TO : CRISELLE P.

ALEJANDRO
Senior Vice President

FROM : JAY MAR N. GENAVIA

Jr. Finance Analyst

SUBJECT : FINANCIAL RUNS OF BUUG AND BAROTAC

DATED : July 05, 2018

In a nutshell, the rates of return of Buug, Zamboanga Sibugay and Barotac Viejo, Iloilo using the
financing from borrowing:

Project IRR Cost of debt WACOC Equity IRR

BUUG, ZAMBOANGA
Scenario 1 (70-30 D/E ratio) 51.57% 7.00% 6.3% 124.26%
Scenario 2 (60-40 D/E ratio) 51.57% 7.00% 6.9% 99.81%
BAROTAC, ILOILO
Scenario 1 (70-30 D/E ratio) 19.10% 7.00% 6.3% 31.10%
Scenario 2 (60-40 D/E ratio) 19.10% 7.00% 6.9% 27.09%

As shown above, both projects are acceptable since its Project IRRs are higher than its cost of capital
(WACOC). The company is encouraged to borrow funds to finance these CAPEXes as it will increase the
IRR. Using the 70-30 D/E ratio will give more benefit to the company since the cost of debt is lower than
cost of equity. The lower Project IRR of Barotac should not be undermined since its projected cash
inflows are more realistic, but still its Project IRR and Equity IRR are still higher than cost of debt and
Cost of Capital.

Observation:
It seems that the Projected Cash Inflows of Buug is highly optimistic that makes it more attractive than
Barotac. I think projections should be conservative and must be compared with the results of completed
CAPEXes.

The details:

Buug, Zamboanga Sibugay

Scenario 1: Debt-Equity 70-30

Construction Cost 19,474,548.17

Projected Net Cash Inflows:

Year 1 5,638,838.75
Year 2 9,582,162.44
Year 3 11,642,954.83
Year 4 14,328,563.85
Year 5 15,763,433.10
Year 6 16,378,485.46
Year 7 16,046,026.02
Year 8 16,201,480.08
Year 9 15,990,817.26
Year 10 15,736,659.53
CV at the end of Year 10 7,873,621.74
TOTAL 145,183,043.08
SCHEDULE OF CASH OUTLAYS
CASH OUTLAY CUMULATIVE DEBT EQUITY BALANCE
COST FINANCING CONTRIBUTION
MONTH 1 1,916,787.15 1,916,787.15 5,839,548.17 3,922,761.02
MONTH 2 2,670,355.39 4,587,142.53 1,252,405.64
MONTH 3 1,481,218.59 6,068,361.13 3,000,000.00 2,771,187.04
MONTH 4 1,311,350.33 7,379,711.46 1,459,836.71
MONTH 5 673,355.60 8,053,067.06 786,481.11
MONTH 6 2,115,332.89 10,168,399.95 3,000,000.00 1,671,148.22
MONTH 7 931,957.17 11,100,357.12 739,191.05
MONTH 8 1,258,613.41 12,358,970.53 3,000,000.00 2,480,577.64
MONTH 9 1,168,402.57 13,527,373.10 1,312,175.07
MONTH 10 1,936,613.92 15,463,987.02 1,635,000.00 1,010,561.15
MONTH 11 3,439,503.78 18,903,490.80 3,000,000.00 571,057.37
MONTH 12 571,057.37 19,474,548.17 -
TOTAL 19,474,548.17 13,635,000.00 5,839,548.17

Debt Contribution 70%

Equity Contribution 30%
Cost of Equity 10%
Tax rate 32%
Cost of Debt 7%
Wt. Average Cost of Capital 6.3%

Projected Cash flows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
- - - - -
Construction (19,474,548.17)
Cost
Net Cash -
Inflows 5,638,838.75 9,582,162.44 11,642,954.83 14,328,563.85 15,763,433.10
CV at the - - - - - -
end of Year
10
Total Cash
Flow (19,474,548.17) 5,638,838.75 9,582,162.44 11,642,954.83 14,328,563.85 15,763,433.10

Year 6 Year 7 Year 8 Year 9 Year 10

- - - - -
Construction
Cost
Net Cash 16,378,485.46 16,046,026.02 16,201,480.08 15,990,817.26 15,736,659.53
Inflows
CV at the - - - - 7,873,621.74
end of Year
10
Total Cash
Flow 16,378,485.46 16,046,026.02 16,201,480.08 15,990,817.26 23,610,281.28

Project IRR : 51.57%

 Financing Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash flow
Loan 13,635,000.00 - - - - -
Drawdown
Equity 5,839,548.17 - - - - -
Contribution
Interest
(448,612.50) (954,450.00) (954,450.00) (954,450.00) (954,450.00)
DST
(102,262.50)
Principal
Payment
Net Cash -
Flow 5,087,963.75 8,627,712.44 10,688,504.83 13,374,113.85 14,808,983.10

