Financial Feasibility Study

Pamantasan ng Lungsod ng MaynilaCollege of Engineering and Technology

Chemical Engineering Department

FINANCIAL STUDY

The financial study is an indispensable aspect of the feasibility study

for the assessment of the profitability and viability of the textile yarn

production of the Hyarn Corporation, through the accomplishment and

Spinning of Alkaline Sorbed Fibers from Eichhornia Crassipes (Water Hyacinth) Stalks and Extruded Polyethylene Terephthalate (PET) Bottles for the Production of Textile Yarn



generation of cost estimations, total initial investment, and profitability

analysis and, ultimately, the financial statement for the company.

In this financial feasibility study, the proponents analyzed the total

costs of the proposed manufacturing process (including all construction costs

and operating costs) and the potential revenues that the production can get.

In addition, this section of the study also requires the preparation of




statements and schedules on the profits expected to be realized, the modes

of financing needed to optimize the economic performance of the

production, the manner and period of repaying creditors, the break – even

point and rate of return, and other financial considerations which are vital to

the success of the business venture.




If the potential revenues of the intended manufacturing process can

cover all of the costs and meet the profitability requirements on the target

year 2015, thus, it is financially feasible and the production proposal will be

pursued.




SOURCES OF FINANCING

The initial capital investment of Hyarn Corporation for the production

of yarn from fibers of Water hyacinth and PET is amounting to PhP




27,845,862.49. The owners and investors of the proposed production plant

design have made a consensus of financing 20 % of the economic venture

and resort to other financing institutions that would suffice the remaining

80% prerequisite for the satisfaction of the initial capital investment of the

corporation.




The company had deliberated that to secure the accomplishment of

the capital investment needed; the funding assistance will be coming from

Metrobank.

Summary of Terms and Condition of Payment of Financing

Institutions

Sources of Requireme Interest Term of




Financing ntrate per

annum

payme

nt

Metrobank Collateral 12% 10 years




Breakdown of Sources of Financing

Sources of Financing % Contribution Value in Peso

Term Loans from Metrobank 80 22,276,690

Common Stocks 20 5,569,172.49




Total Preliminary Investment 100 27,845,862.49

PURCHASING POWER OF PESO




The ease and the potential of people in purchasing goods depend on

the sum of money in their possession and on the purchasing power of such

quantity of money.

The real quantity of goods and services that a peso could

accommodate is called the purchasing power of peso (PPP). Purchasing

power gauges ability to command goods. Arithmetically, the purchasing




power of the peso is measured in terms of the real value of the peso relative

to the peso value in the reference period. Mathematically and technically, an

inverse relationship exists between the PPP and the consumer price index

(CPI). Thus, it is expected that the PPP, starting from the base year will

constantly descend. This also implies that, as the prices of the goods and

services increase, the consumers can expend and consume less and less for

the same amount of money.




Moreover, in a certain period of time, the prices of particular good s or

services will move up and down depending on the relative insufficiency and

worth of the goods and services. It would be possible to adjust for specific

item those price changes may be different than changes in the general price

level.




Actual prices are not usually known but an index of relevant prices are

collected from period to period and the direction of change can be

determined to measure changes in the general price level, a sample of

commodities and service is selected and the current prices of these times

are compared with their prizes during the base period. A price index can

briefly be defined as a number showing how a price changes in relation to a

base period.




PPP= (1/CPI all items ) x 100.

HISTORICAL DATA OF THE PURCHASING POWER OF PESO

Purchasing Power of Peso

Year Purchasing Power of




PesoPPP

2000 1.00

2001 0.94

2002 0.91

2003 0.88




2004 0.83

2005 0.77

2006 0.73

2007 0.71




2008 0.65

2009 0.63




2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

0.2

0.4

0.6

0.8

1

1.2

Purchasing Power of Peso, Philippines

Year

Purc

hasin

g Po

wer

of P

eso




ANALYSIS OF HISTORICAL DATA OF PURCHASING POWER OF PESO

The historical data of the Purchasing Power of Peso is taken from the

records of National Statistics Office (Industry and Trade Statistics

Department – Economic Indices and Indicators Division). Based from the

tabulated and graphed values of the purchasing power of peso, it exhibited a

decreasing trend. This occurrence can be attributed in deal with the fact that




the inflation rate is continuously escalating, hence, suggesting that PPP is as

well inversely related to the inflation rate like the consumer price index.

Projected Value of Purchasing Power of Peso

In the course of the financial feasibility study, projections on the value

of the PPP are employed, and as a result, the Statistical Geometric line

method of projection is chosen since it showed the least value for the




standard deviation, since year 2010 – 2015, as compared with other

methods used such as statistical straight line, arithmetic straight line and

arithmetic geometric projections.

Year Statistical

Geometric

Statistical

Straight

line

Arithmeti

c Straight

Line

Arithmeti

c

Geometri




c

2010 0.5919 0.5820 0.59 0.5964

2011 0.5604 0.5426 0.55 0.5645

2012 0.5306 0.5031 0.51 0.534

2013 0.5023 0.4637 0.47 0.5059




2014 0.4756 0.4243 0.43 0.4789

2015 0.4533 0.3849 0.39 0.4533

Standar

d

Deviatio

0.0484 0.0673 0.0683 0.0489




n




2010 2011 2012 2013 2014 20150

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Statistical GeometricStatistical Straight lineArithmetic Straight LineArithmetic Geometric

Year

PPP




Chosen Method of Projection for PPP

Year Purchasing Power of

Peso




PPP

2010 0.5919

2011 0.5604

2012 0.5306

2013 0.5023




2014 0.4756

2015 0.4503




Graph for the Purchasing Power of Peso based from the Projected Values

using Statistical Geometric Line Method




2010 2011 2012 2013 2014 20150

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Purchasing Power of Peso

Year

PPP

INDICES OF




COMPENSATION

The indices of compensation is computed as average value provided

by the National Statistic Coordination Board as Quarterly Economic Indices of

the Philippines together with the Regional Tripartite Wages and Productivity

Boards as part of their commitment to facilitate enforcement of wage




adjustments with the corresponding responsibility to disseminate

information.

These index values show the compensation at a point relative to a certain

base time.

Historical Data of Compensation Indices




YearCompensation Index Per

Employee

2004 237.75

2005 257.75

2006 252.50

2007 261.50




2008 276.50

2009 302.00




2004 2005 2006 2007 2008 20090

50

100

150

200

250

300

350

Indices of Compensation

Year

CI p

er e

mpl

oyee




ANALYSIS OF HISTORICAL DATA OF COMPENSATION INDEX

The economic conditions and performance of the country immensely

affect the compensation index. The wages and salaries of the employees

reflect on the incessant deflation of the Philippine peso performance and

economic instability. In addition to this, the continuous inflation rate also




impacts the indices of compensation, especially for employees under

minimum wages.

Although it is presented that the wages and salaries of employees is in

increasing pattern, the amount of augmentation is not enough to offset the

effect of inflation, thus, the employees could still not meet the daily

requirements for a comfortable lifestyle.




Projected Values of Compensation Index

The acquired record of the compensation of employees from the

previous years is used to project the compensation index up to the year

2015. As shown in the tabulated values of the combined projection for

compensation index, Statistical Straight Line Method is evident to be the




best projection method since it exhibited the most favorable value for the

standard deviation and the incremental change.

