JQBC Capital Corporation

A Group Term Paper

Presented to the

Accountancy Department

De La Salle University

In Partial fulfilment of

of the course requirements

in ACFINA2 Section K31

Submitted to:

Mr. James Patrick Q. Bonus

Submitted by:

Group no. 3

Arizabal, Jeremy Jess, R, 11116005

Aque, Lawrence Oliver, G, 11125055

de Silva, Kevin Perry Joseph, B, 11009551

Incomio, Frans Joseph, F, 11115378

Javier, Stephen Daniel, H, 11108606

December 21, 2013

I. Brief Introduction

JQB Capital Corporation wants to invest in the power generation business in order to
diversify its already wide array of investments in the portfolio, having a total value of Php
150 million. To accomplish this, the COO proposed to bid for the Build-Operate-Transfer
contract offered by the Department of Energy. The contract will require the winning bidder
to build a hydroelectric power plant to be finished in 3 years, to be operated by JQB for ten
years, and finally to be surrendered to the government thereafter.

To prepare for the bidding, JQBC incorporated a new subsidiary, J-Cubes Power Inc. (JCPi)
to handle its investment in the power assets. The subsidiary was incorporated and
registered with the Securities and Exchange Commission with 2,000,000 authorized
preferred stock with par value of Php 500 and 1,000,000 authorized common stock with par
value of Php 10.

To finance the project, there were three capital scenarios proposed by the CFO. The first
was a full equity investment of Php 5 billion; the second was a combination of debt and
common stock; and the third was a combination of common stock, preferred stock and debt.
JQBC, along with its financial advisors, will have to evaluate each scenario and adequate
financial management terms are needed in order for the company to decide on whether to
proceed with the project or not.

A few key financial management terms need to be taken note of by JQBC and its financial
advisors. One of which is cost of capital which is, as stated in the term itself, a weighted
average of the required returns of the securities that are required to finance JQBC's project.
Basically, this follows Principle 2 of finance, there is a risk and return trade-off. The riskier
the firm is, the more return the shareholders can expect from their investment. This is
something that the prospective shareholders and the company itself will have to consider in
assessing which scenario will be the best for both parties. Ultimately, this will determine the
company's capital structure, the mix of equity and debt. Other relevant terms include capital
budgeting which will cover net present value and other investment criteria. More relevant
terms will be discussed in the next section.

II. Discussion

Item Number 1:

1. Scenario 1: All Equity Financing

 WACC is the expected minimum return in equity investments which is 15%.
2. Scenario 2: Combination of Debt and Equity Financing
WACC is 12.76% computed by ( .
3. Scenario 3: Diversified Investor Sources
WACC is 14.4% computed by
.
Rate of Return for Preferred Stockholders = = 12.50%
400

Based on the computations above we would recommend to JQBC the second

financing scenario since it has the lowest WACC among the three alternatives. The other
factors that JQBC might consider aside from the WACC is that in the first scenario the
project is financed purely through equity. This means that there would be no tax
deductibility of interest expense therefore tax payments would be higher. If the company
generates a small taxable income then going through with all equity financing might be a
good option since having interest obligations may force the company to have financial
difficulties of paying its liabilities. The diversified financing on the other hand includes
different sources of capital meaning each source will not be perfectly positively correlated.
Debt financing is also riskier while equity financing is more expensive because it would be
hard to recover the outflows of cash. All of these should be taken into consideration by
JQBC. However in the end the final decision still lies with the company.

Item Number 2:

We can compute if the project would generate positive cash flows using the second
financing scenario with Net Present Value.

NPV = -1,000,000,000 - 1,400,000,000 x 1.1276-1 -1,470,000,000 x 1.1276-2 - 630,000,000

x 1.1276-3 + 1,008,000,000 x1.1276-4 + 1,386,000,000 x 1.1276-5+ 1,386,000 x 1.1276-12
+ 1,764,000,000 x 1.1276-13

NPV = P 1,304,729,804

Since the project will generate a positive NPV of P 1,304,729,804 the group
recommends that the company take on the project using the lowest cost of WACC from the
second financing scenario. This project would add value to the company.

