PROJECT FEASIBILITY STUDY

(PROJECT STUDY OR FEASIBILITY STUDY)

- Refers to the systematic gathering and analysis of data which aims to

find out the viability of the proposed business undertaking. Generally,
it involves:
a. collection of data which are relevant and necessary to all aspects
of the undertaking;
b. evaluation and analysis of the data gathered, and
c. formulation of recommendation.
 PROJECT FEASIBILITY STUDY
(PROJECT STUDY OR FEASIBILITY STUDY)

BENEFITS
- Specific advantages from preparing Project Feasibility Studies may
be delineated, considering the different interested parties that may be
benefited by the study:
a. Proponents/Promoters/Organizers of new projects – it serves as a
basis for ascertaining the practicability / workability of proposed
projects.
b. Creditors – it serves as a basis for the creditors to decide whether
or not to provide financial assistance and to determine the appropriate
terms and conditions of such assistance.
c. Stockholders / Investors – to decide whether to invest in the
project of not.
 PROJECT FEASIBILITY STUDY
(PROJECT STUDY OR FEASIBILITY STUDY)

BENEFITS (continued)
d. Management of existing firms – to ascertain the feasibility of
expansion programs. It also serves as a basis in deciding on the
possibility of taking over existing business, as well as the extent of the
capital outlay required.
e. Government Instrumentalities – to evaluate the project’s social
desirability and to check if the project meets the applicable legal
requirements, as well as to determine the level or extent of incentives
that may be granted.
f. National Economy as a Whole – a project study assists in
minimizing the risk of failure of business ventures. Thus, wastage of
valuable resources is reduced, thereby accelerating economic growth.
 MAJOR ASPECTS OF A PROJECT STUDY

- The major aspects of a typical Project Feasibility Study are

briefly described as follows:
a. Management - the study of management aspect assists
in the selection of business structure, personnel setup, and
internal policies of the enterprise for an effective operation.
b Marketing – This ascertains the future demand for the
product. It involves the study of current and projected supply
and demand setup.
c. Technical – The study of technical aspect aims to choose
the process to be used, plant capacity, layout, machinery
design, materials, and other technical facors to attain cost
minimization and profit maximization.
 MAJOR ASPECTS OF A PROJECT STUDY (continued)

d. Taxation – This covers the study of tax effects, as

well as legal tax savings measures and other government
incentives applicable to the project.
e. Legal – Various legal aspects are studied to
determine if requirements are met and possible
incentives and protection are availed of.
f. Financial – This quantifies the result of marketing,
technical, management, taxation, and legal phases and
expresses in peso terms the possible profitability of the
project.
 MAJOR ASPECTS OF A PROJECT STUDY (continued)

g. Sources of Financing – It provides a study of the

possible sources of financing that can be tapped to
carry out the project.
h. Profitability – It weighs the ratio of capital outlay
in relation to profit that can be obtained.
i. Economic Benefits or Social Desirability – This
involves a study of the project’s contribution to the
nation, considering both the economic and
environmental aspects.
 FEASIBILITY STUDY GUIDELINE
(from the University of the Philippines Institute of Small-Scale Industries)

I. Summary of Project
A. Name of firm
B. Location head office / factory
C. Brief description of the project
1. History of business
2. Nature or kind of industry
3. Type of organization
4. Officers of the business and their qualifications
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

II. Economic Aspects

A. General Market Description
1. Market Description – a brief description of the market to include the
following:
a. Areas of dispersion
b. Methods of transportation and existing rate of transportation
c. Channels of distribution and general trade practices

2. Demand
a. Consumption for past ten years
b. Major consumers of the product
c. Projected consumption for the next five years
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

II. Economic Aspects (cont’d.)

A. General Market Description (cont’d.)
3. Supply
a. Supply for past ten years, classified as to source – imported or locally
produced. For imports, specify the form in which goods are imported,
the prices and the brand. For locally produced goods, the companies
producing them, their production capacities, brands, and market
shares shall be specified.
b. Factors affecting trends in past and future supply.

4. Competitive Position
a. Selling price – include a price study indicating the past domestic and
import prices, the high and low prices within the year, and the effect
of seasonality, if any.
b. Competitiveness of the quality of the product.
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

II. Economic Aspects (cont’d.)

A. General Market Description (cont’d.)
3. Supply
a. Supply for past ten years, classified as to source – imported or locally
produced. For imports, specify the form in which goods are imported,
the prices and the brand. For locally produced goods, the companies
producing them, their production capacities, brands, and market
shares shall be specified.
b. Factors affecting trends in past and future supply.