After the compensation index has been projected, it would then be

used to estimate the labor costs on the year 2015, the year when the

company will start its operation. It is at this year that the company will hire

its employees.




Combined Projection of Compensation Index

YearStatistical

Geometric

Statistical

Straight

line

Arithmetic

Straight

Line

Arithmetic

Geometric

2010 304.84 303.32 314.85 317.04

2011 317.66 314.36 327.7 332.83




2012 331.02 325.4 340.55 349.4

2013 344.94 336.45 353.4 366.8

2014 359.44 347.49 366.25 385.06

2015 374.56 358.53 379.1 404.24

Standar

d

Deviatio

23.82 18.86 21.95 29.79




n

Projected Compensation Indices per Employee




2010 2011 2012 2013 2014 20150

50

100

150

200

250

300

350

400

450

Statistical Geometric

Statistical Straight line

Arithmetic Straight Line

Arithmetic Geometric

Year

CI p

er e

mpl

oyee




Chosen Method of Projection for CI

Year CI per Employee

2010 303.32

2011 314.36

2012 325.40




2013 336.45

2014 347.49

2015 358.53




2010 2011 2012 2013 2014 2015270280290300310320330340350360370

Year

CI p

er E

mpl

oyee





ORGANIZATIONAL STRUCTURE



COMPANY PERSONNEL

Management Summary

Our management philosophy is a living tradition of values and beliefs

rooted in responsibility, mutual respect and entrepreneurial creativity. This

means that we’ll fashion a workplace environment, where employees are

responsible and are dedicated to the overall performance of the company




and; where the employees will be compensated accordingly. Although, better

than projected results could be compensated with bonus payments, the most

general way of extra remuneration is planned to be a centralized and

controlled biodiesel product distribution for the workers (bonuses for extra

quality production and so on). The latter method could increase the interest,

on behalf of the workers, in working in our plant, and hopefully it could help

propagating the Company’s environmental concern even further.




Management Team Requirements

We believe we have an excellent team for covering the main points of

the business plan: processing of yarn, sale of final products. At present, we

can improve mostly in the area of technical capabilities to manage the

production of blended yarn.

Personnel Plan




The Personnel Plan reflects the need to strengthen our capabilities to

match our positioning in the yarn market. Our total headcount would not

change until 2025. The project launchers assume the Sales and Financial

Management positions in the first three years until the end of 2020.

Employees are expected to work in teams, therefore huge salary

inadequacies are not allowed. The need for labor force was estimated

according to industry experience and technological needs.




Here are the lists of the personnel:

EXECUTIVE DEPARTMENT

BOARD OF DIRECTORS

The Board of Directors is assigned in directing the management and

evaluating the company, as well as organizing the company policies and




objectives. They are also involved in hiring personnel to carry both their

policies and review the company’s progress toward their goals.

GENERAL MANAGER

General Manager has the overall responsibility for the Hyarn

Corporation. He is responsible for all areas, managing both the revenue and

cost elements of the company's income statement, oversees most or all of


http://en.wikipedia.org/wiki/Income_statement

http://en.wikipedia.org/wiki/Cost

http://en.wikipedia.org/wiki/Revenue



the firm's marketing and sales functions as well as the day-to-day operations

of the business. The general manager is also responsible for leading or

coordinating the strategic planning functions of the company.

EXECUTIVE SECRETARY


http://en.wikipedia.org/wiki/Strategic_planning

http://en.wikipedia.org/wiki/Business_operations

http://en.wikipedia.org/wiki/Sales

http://en.wikipedia.org/wiki/Marketing



The Executive Secretary takes responsibility in the dissemination of

important information, policies, and recommendations which he has been

procured from the board of directors to the entire company.




ADMINISTRATION DEPARTMENT

Administration Manager

The administrative manager keeps the manufacturing company

operating smoothly and organizes the information management function.




The administrative personnel under the admin manager assume the task of

supporting other departments and providing documentation organization,

product and sales support, and administrative support such as typing,

editing, mailing and filing. The administrative staffs are highly important in

order to keep the other professional positions focused on their primary

responsibilities.




Logistician/Logistics Manager

Logistics manager handles the processes involved in a supply chain,

liaising with a variety of parties including suppliers of raw materials,

manufacturers, retailers and consumers. He also coordinates processes to

ensure customer satisfaction.

Purchaser




The purchaser will be responsible for ensuring that we have the right

product in the right place at the right time in order to maximize sales and

minimize costs. His role will work out of Hyarn Corporation’s Head Office.

This position is a very cross-functional position, as he will have to work

closely with Sales, the Store Managers and Accounting. The purchaser will

report directly to the financial officere, and indirectly to the General

Manager.




Statistician

Statistician is concerned with the collection, analysis, interpretation

and presentation of quantitative information. They work in a range of sectors

including health, education, government, finance, the environment,

transportation, market research as well as throughout industry, business and

commerce. The statistician will design and manage experiments and




surveys. They deal with the initial collection of data. He processes and

analyzes the data in context, looking for patterns to help make decisions. He

advises on findings and recommends strategy.

PRODUCTION DEPARTMENT

Production Manager




He is responsible for the overall production of yarn. Under his

supervision are the operations manager and quality control manager, which

are concern in the production output quality control and maintenance of the

production.

1. Operations Manager




The operation Manager manages the day-to-day operations of

the Hyarn Corporation. His sole purpose is to find ways to make the

company more prolific by providing effective methods in its business

operations. He usually prepares program budgets, facilitates several

programs around the company, controls inventory, handles logistics,

and interviews and supervises employees.




Warehousing Department

Warehouse managers are a vital part of the supply chain

process. They oversee the efficient receipt, storage and dispatch of the

goods. The personnel under warehousing department manage people,

processes and systems. They ensure productivity targets are met and

maintain computerised administration and automated storage and




retrieval systems. They ensure workplace health and safety

requirements are met and take responsibility for the security of the

building and stock.

Packaging/Printing Department

The packaging/printing engineer supervises and coordinates

activities of workers engaged in packaging products and materials for




storage or shipment. He studies production order to ascertain type and

quantity of product, containers to be used, and other packaging

requirements.

He Inspects products prior to packaging and observes packaging

operations and inspects containers to verify conformance to

specifications.




Maintenance Department

The maintenance engineers plan the routine maintenance of

equipment and machinery. They work on-site or remotely diagnosing

faults and overseeing time-critical repairs.

While the maintenance and safety staffs coordinate with the

supervisor for the implementation of the proper use and care of the




equipment and facilities in the plant. They are responsible for the

repairs and maintenance of equipment. They are also responsible for

the execution of safety precautions inside the plant. The electrician is

responsible for the electrical connections within the plant to secure

normal operation.




2. Quality Control Manager

Quality assurance (QA) aims to ensure that the product or

service the company provides is fit for purpose and meets both

external and internal requirements, including legal compliance and

customer expectations. A quality manager, sometimes called a quality




assurance manager, coordinates the activities required to meet quality

standards.

The quality manager also monitors and advises on the

performance of the quality management system and produces data

and report on performance, measuring against set indicators.

