FINANCIAL ASPECT

A. Major Assumptions
 No changes in Petty Cash Fund throughout the Year.
 No changes in Tax rates and thresholds over the 5-year period.
 Depreciation is computed using straight-line method with no salvage value.
 Useful life of Building, Equipment and Furniture and Fixtures are 30,10,10 years,
respectively
 Construction of building will start this on November 2018, and end on June 2018
 Business will operate at 50% of its normal capacity during June and July (2
months/midyear/summer break)
 Loans are financed by Land Bank of the Philippines at an annual interest of 8% as per
consultation
 The collateral for the loan is the building itself.
 Philhealth, SSS, HDMF contributions remain constant for five years.
 Withholding Tax Payable is omitted
 Utilities are paid at the end of each month
 No changes in price of security services contract and insurance contract
 80% of net income will be distributed to partners. 20% will retain in the organization
 Holiday Computation is ignored
 Inflation rate is pegged at 3.49%, the average rate from 2018-2022 as per the Philippine
Statistics Authority.

B. Total Project Cost

The total project Cost is computed as follows:
Building 13,000,000.00
Equipment 286,400.00
Furniture and Fixtures 455,700.00
Beginning Cash to Start Operations 500,000.00
Taxes and Licenses
Organization
BIR Notarization, Obtaining Cert. True Copies
 200.00
Business Permit and Other Fees
Initial Business Tax (1/20 of 1%)
9,800.00
Building and other Construction Permits
9,700.00
Barangay Permit
500.00
Community Tax Certificate
2,400.00
Plumbing fee
200.00
Occupational Permit
125.00
Mayor's Permit
6,000.00
Mechanical Fee
400.00
Laboratory Fee
60.00
Health Cert. Fee
50.00
Garbage Fee
677.00
Electrical Fee
330.00
Fire Safety Inspection Certificate
750.00
Other Fees
2,000.00 33,192.00
TOTAL PROJECT COST 14,275,292.00

C. Initial Working Capital Requirement

Xenia Social Dormitory being a service oriented business dealing in renting of rooms for
students shall deal primarily with cash receipts in its transactions. It will provide Php. 500,000
cash at the inception of the partnership to be used for costs such as organization, taxes, licenses
and other applicable expenses. It will not maintain cash on hand as there is no need for large
amount of cash in managing the day to day operations of the dormitory. Instead, a petty cash
fund of Php. 15,000 accounted using the imprest system will replace such, for transactions
needing imminent concern. All receipt of rent will be immediately deposited to the bank hence
the maintenance of a Cash in Bank account. All disbursements will also be paid using Cash in
Bank. Collection of rent will be done by the landlady. The actual depositing of the money will be
done by the managing partner as well as payment of obligations.

D. Alternative Sources of Financing

Bonds. Bond is an instrument where the issuer borrows funds from the creditor at a
certain cost and at a certain time and pays the value of the bond at the time of maturity. These are
suitable for long term financing like Civitas Social Dormitory.
Individual Investors or “private money”. Civitas Social Dormitory can venture into
individual investors who are looking for ways to achieve a higher returns from their money in a
way of investing. These investors are not expert lenders but rather individuals who have a close
relationship with Civitas Social Dormitory who are willing to lend their money with the intention
of serving the best interest of both parties.
Venture funding.A type of financing where investors provide capital to businesses
which have a high growth potential. These investors are willing to invest in companies because
of a massive return on their investments. They are also willing to take major losses if the
businesses they are investing in fails.
Partnerships. Civitas Social Dormitory can team up with a partner who is trustworthy
and creditworthy. A partner is someone you bring into the transaction to help finance the project.
Partnerships can be structured into different ways like having a partner for paying the down
payment or for the property as a whole.

