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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose you are a panelist, and you must evaluate if the design is feasible or not. You look at the breakdown of expenses, possible revenues, etc. Here are some important chapters and discussions taken from a certain plant design. Chapter 3: Market Study This plant design, entitled “IIVSDROP: The First Ear Dropper Solution Manufacturing Plant in the Philippines” considers a 30-year period of study, starting 2021, after finishing its construction by 2020. All projections, and interest rates set by the company shall be evaluated within this 30-year period. The inflation rate shall not be included in the computation and a minimum attractive rate of return is set at 20%. Chapter 4: Products Our company produces ear dropper solution which can be sold for PHP. 125.00 per bottle. Annually, the company can produce 1000 pallets of the product. Each pallet is stacked with 14 layers and each layer consists of 8 boxes. A box contains 12 bottles of ear dropper for wholesale purposes. In addition, the company also ventures for retail services.By-products are also produced by the company including excess chemicals that can be sold for P1,200 per 15 grams. IIVSDROP produces a total of 7,820 kg of these excess chemicals per year. Chapter 5: Construction and Process The company shall be constructed at Nasugbu, Batangas for PHP. 550,320,000. The permits, land acquisition documents and other legal matters amounted to PHP 27,000,000. Chapter 6: Company Expenses Below is the breakdown of yearly expenses of the company: Total Costs Amount in Pesos Labor Costs 11,200,000/yr. Preventive Maintenance Costs 5,580,300/yr. Safety Regulations and Certifications 790,000/3 yrs. Employee Benefits and Insurance PAG-IBIG 1,300,000/yr. PhilHealth 2,700,000/yr. SSS 3,600,500/yr. Chapter 7: Consumer Benefits Aside from the revenues from the products sold, annual benefits from the company include PHP. 15,000,000/yr. Assume a high demand for the product and by-products that all produced goods are sold each year within the study period. Calculate the following: 1. Payback period (tabular) 2. Payback period formula ?? = ????? ??????? ?????????? ??? ?????? ?????? 3. B/C ratio (conventional) 4. AW if ? = MARR 5. Internal Rate of Return Based on the computed values, decide whether the project is economically justifiable or not.

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