SALES AND MARKETING DEPARTMENT




Sales Manager

Sales manager organizes, motivates and leads sales teams in a fast

moving consumer goods (FMCGs) and finance. He is responsible for the

combined performance of the team and for ensuring that everyone within

their team reaches their targets. The sales manager may set the targets

himself or receive them from the sales director. He may also operate




incentive schemes that motivate members of their team to reach or exceed

sales targets.

Marketing Manager

The marketing manager is responsible in creating and implementing

effective promotional strategies to yield higher market sales.




Customer Service Manager

Customer service manager ensures that the organization they work for

satisfies its customers' needs. He may work at various levels, from head

office to the front end of the business. His work includes:

helping to develop a customer service policy for an entire organization;




managing a team of customer services staff;

Handling face-to-face enquiries from customers.

Economics Manager

The job of the economics manager is to direct and coordinate the

activities of the Economic Development Division; administer the economic




development program including prospect development, industry contacts,

and negotiation with industry representatives.

FINANCE DEPARTMENT

Finance Manager




Finance manager is responsible for funds management. He is also

responsible for projecting the future budget, materials cost, wages, salaries,

and other costs of the manufacturing and marketing products.

Auditor

The auditor evaluates the financial reports of the organization.

He makes the recommendation to further improve the financial




stability of the company. He also strictly checks every cash inflow and

outflow of the company.

Chief Accountant

The chief accountant reviews all check and journal vouchers and

prepares company’s annual report. Preparation of company’s financial




statements is one of the concerns of the staff including its assets and

liabilities.

They analyze the costs of manufacturing, marketing and

administration for use by management in planning and control.

Payroll Clerk




The job of the payroll clerk is highly important to the hyarn

corporation. The payroll clerk correctly processes employees' time

worked. He also keeps up with current, retired and otherwise

terminated staff data, and input it into the companies system.

HUMAN RESOURCE DEPARTMENT

Human Resource Development (HRD) Manager




He is the overall manager of the recruitment personnel staff and

reviewing of the comprehensive resumes of potential and interested parties

or applicants. He keeps records and profiles of the company as well as

documentation of the important business transactions.

Company Physician and Nurse




They are responsible for rendering health services to the employees of

the company. They schedule physical checkups to secure the health of the

employees.

Public Security Supervisor




Security management officers help to prevent crime. They work

to ensure the safety of both people and property. His work activities

vary greatly, but may include:

watching and monitoring CCTV cameras;

collecting and escorting money or other valuables in a security

van;




searching vehicles as they enter and leave the production site

and other premises;

patrolling a site or building to check security and investigating

any problems;

checking people who leave and enter premises;




Keeping accurate records and writing reports for use by the

police or courts.

Transportation Manager

The transportation manager is responsible for managing,

planning and coordinating transport operations, including delivery and

organization of services. His work involves maintaining correct capacity




levels, ticketing, dealing with customer complaints and making sure

that services are safe and secure, as well as responding to

unpredictable crises.

1. Company Driver

Takes charge of the company vehicle during the transportation

of raw materials and distribution of products.




2. Truck Follower/Dispatchers

Truck dispatchers are responsible for coordinating the

movements of trucks that are entering terminals. Dispatchers

communicate with truck drivers through computers, phones or two-

way radios, and will assign drivers to trucks and make sure that they

leave and arrive on schedule.


http://www.ehow.com/phones/



OPERATING LABOR COST

Position

No.

Required

in Position

Present

Salary

(2009)

Projecte

d Salary

(2015)

13th

month

Pay

Annual

Salary

(2015)





General Manager/

President1

50,000.0

059,359.27

59,359.2

7712,311.26

Executive Secretary 120,000.0

023,743.71

23,743.7

1284,924.50





Operation Manager 130,000.0

035,615.56

35,615.5

6427,386.75

Quality Control

Manager1

30,000.0

035,615.56

35,615.5

6427,386.75

Process Engineer 5 15,000.0 17,807.78 17,807.7 213,693.38




0 8

Technicians 211,000.0

013,059.04

13,059.0

4156,708.48

Machine

Operator/Inspector2

12,000.0

014,246.23

14,246.2

3170,954.70

Maintenance/ 1 15,000.0 17,807.78 17,807.7 213,693.38




Equipment Engineer

Supervisor0 8

Technical Support

Engineer2

12,000.0

014,246.23

14,246.2

3170,954.70

SALES DEPARTMENT

Marketing Manager 1 20,000.0 23,743.71 23,743.7 23,743.71




0 1

Customer Service

Supervisor1

12,000.0

014,246.23

14,246.2

314,246.23

Sales Associates 210,000.0

011,871.85

11,871.8

511,871.85

Marketing and 4 20,000.0 23,743.71 23,743.7 23,743.71




Advertising staff 0 1


Statistician 210,000.0

011,871.85

11,871.8

5142,462.25

Purchaser 210,000.0

011,871.85

11,871.8

5142,462.25




Logistics 210,000.0

011,871.85

11,871.8

5142,462.25

FINANCE DEPARTMENT

Finance Manager 120,000.0

023,743.71

23,743.7

1284,924.50

Accountant 1 12,000.0 14,246.23 14,246.2 170,954.70




0 3

Auditor 212,000.0

014,246.23

14,246.2

3170,954.70

Payroll

Clerk/Staff/Cashier4

10,000.0

011,871.85

11,871.8

5142,462.25





Human Resource

Manager1

15,000.0

017,807.78

17,807.7

8213,693.38

Company Nurse 110,000.0

011,871.85

11,871.8

5142,462.25

Transportation

Manager1 8,000.00 9,497.48 9,497.48 113,969.80




Security Staff 2 7,000.00 8,310.30 8,310.30 99,723.58

Company Driver 2 7,000.00 8,310.30 8,310.30 99,723.58

Maintenance Staff 2 7,000.00 8,310.30 8,310.30 99,723.58

TOTAL 557,037,635.2

32




Hyarn Corporation starts to hire its employees by the year 2015. In

computing the labor cost for the year 2015, the monthly wages rates of

employees in Pampanga is projected at a base period of 2009.

PRESENT WAGE SALARY




Position Present SalaryProjected

Salary

EXECUTIVE

DEPARTMENT

General Manager/

President50,000.00 59,359.27

Executive Secretary 20,000.00 23,743.71




PRODUCTION

DEPARTMENT

Operation Manager 30,000.00 35,615.56

Quality Control

Manager30,000.00 35,615.56

Process Engineer 15,000.00 17,807.78

Technicians 11,000.00 13,059.04




Machine

Operator/Inspector12,000.00 14,246.23

Maintenance/

Equipment Engineer

15,000.00 17,807.78




Supervisor

Technical Support

Engineer12,000.00 14,246.23

SALES

DEPARTMENT

Marketing Manager 20,000.00 23,743.71

Customer Service 12,000.00 14,246.23




Supervisor

Sales Associates 10,000.00 11,871.85

Marketing and

Advertising staff10,000.00 11,871.85




ADMINISTRATION

DEPARTMENT

Statistician 10,000.00 11,871.85

Purchaser 10,000.00 11,871.85

Logistics 10,000.00 11,871.85

FINANCE Finance Manager 20,000.00 23,743.71




DEPARTMENT

Accountant 12,000.00 14,246.23

Auditor 12,000.00 14,246.23

Payroll

Clerk/Staff/Cashier10,000.00 11,871.85

Human Resource 15,000.00 17,807.78




HUMAN RESOURCE

DEPARTMENT

Manager

Company Nurse 10,000.00 11,871.85

Transportation

Manager8,000.00 9,497.48

Security Staff 7,000.00 8,310.30




Company Driver 7,000.00 8,310.30

Maintenance Staff 7,000.00 8,310.30




The above table presents the incumbent salary rates for each

employee. These values will be the bases for the future wage rates by the

year Hyarn Corporation will start to hire its employee in the year 2015 as

stated in the Projected Time Table.