E. Project Financing
To cover the needed costs for starting the business, the partnership will be financed both
internally and externally. A part of the initial project cost will be financed using the total
contribution of the parties and a part will be from long-term borrowings made from Land Bank
of the Philippines. The capital structure of the business will be composed of 30% debt and 70%
equity. Therefore
Debt 30% 4,282,587.60
Equity 70% 9,992,704.40
Total Investment 14,275,292.00
 With regard to the debt structure, the partnership applied for a loan to finance its
building. The loan has a 7% per annum interest rate with a 10-year tenor and no grace period
assuming it will be paid upon the loan agreement. Furthermore, the terms of payment is 120
equal monthly amortization with other service charges not yet included in monthly amortization
total due (i.e. front-end fee, service fee, etc.).
Profit/Loss Sharing Policy. The profit/loss sharing policy of the partnership will be based upon
the contribution thus, the profit sharing would be 35.76% for both Partner A and Partner B, and
28.28% for Partner C, respectively.
 F. Pro-forma Financial Statements
i. Statement of Financial Position

XENIA SOCIAL DORMITORY

Bangkal, Davao City
COMPARATIVE STATEMENT OF FINANCIAL POSITION
For the Year Ended December 31, 2018 - 2023
Note 2018 2019 2020 2021 2022 2023
ASSETS
Current Assets
14,275,292. 904,537. 1,686,296. 2,468,056. 3,249,816. 4,036,706.
Cash and cash equivalents 1 00 17 81 44 08 97
14,275,292.0 904,537.1 1,686,296.8 2,468,056.4 3,249,816.0 4,036,706.9
Total current assets 0 7 1 4 8 7
Non-Current Assets
Property, plant and 4,000,000. 17,502,533. 16,988,989. 16,475,446. 15,961,903. 15,448,359.
equipment 2 00 06 72 39 06 72
4,000,000.0 17,502,533.0 16,988,989.7 16,475,446.3 15,961,903.0 15,448,359.7
Total Non-Current Assets 0 6 2 9 6 2
18,275,292.0 18,407,070.2 18,675,286.5 18,943,502.8 19,211,719.1 19,485,066.6
TOTAL ASSETS 0 2 3 3 4 9
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Current Liabilities - -  - 0 0 0
Non-Current Liabilities
Notes payable - 4,282,587. 4,282,587. 4,282,587. 4,282,587. 4,282,587. 4,282,587.
noncurrent 3 60 60 60 60 60 60
4,282,587.6 4,282,587.6 4,282,587.6 4,282,587.6 4,282,587.6 4,282,587.6
Total Non-Current Liabilities 0 0 0 0 0 0
4,282,587.6 4,282,587.6 4,282,587.6 4,282,587.6 4,282,587.6 4,282,587.6
Total Liabilities 0 0 0 0 0 0
PARTNER'S EQUITY
13,992,704. 14,124,482. 14,392,698. 14,660,915. 14,929,131. 15,202,479.
Partners' capital 4 40 62 93 23 54 09
13,992,704.4 14,124,482.6 14,392,698.9 14,660,915.2 14,929,131.5 15,202,479.0
Total Partner's Equity 0 2 3 3 4 9
TOTAL LIABILITIES & 18,275,292.0 18,407,070.2 18,675,286.5 18,943,502.8 19,211,719.1 19,485,066.6
PARTNERS' EQUITY 0 2 3 3 4 9

ii. Statement of Financial Performance

XENIA SOCIAL DORMITORY
Bangkal, Davao City
COMPARATIVE STATEMENT OF FINANCIAL PERFORMANCE
For the Year Ended December 31, 2018 - 2023

Not
2018 2019 2020 2021 2022 2023
e
- 2,170,000.00 3,720,000.00 3,720,000.00 3,720,000.00 3,720,000.00
Gross receipts 5
- 886,119.97 1,461,562.24 1,461,562.24 1,461,562.24 1,510,562.24
Operating expenses 6
Earnings before
interest and taxes
- 1,283,880.03 2,258,437.76 2,258,437.76 2,258,437.76 2,209,437.76