Table showing computations (amount in millions)

 0 1 2 3 4 5 to 12 13
Revenues 2,280 2,850 3,420
Variable cost -720 -720 -720
Fixed cost -270 -300 -330
Depreciation -350 -350 -350
Net Operating Income 940 1,480 2,020
Taxes (30%) -282 -444 -606
NOPAT 658 1,036 1,414
Depreciation 350 350 350
1,008 1,386 1,764
Operating cash flows
Increase in CAPEX -1,000 -1,400 -1,470 -630
Free Cash Flows -1,000 -1,400 -1,470 -630 1,008 1,386 1,764

Item Number 3:

Contribution Margin = 350, 000 + 350, 000 + 270,000 = 970,000

Scenario no. 1 Scenario no. 2

EBIT P350,000,000 P350,000,000
Interest Expense - (140,000,000)
EBT P350,000,000 P210,000,000
(1-Tax Rate) 1 1
Net Operating Income P245,000,000 P147,000,000
Outstanding Shares 500,000,000 300,000,000
EPS Indifference Level 0.49 0.49

970, 000, 000 = (Generation * 4.75 * 80%) - (Generation * 1.2)

970, 000, 000 = Generation * 2.6
Generation Indifference Level = 373, 076, 923.08

If we are to find out the level of difference for a specific year on a specific project we can
use the Earning Per Share as a measure. As what we have learned in our ACFINA2 class,
EPS means The Net Operating Income Divided by the outstanding shares. This would
somehow give us an idea on how is the return on each share supported by the companys
earnings. Even if companies are of different scales EPS provides a great tool in comparing
the value of the share given the income generated per year.

Using the same earnings before income and tax, we will be able to compare different
scenarios to fulfill the question. Under the given EBIT both will have an indifference level of
.49. If we are to use the EBIT of 350,000 we can produce 970,000 as our Contribution
margin by adding back variable expenses.

if we are to compute the generation indifference for both scenarios, we can simply
assume an estimate of 373, 076, 923.08. We will now be able to grasp on the situation and
on how to carefully manage the different application for the firm. Considering the
indifference level, this is somehow relevant giving it an out most important in considering
the different effects of each scenario.

Item Number 4:

The third financing scenario deals with diversified investor sources which renders the
company also diversified in terms of risk. Included in this scenario are common stock,
preferred stock and notes. The question in simple words only asks the selling price
(supposed bid price) to arrive at an NPV of at least P420M. First step in solving this problem
is finding the WACC, which is explicitly solved in question #1 (14.14%). Given this WACC,
we can now solve for the NPV which is a straightforward calculation. Below is a snapshot of
how the NPV was solved using Microsoft Excel:

To arrive at an NPV of at least P420M, Excel provides us with easy calculation by using its
Goal Seek function. Using this function, Microsoft Excel varies the value in one specific cell
until a formula that's dependent on that cell returns the result you want. Illustrating this
function:

By properly using this function, we will arrive at a new selling price which is obviously lower
than the original bid price which is in Cell B2. Below is the result of using the Goal Seek
function, which gives us a new selling price of P4.41, in order to arrive at an NPV of at least
P420M.

Therefore, to yield a positive value-add to stakeholders of at least P420M, the projects

minimum bid rate for JCPi should be P4.41/kWh.

Item Number 5:

if we are to use a financial calculator just type shift+solve. We can also use an excel formula
to get the value of X
In order for us to properly understand the question, we should first understand the meaning
of NPV. Now, we first consider the cash outflow at year 0, we then consider the cash inflow
for the year until the last year. Adding this would result to a negative or positive NPV. In
such case, we shall always look at POSITIVE NPV because it will give more value to the
firms project. Considering the word Break-even, we incorporate our existing knowledge to
the NPV calculation. Basically, Break-even means having a 0 net income having covered all
the expenses incurred including the fixed costs. To have a 0 NPV, we should now compute
for the Internal Rate of Return or simply the IRR. This involves a complicated computation if
we are to use a simple calculator. But such difficulties are now answered by an excel
program or by the formula of scientific displays. If look above, the computation entails a per
annual cashflow computation while giving a value of X to the rate. The resulting value of
18.08% is not an exact value but just an estimate so giving a range of 17-19% will be
sufficient.

