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CHAPTER 5- FINANCIALS

A. Assumptions

The team assumed the following in generating the financial statements of the business:

a. General assumptions

i. The company will incur expenses in choosing a successful location.

ii. Employee wages vary according to the cost of living of the place.

iii. Rent, regulations, and government economic incentives for companies in rural area vary

greatly from the urban area.

iv. A huge marketing costs will be incurred in the first year of business operation.

v. The company will have to invest on equities or long-term debts for capital.

vi. The company will expand in the second year of operation. The life-span of the product

will hinder the continuous generation of cash from the Panay market. Hence, the

company must expand to keep producing.

b. Pro-forma Income Statements-related assumptions

i. The income statement is constructed on a month-to-month basis for the first five years

of operation.

ii. A quick market analysis was made to construct the selling price per unit of the product.

iii. Economic fluctuations, mainly inflation, will be the top factor to affect the assumption

of the selling price.

iv. A huge amount of Accounts Receivable is expected. In fact, Accounts Receivable will be

larger than cash on hand in the first year of business operation.

v. The cost of sales is the cost of inventories sold.


c. Pro-forma Balance Sheet- related assumptions

i. Projection of balance sheet will be based on reasonable expectations of asset

acquisitions in the coming five years.

ii. Balances are high since accounts receivable are typically high in this industry.

iii. Inventory is higher in the first few months of the year. The company must stop

producing after supplying the market to observe and see results. Since our product will

take some years to deteriorate, the customers must also take some years to reorder.

d. Pro-forma cash flow statement- related assumptions

i. Generated cash is low in the first year of operation. Most sales will come from credit

sales.

ii. Cash flow from operating activities is low in the first year of operation due to huge

amount of accounts receivable.

iii. Cash flow from investing activities is negative due to huge capital expenditures in

starting up the business.

iv. Cash flow from financing activities is positive due to huge borrowings of long-term debt.

Also, the company is not a corporation. It will not pay of cash dividends to stockholders.

v. Net increase in cash will increase in every year of business operation; same thing with

cash at the end of the year.


B. Product Costing

Materials and Price Usable life


Equipment

Solar Panel 100,000 10-25 years


Submersible Motor 3,500 1 ½ years
Pump
Electronic Timer 1,200 1 ½ years
Hopper 10,000 reusable
PVC Pipe 400 reusable

The table above shows the approximated amount of materials needed to construct a single

bottom feeder. It is to be noted that a PHP300,000 cost for solar panel could support about 9

bottom feeders. It is possible for customers to order one bottom feeder provided that it would still

cost approximately PHP100,000 which includes the inverters needed to convert the current from

the panels to the power pumps. With proper handling, solar panels could last up to 10-25 years.

However, if corroded with salt water, it will last for only 1 ½ years.

The PHP10,000 cost for the hopper can accommodate 25kg of feeds. In the span of 1 ½ years,

components such as the submersible pump and electronic timer should be replaced but other parts

such as PVC pipes and hopper could still be used.