Cash Flow to
Equity (5,839,548.17) 5,087,963.75 8,627,712.44 10,688,504.83 13,374,113.85 14,808,983.10
Holders

Year 6 Year 7 Year 8 Year 9 Year 10

Loan Drawdown - - - - -
Equity Contribution - - - - -
Interest
(505,837.50)
DST
Principal Payment
(13,635,000.00)
Net Cash Flow
2,237,647.96 16,046,026.02 16,201,480.08 15,990,817.26 23,610,281.28

Cash Flow to Equity

Holders 2,237,647.96 16,046,026.02 16,201,480.08 15,990,817.26 23,610,281.28

Equity IRR : 124.2582%

Buug, Zamboanga Sibugay

Scenario 2: Debt-Equity 60-40

SCHEDULE OF CASH OUTLAYS

CASH OUTLAY CUMULATIVE DEBT EQUITY BALANCE
COST FINANCING CONTRIBUTION
MONTH 1 1,916,787.15 1,916,787.15 7,794,548.17 5,877,761.02
MONTH 2 2,670,355.39 4,587,142.53 3,207,405.64
MONTH 3 1,481,218.59 6,068,361.13 1,726,187.04
MONTH 4 1,311,350.33 7,379,711.46 414,836.71
MONTH 5 673,355.60 8,053,067.06 3,000,000.00 2,741,481.11
MONTH 6 2,115,332.89 10,168,399.95 626,148.22
MONTH 7 931,957.17 11,100,357.12 3,000,000.00 2,694,191.05
MONTH 8 1,258,613.41 12,358,970.53 1,435,577.64
MONTH 9 1,168,402.57 13,527,373.10 267,175.07
MONTH 10 1,936,613.92 15,463,987.02 2,680,000.00 1,010,561.15
MONTH 11 3,439,503.78 18,903,490.80 3,000,000.00 571,057.37
MONTH 12 571,057.37 19,474,548.17 -
TOTAL 19,474,548.17 11,680,000.00 7,794,548.17
COST OF CAPITAL
Debt Contribution 60%
Equity Contribution 40%
Cost of Equity 10%
Tax rate 32%
Cost of Debt 7%
Wt. Average Cost of Capital 6.9%

Project IRR : 51.57%

Financing Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash flow
Loan 11,680,000.00 - - - - -
Drawdown
Equity 7,794,548.17 - - - - -
Contribution
Interest (326,900.00) (817,600.00) (817,600.00) (817,600.00) (817,600.00)
DST (87,600.00)
Principal
Payment
Net Cash Flow - 5,224,338.75 8,764,562.44 10,825,354.83 13,510,963.85 14,945,833.10

Cash Flow to (7,794,548.17) 5,224,338.75 8,764,562.44 10,825,354.83 13,510,963.85 14,945,833.10

Equity
Holders

Year 6 Year 7 Year 8 Year 9 Year 10

Loan Drawdown - - - - -
Equity Contribution - - - - -
Interest (490,700.00)
DST
Principal Payment (11,680,000.00)
Net Cash Flow 4,207,785.46 16,046,026.02 16,201,480.08 15,990,817.26 23,610,281.28

Cash Flow to Equity 2,237,647.96 16,046,026.02 16,201,480.08 15,990,817.26 23,610,281.28

Holders

Equity IRR 99.8126%

Barotac Viejo, Iloilo

Scenario 1: Debt-Equity 70-30

Construction Cost 14,414,903.14

Projected Net Cash Inflows:

Year 1 (398,489.04)
Year 2 967,243.13
Year 3 2,477,547.25
Year 4 3,137,702.11
Year 5 5,612,898.82
Year 6 5,491,239.68
Year 7 5,473,874.50
Year 8 5,895,649.75
Year 9 5,991,079.22
Year 10 11,545,507.69
CV at the end of Year 10 7,873,621.74
TOTAL 54,067,874.85

SCHEDULE OF CASH OUTLAYS

CASH OUTLAY CUMULATIVE DEBT EQUITY BALANCE
COST FINANCING CONTRIBUTION
MONTH 1 1,418,790.35 1,418,790.35 4,414,903.14 2,996,112.79
MONTH 2 1,976,575.47 3,395,365.83 1,019,537.32
MONTH 3 1,096,386.03 4,491,751.86 2,000,000.00 1,923,151.29
MONTH 4 970,650.92 5,462,402.77 952,500.37
MONTH 5 498,412.37 5,960,815.15 454,088.00
MONTH 6 1,565,752.31 7,526,567.45 3,000,000.00 1,888,335.69
MONTH 7 689,827.16 8,216,394.62 1,198,508.53
MONTH 8 931,615.47 9,148,010.09 266,893.05
MONTH 9 864,842.14 10,012,852.23 5,000,000.00 4,402,050.92
MONTH 10 1,433,465.97 11,446,318.19 2,968,584.95
MONTH 11 2,545,892.90 13,992,211.09 422,692.05
MONTH 12 422,692.05 14,414,903.14 -
TOTAL 14,414,903.14 10,000,000.00 4,414,903.14