(Source: Pampanga Chamber of Commerce and Industry Inc.)

SALARY CALCULATIONS




Sample Computations

Projected Salary2015=Acual Salary2009(CI 2015CI 2009 )

Where:

Compensation Index on 2009 = 302.00




Compensation Index on 2015 = 358.53


Position Title State

Required

Years of

Experience

Qualification

Salary in

peso(2009

)




General

Manager/

President

Central

Luzon15-30 years

Professional

License/

Bachelor/College

Degree

50,000.00

Executive

Secretary

Central

Luzon5 & up

Bachelor/College

Degree20,000.00




General Manager

Projected Salary (2015 )=Ph p50,000( 358.53302.00 )

= Php 59,359.27

≈ Php 60,000.00




Executive Secretary


= Php 23743.71

≈ Php 24,000.00






Required

Years of

Experien

ce

Qualification

Salary in

peso(200

9)

Operation Manager Central

Luzon

15-30

years

Professional

License/

30,000.00




Bachelor/College

Degree

Quality Control ManagerCentral

Luzon5 & Up

Professional License

(Passed Board /

Professional License

Exam)

30,000.00




Process EngineerCentral

Luzon5 & Up

Bachelor/College

Degree15,000.00

TechniciansCentral

Luzon

1-4 year

min

Bachelor/College

Degree11,000.00

Machine

Operator/Inspector

Central

Luzon5 & up

Bachelor/College

Degree12,000.00




Maintenance/Equipment

Engineer Supervisor

Central

Luzon

1-4 yeas

min

Bachelor/College

Degree15,000.00

Technical Support

Engineer

Central

Luzon

1-4 yeas

min

Bachelor/College

Degree12,000.00

Production/Operation/Quality Control Manager





= Php 35,615.56

≈ Php 36,000

Process Engineer





= Php 17807.78

≈ Php 18,000.00

Technicians





= Php 13059.04

≈ Php 13,000.00

Machine Operator/Inspector





= Php 14246.23

≈ Php 14,000.00

Maintenance/Equipment Engineer Supervisor





= Php 17807.78

≈ Php 18,000.00

Technical Support Engineer





= Php 14246.23

≈ Php 14,000.00

SALES DEPARTMENT





Required

Years of

Experience

QualificationSalary in

peso(2009)

Marketing

ManagerCentral Luzon 5 & Up

Bachelor/College

Degree20,000.00

Customer Central Luzon 1-4 years Bachelor/College 12,000.00




Service

SupervisorDegree

Sales

AssociatesCentral Luzon 1-4 years

Bachelor/College

Degree10,000.00

Marketing and

Advertising

Central Luzon 1-4 years Bachelor/College

Degree

10,000.00




staff

Sales/Marketing Manager


= Php 23743.71




≈ Php 24,000.00

Customer Service Supervisor


= Php 14246.23

≈ Php 14,000.00




Sales Associates


= Php 11,871.85

≈ Php 12,000.00




Sales Representative


= Php 11871.85

≈ Php 12,000.00






Required

Years of

Experience


peso(2009)

StatisticianCentral

Luzon1-4 year

Bachelor/College

Degree10,000.00

Purchaser Central 5 & Up Bachelor/College 10,000.00




Luzon Degree

LogisticsCentral

Luzon1-4 years

Bachelor/College

Degree10,000.00

Statistician





= Php 11871.85

≈ Php 12,000.00

Purchaser


= Php 11871.85




≈ Php 12,000.00

Logistics Manager


= Php 11871.85

≈ Php 12,000.00




FINANCE DEPARTMENT


Required

Years of

Experience


peso(2009)

Finance Central 5 & Up Bachelor/College 20,000.00




Manager Luzon Degree

AccountantCentral

Luzon5 & Up

Bachelor/College

Degree12,000.00

AuditorCentral

Luzon1-4 years

Bachelor/College

Degree12,000.00

Payroll Central 1-4 years Bachelor/College 10,000.00




Clerk/Staff/Cash

ierLuzon Degree

Finance Manager


= Php 23743.71




≈ Php 24,000.00

Accountant


= Php 14246.23

≈ Php 14,000.00




Auditors


= Php 14246.23

≈ Php 14,000.00




Payroll Clerk/Staff


= Php 11871.85

≈ Php 12,000.00






Required

Years of

Experience


peso(2009)

Human

Resource

Manager

Central

Luzon5 & Up

Bachelor/College

Degree15,000.00




Company NurseCentral

Luzon1-4 years

Bachelor/College

Degree10,000.00

Transportation

Manager

Central

Luzon1-4 years

Vocational

Diploma / Short

Course Certificate

8,000.00

Security Staff Central 1-4 years --------- 7,000.00




Luzon

Company

Driver

Central

Luzon1-4 years ---------- 7,000.00

Maintenance

Staff

Central

Luzon1-4 years ---------- 7,000.00




Human Resource Manager


= Php 17807.78

≈ Php 18,000.00

Company Nurse





= Php 11871.85

≈ Php 12,000.00

Transportation Manager





= Php 9,497.48

≈ Php 9,000.00

Security Staff





= Php 8,310.30

≈ Php 8,000.00

Company Driver





= Php 8,310.30

≈ Php 8,000.00

Maintenance Staff





= Php 8,310.30

≈ Php 8,000.00




SUMMARY OF OPERATING COST

Position Present Salary Projected

Salary

Estimated

Salary





General Manager/

President50,000.00 59,359.27 60,000.00

Executive Secretary 20,000.00 23,743.71 24,000.00





Operation Manager 30,000.00 35,615.56 36,000.00

Quality Control

Manager30,000.00 35,615.56 36,000.00




Process Engineer 15,000.00 17,807.78 18,000.00

Technicians 11,000.00 13,059.04 13,000.00

Machine

Operator/Inspector

12,000.00 14,246.23 14,000.00

Maintenance/ 15,000.00 17,807.78 18,000.00




Equipment Engineer

Supervisor

Technical Support

Engineer12,000.00 14,246.23 14,000.00

SALES DEPARTMENT




Marketing Manager 20,000.00 23,743.71 24,000.00

Customer Service

Supervisor12,000.00 14,246.23 14,000.00

Sales Associates 10,000.00 11,871.85 12,000.00

Marketing and 10,000.00 11,871.85 12,000.00




Advertising staff


Statistician 10,000.00 11,871.85 12,000.00

Purchaser 10,000.00 11,871.85 12,000.00




Logistics 10,000.00 11,871.85 12,000.00

FINANCE DEPARTMENT

Finance Manager 20,000.00 23,743.71 24,000.00

Accountant 12,000.00 14,246.23 14,000.00




Auditor 12,000.00 14,246.23 14,000.00

Payroll

Clerk/Staff/Cashier10,000.00 11,871.85 12,000.00


Human Resource 15,000.00 17,807.78 12,000.00




Manager

Company Nurse 10,000.00 11,871.85 12,000.00

Transportation

Manager8,000.00 9,497.48 9,000.00

Security Staff 7,000.00 8,310.30 8,000.00




Company Driver 7,000.00 8,310.30 8,000.00

Maintenance Staff 7,000.00 8,310.30 8,000.00

COMPUTATION FOR THE COST OF RAW MATERIAL




The cost of the raw materials for the year specif ied wil l be

computed using the purchasing power of peso of the base year

(2009) and for the year specif ied. The fol lowing formula wil l be

used.