57,101.17 342,607.01 342,607.01 342,607.01 342,607.01 256,955.26

Finance cost
(57,101.17) 941,273.02 1,915,830.75 1,915,830.75 1,915,830.75 1,952,482.50
Earnings before taxes
- 282,381.91 574,749.22 574,749.22 574,749.22 585,744.75
Income tax expense 8
(57,101.17) 658,891.11 1,341,081.52 1,341,081.52 1,341,081.52 1,366,737.75
NET INCOME
 iii. Statement of Cash Flows
XENIA SOCIAL DORMITORY
Bangkal, Davao City
COMPARATIVE STATEMENT OF FINANCIAL PERFORMANCE
For the Year Ended December 31, 2018 - 2023
Note 2018 2019 2020 2021 2022 2023
Cash flows from operating activities
(57,101. 658,891. 1,341,081 1,341,081 1,341,081 1,366,737
Net income 17) 11 .52 .52 .52 .75
299,566. 513,543. 513,543. 513,543. 513,543.
Depreciation 6 - 94 33 33 33 33
(57,101.1 958,458.0 1,854,624.8 1,854,624.8 1,854,624.8 1,880,281.0
Total 7) 6 6 6 6 8
Cash flows from investing activities
Net increase in property, plant and (13,802,100
equipment 2 - .00) - - - -
(13,802,100.0
Total - 0) - - - -
Cash flows from financing activities
10,049,80
-
Partners' cash contribution 4 5.57 - - - -
(527,112. (1,072,865 (1,072,865 (1,072,865 (1,093,390
Partners' withdrawals 4 - 89) .22) .22) .22) .20)
4,282,58
 
Increase in note payable 3 7.60 - - - -
14,332,393. (527,112.8 (1,072,865.2 (1,072,865.2 (1,072,865.2 (1,093,390.2
Total 17 9) 2) 2) 2) 0)
14,275,292. (13,370,754.8 781,759.6 781,759.6 781,759.6 786,890.8
Net cash flow 00 3) 4 4 4 8
14,275,292 904,537. 1,686,296 2,468,056 3,249,816
 
Cash at the beginning of the year .00 17 .81 .44 .08
14,275,292. 904,537.1 1,686,296.8 2,468,056.4 3,249,816.0 4,036,706.9
Cash at the end of the year 00 7 1 4 8 7
 iv. Statement of Changes in Equity

XENIA SOCIAL DORMITORY

Bangkal, Davao City
STATEMENT OF CHANGES IN EQUITY

For the year ended, December 31, 2018

A B C TOTAL
Capital, beg -
Share in net income (20,422.19) (20,422.19) (16,256.79) (57,101.17)
Capital contribution 5,024,902.78 5,024,902.78 4,000,000.00 14,049,805.57
Withdrawals - - - -
Capital, end 5,004,480.59 5,004,480.59 3,983,743.21 13,992,704.40
For the year ended, December 31, 2019
A B C TOTAL
Capital, beg 5,004,480.59 5,004,480.59 3,983,743.21 13,992,704.40
Share in net income 235,651.93 235,651.93 187,587.25 658,891.11
Capital contribution - - - -
Withdrawals (188,521.54) (188,521.54) (150,069.80) (527,112.89)
Capital, end 5,051,610.98 5,051,610.98 4,021,260.67 14,124,482.62
For the year ended, December 31, 2020
A B C TOTAL
Capital, beg 5,051,610.98 5,051,610.98 4,021,260.67 14,124,482.62
Share in net income 479,636.84 479,636.84 381,807.85 1,341,081.52
Capital contribution - - - -
Withdrawals (383,709.47) (383,709.47) (305,446.28) (1,072,865.22)
Capital, end 5,147,538.35 5,147,538.35 4,097,622.24 14,392,698.93
For the year ended, December 31, 2021
A B C TOTAL
Capital, beg 5,147,538.35 5,147,538.35 4,097,622.24 14,392,698.93
Share in net income 479,636.84 479,636.84 381,807.85 1,341,081.52
Capital contribution - - - -
Withdrawals (383,709.47) (383,709.47) (305,446.28) (1,072,865.22)
Capital, end 5,243,465.71 5,243,465.71 4,173,983.81 14,660,915.23
For the year ended, December 31, 2022
A B C TOTAL
Capital, beg 5,243,465.71 5,243,465.71 4,173,983.81 14,660,915.23
Share in net income 479,636.84 479,636.84 381,807.85 1,341,081.52
Capital contribution - - - -
Withdrawals (383,709.47) (383,709.47) (305,446.28) (1,072,865.22)
Capital, end 5,339,393.08 5,339,393.08 4,250,345.38 14,929,131.54
For the year ended, December 31, 2023
A B C TOTAL
Capital, beg 5,339,393.08 5,339,393.08 4,250,345.38 14,929,131.54
Share in net income 488,812.77 488,812.77 389,112.22 1,366,737.75
Capital contribution - - - -
Withdrawals (391,050.21) (391,050.21) (311,289.77) (1,093,390.20)
Capital, end 5,437,155.63 5,437,155.63 4,328,167.82 15,202,479.09
 v. Notes to Financial Statements

