Financial Feasibility Study

Pamantasan ng Lungsod ng Maynila
College 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
Interest Term of
Sources of Requireme
rate per payme
Financing nt
annum 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
Purchasing Power of
Year Peso
PPP
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
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 Statistical Arithmeti Arithmeti

Geometric Straight c Straight c
Geometri
line Line 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 0.0484 0.0673 0.0683 0.0489

d
Deviatio
Chosen Method of Projection for PPP
Purchasing Power of
Peso
Year 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
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
Compensation Index Per

Year
Employee
2004 237.75
2005 257.75
2006 252.50
2007 261.50
2008 276.50
2009 302.00
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
Statistical Arithmetic
Statistical Arithmetic
Year Straight Straight
Geometric Geometric
line Line
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 23.82 18.86 21.95 29.79
d
Deviatio
n
Projected Compensation Indices per Employee
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
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
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
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.
1. 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.
OPERATING LABOR COST

No. Present Projecte 13th Annual
Position Required Salary d Salary month Salary
in Position (2009) (2015) Pay (2015)
General Manager/ 50,000.0 59,359.2

1 59,359.27 712,311.26
President 0 7
20,000.0 23,743.7
Executive Secretary 1 23,743.71 284,924.50
0 1
Operation Manager 1 30,000.0 35,615.56 35,615.5 427,386.75
0 6
Quality Control 30,000.0 35,615.5

1 35,615.56 427,386.75
Manager 0 6
15,000.0 17,807.7
Process Engineer 5 17,807.78 213,693.38
0 8
Technicians 2 11,000.0 13,059.04 13,059.0 156,708.48
0 4
Machine 12,000.0 14,246.2

2 14,246.23 170,954.70
Operator/Inspector 0 3
Maintenance/Equipm 15,000.0 17,807.7

ent Engineer 1 17,807.78 213,693.38
0 8
Supervisor
Technical Support 2 12,000.0 14,246.23 14,246.2 170,954.70
Engineer 0 3
SALES DEPARTMENT
20,000.0 23,743.7
Marketing Manager 1 23,743.71 23,743.71
0 1
Customer Service 1 12,000.0 14,246.23 14,246.2 14,246.23

Supervisor 0 3
10,000.0 11,871.8
Sales Associates 2 11,871.85 11,871.85
0 5
Marketing and 20,000.0 23,743.7

4 23,743.71 23,743.71
Advertising staff 0 1
10,000.0 11,871.8
Statistician 2 11,871.85 142,462.25
0 5
10,000.0 11,871.8
Purchaser 2 11,871.85 142,462.25
0 5
10,000.0 11,871.8
Logistics 2 11,871.85 142,462.25
0 5
FINANCE DEPARTMENT
20,000.0 23,743.7
Finance Manager 1 23,743.71 284,924.50
0 1
12,000.0 14,246.2
Accountant 1 14,246.23 170,954.70
0 3
Auditor 2 12,000.0 14,246.23 14,246.2 170,954.70
0 3
Payroll 10,000.0 11,871.8

4 11,871.85 142,462.25
Clerk/Staff/Cashier 0 5
Human Resource 15,000.0 17,807.7

1 17,807.78 213,693.38
Manager 0 8
10,000.0 11,871.8
Company Nurse 1 11,871.85 142,462.25
0 5
Transportation 1 8,000.00 9,497.48 9,497.48 113,969.80

Manager
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
7,037,635.2
TOTAL 55 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 Salary Projected
Salary
General Manager/
EXECUTIVE 50,000.00 59,359.27
President
DEPARTMENT
Executive Secretary 20,000.00 23,743.71
PRODUCTION Operation Manager 30,000.00 35,615.56
DEPARTMENT Quality Control

30,000.00 35,615.56
Manager
Process Engineer 15,000.00 17,807.78
Technicians 11,000.00 13,059.04
Machine 12,000.00 14,246.23

Operator/Inspector
Maintenance/Equipme
nt Engineer 15,000.00 17,807.78
Supervisor
Technical Support
12,000.00 14,246.23
Engineer
SALES Marketing Manager 20,000.00 23,743.71
Customer Service
12,000.00 14,246.23
Supervisor
DEPARTMENT Sales Associates 10,000.00 11,871.85
Marketing and
10,000.00 11,871.85
Advertising staff
Statistician 10,000.00 11,871.85