Debt Contribution 70%

Equity Contribution 30%
Cost of Equity 10%
Tax rate 32%
Cost of Debt 7%
Wt. Average Cost of Capital 6.3%

Projected Cash flows

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
- - - - -
Construction (14,414,903.14)
Cost
Net Cash -
Inflows (398,489.04) 967,243.13 2,477,547.25 3,137,702.11 5,612,898.82
CV at the - - - - - -
end of Year
10
Total Cash
Flow (14,414,903.14) (398,489.04) 967,243.13 2,477,547.25 3,137,702.11 5,612,898.82

Year 6 Year 7 Year 8 Year 9 Year 10

- - - - -
Construction
Cost
Net Cash 5,491,239.68 5,473,874.50 5,895,649.75 5,991,079.22 6,269,324.26
Inflows
CV at the - - - -
end of Year 7,873,621.74
10
Total Cash
Flow 5,491,239.68 5,473,874.50 5,895,649.75 5,991,079.22 14,142,946.00

Project IRR : 19.10%

 Financing Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash flow
Loan 10,000,000.00 - - - - -
Drawdown
Equity 4,414,903.14 - - - - -
Contribution
Interest (355,833.33) (700,000.00) (700,000.00) (700,000.00) (700,000.00)
DST (75,000.00)
Principal
Payment
Net Cash Flow - (829,322.38) 267,243.13 1,777,547.25 2,437,702.11 4,912,898.82

Cash Flow to (4,414,903.14) (829,322.38) 267,243.13 1,777,547.25 2,437,702.11 4,912,898.82

Equity
Holders

Year 6 Year 7 Year 8 Year 9 Year 10

Loan Drawdown - - - - -
Equity Contribution - - - - -
Interest (344,166.67)
DST
Principal Payment (10,000,000.00)
Net Cash Flow (4,852,926.99) 5,473,874.50 5,895,649.75 5,991,079.22 14,142,946.00

Cash Flow to Equity (4,852,926.99) 5,473,874.50 5,895,649.75 5,991,079.22 14,142,946.00

Holders

Equity IRR 31.1%

Barotac Viejo, Iloilo

Scenario 1: Debt-Equity 60-40

SCHEDULE OF CASH OUTLAYS

CASH OUTLAY CUMULATIVE DEBT EQUITY BALANCE
COST FINANCING CONTRIBUTION
MONTH 1 1,418,790.35 1,418,790.35 5,764,903.14 4,346,112.79
MONTH 2 1,976,575.47 3,395,365.83 2,369,537.32
MONTH 3 1,096,386.03 4,491,751.86 1,273,151.29
MONTH 4 970,650.92 5,462,402.77 302,500.37
MONTH 5 498,412.37 5,960,815.15 3,000,000.00 2,804,088.00
MONTH 6 1,565,752.31 7,526,567.45 1,238,335.69
MONTH 7 689,827.16 8,216,394.62 548,508.53
MONTH 8 931,615.47 9,148,010.09 3,000,000.00 2,616,893.05
MONTH 9 864,842.14 10,012,852.23 1,752,050.92
MONTH 10 1,433,465.97 11,446,318.19 318,584.95
MONTH 11 2,545,892.90 13,992,211.09 2,650,000.00 422,692.05
MONTH 12 422,692.05 14,414,903.14 -
TOTAL 14,414,903.14 8,650,000.00 4,414,903.14

Debt Contribution 60%

Equity Contribution 40%
Cost of Equity 10%
Tax rate 32%
Cost of Debt 7%
Wt. Average Cost of Capital 6.9%

Project IRR : 19.10%

Financing Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash flow
Loan 8,650,000.00 - - - - -
Drawdown
Equity 5,764,903.14 - - - - -
Contribution
Interest (258,416.67) (605,500.00) (605,500.00) (605,500.00) (605,500.00)
DST (64,875.00)
Principal
Payment
Net Cash Flow - (721,780.71) 361,743.13 1,872,047.25 2,532,202.11 5,007,398.82

Cash Flow to (5,764,903.14) (721,780.71) 361,743.13 1,872,047.25 2,532,202.11 5,007,398.82

Equity
Holders

Year 6 Year 7 Year 8 Year 9 Year 10

Loan Drawdown - - - - -
Equity Contribution - - - - -
Interest (347,083.33)
DST
Principal Payment (10,000,000.00)
Net Cash Flow (4,855,843.66) 5,473,874.50 5,895,649.75 5,991,079.22 14,142,946.00

Cash Flow to Equity (4,855,843.66) 5,473,874.50 5,895,649.75 5,991,079.22 14,142,946.00

Holders

Equity IRR 31.1%