XENIA SOCIAL DORMITORY

Bangkal, Davao City
STATEMENT OF CHANGES IN EQUITY
For the Year Ended December 31, 2018 - 2023

1 CASH
2018 2019 2020 2021 2022 2023
14,260,292. 889,537.1 1,671,296. 2,453,056. 3,234,816. 4,021,706.
Cash in bank 00 7 81 44 08 97
15,000.0 15,000.0 15,000.0 15,000.0 15,000.0 15,000.0
Petty cash fund 0 0 0 0 0 0
904,537.1 1,686,296. 2,468,056. 3,249,816. 4,036,706.
14,275,292.00 7 81 44 08 97

PROPERTY, PLAND AND

2EQUIPMENT
2018 2019 2020 2021 2022 2023
Cost
4,000,000. 4,000,000. 4,000,000. 4,000,000. 4,000,000. 4,000,000.
Land 00 00 00 00 00 00
13,000,000. 13,000,000. 13,000,000. 13,000,000. 13,000,000.
Building 00 00 00 00 00
455,700.0 455,700.0 455,700.0 455,700.0 455,700.0
Furnitures and fixtures 0 0 0 0 0
346,400.0 346,400.0 346,400.0 346,400.0 346,400.0
Equipment   0 0 0 0 0
4,000,000. 17,802,100. 17,802,100. 17,802,100. 17,802,100. 17,802,100.
Total Cost 00 00 00 00 00 00
Accumulated Depreciation
252,777.7 686,111.1 1,119,444. 1,552,777. 1,986,111.
Building - 8 1 44 78 11
26,582.5 72,152.5 117,722.5 163,292.5 208,862.5
Furnitures and fixtures - 0 0 0 0 0
20,206.6 54,846.6 89,486.6 124,126.6 158,766.6
Equipment - 7 7 7 7 7
299,566.9 813,110.2 1,326,653. 1,840,196. 2,353,740.
Total accumulated depreciation - 4 8 61 94 28
4,000,000. 17,502,533. 16,988,989. 16,475,446. 15,961,903. 15,448,359.
Property, plant and equipment, net 00 06 72 39 06 72

3 NOTE PAYABLE
2018 2019 2020 2021 2022 2023
Note payable - LBP (8% Interest 4,282,587. 4,282,587. 4,282,587. 4,282,587. 4,282,587. 4,282,587.
Bearing) 60 60 60 60 60 60

4 PARTNERS' CAPITAL
2018 2019 2020 2021 2022 2023
Beginning
5,004,480. 5,051,610. 5,147,538. 5,243,465. 5,339,393.
A 5,024,902.78 59 98 35 71 08
5,004,480. 5,051,610. 5,147,538. 5,243,465. 5,339,393.
B 5,024,902.78 59 98 35 71 08
3,983,743. 4,021,260. 4,097,622. 4,173,983. 4,250,345.
C 4,000,000.00 21 67 24 81 38
D - - - - - -
14,049,805. 13,992,704. 14,124,482. 14,392,698. 14,660,915. 14,929,131.
Total capital beginning 57 40 62 93 23 54
(57,101.1 658,891.1 1,341,081. 1,341,081. 1,341,081. 1,366,737.
Net income 7) 1 52 52 52 75
(527,112.8 (1,072,865.2 (1,072,865.2 (1,072,865.2 (1,093,390.2
Partners' drawing   9) 2) 2) 2) 0)
13,992,704. 14,124,482. 14,392,698. 14,660,915. 14,929,131. 15,202,479.
Partners' capital, end 40 62 93 23 54 09

5 GROSS RECEIPTS
2018 2019 2020 2021 2022 2023
GROSS RECEIPTS
1,750,000. 3,000,000. 3,000,000. 3,000,000. 3,000,000.
Receipts from boarders - 00 00 00 00 00
G. Financial Analysis
i. Financial Ratios
In assessing how profitable Civitas Social Dormitory is and how effective it is in
managing its assets, the proponents used Ratio analysis. In these analysis, the financial
performance of the business can be determined. Ratios testing the Liquidity, Profitability,
Leverage and Asset Management were used in these section.
1. Liquidity and Solvency
2019 2020 2021 2022 2023
CURRENT RATIO 0 0 0 0 0
QUICK RATIO 0 0 0 0 0
NET WORKING
CAPITAL 904,537.17 1,686,296.81 2,468,056.44 3,249,816.08 4,036,706.97