ADMINISTRATION
Purchaser 10,000.00 11,871.85
DEPARTMENT
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
10,000.00 11,871.85
Clerk/Staff/Cashier
Human Resource
15,000.00 17,807.78
Manager
Company Nurse 10,000.00 11,871.85
Transportation
8,000.00 9,497.48
Manager
Security Staff 7,000.00 8,310.30
Company Driver 7,000.00 8,310.30

HUMAN RESOURCE Maintenance Staff 7,000.00 8,310.30
DEPARTMENT
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 Salary 2015=Acual Salary 2009 CI 2015CI 2009

Where:
Compensation Index on 2009 = 302.00
Compensation Index on 2015 = 358.53
Required Salary in
Position Title State Years of Qualification peso(2009
Experience )
General Central 15-30 years Professional 50,000.00
Manager/ License/
President Luzon Bachelor/College

Degree
Executive Central Bachelor/College
5 & up 20,000.00
Secretary Luzon Degree
General Manager
Projected Salary 2015=Php 50,000358.53302.00

= Php 59,359.27
≈ Php 60,000.00
Executive Secretary
= Php 23743.71
≈ Php 24,000.00
Required
Salary in
Years of
Position Title State Qualification peso(200
Experien
9)
ce
Professional
Operation Manager Central 15-30 License/ 30,000.00

Luzon years Bachelor/College
Degree
Quality Control Manager Central 5 & Up Professional License 30,000.00
Luzon (Passed Board /
Professional License
Exam)
Process Engineer Central Bachelor/College 15,000.00

5 & Up
Luzon Degree
Technicians Central 1-4 year Bachelor/College 11,000.00
Luzon min Degree
Machine Central Bachelor/College

5 & up 12,000.00
Operator/Inspector Luzon Degree
Maintenance/Equipment Central 1-4 yeas Bachelor/College 15,000.00
Engineer Supervisor Luzon min Degree
Technical Support Central 1-4 yeas Bachelor/College 12,000.00
Engineer Luzon min Degree
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
Salary in
Position Title State Years of Qualification
peso(2009)
Experience
Marketing Bachelor/College
Central Luzon 5 & Up 20,000.00
Manager Degree
Customer Central Luzon 1-4 years Bachelor/College 12,000.00
Service Degree
Supervisor
Sales Bachelor/College
Central Luzon 1-4 years 10,000.00
Associates Degree
Marketing and Central Luzon 1-4 years Bachelor/College 10,000.00
Advertising Degree
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
Salary in
peso(2009)
Experience
Central Bachelor/College 10,000.00

Statistician 1-4 year
Luzon Degree
Purchaser 5 & Up
Luzon Degree
Logistics 1-4 years
Luzon Degree
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
Salary in
peso(2009)
Experience
Finance Central Bachelor/College
5 & Up 20,000.00
Manager Luzon Degree
Accountant Central 5 & Up Bachelor/College 12,000.00
Luzon Degree
Auditor Central Bachelor/College 12,000.00

1-4 years
Luzon Degree
Payroll
Clerk/Staff/Cash Central Bachelor/College 10,000.00
1-4 years
ier Luzon 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
Salary in
peso(2009)
Experience
Human
Resource 5 & Up
Luzon Degree
Manager
Company Nurse Central 1-4 years Bachelor/College 10,000.00
Luzon Degree
Vocational
Transportation Central 8,000.00
1-4 years Diploma / Short
Manager Luzon
Course Certificate
Central 7,000.00
Security Staff 1-4 years ---------
Luzon
Company Central 1-4 years ---------- 7,000.00
Driver Luzon
Maintenance Central 7,000.00
1-4 years ----------
Staff Luzon
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
Projected Estimated
Position Present Salary
Salary Salary
General Manager/
50,000.00 59,359.27 60,000.00
President
Executive Secretary 20,000.00 23,743.71 24,000.00
Operation Manager 30,000.00 35,615.56 36,000.00
Quality Control
30,000.00 35,615.56 36,000.00
Manager
Process Engineer 15,000.00 17,807.78 18,000.00
Technicians 11,000.00 13,059.04 13,000.00
Machine
12,000.00 14,246.23 14,000.00
Operator/Inspector
Maintenance/Equipmen
15,000.00 17,807.78 18,000.00
t Engineer Supervisor
Technical Support
12,000.00 14,246.23 14,000.00
Engineer
SALES DEPARTMENT
Marketing Manager 20,000.00 23,743.71 24,000.00
Customer Service
12,000.00 14,246.23 14,000.00
Supervisor
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
10,000.00 11,871.85 12,000.00
Clerk/Staff/Cashier
Human Resource
15,000.00 17,807.78 12,000.00
Manager
Company Nurse 10,000.00 11,871.85 12,000.00
Transportation
8,000.00 9,497.48 9,000.00
Manager
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
T h e c o s t o f t h e r a w m a te r i a l s f o r t h e y e a r s p e c i f i e d w i l l b e
computed using the purchasing power of peso of the base year
(2009) and for the year specified. The following formula will be
used.
Cost of Raw Material 2015 = Cost of Raw Material 2009PPP on 2009PPP on 2015
Where:
Purchasing Power of Peso on 2009 = 0.63