Cost of Raw Material 2015 = Cost of Raw Material 2009(PPP on 2009PPP on 2015 )




Where:

Purchasing Power of Peso on 2009 = 0.63


Raw Price (Peso) Price in Annual

Required

Projected

Annual Cost




Materials per kg 2015 (Peso)Amount

(kg/year)

on Target Year

(Peso)

PET waste

Bottle20 28 45,690 1279320

NaOH flakes 10 14 70,200 982800




Total 2262120





Raw MaterialsSource of Raw

MaterialsAddress Contact Number

Waste PET Linis Ganda Inc.

7 Camia, Valle Verde 2,

1600 Pasig

City,Philippines

Tel. No. (632) 636-

1658

Fax. No. (632) 636-

1658

Caustic Soda

(NaOH)

Universal

Aquarius, Inc.

Suite 306 The

Bonaventure Plaza

Ortigas Ave., Greenhills

san Juan Metro Manila

Philippines 1000

Tel. No. (632) 722-

6941

Fax. No. (632) 721-

0806



TOTAL COST OF RAW MATERIALS

The total cost of raw materials in the target year 2015 will be the sum

of all cost of PET waste and sodium hydroxide (Caustic Soda).

PURCHASED EQUIPMENT COST




The cost of the equipment is projected by the time the equipment

would be purchased, which is in year 2009. The projection of the cost is

based on the purchasing power of peso with 0.63 at the base year. The

formula to be used to compute for the equipment cost is:

Cost of Equipment 2012 = Cost of Equipment 2009(PPP on 2009PPP on 2015 )




Where: Purchasing Power of Peso on 2009 = 0.63


The above indicated formula wil l be the basis for the

computations of the future values of the equipment needed in

the manufacturing process.




EQUIPMENT COST Quantity TOTAL COST

Spray washer 270,000.00 1 320,943.40

Decorticating

Machine145,000.00 1 172,358.49

Degumming tank 650,000.00 1 772,641.51




NaOH Storage Tank 26,092.00 1 31,015.02

Water Storage Tank 34,736.00 1 41,289.96

Dilution Tank 78,000.00 1 92,716.98

Tray Dryer 226,360.00 1 269,069.43




Rotary Knife Cutter 302,600.00 1 359,694.34

sink-and-float tank 36,432.00 1 43,305.96

Hot washing 80,400.00 1 95,569.81

Extruder 670,000.00 1 796,415.09




Carding Machine 118,000.00 1 140,264.15

Spinning Machine 658,000.00 1 782,150.94

conveyor 46,000.00 2 109,358.49

Delivery Trucks 410,000.00 1 487,358.49




Forklift 280,000.00 1 332,830.19

TOTAL COST 4,846,982.26

Spray washer




Actual Cost (2007) = Php 270,000.00

Projected Cost (2010) = Php 270,000.00

(0.63/0.53)


Decorticating Machine

Actual Cost (2007) = Php 145,000.00




Projected Cost (2010) = Php 145,000.00(0.63/0.53)


Degumming tank

Actual Cost (2007) = Php 650,000.00






NaOH Storage Tank

Actual Cost (2007) = Php 26,092.00



Water Storage Tank

Actual Cost (2007) = Php 34,736.00






Dilution Tank

Actual Cost (2007) = Php 78,000.00






Tray Dryer

Actual Cost (2007) = Php 226,360.00

Projected Cost (2010) = 226,360.00(0.63/0.53)


Rotary Knife Cutter

Actual Cost (2007) = Php 302,600.00






Sink-and-float tank

Actual Cost (2007) = Php 36,432.00






Hot washing

Actual Cost (2007) = Php 80,400.00



Extruder




Actual Cost (2007) = Php 670,000.00



Carding Machine

Actual Cost (2007) = Php 118,000.00






Spinning Machine

Actual Cost (2007) = Php 658,000.00






Conveyor

Actual Cost (2007) = Php 46,000.00



Delivery Trucks




Actual Cost (2007) = Php 410,000.00



Forklift

Actual Cost (2007) = Php 280,000.00






Summary of Projected Equipment Cost (2012)

EQUIPMENT Quantity TOTAL COST

Spray washer 1 320,943.40




Decorticating 1 172,358.49

Degumming tank 1 772,641.51

NaOH Storage Tank 1 31,015.02

Water Storage Tank 1 41,289.96




Dilution Tank 1 92,716.98

Tray Dryer 1 269,069.43

Rotary Knife Cutter 1 359,694.34

sink-and-float tank 1 43,305.96




Hot washing 1 95,569.81

Extruder 1 796,415.09

Carding 1 140,264.15

Spinning 1 782,150.94




conveyor 2 109,358.49

Delivery Trucks 1 487,358.49

Forklift 1 332,830.19

TOTAL 13 4,846,982.26




The wastewater equipment is taken from the total

equipment cost being 30% of this cost.

Cost of wastewater equipment = 0.20(EC)




Cost of wastewater equipment = 0.20(4,846,982.26)

Cost of wastewater equipment = Php 969,396.45

The total equipment cost will be Php 5,816,378.72







PURCHASED EQUIPMENT DEPRECIATION COST

Depreciation is the downgrade in the original value of

equipment, bui lding and other material that decreases in value




over t ime and is used in the manufacturing plant. These values

cover the maintenance of any depreciable material .

EQUIPMENT TOTAL COST

ESTIMATE

D LIFE

YEARS

ANNUAL

DEPRECIATION




Spray washer 320,943.40 12.00 26,745.28

Decorticating 172,358.49 12.00 14,363.21

Degumming tank 772,641.51 12.00 64,386.79




NaOH Storage

Tank31,015.02 12.00 2,584.58

Water Storage

Tank41,289.96 10.00 4,129.00

Dilution Tank 92,716.98 10.00 9,271.70




Tray Dryer 269,069.43 12.00 22,422.45

Rotary Knife

Cutter359,694.34 12.00 29,974.53

sink-and-float

tank43,305.96 12.00 3,608.83




Hot washing 95,569.81 10.00 9,556.98

Extruder 796,415.09 12.00 66,367.92

Carding 140,264.15 12.00 11,688.68

Spinning 782,150.94 12.00 65,179.25




conveyor 109,358.49 10.00 10,935.85

Delivery Trucks 487,358.49 12.00 40,613.21

Forklift 332,830.19 12.00 27,735.85

Wastewater 969,396.45 12.00 119,807.58




TOTAL 5,816,378.72 529,371.68

The unit and total annual purchased equipment

depreciation cost is summarized in the table on the basis of

zero amount of salvage value. The computation is based on the




maximum possible annual rate of depreciation using the

straight l ine method of depreciation.







