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Feasibility Study
Feasibility Study
FINANCIAL STUDY
1. Financial Assumptions
2. Investment Cost
The project's investment cost is estimated at P160 million distributed among project cost
of P150,000,000, and working capital of P10,000,000.
3. Financing
The project will be financed by the shareholders in the company by 38% which is
estimated at P60 million, while the 63% will be financed through bank loans of about
P100 million.
The following table shows the financing schedule for the implementation of the project.
The following table depicts the total revenues of the project, where it is noted that the
revenues will be earned through rental services. The first three floors will be occupied
by a school, while the next three floors will be used by BPO units. The lease revenues in
the first year amounts approximately to P30.7 million, and increased rapidly by 10%
each year due to the thriving developments in Davao City.
5. Operating Costs
The following table shows the project's operating costs over five years. The total
operating costs in Year 1 amounted to P24.511 million which will increase to reach
P25.761 million in Year 5.
The following table shows the projected statement of financial performance of the
project. It shows that the relationship between operating costs and income tax to total
lease revenues in Year 1 is 85.98% which is expected to decreased to 70.18% in Year 5.
Income after tax in Year 1 is 14.02% which is probably to reach 29.82% in Year 5.
The following table shows the projected statement of financial position during the first
five years. It indicates that total assets will increased from P164 million in Year 1 to
P203 million in Year 5. The shareholders equity will increase from P64 million in Year 1
to P103 million in Year 5.
The following table shows the projected statement of cash flows of the project. It
depicts that the cash will increase from P17 million in Year 1 to P68 million in Year 5.
Financial Analysis
The following table shows the financial analysis of the project. It portrays that the net
profit ratio will increase from 14% in the first year to 29.8% in the fifth year, the return
on investment will increase from 2.6% in the first year to 6.6% in the fifth year, and the
return on capital will increase from 6.7% in the first year to 13% in the fifth year.
Economic Analysis
The project payback period is 5.53 years based on invested capital and average net cash
flow.