4. Competitive Position
a. Selling price – include a price study indicating the past domestic and
import prices, the high and low prices within the year, and the effect
of seasonality, if any.
b. Competitiveness of the quality of the product.
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

II. Economic Aspects (cont’d.)

B. Marketing Program
1. Description of present marketing practices of competitors
2. Proposed marketing program of the project describing the selling
organization, the terms of sales, channels of distribution, location of sales
outlets, transportation and warehousing arrangements, and their
corresponding costs
3. Promotion and advertising plans, including costs
4. Packaging

C. Projected Sales
1. Expected annual volume of sales for the next five years considering the
demand, supply, competitive position, and marketing program
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

II. Economic Aspects (cont’d.)

D. Contributions to the Philippine Economy
1. Net annual amount of pesos earned or saved, and basis used
2. Labor employed
3. Taxes paid

III. Technological Feasibility

A. Products
1. Description of the product(s) including specifications of their physical,
mechanical, and chemical properties
2. Uses of the product(s)
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

III. Technological Feasibility (cont’d.)

B. Manufacturing Process
1. Description of the process showing detailed flowcharts indicating material and
energy requirements at each step and normal duration of the process.
2. Alternative processes considered and justification for adopting such processes
3. Technological assistance used and contracts, if any

C. Plant Size and Production Schedule

1. Rated annual and daily capacity per shift, operating days per year, indicating
factors used in determining capacity
2. Expected production volume for the next five years considering start-up and
technical factors
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

III. Technological Feasibility (cont’d.)

D. Machinery and Equipment

1. Machines and equipment layout indicating the floor plan
2. Specifications of the machinery and equipment required indicating rated
capacities of each piece
3. List of machineries and equipment to be bought and origin as to local or
imported
4. Quotationis from suppliers, machinery guarantees, delivery dates, terms of
payments, and other arrangements.
5. Comparative analysis of alternative machinery and equipment in terms of cost,
reliability, performance and spare parts available
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

III. Technological Feasibility (cont’d.)

E. Plant Location
1. Location map of the plant
2. Desirability of location in terms of distance from the source of raw materials and
market and other factors and a comparative study of different locations,
indicating advantages and disadvantages (if new project)

F. Plant Layout
Description of the plant layout, drawn to scale

G. Building and Facilities

1. Types of building and costs of erection
2. Floor area involved
3. Land improvements, such as roads, drainage, etc., and their respective costs
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

III. Technological Feasibility (cont’d.)

H. Raw Materials
1. Description and specifications of their physical, mechanical, and chemical
properties
2. Current and prospective costs of raw materials, terms of payment, and long-term
contracts, if any
3. Availability and continuity of supply and current and prospective sources
4. Material balance or material process chart

I. Utilities
Electricity, fuel, water, stea, and supplies indicating the uses, quanity required,
availability, and tentative sources and cost
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

III. Technological Feasibility (cont’d.)

J. Waste Disposal
1. Description and quantity of waste to be disposed of
2. Description of the waste disposal method
3. Methods used in other plants
4. Cost of waste disposal
5. Clearance from proper authorities or compliance with legal requirements

K. Production Cost
Detailed breakdown of production costs, indicating the elements of cost per unit
of output.
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

III. Technological Feasibility

L. Labor Requirements
Detailed breakdown of the direct and indirect labor and supervision required
for the manufacture of the product(s) indicating compensation, including fringe
benefits.
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

IV. Financial Feasibility

A. For Existing Projects
1. Audited financial statements (balance sheet, income statement, cash flow
statement) for past three years to reflect the following:
a. Aging of receivables
b. Schedule of fixed assets showing the capital cost, estimated useful life, and
depreciation method used
c. Schedule of liabilities, tax assessments, and other pending claims or litigation
against the applicant, if any
d. Financial trends and ratio analysis
e. Elements of production, selling, administrative, and financial expenses

2. Financial projections for the next five years (balance sheet, income statement,
cash flow statement)
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

IV. Financial Feasibility

For Existing Projects (cont’d.)