Item Number 6:

The net present value using the current collection policy:

NPV = -1,000,000,000 - 1,400,000,000*(1.15-1) - 1,470,000,000*(1.15-2) -

630,000,000(1.15-3) +1,008,000,000(1.15-4) + 1,386,000,000*([1-(1.15-9)/0.15]) +
1,764,000,000(1.15-13) = 3,733,284,178

The net present value, once the 100% cash collection policy will be implemented will now
be:

Free Cash Flows Table (in millions)

Year 0 Year 1 Year 2 Year 3 Years 4-13

Project Revenues 2,850
Variable Cost 720
Contribution Margin 2,130
Cash Oper. Expenses 300
Depreciation Expense 350
Net Operating Income 1,480
Taxes (30%) 444
NOPAT 1,036
Depreciation 350
Operating Cash Flow 1,386
Inc. in CAPEX -1,000 -1,400 -1,470 -630
Inc. in Operating WC
Free Cash Flows -1,000 -1,400 -1,470 -630 1,386
NPV = -1,000,000,000 - 1,400,000,000*(1.15-1) - 1,470,000,000*(1.15-2) -
630,000,000*(1.15-3) + 1,386,000,000*([1-(1.15-9)/0.15]) + 1,764,000,000(1.15-13) =
3,156,956,907

The change, expressed in terms of percentage is:

3,156,956,907 - 3,733,284,178
3,733,284,178

-15.44%

The value of the project would decrease by 15.44%.

Item Number 7:

In the seventh question we are given only two choices, to have a fixed management fee of
P300M or a variable one which is 15% of revenue, taking into consideration the foresight of
the finance team that generation will increase 5% annually.

Before delving into the question which will make us arrive at one definite answer, we must
first understand the true distinction between variable and fixed costs. Variable costs are
usually flexible costs that fluctuate accordingly given the economic environment of one
company. Controlling variable costs is easy but it must not be assumed that it is more
controllable than fixed costs. Although controllable, variable costs are very volatile in such a
way that changing just a bit of them may compromise the quality of the product that the
cost is related to. Fixed costs on the other hand are most of the time constant and mainly
depend on managements discretion. Fixed cost can also be controlled and less volatile
because iterating fixed costs will not directly affect the quality of the product but only the
efficiency of manufacturing or producing that product.

Fixed cost does not have any direct relationship with revenues like variable costs do.
Revenue generated by the company, may it be high or low, does not affect fixed costs, but
affects variable costs instead. Having a fixed management fee of P300M is indeed better
than the current fixed cost of P350M. However we should not forget about the second
option, which is to have variable cost at 15% with an increment of 5% in generation
annually. Given only these conditions for variable costs, we can speculate that this will have
a negative effect on the net income of the company as each year passes by. Although in the
first years the variable cost will be relatively low, in the succeeding years this cost will
gradually increase, paving the way for the first option which is to hold fixed cost at P300M,
which may look big at first, but it is constant. Compared to the variable cost which will
gradually increase overtime, fixed cost at P300M proves to be a better alternative in
speculation. On the other side of the coin, accepting the second option is not bad when the
company needs to have an appealing income statement in the first years, because in the
last years this variable cost will not be as pleasing to the eyes of the stakeholders. Overall,
without any preference of the company as to how it wants to present itself financially,
having a fixed management fee of P300M proves to be indeed a better alternative.

Item Number 8:

The problem requires that we prepare information regarding COOs projections using a
different set of assumption as compared to that of the previous number. This would include
fixed selling price per kWh valued at Php4.75, variable generation cost per kWh valued at
Php1.20 at year 4 while having an annual increase of 10%, initial management fee worth
Php100 million at Year 4 which would increase 2% annually; and 600 gWH energy that is
generated and stored, but will decrease at a rate of 5%.

Given 4 5 6 7
Selling Price 4.75 4.75 4.75 4.75 4.75
Variable Cost 1.2 10% 1.2 1.32 1.45 1.6
kWh 600,000,000 -5% 600,000,000 570,000,000 541,500,000 514,425,000
Fixed Cost 100,000,000 2% 100,000,000 102,000,000 104,040,000 106,120,800

8 9 10 11 12 13
4.75 4.75 4.75 4.75 4.75 4.75
1.76 1.93 2.13 2.34 2.57 2.83
488,703,750.00 464,268,562.50 441,055,134.38 419,002,377.66 398,052,258.77 378,149,645.83
108,243,216.00 110,408,080.32 112,616,241.93 114,868,566.76 117,165,938.10 119,509,256.86

Now that weve identified the given values along with their corresponding adjustments, we
should now be able to compute and solve for the companys net present value (NPV),
internal rate of return (IRR), profitability index (PI), and the weighted average cost of
capital.

Using Microsoft Excel, here are the following answers to computations:

WACC NPV IRR CF0 PI

a) Scenario 1 15.00% -137,938,707.59 0.14 3,743,157,721.71 0.96
b) Scenario 2 12.76% 296,743,540.99 0.14 3,837,121,911.97 1.08
c) Scenario 3 14.14% 18,779,560.82 0.14 3,778,577,313.19 1

When comparing mutually exclusive investments, we simply compare the alternatives and
choose which has the higher NPV since it will yield a higher return. However, one should
take note that this will only apply if the investments have the same useful life. In the real
world, it is often the case the mutually exclusive investments have different useful lives.