Annual Projected
Raw Price (Peso) Price in Required Annual Cost
Materials per kg 2015 (Peso) Amount on Target Year
(kg/year) (Peso)
PET waste
20 28 45,690 1279320
Bottle
NaOH flakes 10 14 70,200 982800
Total 2262120
Source of Raw
Raw Materials Address Contact Number
Materials
Tel. No. (632) 636-

7 Camia, Valle Verde 2, 1658
Waste PET Linis Ganda Inc. 1600 Pasig
City,Philippines Fax. No. (632) 636-
1658
Suite 306 The

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 2009PPP on 2009PPP on 2015
Where: Purchasing Power of Peso on 2009 = 0.63

T h e a b o v e i n d i c a t e d f o r m u l a w i l l b e t h e ba s i s f o r t h e
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
145,000.00 1 172,358.49
Machine
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
A c t u a l C os t ( 2 0 0 7 ) = P h p 270,000.00
Projected Cost (2010) = Php 270,000.00
(0.63/0.53)
P r o j e c t e d C o s t ( 2 0 1 2 ) = P h p 320,943.40
Decorticating Machine
A c t u a l C os t ( 2 0 0 7 ) = P h p 145,000.00
P r o j e c t e d C os t ( 2 0 1 0 ) = P h p 145,000.00( 0 . 6 3 / 0 . 5 3 )
Degumming tank
A c t u a l C os t ( 2 0 0 7 ) = P h p 650,000.00
NaOH Storage Tank

A c t u a l C os t ( 2 0 0 7 ) = P h p 26,092.00
Water Storage Tank

A c t u a l C os t ( 2 0 0 7 ) = P h p 34,736.00
Dilution Tank
A c t u a l C os t ( 2 0 0 7 ) = P h p 78,000.00
Tray Dryer
A c t u a l C os t ( 2 0 0 7 ) = P h p 226,360.00
P r o j e c t e d C os t ( 2 0 1 0 ) = 226,360.00( 0 . 6 3 / 0 . 5 3 )
Rotary Knife Cutter

A c t u a l C os t ( 2 0 0 7 ) = P h p 302,600.00
Sink-and-float tank
A c t u a l C os t ( 2 0 0 7 ) = P h p 36,432.00
Hot washing
A c t u a l C os t ( 2 0 0 7 ) = P h p 80,400.00
Extruder
A c t u a l C os t ( 2 0 0 7 ) = P h p 670,000.00
Carding Machine
A c t u a l C os t ( 2 0 0 7 ) = P h p 118,000.00
Spinning Machine
A c t u a l C os t ( 2 0 0 7 ) = P h p 658,000.00
Conveyor
A c t u a l C os t ( 2 0 0 7 ) = P h p 46,000.00
Delivery Trucks
A c t u a l C os t ( 2 0 0 7 ) = P h p 410,000.00
Forklift
A c t u a l C os t ( 2 0 0 7 ) = P h p 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 ta k e n from the total

equipment cost being 30% of this cost.
Cost of wastewater equipment = 0.20(EC)
C o s t o f w a s t e w a t e r e q u i p m e n t = 0 . 2 0 ( 4,846,982.26)
C o s t o f w a s t e w a t e r e q u i p m e n t = P h p 969,396.45
T h e t o t a l e q u i p m e n t c o s t w i l l b e P h p 5,816,378.72
PURCHASED EQUIPMENT DEPRECIATION COST
Depreciation is the downgrade in the original value of