3. Supporting schedules to the financial projections, stating assumptions used:

a. Collection period of sales
b. Inventory levels
c. Payment period of purchases and expenses
d. Elements of production cost, selling, administrative, and financial expenses

4. Financial analysis to show the rate of return on investment, return on equity

break-even volume, and price analysis
 FEASIBILITY STUDY GUIDELINE (continued)
(from the University of the Philippines Institute of Small-Scale Industries)

IV. Financial Feasibility (cont’d.)

B. For New Projects
1. Total project cost (fixed and working capital)
2. Initial capital requirements
3. Pre-operating cash flows relative to the project timetable
4. Financial projections of the five years of operations to include balance sheets,
income statements, cash flows
5. Supporting schedule to the financial projections to include:
a. Collection on sales
b. Inventory levels
c. Payment period for purchases and expenses
d. Elements of production cost, selling, administrative, and financial expenses
6. Financial analysis showing return on investment, return on equity, break-even
volume, and price analysis
 FINANCIAL STUDY

Steps in Financial Study

Conducting the financial study involves the following steps:

a. Determine the specific financing requirements of the project with respect to
types and ost of the assets to be acquired.
b. Identify the altenative sources of financing, including the terms and conditions,
the effective cost, and the maximum amount of financing from each source.
c. Ascertain the desirable debt-equity ratio, i.e., the relationship between the
financing that can be obtained from creditors and financing that can be provided
by the stockholders.
d. Establish the project’s financial policy.
 FINANCIAL STUDY

Major Parts of the Financing Study

1. Statement of assumptions
2. Projected financial statements
3. Possible sources ofd outside financing
4. Details of various amoaunts contained in the projected financial statements
5. Analysis of financial projections
 FINANCIAL STUDY

Statement of Assumptions

Assumptions – statements about the possible future behaviour of certain factors

affecting a project.

Examples of Assumptions Made in Feasibility Studies

- Sales volume, selling price, and distribution media
- Plant locatioin, capacity, and requirements
- Taxes
- Foreign exchange rate and price level changes
- Project timetable
 FINANCIAL STUDY

Projected Financial Statements

1. Projected balance sheet

2. Projected income statement
3. Projected cash flow statement
 FINANCIAL STUDY
The projected financial statements are used to evaluate the results of the financial
projections as to the project’s profitability, liquidity, and solvency, as well as its
ability to withstand difficulties. The evaluation is enhanced by preparing /
determining the following, amount others:

A. To measure profitability
1. Common-size projected financial statements
2. Rate of return on investment
1. A. discounted rate of return
2. Accounting rate of return
3. Profitability index
3. Cost-Volume-Profit (CVP) / Break-even analysis
4. Earnings per share
 FINANCIAL STUDY

Projected Financial Statements (cont’d.)

B. To Measure Liquidity
1. Current ratio
2. Acid test ratio
3. Payback period
4. Cash break-even

C. To Measure Financial Leverage

1. Debt-to-equity ratio
2. Equity-to-assets ratio
3. Debt-service break-even point
4. Times interest earned
 FINANCIAL STUDY

Possible Sources of Financing

Internal Source of Financing

- Funds obtained within the firm principally through earnings and depreciation

External Source of Financing

- Funds furnished by owners (equity and creditors (debt)
 FINANCIAL STUDY

Classification of Funds

1. Short-term funds – will be needed for one year or less

Possible sources:
- Trade credit
- Commercial banks and other financial institutions
- Advances from customers
- Loans derived from relatives, friends, directors, stockholders, and officers

2. Intermediate funds – will be needed between one to five years

 FINANCIAL STUDY

Classification of Funds (cont’d,)

3. Long-term funds – will be needed for five years or more

Possible soures:
- Issuance of capital stocks
- Issuance of bonds
- Retention of earnings
- Depreciation
- Suppliers/Manufacturers of machiner and equipment
- Long-term loans from banks and other financing institutions
 FINANCIAL STUDY
Classification of Funds (cont’d.)

Factors to consider when obtaining long-term funds:

1. Control
- Common stocks may have voting rights
- Referred stocks are usually non-voting
- Ceditors share no direct participation in the management of the firm,
except to the extent that restrictions are included in loan agreements.