Ratios presented above made use of the company’s cash flows and working
capital since these are the company’s short-term primary sources of cash. This data is
beneficiary especially for external users such as short-term creditors for these ratios
measure the business’s ability to pay its short-term liabilities. But in this case, the
business has no current liabilities as of now which made the current and quick ratios
equate to 0.
2. Profitability
2019 2020 2021 2022 2023
GROSS PROFIT MARGIN 0.592 0.607 0.607 0.607 0.594
NET PROFIT MARGIN 0.304 0.361 0.361 0.361 0.367
RETURN ON ASSETS 0.036 0.072 0.071 0.070 0.070

Profitability ratios measure the business’ capability to generate earnings

compared to its expenses and other relevant cost incurred during a specific period of
time. For Civitas Social Dormitory, the gross profit margin of the company is reasonably
high because it is above half of the gross revenue. It is enough to cover the period costs in
order to generate income. Its net profit margin is also indicating positive figures just
enough for the partners to get a return for their investments in the business. The net profit
margins for 2020-2022 are constant since it was assumed that the dormitory would be
operating at full capacity for the next years with the same rental fee. The revenue of the
business remain constant together with the expenses that will be incurred. The return on
 assets ratio measures the overall effectiveness of management in generating profits, with
its available asset. As shown in the in figures above, Civitas Social Dormitory’s return on
assets ratio is already above the industry average on its first year. On the next 4 years, it
gets better since the figures indicate ratios which are significantly higher than the
industry average of 1.48%. This means that the management is able to manage its assets
efficiently.
3. Asset Management
2019 2020 2021 2022 2023
FIXED ASSETS TURNOVER 0.124 0.219 0.226 0.233 0.241
TOTAL ASSETS TURNOVER 0.118 0.199 0.196 0.194 0.191

The ratios used above assess the firm’s ability to manage their assets successfully
to generate income. Fixed Assets turnover tell how much of the fixed assets contribute to
the generation of revenues. Based on the figures above, the fixed asset turnover in the
first year is significantly low since the business would only be operating for 7 months but
in the next years, it demonstrate an upward trend due to the full operating capacity of the
dormitory coupled by the depreciation of the fixed assets. Meanwhile, the Total Asset
Turnover presents a decreasing trend. This tool is used to evaluate the ratio of the total
revenue in relation to its total assets. As the business’ income for the next years remain
constant, its total assets is increasing, thus causing the decreasing trend in the ratios. The
increase in total assets is because of the accumulation of cash throughout the operating
years.
4. Leverage
2019 2020 2021 2022 2023
DEBT TO ASSET RATIO 0.233 0.229 0.226 0.223 0.220
DEBT TO EQUITY RATIO 0.303 0.298 0.292 0.287 0.282
Leverage Ratios are ratios that indicate the amount of debt incurred by an entity
against any accounts in the financial statements. In the table presented, it can be observed
that the business is loosely dependent on debt which means its equity position is strong.
There is also a decreasing trend in debt to asset ratio in the succeeding years which makes
Civitas Social Dormitory in a lesser risky position. The debt to equity ratio shows the
percentage of the business which is financed by debt and equity. The table shows a
decreasing trend which means that the business is becoming more stable. This would
indicate that the business is performing well and is able to pay its liabilities.
 ii. Horizontal Analysis

STATEMENT OF FINANCIAL POSITION

2018 2019 2020 2021 2022 2023
ASSETS
Current Assets
Cash and cash equivalents - 100.00% 186.43% 272.85% 359.28% 446.27%
Total current assets - 100.00% 186.43% 272.85% 359.28% 446.27%
Non-Current Assets
Property, plant and equipment - 100.00% 97.07% 94.13% 91.20% 88.26%
Total Non-Current Assets - 100.00% 97.07% 94.13% 91.20% 88.26%
TOTAL ASSETS - 100.00% 101.46% 102.91% 104.37% 105.86%
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Current Liabilities
Contributions payable     - #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Total Current Liabilities - #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!
Non-Current Liabilities
Notes payable - noncurrent - 100.00% 100.00% 100.00% 100.00% 100.00%
Total Non-Current Liabilities - 100.00% 100.00% 100.00% 100.00% 100.00%
Total Liabilities - 100.00% 100.00% 100.00% 100.00% 100.00%
PARTNER'S EQUITY
Partners' capital - 100.00% 101.90% 103.80% 105.70% 107.63%
TOTAL LIABILITIES AND PARTNERS'
EQUITY - 100.00% 101.46% 102.91% 104.37% 105.86%

