 0.14 265,270.97 20% 0.20
Net Income 387,817.22 33% 0.33 618,965.59 46% 0.46
ANALYZE PROFITABILITY AND RISK
 Net Profit Margin

Net Profit Margin = Net Income

Sales Revenue

387,817.22 618,965.59 726,032.37 832,908.49 939,584.42

=
1,188,000.00 1,346,400.00 1,504,800.00 1,663,200.00 1,821,600.00

0.33 0.46 0.48 0.50 0.52

The total Net profit Margin in terms of

percentage is derived through:
Net Profit Margin percentage
◉ Return on Investment
ROI is usually expressed as a
percentage and is used for personal
financial decisions, to compare a
company’s profitability or to
compare the efficiency of different
investment.
◉ Capital Budgeting Decisions
once projects have been identified,
management then brings the financial
process of determining whether or not
the project, should be pursued. The two
common capital budgeting decision
tools are the payback period and net
present value (NPV) method.
 Return on Investment

Return on Net Income

=
Investment Initial Investment
387,817.22 618,965.59 726,032.37 832,908.49 939,584.42
=
600,000.00 600,000.00 600,000.00 600,000.00 600,000.00
= 0.65 1.03 1.21 1.39 1.57

Year 1: For every Php1.00 invested in this project will yield Php0.65
Year 2: For every Php1.00 invested in this project will yield Php1.03
PREPARE FORECASTED FINANCIAL
STATEMENT
 ASSUMPTION

• There is an increase of two vehicles served per day every year.

• The partnership signed a long term debt of Php600,000 as initial investment.

• Depreciation expense will be computed in straight line basis.

• All operating expenses will increase 5% a year except salaries and wages.

• The discounted payback will be computed at 10% a year.

PROJECTED SERVICE REVENUE FOR FIVE CONSECUTIVE YEARS

Service Capacity Service

YEAR Service Charge Total Revenue
Daily Capacity Yearly
YEAR 1 15 3,960.00 300.00 1,188,000.00
YEAR 2 17 4,488.00 300.00 1,346,400.00
YEAR 3 19 5,016.00 300.00 1,504,800.00
YEAR 4 21 5,544.00 300.00 1,663,200.00
YEAR 5 23 6,072.00 300.00 1,821,600.00
 Income Statement
For Five Year Projection
Year 1 Year 2 Year 3 Year 4 Year 5
Service Revenue 1,188,000.00 1,346,400.00 1,504,800.00 1,663,200.00 1,821,600.00
Less: Operating Expenses
Supplies Expense 4,463.00 4,686.15 4,920.46 5,166.48 5,424.80
Advertising Expense 1,650.00 1,732.50 1,819.13 1,910.08 2,005.59
Rent Expense 180,000.00 180,000.00 180,000.00 180,000.00 180,000.00
Employees Contribution 32,848.00 34,490.40 36,214.92 38,025.67 39,926.95
Retainers Fee 18,000.00 18,900.00 19,845.00 20,837.25 21,879.11
Salaries and Wages 294,000.00 117,000.00 117,000.00 117,000.00 117,000.00
Utilities Expense 32,400.00 34,020.00 35,721.00 37,507.05 39,382.40
Repairs and Maintainance 4,400.00 4,620.00 4,851.00 5,093.55 5,348.23
Permits and Licenses 10,000.00 10,500.00 11,025.00 11,576.25 12,155.06
Depreciation Expense 56,214.40 56,214.40 56,214.40 56,214.40 56,214.40
Total Operating Expenses 633,975.40 462,163.45 467,610.90 473,330.73 479,336.54
Income Before Tax 554,024.60 884,236.55 1,037,189.10 1,189,869.27 1,342,263.46
Less: Income Tax Expense(30%) 166,207.38 265,270.97 311,156.73 356,960.78 402,679.04
Net Income 387,817.22 618,965.59 726,032.37 832,908.49 939,584.42
Amortization Schedule and Loan Summary
Annual Interest Rate: 5%
Loan Term: 5
Payment per Year: 138,584.88
Loan Amount: 600,000.00

Annual Principal Remaining

YEAR Beg Amount Installment Interest Payment Balance
1 600,000.00 138,584.88 30,000.00 108,584.88 491,415.12
2 491,415.12 138,584.88 24,570.76 114,014.12 377,401.00
3 377,401.00 138,584.88 18,870.05 119,714.83 257,686.17
4 257,686.17 138,584.88 12,884.31 125,700.57 131,985.60
5 131,985.60 138,584.88 6,599.28 131,985.60 -
 STATEMENT OF CASH FLOW
FIVE YEAR PROJECTION

OPERATING ACTIVITIES Pre Operating Year 1 Year 2 Year 3 Year 4 Year 5

Net Income: 387,817.22 618,965.59 726,032.37 832,908.49 939,584.42
Add: Depreciation 56,214.40 56,214.40 56,214.40 56,214.40 56,214.40
Cash Flow from Operating 444,031.62 675,179.99 782,246.77 889,122.89 995,798.82