There are also other factors that are needed to be considered. For example, internal rate of
return should be greater than the weighted average cost of capital. Who in the right mind
would prefer incurring costs greater than ones earnings? Lastly, the profitability index
should be accepted if its value is greater than 1, meaning that the firm is able to generate
income.

Based on the set of data that we have computed, scenario 2, the combination of debt and
equity financing, and scenario 3, diversified inventory resources would prove to be
satisfiable since both generate positive NPV and PI. We can ignore the IRR since all three
scenarios have it the same. Applying the two previously mentioned scenarios, one should
proceed with the project. However, profit will be maximized if it will follow the 2 nd scenario.

Item Number 9:

N/A

Item Number 10:

Entering into different kinds of contracts between investments opportunities we consider a

lot of financial factors that would give us a better grasp on what investment to choose. We
have studied in our class the different methods in determining beforehand the investment
potentials in improving the value of the firm. Now if we are to consider to the problem, we
can see how the offered investment is enticing enough for the company to grab. But as a
company we have other responsibilities in determining if the investment project is a
potential gain as a whole. Considering the high return on the investment, we can say that it
is a good one but looking at how it may affect the reputation of the company once it will be
discovered will render a drastic effect. Somehow, this cannot be computed through financial
calculators. Nowadays, Environmental Responsibilities, Customer Care and Quality Control
may also determine the future cash inflows that may enter a corporation. So our groups
opinion is that the company should find other opportunities rather than choosing this one.

III. Overall Conclusions and Recommendations

Companies wont take additional risk unless they are to be compensated with additional
return. Principle 2: There is a Risk Return Trade off assumes that individuals are risk averse,
which means that they prefer to get a certain return on their investment rather than an
uncertain return. Risks which can be eliminated by diversification and other risks that can be
eliminated are not necessarily rewarded in the financial marketplace. Through the use of the
computations previously mentioned above, one would be able to arrive at a proper
conclusion that would best benefit the company.

Once after getting a degree, one would be working and living in a world where making
choices have financial consequences. Working knowledge of finance, which is the study of
how people and businesses evaluate investments and raise capital to fund, is important
since it would enable one to further his/her career thereby becoming successful. It would be
helpful in making choices regarding capital budgeting decisions (what long term investment
the firm should undertake), capital structure decisions (how the firm should raise money to
fund the investments), and working capital management (how the firm can best manage its
cash flows as they arise in its day to day activities).

When taking on projects, whether a huge or small one, companies must evaluate carefully a
lot of things. First and foremost the cost and benefits that these projects will generate for
the firm are analyzed. There are a lot of ways of doing this, one is the Net Present Value
which was used in this paper. There is also the Profitability index, payback period, and
internal rate of return. The main point here is that the benefits must always outweigh the
costs. Also, future cash flows are always hard to predict. The amounts that are gathered and
computed are only estimates that are deemed best as of the moment. These numbers can
easily change through time. The company should also use sensitivity, scenario and
simulation analyses to help in making important decisions and to find out the value drivers
that can impact greatly the future cash flow estimates. The current financial situation and
future plans of the company should also be taken into consideration. In the end, as
mentioned in this paper, the final decision always lies with the management of the
company.

IV. References

Titman, S. & Keown, A.J. (2012). Financial Management: Principles and Applications (pp.
495-505, 530-533). Jurong, Singapore: Pearson Education.

The Cost of Capital, Corporate Finance and Theory of Investments. Retrieved December 21,
2013 from www.aeaweb.org/aer/top20/48.3.261-297.pdf.

Trade-off Theory of Capital Structure. Retrieved December 21, 2013 from

http://en.wikipedia.org/wiki/Trade-off_theory_of_capital_structure.
Atty. Jaime Patricio Bumunos is the President & Chief Executive Officer (CEO) of JQB Capital
Corporation (JQBC), a holding firm established in 2012, with total assets of Php150 billion
diversely invested across various industries and business undertakings as of date.

JQBC Executive VP & Chief Operating Officer (COO) Alexon Chu proposed that the
holding firm consider adding power generation business in its investment portfolio. JQBC
allocated a total of Php5 billion cash for the purpose. In all its equity investments, JQBC
expects a minimum return of 15% p.a.
The COO proposed that JQBC participate in a bidding of independent power producer
(IPP) contract no. 1129 offered by the Department of Energy (DOE).

