CHAPTER V

FINANCIAL STUDY

Introduction to the Study
Financial feasibility study is a very significant, complex and crucial part of a feasibility
study. This is the analysis of marketing, technical and management aspect of the business. This is
a critical part of the project because it shows the assessment of all the possible costs, expenses,
start-up capital, revenues, and disbursements. It studies the expense in terms of Peso and the
possible outcome of the operating project. In the assumption of costs, we should be careful with
all the maximum possible costs that the business would be financing in the future. Financial
study includes the amount of capital which is needed, the sources of capital the business is going
to use and its requirements, the potential return of investments, and all the other financial
considerations. We should be practical and wise in choosing the sources of funds in financing the
project to avoid conflicts, complications in the terms and conditions from our lenders, shortage
of capital due to unmanaged expenses, and inappropriate amount of capital to be raised. The
financial project is the summary of the other business operation that will help to determine
whether the business will earn something. This is why we are able to determine whether the
business would be profitable or not. This study also serves as the guide to the businessmen if
they are going to establish this kind of business. It will be much easier for them to study the flow
of the business.

Objectives
A.Major Assumptions
1. EXISTING BUSINESS PRACTICE
The estimated life of the machineries and equipment and furniture and fixtures will be
based on the estimated useful life issued by Commission on Audit.
The capital loans will be fully paid in two to five years.
The company equipment will increase in 2% annually.
Operating tools and equipment will increase in 5% annually.
Annual increase in the labor and management compensation by 2%.
2. PAST FEASIBILITY STUDY
The business will increase its operations by 5% quarterly.
New business partners in the architectural, construction and residential customers.
3. GOVERNMENTAL REGULATION
The pricing of the bidding system will follow the terms included in the National
Plumbing Decree.
4. OTHER PERTINENT TERM
Expansion through including plumbing merchandises that will provide in the
constructionmaterials in every project.
Up scaling business consumer (targeting business to business partners).

B.Total Project Cost
FIXED ASSETS
Land and Land Improvements
The location of Meister Plumbing Services as described in the Technical study was along
Quezon Avenue. This is a well-constructed unit; office design is Vinyl floor, cemented walls and
ceiling, with a one way door found at the right side of the room. This unit has an enough space
for receiving area, good for two desk cubicles, a space for supplies, and one comfort room. Price
per month of rent is Php 9, 792.00
Registration expenses:
EXPENSES TAXES AND LISCENSES
SEC Registration Php1600.00
DTI Registration Php500.00
BIR Registration Php510.00
Mayor's Permit Php945.00
Community Tax Php500.00

Furniture and Fixtures
Office Furniture and fixtures


Equipment
Service Equipment
Description Total Cost
Water Pressure Tester 5800.00
Rock drilling machine 10000.00
Office Furniture and
fixtures
Cost
Office table 2450.00
Office chair 999.00
Meeting Table 1400.00
Bench 630.00
Filing Drawer 3500.00
Shelves 3500.00
Clerical chair 2400.00
Computer Set 21500
TOTAL COST: Php36, 379.00
TOTAL COST: Php15, 800.00


CURRENT ASSETS
(INVENTORY INVESTMENTS)
Service tools
ITEMS Quantity Unit Cost Total Cost
Tongue-and-groove
pliers
1 PHP 1,175.00/pc. 1,175.00
Hacksaw 1 PHP 499.00/pc. 499.00
Metal file 1 PHP 499.00/set 499.00
Basin wrench 1 PHP 1,150.00/pc. 1,150.00
Pipe wrench 1 PHP 449.00/pc. 449.00
Hand auger 1 PHP 1,500.00/pc. 1,500.00
Adjustable wrench 1 PHP 325.75/pc. 325.75
Tubing
cutter/pipecutter

1 PHP 569.75/pc. 569.75
Plunger 2 PHP 250.00/pc. 500.00
Closet auger 1 PHP 3,109.00/pc. 3,109.00
Fire-resistant cloth 1 PHP 28,000.00/set 28,000.00
Stocks and dies

1 PHP 1,850.00/set 1,850.00
Friction clamps 1 PHP 1,150/pc. 1,150
Reamers 1 PHP 1,746.70/pc. 1,746.70
Teflon tape/thread
seal tape
5 PHP 15.00/pc. 75.00

(INVENTORY-RELATED COSTS)
Direct and Indirect Labor
Direct Labor:
Plumber Php__________

Indirect Labor:
(Personnel)