There is an evident increase in the trend of Cash and Cash Equivalents as a result
of the corresponding increase in gross receipts coming from rent revenue of boarders and
commercial spaces. And since Xenia Social Dormitory transacts business on a cash basis,
the cash inflow is favorable. In addition, this line item which is composed of Cash in
Bank and Petty Cash Fund has been deducted for payment of operating expenses and
replenishment of petty cash.

The property, plant and equipment under non-current assets are land, building,
furniture and fixtures, and equipment. These are necessary to carry out the business
operations of the entity. It can be observed from the analysis that there is a decreasing
trend in the non-current assets. This is due to the yearly depreciation of depreciable assets
such as building, furniture and fixtures and equipment.

Xenia Social Dormitory's current liabilities are the personal contributions to SSS,
PhilHealth, and Pag-IBIG. For now, the researchers are still gathering the necessary data
 to determine the amount that shall be reflected in the statement of financial position. On
the other hand, under non-current assets is an interest bearing note of 8%. The note
payable has a constant trend since the liability is long term and expected to be settled on
maturity date.

The equity of the four partners shows an increasing movement as a result of the
return of their capital investments. This is an evidence of the profitability of the business
and an indication that the entity is economically stable

STATEMENT OF FINANCIAL PERFORMANCE

2018 2019 2020 2021 2022 2023
Gross Receipts - 100.00% 171.43% 171.43% 171.43% 171.43%
Operating Expenses - 100.00% 164.94% 164.94% 164.94% 170.47%
Earnings Before Interest And Taxes - 100.00% 175.91% 175.91% 175.91% 172.09%
Finance Cost - 100.00% 100.00% 100.00% 100.00% 75.00%
Earnings Before Taxes - 100.00% 203.54% 203.54% 203.54% 207.43%
Income Tax Expense - 100.00% 203.54% 203.54% 203.54% 207.43%
NET INCOME - 100.00% 203.54% 203.54% 203.54% 207.43%

Gross receipts are composed of revenue from boarders and lease of commercial
spaces. The trend under gross receipts is constant in the four years of operation. This is
due to the assumption that from the second year of operations up to the year 2023, the
social dormitory is operating at full capacity and therefore earning the highest possible
amount from the occupants of rooms and commercial spaces.

The trend of operating expenses remains unchanged in the first three years of
operation. However, there is an increase of 5.53% in fifth year of operations due to the
increase of repairs and maintenance. This is true with regards to repairs of equipment and
furniture and fixtures. Finance cost is also constant but there is a decline of 25% in year
5, the same with income tax expense but in year 5 there is an increase of 3.89% due to the
minimum corporate income tax. The net income for the past five years signifies a positive
outcome considering that Xenia Social Dormitory is a starting business.

iii. Vertical Analysis

STATEMENT OF FINANCIAL POSITION
2018 2019 2020 2021 2022 2023
ASSETS
Current Assets
Cash and cash equivalents - 4.91% 9.03% 13.03% 16.92% 20.72%
Total current assets - 4.91% 9.03% 13.03% 16.92% 20.72%
Non-Current Assets
 Property, plant and equipment - 95.09% 90.97% 86.97% 83.08% 79.28%
Total Non-Current Assets - 95.09% 90.97% 86.97% 83.08% 79.28%
TOTAL ASSETS - 100.00% 100.00% 100.00% 100.00% 100.00%
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Current Liabilities
Contributions payable     - 0.00% 0.00% 0.00% 0.00% 0.00%
Total Current Liabilities - 0.00% 0.00% 0.00% 0.00% 0.00%
Non-Current Liabilities -
Notes payable - noncurrent - 23.27% 22.93% 22.61% 22.29% 21.98%
Total Non-Current Liabilities - 23.27% 22.93% 22.61% 22.29% 21.98%
Total Liabilities - 23.27% 22.93% 22.61% 22.29% 21.98%
PARTNER'S EQUITY -
Partners' capital - 76.73% 77.07% 77.39% 77.71% 78.02%
TOTAL LIABILITIES AND PARTNERS' EQUITY - 100.00% 100.00% 100.00% 100.00% 100.00%