INVESTING ACTIVITIES
Building Renovation 100,000.00 - - - - -
Store Equipment 437,144.00 - - - - -
Furniture and Fixture 25,000.00 - - - - -
Cash Flow from Investing 562,144.00 - - - - -

FINANCING ACTIVITIES
Long-term debt payable 138,584.88 138,584.88 138,584.88 138,584.88 138,584.88
ISSUANCE OF BONDS 600,000.00 - - - - -
INITIAL INVESTMENT - - - - -

Cash Flow from Financing 600,000.00 138,584.88 138,584.88 138,584.88 138,584.88 138,584.88

Net Cash Flow 37,856.00 582,616.50 813,764.86 920,831.65 1,027,707.77 1,134,383.70

Cash Balance Beginning 37,856.00 620,472.50 1,434,237.36 2,355,069.01 3,382,776.78
Cash Balance Ending 37,856.00 620,472.50 1,434,237.36 2,355,069.01 3,382,776.78 4,517,160.48
 Projected Balance Sheet
For Five Year Projection
Assets Pre-Operating Year 1 Year 2 Year 3 Year 4 Year 5
Current Assets:
Cash 37,856.00 620,472.50 1,434,237.36 2,355,069.01 3,382,776.78 4,517,160.48
Total Current Assets 37,856.00 620,472.50 1,434,237.36 2,355,069.01 3,382,776.78 4,517,160.48

Non-Current Assets
Building 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00
Accumulated Depreciation (Building) (10,000.00) (20,000.00) (30,000.00) (40,000.00) (50,000.00)
Equipment 437,144.00 437,144.00 437,144.00 437,144.00 437,144.00 437,144.00
Accumulated Depreciation (Equipment) (43,714.40) (87,428.80) (131,143.20) (174,857.60) (218,572.00)
Furniture and Fixture 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00 25,000.00
Accumulated Depreciation (F&F) (2,500.00) (5,000.00) (7,500.00) (10,000.00) (12,500.00)
Total Non-Current Assets 562,144.00 505,929.60 449,715.20 393,500.80 337,286.40 281,072.00

Total Assets 600,000.00 1,126,402.10 1,883,952.56 2,748,569.81 3,720,063.18 4,798,232.48

Liabilities and Owner's Equity

Liabilities
Issuance of Bonds 600,000.00
Long-term debt payable 138,584.88 138,584.88 138,584.88 138,584.88 138,584.88
Total Liabilities

Partners Equity
Initial Investment 600,000.00 1,126,402.10 1,883,952.56 2,748,569.81 3,720,063.18

Add: Net Income 387,817.22 618,965.59 726,032.37 832,908.49 939,584.42

Total Liability & Owner's Equity 600,000.00 1,126,402.10 1,883,952.56 2,748,569.81 3,720,063.18 4,798,232.48
VALUE THE FIRM
 Payback Period

Capital Budgeting Decision

Payback Period
Cash flow Year 1 Year 2 Year 3 Year 4 Year 5
Net Income 387,817.22 618,965.59 726,032.37 832,908.49 939,584.42
Add: Depreciation exp. 56,214.40 56,214.40 56,214.40 56,214.40 56,214.40
444,031.62 675,179.99 782,246.77 889,122.89 995,798.82

Year Annual Cash Inflow Unrecoverd Cost Solution

0 (600,000.00) 155,968.38
1 +
1 444,031.62 (155,968.38) 675,179.99
2 675,179.99 519,211.61
3 782,246.77 1,301,458.37 1 + 0.231002671
4 889,122.89 2,190,581.26
5 995,798.82 3,186,380.08

Payback Period 1.23 1 year and

3 months the investment will be recovered
 Discounted Payback Period

Discounted Payback at 10%

Cashflow Unrecoverd
Year Annual Cash Inflow Solution
(1+Rate)^Years Cost
0 (600,000.00) 1 + 196,334.89
1 444,031.62 403,665.11 (196,334.89) 557,999.99
2 675,179.99 557,999.99 361,665.10
3 782,246.77 587,713.57 949,378.67 1 + 0.351854651
4 889,122.89 607,282.90 1,556,661.57
5 995,798.82 618,312.72 2,174,974.29 1.35
Total 2,774,974.29
1 year and
4 months the investment will be recovered.
 Net Present Value

Cashflow
Year Cash Flow
(1+Rate)^Years
0 (600,000.00) (600,000.00)
1 444,031.62 403,665.11
2 675,179.99 557,999.99
3 782,246.77 587,713.57
4 889,122.89 607,282.90
5 995,798.82 618,312.72
Total 2,774,974.29

NPV = 2,174,974.29
 ANALYSIS

The business would be feasibly generated and estimated annual

income after tax-profit of Php387,817.22 in one year operation.
Return on Investment on Year 1 shows that Php0.65 of the
investment cost was converted into profits during period. The
payback period of the investment is 1.28 years this means that
after 1 year and 3 months the initial investment will be recovered.