e q u i p m e n t , b u i l d i n g a n d o t h e r m a t e r i a l t ha t d e c r e a s e s i n v a l u e
over time and is used in the manufacturing plant. Th ese values
c o v e r t h e m a i n t e na n c e o f a n y d e p r e c i a b l e m a t e r i a l .
ESTIMATE
ANNUAL
EQUIPMENT TOTAL COST D LIFE
DEPRECIATION
YEARS
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
31,015.02 12.00 2,584.58
Tank
Water Storage
41,289.96 10.00 4,129.00
Tank
Dilution Tank 92,716.98 10.00 9,271.70
Tray Dryer 269,069.43 12.00 22,422.45
Rotary Knife
359,694.34 12.00 29,974.53
Cutter
sink-and-float
43,305.96 12.00 3,608.83
tank
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 a n n ua l purchased equipment

d e p r e c i a t i o n c os t i s s u m m a r i z e d i n t h e t a b l e o n t h e ba s i s o f
zero amount of salvage value. The computation is based on the

maximum possible annual rate of depreciation using the
straight line 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
F o r a s o l i d - p r o c e s s i n g p l a n t , t h e f o l l o w i n g a re s p e c i f i e d
percentage of delivered 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%
6.00
Land ………………………………………………....... %
DIRECT COST
ITEM COST
Purchased Equipment-
5,816,378.72
Delivered
Purchased Equipment
2,617,370.42
Installation
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
T OT A L 7,154,145.83
Fixed Capital Investment

20,182,834.16
(FCI)
Working Capital 3,561,676.62
TOTAL CAPITAL
23,744,510.77
INVESTMENT
SAMPLE COMPUTATION:
DIRECT COST
Purchased Equipment Installation
P u r c h a s e d E q u i p m e n t C o s t = P h p 5,816,378.72
Purchased Equipment Installation = 0.45 PE

P u r c h a s e d E q u i p m e n t I n s t a l l a t i o n = 0 . 4 5 x 5,816,378.72
Purchased Equipment Installation = Php

2,617,370.42
Instrumentation and Control
Purchased Equipment Cost = P h p 5,816,378.72
Instrumentation and Control = 0.09 PE

Instrumentation and Control = 0 . 0 9 x 5,816,378.72
Instrumentation and Control = Php

523,474.08
Piping
Piping = 0.16 PE
Piping = 0 1 6 1 x 5,816,378.72
Piping = P h p 930,620.60
Electrical
Electrical = 0.10 PE
Electrical = 0 . 1 0 x 5,816,378.72
Electrical = Php
581,637.87
Building
Building = 0.25 PE
Building = 0 . 2 5 x 5,816,378.72
Building = P h p 1,454,094.68
Yard Improvements
Yard Improvements = 0.13 PE

Yard Improvements = 0 . 1 3 x 5,816,378.72
Yard Improvements = Php

756,129.23
Land
S e r v i c e Fa c i l i t i e s = 0.06 PE
S e r v i c e Fa c i l i t i e s = 0 . 0 6 x 5,816,378.72
Service Facilities = P h p 348,982.72
INDIRECT COST
Engineering and Supervision

Engineering and Supervision = 0.33 PE

Engineering and Supervision = 0 . 3 3 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
C o n t r a c t o r ’ s F e e E x p e ns e = 0.39 PE
C o n t r a c t o r ’ s F e e E x p e ns e = 0 . 3 9 x 5,816,378.72
Contractor’s Fee Expense = Php

2,268,387.70
Construction Expense
Construction Expense = 0.17 PE

Construction Expense = 0 . 1 7 x 5,816,378.72
Construction Expense = P h p 988,784.38
Contingency
Contingency = 0.34 PE
Contingency = 0 . 3 4 x 5,816,378.72
Contingency Expense = P h p 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, 356,167.66

BOI and SEC Registration
(10%)
2. Allowances for the securing of

funds for 14 months, including 712,335.32
legal aspects (20%)
3. Plant site acquisition (10%) 356,167.66
4. Recruitment & screening of 356,167.66
personnel including classified

ads (10%)
5. Hiring of professional services

of experts for equipment
operation and training of 712,335.32
personnel including
troubleshooting (20%)
6. Trial run of plant (10%) 356,167.66
7. Others (Ad agency/firms,

municipal and provincial 712,335.32
clearances) (20%)
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 +