Terms of reference of the IPP contract no. 1129 bidding are as follows:
The winning bidder (the one with the lowest Php/kWh) will be awarded the IPP
contract. The accepted winning bid shall the fixed Php/kWh rate over the tenor of
the contract;
The IPP contract allows the winning bidder to (a) acquire raw land in the province,
and (b) build a hydroelectric power plant;
The water dam and irrigation system necessary to complement the hydro plant shall
be built by a separate entity;
The power plant shall be built pursuant to Republic Act 7718 or the countrys Build-
Operate-Transfer (BOT) law, where the winning bidder shall build, finance and
operate the said plant at its own expense, and transfer the ownership of the facility
to the DOE after the duration of the IPP contract;
Power plant construction must be finished within three (3) years from the acquisition
of the raw land (e.g., Year 0 to end of Year 3);
The IPP contract is for a period of 10 years, to commence at the end of construction
of the power plant (e.g., ready for full operation; Year 4 to end of Year 13);
The contract is under a Take-or-Pay arrangement, where the winning bidder must
build a power plant that can generate and deliver electricity of at least 750
megawatts (MW) throughout the term of the contract. The winning bidder is
guaranteed that all electricity generated will be sold at the accepted winning bid
rate;
In preparation for the bidding, JQBC incorporated a new subsidiary, J-Cubes Power, Inc.
(JCPi), solely for the purpose of investing in power assets. JCPi has the following attributes:
Based on its Articles of Incorporation approved by the Securities and Exchange
Commission, capital stock is divided into two (2) categories: preferred stock and
common stock:

Par value per share Authorized shares

Preferred stock Php500.00 2,000,000

Common stock Php10.00 1,000,000,000

The preferred stock has fixed dividend rate, 10% p.a., subject to availability of
profits;
The common stock has regular voting rights and will be entitled to dividends after
payment of preferred stock dividends and subject to availability of profits;
JCPi is authorized by its Board of Directors to issue corporate notes bearing coupon
rate within the range of 5%-9% p.a. with tenor of up to 13 years, with principal
amount of up to Php2 billion. Coupon interest shall be payable annually. Principal
amount shall be payable bullet-type at maturity date of the corporate note;
JQBC business development group headed by the COO prepared the following revenue and
cost estimates relating to the power plant:
Expected annual energy to be generated and sold is 600 GWh (600,000,000 kWh)
per year over the life of the contract;
Annual revenue is equal to generated and sold electricity multiplied by the accepted
winning Php/kWh bid. The proposed bid is Php4.75/kWh, which translates to total
revenue for the year would be Php2.85 billion.
Raw land with commercially feasible waterfalls suitable as plant site has been
identified in a province. The 16,000 square meter (sqm) property may be purchased
cash upfront at Php62,500/sqm;
The power plant facility has two components: (a) the building facilities housing the
generators and other improvements; and (b) the water turbine generators. Cost
estimates of the components are as follows:

Building Generators

Design & engineering Php1,000,000 Php4,475,000

 Construction materials 560,500,000 514,500,000

Turbine - 2,025,000,000

Freight and installation 4,000,000 6,025,000

Sub-contractor fees 134,500,000 250,000,000

Variable generation cost per kWh paid in cash in the current year is estimated at
Php1.20/kWh for the entire contract period;
Management, operation and maintenance of the power plant shall be outsourced to
an outside, independent management firm. The management contract is for the
duration of the IPP contract no. 1129 and shall commence at the start of commercial
operation. Negotiated fixed annual fee is Php300 million per year; and
No other revenue or expense item for JCPi.

Based on discussions with Senior VP & Chief Financial Officer (CFO) Marky Pantallones,
JQBC will observe the following financial management policies:
Depreciation: depreciation expense is computed on straight-line basis, to begin once
the plant is ready for commercial operation. No salvage value is expected due to the
BOT provisions. No depreciation is recognized during construction phase;
Revenue collection policy: 80% of revenue is assumed to have been collected at the
end of the current year, while the balance to be collected at the end of the following
year. 100% of the revenue for the last year (Year 13) shall be collected at the end of
that year; and
Management fee payment policy: 90% payable at the end of the current year, with
the balance to be settled at the end of the following year. 100% of the fees for the
last year (Year 13) shall be collected at the end of that year.