2. Cost
- Flotation costs of stocks and bonds
- Dividend requirements when shares of stocks are issued
- Dividends are not tax deductible
- Interest expense on loans is tax deductible
 FINANCIAL STUDY

Classification of Funds

3. Risk
- Debt financing entails greater risk than equity financing, because debt
obligations have definite maturity dates and interest is a fixed charge which
must be paid even when profits decline

- Long-term bonds entail less risk than short-term notes because short-term
notes must be renewed periodically and renewals are subject to the
uncertainty of future interest rates and availability of funds.
 FINANCIAL STUDY

SENSITIVITY ANALYSIS

Feasibility Studies involve projected data, developed under specific assumptions.

Uncertainty is therefore an unavoidable element.

Sensitivity analysis can be used to minimize the effect of uncertainty. It is used to

determine the impact of a change in a factor(s) influencing a projected result.

Example:

How will profit change if the projected sales volume is changed by 5%, 10%, 15%
20%?
How will profit change if the projected capacity level is changed by +-10%, +-20%,
or +-30%?
 FINANCIAL STUDY
Attributes of a Good Feasibility Study

A good feasibility study must be:

1. Comprehensive
The study must have adequate information to meet the needs of the
user or users, areas covered must be clearly defined and well-
investigated.

2. Objective
It must present / reflect both the positive and negative implications.

3. Simple
The report should be easy to understand. If technical terminologies are
indispensable, explanations should likewise be included.
 FINANCIAL STUDY

Limitations / Constraints in Feasibility Study Preparation

Forecast is the primordial basis of feasibility study and as such, the basic limitations
may exist.

1. Unavailability of required and necessary information.

2. Incompetence or inexperience of the one making the judgment resulting in
erroneous conclusions and ;judgment resulting in erroneous conclusions and
ineffective recommendations.
3. The fact that the suy is based on forecast cannot be denied. Any significant
change in the business environment usually renders results of forecast not
coinciding with actual events
 MULTIPLE CHOICE

1. It is a systematic gathering and analysis of data concerning a proposed project and

the formulation of conclusion therefrom for he purpose of determining whether or
not the project is viable, and if so, its degree of profitability.
a. Budgeting c. Viable Costing
b. Feasibility Study d. Profit Planning

2. These are explicit statements about the possible future behavior of certain variables
affecting a project which serve as the premise for projecting probable financial results.
a. Conclusion c. Assumptions
b. Recommendations d. Theories
 MULTIPLE CHOICE
3. Which of the following is correct?

a. A project feasibility study looks into the viability of proposed undertakings, but
does not concern itself with tax implications.
b. The calculation of reasonable probabilities about the future, based on the analysis
of all the latest relevant information by tested and logically sound statistical and
econometric techniques and applied in terms of an executive’s personal judgment
and knowledge of his business is known as project feasibility study.
c. Depreciation is a systematic and rational allocation of cost of asset spread over a
period ot time. To the financial manager, it is not a source of fund; to the
accountant, however, it is considerd a source of fund in the sense that it does not
require cash outlay and as such, retains the portion of funds generated through
revenue inside the firm.
d. A project feasibility study assists in minimizing the risk of failure of business
ventures. Thus, wastage of valuable resources is reduced, thereby accelerating
economic growth.
 MULTIPLE CHOICE
4. The basic steps in the preparation of a project feasibility study are the following
except
a. Gathering and collection of data through research work which are relevant to all
aspects of the undertaking
b. Recording the data obtained in the books of accounts.
c. Evaluation and analysis of the data obtained.
d. Formulation of conclusions and recommendations.

5. Which of the following best identifies the reason for using probability analysis in preparing a
project feasibility study
a. Project Feasibility Study c. Unavailability of relevant data
b. Uncertainty d. government incentives
 MULTIPLE CHOICE
6. It is a thorough and systematic analysis of all factors to ascertain the viability of a
new business venture or major modification of an existing product line or product line
acquisitions.
a. Project Feasibility Study c. Production management
b. Product planning d. Market analysis

7. Which of the following best describes the objective of a feasibility study?

a. To determine whether there is economic and functional justification for
undertaking a new project or updating existing capabilities
b. To improve a company’s use of its capabilities and resources, the primary purpose
of which is to achieve the objectives of the organization.
c. To work as a measuring device to which subsequent performances are compared
and evaluated
d. To introduce new ideas, concepts, and methods to management.
 MULTIPLE CHOICE
8. Which of the following statements about a project feasibility study is true?
a. The feasibility study is based on available information and opinions of those
involved in the preparation of such study.
b. The feasibility study shows the actual results of operations of a business proposal.
c. The feasibility study is not affected by any significant change in actual business
conditions as compared to the assumptions used when the forecasts were made.
d. A feasibility study is a plan for the conduct of business for a planning period and
includes the budgeted income statement and all its supporting budgets.