12,627,463.38
Fixed Charges
TOTAL
13,447,733.72
MANUFACTURING COST
GENERAL EXPENSES ALL
A. Administrative Cost 20% OL 1,096,959.34
B. Distribution & Selling

5% TPC 820,270.34
cost
C. Research &
2% TPC 328,108.14
Development
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 +

3,156,865.845
Fixed Charges
TOTAL
3,361,933.43
MANUFACTURING COST
GENERAL EXPENSES ALL
A. Administrative Cost
20% OL 274,239.835
(10% OL)
B. Distribution & Selling

5% TPC 205,067.585
cost (20% TPC)
C. Research &
2% TPC 82,027.035
Development (5% TPC)
D. Financing Cost (10%

3% TIC 178,083.83
TCI)
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.
ROR before Taxes= Annual Gross IncomeTotal Capital Investmentx100
ROR before Taxes= 19,649,958.4823,744,510.77x100
ROR before Taxes=82.76%
ROR after Taxes= Annual Net IncomeTotal Capital Investmentx100
ROR after Taxes= 12,372,399.8623,744,510.77x100
ROR after 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 fixed capital investmentAveprofityr+ 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
Fixed Cost + Production Costs NUnit=NSelling 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+ 16,405,406.86 58912.62 N=N828/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
OUTSTAND
YEA ANNUAL PRINCIPA BALANC
ING INTEREST
R PAYMENT L REPAID E
BALANCE
201 - - - - -
5
201 22,276,690 2,673,202. 3,942,621. 1,269,418. 21,007,2
6 80 36 56 71
201 21,007,271 2520872.5 3,942,621. 1,421,748. 19,585,5

7 7 36 79 23
201 19,585,523 2350262.7 3,942,621. 1,592,358. 17,993,1
8 2 36 64 64
201 17,993,164 2159179.6 3,942,621. 1,783,441. 16,209,7
9 8 36 68 22
202 16,209,722 1945166.6 3,942,621. 1,997,454. 14,212,2
0 78 36 68 68
202 14,212,268 1705472.1 3,942,621. 2,237,149. 11,975,1
1 16 36 24 18
202 11,975,118 1437014.2 3,942,621. 2,505,607. 9,469,51
2 07 36 15 1
202 9,469,511 1136341.3 3,942,621. 2,806,280. 6,663,23

3 49 36 01 1
202 6,663,231 799587.74 3,942,621. 3,143,033. 3,520,19
4 75 36 61 8
202 3,520,198 422423.71 3,942,621. 3,520,197. 0
5 4 36 65
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 (1+i)n-1i(1+i)n
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= Pi1-(1+i)-n
R= 269,496,843.10(0.24)(1.24)9(1.24)9-1A= Php 3,942,621.36
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

Financial Feasibility Study

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Feasibility Study

Uploaded by

Copyright:

Available Formats

Pamantasan ng Lungsod ng Maynila

College of Engineering and Technology

The financial study is an indispensable aspect of the feasibility study

generation of cost estimations, total initial investment, and profitability

In this financial feasibility study, the proponents analyzed the total

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

If the potential revenues of the intended manufacturing process can

The initial capital investment of Hyarn Corporation for the production

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

The company had deliberated that to secure the accomplishment of

Summary of Terms and Condition of Payment of Financing

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 real quantity of goods and services that a peso could

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

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

HISTORICAL DATA OF THE PURCHASING POWER OF PESO

Purchasing Power of Peso

ANALYSIS OF HISTORICAL DATA OF PURCHASING POWER OF PESO

Projected Value of Purchasing Power of Peso

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

Year Statistical Statistical Arithmeti Arithmeti

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 0.0484 0.0673 0.0683 0.0489

Chosen Method of Projection for PPP

The indices of compensation is computed as average value provided

adjustments with the corresponding responsibility to disseminate

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

Historical Data of Compensation Indices

Compensation Index Per

ANALYSIS OF HISTORICAL DATA OF COMPENSATION INDEX

The economic conditions and performance of the country immensely

impacts the indices of compensation, especially for employees under

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

Projected Values of Compensation Index

The acquired record of the compensation of employees from the

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

Combined Projection of Compensation Index

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 23.82 18.86 21.95 29.79

Projected Compensation Indices per Employee

Chosen Method of Projection for CI

Year CI per Employee

Our management philosophy is a living tradition of values and beliefs

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

Management Team Requirements

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

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