The table shows a steady increase in the percentage rate of cash and cash
equivalents. This indicates that the business remains to be liquid for the following years
and is capable of expanding its business if the trend continues. This is also because of the
business’ policy of receiving rental payments in cash or cheque. The decreasing rate of
the non-current assets is due to depreciating the assets using the straight-line method.

As shown above, the total liabilities consist only of non-current ones and that is
the note payable. The note payable is not ye due and demandable for the next five years.
However, this is to be reclassified as current liability as it becomes due and demandable,
thus changing the component of the total liabilities. The increasing rate of partner’s
capital is due to their share of the net income which is also increasing every year. The
partner’s equity section also takes the bigger percentage of the total liabilities and
partner’s equity section as a result of the partners’ greater capital contribution as
compared to the liabilities incurred.

STATEMENT OF FINANCIAL PERFORMANCE

2018 2019 2020 2021 2022 2023
Gross Receipts - 100.00% 100.00% 100.00% 100.00% 100.00%
Operating Expenses - 40.84% 39.29% 39.29% 39.29% 40.61%
Earnings Before Interest And Taxes - 59.16% 60.71% 60.71% 60.71% 59.39%
Finance Cost - 15.79% 9.21% 9.21% 9.21% 6.91%
Earnings Before Taxes - 43.38% 51.50% 51.50% 51.50% 52.49%
Income Tax Expense - 13.01% 15.45% 15.45% 15.45% 15.75%
NET INCOME - 30.36% 36.05% 36.05% 36.05% 36.74%
iv. Capital Budgeting Analysis
To ensure that the investment project have the best chance of increasing the value
of the company, managers need tools to evaluate the merits of the project and to rank
investments. The manager must apply appropriate decision techniques to assess whether
this proposed project creates value. The following approaches are used to integrate time
value procedures, risk and return considerations and valuation concepts to select capital
expenditures that are consistent with the firm’s goal of maximizing wealth—payback,
discounted payback, net present value (NPV) and internal rate of return.
1. Payback
The payback analysis is the simplest but also the least accurate form of
capital budgeting analysis. The basic premise of the payback method is that the
more quickly the cost of an investment can be recovered, the more desirable is the
investment. Below is the initial investment and the annual cash flows:
Period Year Initial Investment Annual Cash Flow Unrecovered Investment
0 2018 (14,275,292.00) (14,275,292.00)
1 2019 958,458.06 (13,316,833.94)
2 2020 1,854,624.86 (11,462,209.08)
3 2021 1,854,624.86 (9,607,584.22)
4 2022 1,854,624.86 (7,752,959.36)
5 2023 1,880,281.08 (5,872,678.28)
6 2024 1,880,281.08 (3,992,397.20)
7 2025 1,880,281.08 (2,112,116.12)
8 2026 1,880,281.08 (231,835.04)
9 2027 1,880,281.08 1,648,446.04
10 2028 1,880,281.08 3,528,727.12
11 2029 1,880,281.08 5,409,008.20
12 2030 1,880,281.08 7,289,289.28
Payback period = 8 + (231,835.04/1,880,281.08) = 8.123 years
As presented above, within a time frame of only 5 years, the initial
investment is yet to be recovered. With the assumption of a constant annual cash
flows after the 5-year period, it will take the business approximately 8 years and
1.47 months of operations to recover its cost of investment.
2. Discounted Payback
One of the major flaws of payback period is that the time value of money
is ignored. To counter this weakness, discounted payback method can also be
considered as a method. Discounted payback is the length of time required for an
 investment’s discounted cash flows to recover its cost. Since there is no available