The CFO also presented the proposed payment disbursement of the project costs:
Raw land: Payment of purchase price is upfront at Year 0;
Building: 60% of total cost is paid at end of Year 1, 30% is paid at end of Year 2 and
the balance is settled at end of Year 3; and
Generator: 35% of total cost is paid at end of Year 1, 45% is paid at end of Year 2
and the balance is settled at end of Year 3.

The CFO proposed three different capital scenarios to finance the project at Year 0:
 Financing Scenario #1: All-equity financing
JQBC will infuse cash amounting to Php5 billion in exchange for 100% equity
ownership of JCPi, with the former receiving 500 million common shares of
the latter;
Financing Scenario #2: Combination of debt and equity financing
JQBC will infuse cash amounting to Php3 billion in exchange for 100% equity
ownership of JCPi, with the former receiving 300 million common shares of
the latter. For this transaction the leveraged cost of equity is 18%.
In addition, JCPi will borrow and receive Php2 billion cash from JSA Bank. The
corporate note will be issued at par value, with tenor of 13 years, principal to
be paid in lump sum at maturity date. Coupon interest will be 7% per annum
paid at the end of every year;
Financing Scenario #3: Diversified investor sources
JCPi will issue 144 million common shares to JQBC and 96 million common
shares to Ail-Alc Management Firm, Inc., the management firm that will
handle the operation of the power plant. Selling price per common share of
JCPi is Php12.50. For this transaction the leveraged cost of equity is 18%;
JCPi will also issue 2 million preferred shares at par value to JQBC for Php1
billion. At the time of issuance similar preferred shares are selling at
prevailing market rate of Php400 per share;
JCPi will borrow and receive Php1 billion cash from JSA Bank. The corporate
note will be issued at par value, with tenor of 13 years, principal to be paid in
lump sum at maturity date. Coupon interest is 6% per annum paid at the end
of every year;

The CFO has engaged your team as independent financial advisor with regards to the above
proposal. He has sent to your team the following questions and instructions:
1. Which of the three financing scenarios would you recommend? Why? Please support
your recommendation with a brief explanation and calculation. Other than weighted
average cost of capital, what other (non-quantitative) factors should JQBC consider?
2. Based on the COOs projections and using the lowest possible cost from the three
financing scenarios, should we proceed with the project? Please provide supporting
calculations and commentary.
3. What is the level of generation where we can be indifferent between Financing
Scenario #1 and #2, using Year 4 as reference?
4. Using financing scenario #3, what should be the projects minimum bid rate for JCPi
to yield a positive value-add to stakeholders of at least Php420 million?
5. Based on the COOs projections, what should be the cost of funds to yield a break-
even NPV?
6. Based on the COOs projections and using financing scenario #1, if we instead
observe a 100%-in-the-current year policy for both revenue collection and fee
payment, how would this affect the value of the project? Please describe in
percentage terms compared to the original proposal.
7. Which of the following should we consider: (a) fixed management fee of Php300
million or (b) variable management fee of 15% of revenue for the year? The finance
team foresees that generation will increase 5% annually.
8. Using the COOs projections, but with the following assumptions:
a. Selling price per kWh fixed at Php4.75;
b. Variable generation cost per kWh at Year 4 is Php1.20, and will increase 10%
annually;
c. Management fee will start at Php100 million at Year 4, and will escalate at
2% annually; and
d. Energy generated and sold at Year 4 is 600 gWh, but will decrease at a rate
of 5%. Should we still proceed with the project? Explain under various
financing scenarios.
9. Suppose we push through with the project under financing scenario #2, and at the
end of Year 3 we discovered that, due to unstable water current influenced by
inclement weather, the power plant can only generate 450 gWh from Year 4
onwards, what are the options available to JQBC? Should we sell our 100% stake at
a loss? If so, what is the minimum selling price per share we should consider?
10. We are being offered with an investment opportunity by another holding firm to
acquire 75% ownership interest in an already existing power plant for Php 5 billion
cash. Based on our initial estimates, this opportunity will provide us double the
returns, significantly higher net present value and quicker payback period compared
to the COOs proposal. However, the power plant uses dirty fuel (e.g., low grade
coal, diesel). What is your opinion regarding this, on how JQBC should proceed?
Peer Evaluation

Group 3 Aque Arizabal De Silva Incomio Javier

1. Aque, Lawrence Oliver G. 100 100 100 100 100

2. Arizabal, Jeremy Jess R. 100 100 100 100 100

3. De Silva, Kevin Joseph B. 100 100 100 100 100

4. Incomio, Fransh Joseph F. 100 100 100 100 100

5. Javier, Stephen Daniel H. 100 100 100 100 100

Average 100 100 100 100 100