CAPITAL INVESTMENT

A huge quantity of money must be at hand to be able to purchase and

install the required machineries and equipment prior to the start – up

operation of the industrial plant. The sufficient service facilities and land area

must be acquired and the production plant must be fabricated entirely

including all the piping systems, instrumentation and controls, and services.




Furthermore, it is important for the Hyarn Corporation to acquire the money

significant for the payment of expenses involved in the plant operation.

ESTIMATION OF CAPITAL INVESTMENT

Capital investment includes the total amount of money necessary for

the supplement of the indispensable plant and manufacturing facilities in




addition with the amount of money required as working capital for operation

of the facilities. The following items are the breakdown of the individual

components which affixes to the capital investment cost of the corporation.

PURCHASED EQUIPMENT

Purchased equipment is the basis of several pre – designed

methods for estimating capital investment and other major cost




contributing components. Sources of equipment prices, methods for price

adjustments for capacity and methods of estimating auxiliary process

equipment are essential for making reliable cost estimate.




PURCHASED EQUIPMENT INSTALLATION

This component includes cost for labor, foundations, supports,

platforms, construction expenses and other factors directly related to

the erection of purchased equipment.

INSULATION COST




In the instance that a very high or low amount of temperature is

involved in the process, insulation factors can become important and

may be necessary to estimate installation costs with a great deal of

care. Expenses on insulation and equipment and piping are included

under the perspective headings of equipment installation costs and

piping costs.




INSTRUMENTATION AND CONTROL

Instruments costs, installation-labor costs, and expenses for

auxiliary equipment and materials constitute the major portion of the

capital investment required for instrumentation. This part of the capital

investment is sometimes combined with the general equipment

groups.




PIPING

The cost for piping includes labor, valves, fittings, supports and

other items involved in the complete erection of all piping used directly

in the process. Piping for raw materials, intermediate product, finished




product, steam, water, air, sewer, and other process piping are all

considered in for piping costs.

ELECTRICAL INSTALLATION

Cost for electrical installation consists of installation labor and

materials for power and lighting. Four major components include power




wiring, lighting, transformation and services, and instrument and

control wiring.

BUILDING INCLUDING SERVICES




It consists of expenses of labor, material and supplies involved in

the erection of all buildings connected with the plant. Building services

include costs for plumbing, lighting, ventilation and etc.

YARD IMPROVEMENT




This part of the capital investment entails the cost for fencing,

grading, sidewalks, railroad sidings, and landscaping and similar items.

SERVICE FACILITIES




These includes waste disposal, fire protection and miscellaneous

service items, such as shop first aid, and cafeteria equipment utilities

for supplying steam, water, power compressed air and fuel.

LAND




The cost for land and the accompanying surveys and fees

depend on the location of the property and may vary by a cost factor

per acre as high as thirty to fifty between a rural district and a highly

industrialized area.

ENGINEERING AND SUPERVISION




Includes cost for construction design and engineering, drafting,

purchasing, accounting, construction and cost engineering, travel,

reproductions, communications, and home office expenses including

overhead.

CONSTRUCTION EXPENSE




Include expenses on temporary construction or field expense and

operation construction tools and rentals, home and office personnel

located at the construction site, construction payroll, travel and living

taxes and insurance, and other construction overhead.

CONTRACTOR’S FEE




The contractor’s fee varies for different situations, but it can be

estimated to be about 2 to 8 percent of the direct plant cost of 1.5 to 6

percent of the fixed capital investment.

CONTINGENCIES




A contingency factor is usually included in an estimate of capital

investment to compensate for unpredictable events, such as storms,

floods, strikes, price changes, small design changes, errors in

estimation, and other unforeseen expenses, which previous estimates

have statistically shown to be of recurring nature.

ESTIMATION OF CAPITAL INVESTMENT




For a sol id-processing plant, the fol lowing are specif ied

percentage of del ivered equipment as presented in Peter’s

Plant Design and Economics for Chemical Engineers

Percentage for cost of service and item with respect to

total equipment cost




Purchased Equipment-Delivered ………………. 100%

Purchased Equipment Installation ………………. 45%

Instrumentation and Control …………………...... 9%

Piping, installed …………………………………….. 16%




Electrical, installed ……………………………….... 10%

Buildings, including services …………………….. 25%

Yard improvements………………………………… 13%

Land ………………………………………………....... 6.00




%

DIRECT COST

ITEM COST




Purchased Equipment-

Delivered5,816,378.72

Purchased Equipment

Installation 2,617,370.42




Instrumentation and Control 523,474.08

Piping, installed 930,620.60

Electrical, installed 581,637.87

Buildings, including services 1,454,094.68




Yard improvements 756,129.23

Land 348,982.72

TOTAL 13,028,688.33




Engineering & Supervision

………………………….. 33%

Construction Expenses ……………………………... 39%

Contractor’s fee ……………………………………… 17%

Contingency…………………………….................... 34%




.

INDIRECT COST

ITEM COST




Engineering & Supervision 1,919,404.98

Construction Expenses 2,268,387.70

Contractor’s fee 988,784.38

Contingency 1,977,568.76




TOTAL 7,154,145.83

Fixed Capital Investment

(FCI)20,182,834.16




Working Capital 3,561,676.62

TOTAL CAPITAL

INVESTMENT23,744,510.77

SAMPLE COMPUTATION:




DIRECT COST

Purchased Equipment Installation

Purchased Equipment Cost = Php 5,816,378.72

Purchased Equipment Instal lat ion = 0.45 PE

Purchased Equipment Instal lat ion =0.45x5,816,378.72




Purchased Equipment Installation = Php

2,617,370.42

Instrumentation and Control


Instrumentation and Control = 0.09 PE

Instrumentation and Control = 0.09 x 5,816,378.72




Instrumentation and Control = Php

523,474.08

Piping


Piping = 0.16 PE




Piping = 0161 x 5,816,378.72

Piping = Php 930,620.60

Electrical


Electrical = 0.10 PE




Electrical = 0.10 x 5,816,378.72

Electrical = Php

581,637.87

Building





Building = 0.25 PE

Building = 0.25 x 5,816,378.72

Building = Php 1,454,094.68

Yard Improvements





Yard Improvements = 0.13 PE

Yard Improvements = 0.13 x 5,816,378.72

Yard Improvements = Php

756,129.23

Land





Service Faci l i t ies = 0.06 PE

Service Faci l i t ies = 0.06 x 5,816,378.72

Service Facilities = Php 348,982.72

INDIRECT COST




Engineering and Supervision


Engineering and Supervision = 0.33 PE

Engineering and Supervision = 0.33 x 5,816,378.72




Engineering and Supervision = Php

1,919,404.98

Contractor’s Fee Expense

Purchased Equipment Cost = Php

5,816,378.72




Contractor’s Fee Expense = 0.39 PE

Contractor’s Fee Expense = 0.39 x 5,816,378.72

Contractor’s Fee Expense = Php

2,268,387.70

Construction Expense





Construction Expense = 0.17 PE

Construction Expense = 0.17 x 5,816,378.72

Construction Expense = Php 988,784.38

Contingency





Contingency = 0.34 PE

Contingency = 0.34 x 5,816,378.72

Contingency Expense = Php 1,977,568.76







BREAKDOWN OF WORKING CAPITAL




The working capital computed amounting to 3,561,676.62 will be billed

to the following expenditures:

EXPENDITURES AMOUNT

1. Industrial patent application, BOI and SEC Registration (10%)

356,167.66

2. Allowances for the securing of 712,335.32




funds for 14 months, including legal aspects (20%)

3. Plant site acquisition (10%) 356,167.66

4. Recruitment & screening of personnel including classified ads (10%)

356,167.66

5. Hiring of professional services of experts for equipment operation and training of personnel

712,335.32




including troubleshooting (20%)

6. Trial run of plant (10%) 356,167.66

7. Others (Ad agency/firms, municipal and provincial clearances) (20%)

712,335.32

Total 3,561,676.62




TOTAL PRODUCT COST




For holistic cost estimation in a financial feasibility study, the

determination of the necessary capital investment is a crucial part. Another

equally important part is the estimation of costs for plant operation and

product selling. The cost can be grouped under the general heading of total

product cost and general expenses.




Total product cost is commonly computed on one of the following

bases: daily basis, unit-of-product basis, or annual basis. The annual cost

basis is perhaps the best preference for estimating the total cost because (1)

the effect of seasonal variation is smoothed out, (2) plant on-stream time or

equipment-operating factor is considered, (3) it permits more rapid

calculation of operating costs at less than full capacity, and (4) it provides a




convenient way of considering infrequently occurring but large expenses

such as annual turnaround costs.

The proponents have approximated the total annual product cost on a

yearly basis. Moreover, this has been done precisely as significantly justified

by Table 27 Estimation of Total Product Cost showing all individual

components (Peters and Timmerhaus, Plant Design and Economics for

Chemical Engineers: p 210). The table presents the percentages, expressed




on annual basis of the various costs involved in the complete operation of

manufacturing plants.




ESTIMATION OF TOTAL PRODUCT COST

MANUFACTURING COST

DIRECT PRODUCT COST




Raw Materials 2262120

Operating Labor 5,484,796.69

Utilities 10% TPC 1,640,540.69

Maintenance & Repairs 6% FCI 1,210,970.05




Operating Supplies 15% MR 181,645.51

Laboratory Charges 10% OL 548,479.67

Patent & Royalties 1% TPC 164,054.07




TOTAL 11,492,606.68

FIXED CHARGES

Depreciation 10% FCI 529,371.68

Local Taxes 2% FCI 403,656.68




Insurance 1% FCI 201,828.34

TOTAL 1,134,856.70




PLANT OVERHEAD COST 5.00% TPC 820,270.34

Direct Product cost +

Fixed Charges12,627,463.38

TOTAL 13,447,733.72




MANUFACTURING COST

GENERAL EXPENSES ALL

A. Administrative Cost 20% OL 1,096,959.34




B. Distribution & Selling

cost 5% TPC 820,270.34

C. Research &

Development 2% TPC 328,108.14




D. Financing Cost 3% TCI 712,335.32

TOTAL 2,957,673.14

TOATL PRODUCT COST 16,405,406.86







START UP EXPENSES

DIRECT PRODUCT COST

Raw Materials 565,530





Utilities 10% TPC 410,135.1725

Maintenance & Repairs 6% FCI 302,742.5125

Operating Supplies 15% MR 45,411.3775

Laboratory Charges 10% OL 137,119.9175




Patent & Royalties 1% TPC 41,013.5175

TOTAL 2,873,151.67

FIXED CHARGES




Depreciation 10% FCI 132,342.92

Local Taxes 2% FCI 100,914.17

Insurance 1% FCI 50,457.085




TOTAL 283,714.175

PLANT OVERHEAD COST 10% TPC 205,067.585




Direct Product cost +

Fixed Charges3,156,865.845

TOTAL

MANUFACTURING COST3,361,933.43




GENERAL EXPENSES ALL

A. Administrative Cost

(10% OL)20% OL 274,239.835

B. Distribution & Selling

cost (20% TPC)

5% TPC 205,067.585




C. Research &

Development (5% TPC)2% TPC 82,027.035

D. Financing Cost (10%

TCI)3% TIC 178,083.83

TOTAL 739,418.285




TOATL PRODUCT COST 4,101,351.715




ANNUAL SALES

Hyarn Corporation’s annual rated plant capacity of 58912.62 kg. The

company is expected to sell of 75% on its first year of operation. The unsold

goods, was considered as the company’s finished goods inventory that is

added to succeeding year sales.

ESTIMATION OF SELLING PRICE




% Sales (Price/kg) (Rated Plant Capacity) = FCI + TPC

0.75 (Php/kg) (58912.62) = 20,182,834.16 + 16,405,406.86

Selling Price = Php 828 per kg




This selling price is comparable to the actual selling price of cotton blended

yarn which is Php 1,212/kg (http://www.thefind.com/crafts) and hemp blended yarn

which is Php1,825/kg (http://compostablegoods.com).

ANNUAL SALES

Total Annual Sales = Rated Plant Capacity (Selling price) (% sales)

Total Annual Sales = (58912.62) (828) (0.75)




Total Annual Sales = Php 36,584,737.02

FINISHED GOODS INVENTORY

Inventory = Rated Plant Capacity (Selling price) (1-%sales)

Inventory = (58912.62) (828) (0.25)

Inventory = Php 12,194,912.34




PROFITABILITY

The profit goal of a company maximize income above the cost of the capital which

must be invested to 34% tax is considered.




Annual Operating Income = Annual Sales – TPC

= 36,584,737.02 - 16,405,406.86

Annual Operating Income = Php 20,179,330.16




Income before tax = Annual Operating Income – Annual Depreciation

= 20,179,330.16 - 529,371.68

= Php 19,649,958.48

Profit after taxes = (0.66)(Income before taxes)




= 0.66(Php 19,649,958.48)

Profit after taxes = Php 12,968,972.6

Net Income = Profit after tax – Dividend

= Php 12,968,972.6 – 4.6%(12,968,972.6)




= Php 12,372,399.86

PROFITABILITY ANALYSIS

Profitability is used as a general term for the measure of the amount of profit

that can be obtained from a given situation. It is the common denominator for all

business activities.




Before capital is invested in a project or enterprise, it is necessary to know

how much profit can be obtained and whether or not it might be more

advantageous to invest the capital in another form of enterprise. In the case of

Hyarn Corporation, the company ventures in the construction market since the

industry has been dependent on importation. It may be enough that the market

analyses have been done, but the major goal of an economic analysis lies with the

determination and analysis of profits obtainable from the investment of capital.




PROFITABILITY STANDARDS

The profits anticipated from the investment of funds should be considered in

terms of a minimum profitability standard while in the process of making an

investment decision. This profitability standard, normally expressed on a direct

numerical basis, must be weighed against the overall judgment evaluation for the

project in making the final decision as to whether or not the project should be

undertaken.