9. The attributes of a good feasibility study are as follows, except

a. comprehensive c. simple
b. objective d. accurate
 MULTIPLE CHOICE
10. Which of the following is not considered a limitation in preparing project feasibility
studies?

a. Unavailability of the required and necessary information.

b. Incompetence or inexperience of the one making the judgment resulting in

erroneous conclusions and ineffective recommendations.

c. Since a feasibility study is based on forecast, any significant change in the business
environment usually renders the results of forecast not coinciding with actual
events.

d. None of the above

 MULTIPLE CHOICE
Items 11 to 18 are based on the following information:

A family friend, Mr. Burn Out availed of the early retirement scheme offered by his
employer. He said that he was already tired of the routine of spending eight full hours
in an office doing the same thing for the last twenty years.
Mr Burn Out plans to get into the field of entrepreneurship. He would invest part of his
retirement pay in a business that would deal with the sale of medical supplies to local
clinics and hospitals.
When Mr. Burn Out learned that you are an accountant, he confessed that he is excited
with his planned investment project, but very much afraid because he cannot afford to
fail and lose his hard earned retirement pay.
You advised that a Feasibility Study be prepared for his planned investment project.
The study, you said, would determine the viability of his proposed business
undertaking. It would cover key areas, such as marketing, production or purchasing,
and finance, among others. You emphasized that the financial aspect is the most critical
of them all.
 MULTIPLE CHOICE
Mr. Burn Out requested you to prepare a feasibility study for his proposed business. You
immediately started and gathered the following relevant data.
1. Projected sales for the first year of operations is P288,000 spread evenly during the year. All
sales will be on account with average collection period of one month.
2. The cost ratio will be 60% of sales.
3. At the end of the first year, the acid-test ratio will be 1:1, while the current ratio will be 2:1.
4. Once the business is underway, purchases will replace the stock sold each month. The
average payment period for accounts payable arising from purchases of merchandise will
be two (2) months.
5. Mr. Burn Our will open an account with the nearest ank and deposit P260,000 to start the
business.
6. Various fixed assets will be acquired for cash at a total cost of P240,000. These fixed assets
will be depreciated at the rate of 10% per year using the straight-line method.
7. Operating expenses, other than depreciation, is estimated at P70,000 per year. There
will be no accruals and prepayment at year-end.
8. Mr. Burn Out will make drawings in excess of the amount necessary to meet the above plans.
 MULTIPLE CHOICE

11. The projected income before tax is

a. P78,800. c. P21,200.
b. P45,200. d. P115,200

12. The projected balance of accounts payable at the end of the first year of operations
is
a. P14,400 c. P48,000.
b. P28,800 d. P24,400

13. The projected balance of accounts receivable at the end of the first year of
operations is
a. P14,400 c. P48,000
b. P28,800 d. P24,000
 MULTIPLE CHOICE

14. As of the end of the first year of operations the projected total current assets is
a. P57,600 c. P14,400
b. P28,800 d. P24,000

15. What is the projected cash balance at the end of the first year of operations?
a. P28,800 c. P20,000
b. P4,800 d. P24,400

16. The projected balance of inventories at the end of the first year of operations is
a. P57,600 c. P28,800
b. P4,800 d. P24,000
 MULTIPLE CHOICE

17. In the first year of operations, Mr. Burn Out’s drawings will amount to
a. P60,400 c. P36,400
b. P41,200 d. P0

18. The projected balance sheet as of the end of the first year of operations will show
an owner’s equity balance of
a. P260,000 c. P244,800
b. P281,200 d. P223,600
 MULTIPLE CHOICE

Items 19 to 30 are based on the following information:

You prepared a feasibility study for your new client. The financial aspect of
the feasibility study shows the projected balance sheets and income
statements for each of the first two years proposed business operations:
 Balance Sheets At The End of Each Year
Year 1 Year 2
Current Assets:
Cash P196,000 P482,000
Accounts Receivable 330,000 616,000
Inventory 572,000 720,000
Prepaid Expenses 84,000 70,000
Total current assets P1,182,000 P1,888,000
Property, plant, and equipment
Furniture and fixtures P896,000 P952,000
Accumulated depreciation 224,000 430,000
Net book value P672,000 P522,000
Total assets P1,854,000 P2,410,000
 Balance Sheets At The End of Each Year
Year 1 Year 2
Current Liabilities
Accounts Payable P168,000 P310,000
Income Tax Payable 27,000 47,000
Notes Payable 160,000 300,000
Accrued Expenses 64,000 82,000
Total current liabilities P419,000 P739,000

Long-Term Notes Payable at 10% P100,000 P200,000

Stockholders’ Equity:
Paid-in-Capital P1,200,000 P1,200,000
Retained Earnings 135,000 271,000
Total Stockholders’ Equity P1,335,000 P1,471,000
Total Liabilities and Stockholders’ Equity P1,854,000 P2,410,000
 Income Statements For Each Year
Year 1 Year 2

Sales P3,432,000 P4,576,000

Cost of goods sold 2,288,000 3,120,000
Gross Profit P1,144,000 P1,456,000
Operating expenses P624,000 P728,000
Depreciation expenses 224,000 848,000 206,000 934,000
Earnings before taxes P296,000 P522,000
Interest expense 26,000 50,000
Earnings before taxes 270,000 472,000
Income Tax 135,000 236,000
Net Income P135,000 P236,000
 MULTIPLE CHOICE

19. Where does the company plan to get its money to start the business and how much
would be obtained from such source?
a. From creditors, P100,000 c. From stockholders and operations P1,335,000
b. From stockholders, P1,200,000 d. From stockholders and creditors P1,460,000

20. The projected current ratios for each year are

Year 1 Year 2
a. 2.82 2.55
b. 0.35 0.39
c. 2.28 2.01
d. 0.64 0.78
 MULTIPLE CHOICE
21. For the years 1 and 2, the net cash flows expected to be provided (used) by
operating activities are
Year 1 Year 2
a. P368,000 P202,000
b. (P368,000) (P202,000)
c. P359,000 P442,000
d. P618,000 P636,000

22. For the years 1 and 2, the net cash flows expected to be provided (used) in investing
activities are
Year 1 Year 2
a. (P896,000) (P952,000)
b. (P672,000) (P522,000)
c. (P896,000) (P 56,000)
d. P224,000 P430,000
 MULTIPLE CHOICE
23. Does the proposed business expect to pay dividends to its stockholders in Year 2?
How much, if any, does it expect to pay?
a No c. Yes, P136,000
b. Yes, P100,000 d. Yes, P556,000

24. For the years 1 and 2, the net cash flows expected to be provided (used) in
financing activities are
Year 1 Year 2
a. P260,000 P240,000
b. P1,460,000 P240,000
c. P1,460,000 P140,000
d. P1,460,000 P1,340,000
 MULTIPLE CHOICE

25. Can the proposed business expect improvement in operations by the end of the
second year, considering the ratio of net profit to sales?
a. No, because the net profit percentage is expected to decrease by 5.16% in year 2.
b. Yes, because the net profit percentage is expected to increase to 5.16% in year 2.
c. Yes, because sales will go up by 3.33%
d. Yes, because total assets is expected to increase by about 30%.

26. Using a 360-day year, what is the expected average age of accounts receivable in year
2? (Use the ending balance of the accounts receivable in your calculations.)
a. 48.45% c. 7.43 times
b. 48.45 days d. 37.22 days
 MULTIPLE CHOICE
27. How many days cost of sales are expected to be in the inventory at the end of year
1? (Use a 360-day year.)
a. 4 times c. 90%
b. 73 days d. 90 days

28. What are the returns on total assets for both years? (Use the ending balance of
total assets.)
Year 1 Year 2
a. 7.28% 9.79%
b. 9.79% 7.28%
c. 10.11% 16.04%
d. 16.04% 10.11%
 MULTIPLE CHOICE
29. What are the expected returns on stockholders’ equity for both years (Use the
ending Stockholders’ Equity balance.)
Year 1 Year 2
a. 16.04% 10.11%
b. 10.11% 16.04%
c. 7.28% 9.79%
d. 9.79% 7.28%

30. Based on the projected financial statements, can we say that the proponents of the
project have considered taking advantage of financial leverage?

a. Yes, for Year 1 only c. Yes, for both years.

b. yes, for Year 2 only d. No.