(CASH CREDITS)
Office Supplies
Description Quantity Unit Price Total Cost
Coupon bond 1 rim 123.50 123.50
Ballpen 5pcs 7.00 35.00
Permanent marker 2pcs 20.00 40.00
Staple 1pc 87.00 87.00
Staple wire 1 box 22.00 22.00
Scissors 3pcs 22.75 68.25
Craft folder 10pcs 3.50 35.00
Yellow pad 1pad 27.25 22.25
Paper clips 1 box 20.75 20.75
Clear tape 2pcs 18.00 36.00
Total Cost Php489.75


C.Sources of Financing the Project
Juan Dela Cruz is the sole proprietor of Meister Plumbing Services. He will be raising
his capital for the business through equity financing and debt financing. The amount of capital to
be raised was Php600, 000 which is projected as an appropriate amount of capital to cover
projected expenses of starting the business which is good for 5 years.

EQUITY FINANCING
Equity nancing means exchanging a portion of the ownership of the business for a
financial investment in the business.
Personal Savings
Mr. Juan Dela Cruz has his own personal savings in the bank worth P300, 000 coming
from his income earnings for the past 5 years.

DEBT FINANCING
Debt financing involves borrowing money to creditors stipulating the return of this
money to creditors with an interest at a specified time. Creditors reward from lending funds is
the interest paid by the borrower. Lenders may use secured or unsecured debt. Secured debt is
the debt that has collateral (a valuable asset which the lender can attach to satisfy the loan in case
of default by the borrower), while unsecured debt does not have collateral and places the lender
in a less secure position relative to repayment in case of default.
Debt nancing (loans) may be short term or long term in their repayment schedules.
Generally, short-term debt is used to nance current activities such as operations while long-
term debt is used to nance assets such as buildings and equipment.
Bank Loan
Mr. Juan De la Cruz will borrow the remaining capital (P300, 000.00) in the Banco De
Oro (BDO) Loan program. The said amount is assumed as payable within 2 years depending
on the efficiency of the business performance in the future.
First, the proprietor will submit application for the loan of capital for the business in the
BDO.
You can borrow up to P20 Million, depending on your collateral and its appraised value:
Residential - 70% of appraised value
Condominium - 70% of appraised value
Mixed-use - 70% of appraised value
Commercial - 60% of appraised value
Vacant Lot - 60% of appraised value
Banco De Oro accepts collaterals including single-detached, townhouse, duplex,
condominiums, vacant lots, apartments, commercial properties, and mixed-use (residential and
commercial). Mr. Juan Dela Cruz will be providing his second small house in Quezon City.
Interest Rate Table
Term Factor Rate Add-on Interest Rate/Mo Effective Interest Rate/Annum
6 0.179667 1.30% 26.27%
12 0.095333 1.20% 25.60%
18 0.067556 1.20% 25.74%
24 0.053667 1.20% 25.59%
36 0.039778 1.20% 25.03%
Various Loan-Related Fees:
Appraisal Fee (per title):
o Metro Manila P3,500
o Outside Metro Manila P4,000
Handling Fee: P5,000
Mortgage Redemption Insurance (assuming standard rate):
o P4.75 for every P1,000 of the loan amount (assuming standard rate) for up to 49 years
old
o P6.50 for every P1,000 of the loan amount (assuming standard rate) for ages 50 to 64
years old
Fire insurance: Coverage will be equal to the appraised value of the property and its
improvements
Registration Expense (based on loan amount)
Notarial Fee: P500
Documentary Stamp on Tax (P1 for every P200 of the loan amount)
Eligibility Requirements
21 years old at the time of loan application and not older than 65 years old at maturity
With stable source of income from business and/or employment
If Employed, at least 2 years of continuous employment (may be waived if rank is at least
Manager level)
If Professional (doctor, lawyer, etc.), at least 3 years in practice of profession
With good credit standing
Documentation Requirements
Basic Documents
Completely filled-out application form
Two (2) valid IDs
Last 2 years Income Tax Return (ITR)
Marriage contract, if applicable
Business / Income Documents
Last 2 years Audited Financial Statements
Last 6 months Bank Statements or photocopy of passbook with transaction records for
the past 6 months
Department of Trade & Industry (DTI) Registration
Business Permit / Mayors Permit
Business Background / Company Profile
List of major suppliers and customers (minimum of 3) with contact information
Mr. Juan De La Cruz is qualified for the loan program. He will be using the term of 2
years (24 months). This activity is divided into two terms of loan: short-term and long-term
loan. Short-term loans are funds used for current assets, while long-term loans are funds used for
the expenses acquired during the purchase of fixed assets and other expenses for a long period of
time including building and facilities improvement.