industry discount rate, the weighted average cost of capital of 5.40% is used as the
discount rate.
Period Year PV Factor Initial Investment Cash Flows Present Value Unrecovered Investment
0 2018 1.0000 (14,275,292.00) (14,275,292.00) (14,275,292.00)
1 2019 0.9488 958,458.06 909,353.00 (13,365,939.00)
2 2020 0.9002 1,854,624.86 1,669,455.53 (11,696,483.47)
3 2021 0.8540 1,854,624.86 1,583,923.65 (10,112,559.82)
4 2022 0.8103 1,854,624.86 1,502,773.86 (8,609,785.95)
5 2023 0.7688 1,880,281.08 1,445,505.41 (7,164,280.54)
6 2024 0.7294 1,880,281.08 1,371,447.26 (5,792,833.28)
7 2025 0.6920 1,880,281.08 1,301,183.36 (4,491,649.93)
8 2026 0.6566 1,880,281.08 1,234,519.31 (3,257,130.61)
9 2027 0.6229 1,880,281.08 1,171,270.70 (2,085,859.92)
10 2028 0.5910 1,880,281.08 1,111,262.52 (974,597.39)
11 2029 0.5607 1,880,281.08 1,054,328.77 79,731.37
12 2030 0.5320 1,880,281.08 1,000,311.92 1,080,043.30
Payback Period = 10 + (974,597.39/1,0524,328.77) = 10.924 years
From the computations above, payback period has increased to 10 years
and 11.08 months. It increased by approximately 2 years and 9.612 months in
comparison to the undiscounted payback.
3. Net Present Value (NPV)
Another method that provides a direct measure of the time value of money
is the net present value (NPV). It is a more sophisticated capital budgeting
technique than the payback rule since it discounts the firm’s cash flow at the
firm’s cost of capital. This method is found by subtracting a project’s initial
investment from the present value of its cash inflows discounted at a rate equal to
the firm’s cost of capital.
Annual Cost
Period Year Initial Investment PV Factor Present Value Net Present Value
Savings
0 2018 (14,275,292.00) 1.0000 (14,275,292.00)
1 2019 958,458.06 0.9488 909,353.00
2 2020 1,854,624.86 0.9002 1,669,455.53
3 2021 1,854,624.86 0.8540 1,583,923.65
4 2022 1,854,624.86 0.8103 1,502,773.86
5 2023 1,880,281.08 0.7688 1,445,505.41 (7,164,280.54)
6 2024 1,880,281.08 0.7294 1,371,447.26
7 2025 1,880,281.08 0.6920 1,301,183.36
8 2026 1,880,281.08 0.6566 1,234,519.31
9 2027 1,880,281.08 0.6229 1,171,270.70
10 2028 1,880,281.08 0.5910 1,111,262.52 (974,597.39)
11 2029 1,880,281.08 0.5607 1,054,328.77 79,731.37
12 2030 1,880,281.08 0.5320 1,000,311.92 1,080,043.30
 Presented above, the return is less than the required rate of return within
the 5-year time frame since it results a negative NPV. However, within 11 years
assuming with a constant annual cost savings after 5 years, the business is
acceptable since it results to a positive NPV of 79,731.37. By that span of time,
therefore, the return exceeds the required rate of return.
4. Internal Rate of Return (IRR)
The internal rate of return (IRR) is one of the most widely used capital
budgeting techniques. It is the discount rate that equates the NPV of an
investment with zero. It is the rate of return that the firm will earn if it invests in
the project and receives the given cash inflows. Below is the company’s IRR:
Period Year Initial Investment Annual Cost Savings Cash Flow IRR
0 2018 (14,275,292.00) (14,275,292.00)
1 2019 958,458.06 958458.06
2 2020 1,854,624.86 1854624.86
3 2021 1,854,624.86 1854624.86
4 2022 1,854,624.86 1854624.86
5 2023 1,880,281.08 1880281.08 -14.61%
6 2024 1,880,281.08 1880281.08
7 2025 1,880,281.08 1880281.08
8 2026 1,880,281.08 1880281.08
9 2027 1,880,281.08 1880281.08
10 2028 1,880,281.08 1880281.08 4.03%
11 2029 1,880,281.08 1880281.08 5.50%
12 2030 1,880,281.08 1880281.08 6.67%
An IRR of 5.50% is desirable for the investors since it is greater than that
of the company’s cost of capital which is 5.40%. This means that the return
exceeds the cost of the funds used to finance the project but with the period of 11
years.