The judgment evaluation must be based on the recognition that a qualified

profitability standard can serve only as a guide. Thus, it must be recognized that the

profit evaluation is based on the prediction of future results so that assumptions are

necessarily concluded.

BASES FOR EVALUATING PROJECT PROFITABILITY




Total profit alone can be used as the deciding profitability factor in knowing if

an investment should be made. The profit goal of a company is to maximize income

above the cost of the capital, which must be invested to generate the income. If the

goal were merely to maximize profits, any investment would be accepted which

would give a profit, no matter how low the return or how great the cost.

RATE OF RETURN




Rate of return on investment is expressed on an annual percentage basis. It

is the yearly profit divided by the total initial investment necessary, multiplied by

one hundred. The following formula will be used to compute for the rate of return on

investment before and after taxes.




RORbefore Taxes= Annual Gross IncomeTotalCapital Investment

x100

RORbefore Taxes=19,649,958.4823,744,510.77

x 100




RORbefore Taxes=82.76 %

RORafter Taxes= Annual Net IncomeTotal Capital Investment

x 100




RORafter Taxes=12,372,399.8623,744,510.77

x100

RORafter Taxes=52.11%




PAY-OUT PERIOD

Payout period, or payout time, is the minimum length of time theoretically

necessary to recover the original capital investment in the form of cash flow to the




project based on the total income minus all costs except depreciation (Timmerhaus,

1991:309). The following formula will be used:

Payout Period=Depreciable¿capita l investment ¿

Aveprofityr

+Avedepnyr




Payout Period= 20,182,834.1612,968,972.6+529,371.68

Payout Period=1.50 yrs




This implies that the needed time to recover the fixed-capital investment

would take 1.5 years.




BREAK-EVEN POINT ANALYSIS




To find the number of kilograms sold at break-even point the following formula will

be employed:

Total Product Cost = Total Income




¿Cost+ProductionCosts (N )

Unit=(N )Selling Price

Where: N is the number of kilograms at break even pt




Fixed Cost=Fixed charges + Plant overhead cost + General Expenses

FC = 1,134,856.70 + 820,270.34 + 2,957,673.14

FC = Php 4,912,800.18




Computing for N:

4,912,800.18+ 16,405,406.8658912.62

(N )=(N ) (828 /kg )

N = 8,940.01 kg/year




Percentage Break-Even is now equal to:

%BEP = N/Annual production x 100%

= (8,940.01/58912.62) (100%)

= 15.18%

NET PRESENT WORTH




The method of net present worth or net present value or venture worth

substitutes the cost of capital of an interest rate i for the discounted cash-flow rate

of return. The cost of capital can be taken as the average rate of return the

company earns on its capital, or it can be designated as the minimum acceptable

return for the project. The net present worth of the project is then the difference




between the present value of the annual cash flows and the initial required

investment.

Net Present Value = Present cash flow – Total Capital Investment

Net Present Value = 47,495,820.97 – 23,744,510.77




Net Present Value = Php 23,751,310.2




SCHEDULE OF AMMORTIZATION




YEAR

OUTSTANDING

BALANCEINTEREST

ANNUAL PAYMENT

PRINCIPAL REPAID

BALANCE

2015

- - - - -

2016

22,276,690 2,673,202.80

3,942,621.36

1,269,418.56

21,007,271

2017

21,007,271 2520872.57

3,942,621.36

1,421,748.79

19,585,523

2018

19,585,523 2350262.72

3,942,621.36

1,592,358.64

17,993,164




2019

17,993,164 2159179.68

3,942,621.36

1,783,441.68

16,209,722

2020

16,209,722 1945166.678

3,942,621.36

1,997,454.68

14,212,268

2021

14,212,268 1705472.116

3,942,621.36

2,237,149.24

11,975,118

2022

11,975,118 1437014.207

3,942,621.36

2,505,607.15

9,469,511

2023

9,469,511 1136341.349

3,942,621.36

2,806,280.01

6,663,231

2024

6,663,231 799587.7475

3,942,621.36

3,143,033.61

3,520,198




2025

3,520,198 422423.714

3,942,621.36

3,520,197.65

0







MODES OF PAYMENT

Hyarn Corporation’s initial total capital investment and startup expense

totaling Php 27,845,862.49 and 80% of this is loaned from the Metrobank

amounting to Php 22,276,690. This initial investment is the sum of the total capital

investment and the first quarter startup expense for the fist year operation.




Payment on this financial obligation will be done depending on the

agreement with the bank. The amount of money that will be allotted is computed

using the following formula from Plant Design & Economics by Peters and

Timmerhaus:

P=A ¿




For the loan made at an interest rate of 12% per annum for 10 years

payment amounting to Php 22,276,690 which is 80% of the total initial investment.

A=P¿




A=Php3,942,621.36




HYARN Corporation

Income Statement

As of 2015

Sales

36,584,737.02




Less:

Direct Production Cost

Raw Materials 2262120


Utilities 1,640,540.69

Maintenance and Repairs 1,210,970.05

Operating Supplies 181,645.51




Laboratory Charges 548,479.67

Patent and Royalties 164,054.07

TOTAL 11,492,606.68

Fixed Charges

Depreciation 529,371.68

Local Taxes 403,656.68




Insurance 201,828.34

TOTAL 1,134,856.70

Plant Overhead Cost 820,270.34

TOTAL

13,447,733.72




General Expenses

Administrative Cost 1,096,959.34

Distribution and Selling Cost 820,270.34

Research and Development 328,108.14

Financing Cost 712,335.32

TOTAL GENERAL EXPENSES




2,957,673.14

TOTAL

16,405,406.86

Annual Depreciation 529,371.68

Income before Tax 19,649,958.48

Less: Income Tax Payment 6,680,985.88




Annual Loan Payment -

Dividend 596,572.74

NET INCOME

12,372,399.86










HYARN Corporation




Cash Flow Statement

As of 2015

CASH INFLOW

Operational Inflow




Gross Income 19,649,958.48

Non-Operation Inflow

Loans 22,276,690

Capital Stocks 5,569,172.49

Total Cash Inflow 47,495,820.97




CASH OUTFLOW

Operational Outflow

Finished Goods Inventory 12,194,912.34




Non-Operational Outflow

Income Tax payment 6,680,985.88

Fixed Asset Acquisition

Purchased Equipment 5,816,378.72




Equipment Installation 2,617,370.42









Land 348,982.72

Total Cash Outflow 31,904,586.55




CASH INFLOW/OUTFLOW 15,591,234.42







HYARN Corporation

Balance Sheet




As of 2015

ASSETS

Current Assets

Working Capital 3,561,676.62

Fixed Assets

Purchased Equipment 5,816,378.72

Equipment Installation 2,617,370.42









Land 348,982.72




Total Fixed Assets

13,028,688.33

Engineering and supervision 1,919,404.98

Construction expenses 2,268,387.70

Contractor’s fee 988,784.38




Contingency 1,977,568.76

Start-up expense 4,101,351.72

TOTAL ASSETS

27,845,862.49

LIABILITIES AND EQUITY

Loans 22,276,690




Capital Stock 5,569,172.49

TOTAL LIABILITIES AND EQUITY

27,845,862.49


Documents

Financial Feasibility Study