GLOBE 9:53 AM CASE: NEW BUSINESS, NEW PRODUCT 44% ABC Company has an opportunity to expand its business in Cebu in 2022. The company has been in the manufacturing business since 2008. Since its inception, its business has been the canning of processed sardines -the "Old's Town". At present, it sells its canned products at P 13.00 retail price, inclusive of VAT. The management of ABC held a meeting on February 3, 2022, and among the topics discussed were the following historical figures. Sales Volume (units) Sales Revenues, vat inclusive Inventories Ready for Sale: Beginning Inventories for Sale (in pesos; vat-exclusive) Beginning Inventories (in units and ready for sale) Ending Inventories (in pesos; vat-exclusive) Ending Inventories (in units and ready for sale) Work-in-Process Inventories: Beginning Work-in-Process Inventories (in pesos; vat exclusive) Beginning Work-in-Process Inventories (units) Ending Work-in-Process Inventories (in pesos; vat- exclusive) Ending Inventories (in units to be completed next year) 2017 2018 2020 2021 2019 4,570,000.00 6,255,000.00 5,323,240.00 6,000,430.00 5,870,000.00 46,410,000.00 42,315,000.00 62,442,120.00 59,805,590.00 63,310,000.00 12,503,000.00 15,400,300.00 13,400,000.00 15,030,000.00 14,760,000.00 1,205,000.00 1,350,100.00 1,400,000.00 1,250,000.00 1,320,000.00 15,400,300.00 13,400,000.00 15,030,000.00 14,760,000.00 16,002,000.00 1,764,066.00 1,589,200.00 1,620,310.00 1,763,303.00 1,861,031.00 16,300,000.00 17,200,000.00 16,450,000.00 16,760,000.00 15,800,000.00 2,560,000.00 3,000,320.00 4,200,000.00 3,200,000.00 2,100,000.00 17,200,000.00 16,450,000.00 16,760,000.00 15,800,000.00 15,230,000.00 3,000,320.00 4,200,000.00 3,200,000.00 2,100,000.00 2,520,000.00 Purchases: (Only the Other Direct and Packaging Materials are subject to VAT; however, the figures below are all Vat-exclusive.) Sardines (in pesos) Other Direct and Packaging Materials (sauces, etc.) Direct Labor Cost Overhead Cost 25,600,003,00 28,600,000.00 29,452,000.00 27,620,000.00 31,000,000.00 6,403,100.00 7,200,000.00 7,450,000.00 7,624,000.00 8,100,500.00 7,130,000.00 8,000,500.00 7,925,000.00 8,200,000.00 8,250,300.00 3,560,031.00 3,738,032.55 4,197,810.55 4,113,854.34 4,115,088.50 Expenses: (Only the Selling and Marketing Costs are subject to VAT; however, the figures below are all Vat-exclusive.) General and Administrative Costs Selling and Marketing Costs 9,850,000.00 12,530,000.00 11,000,500.00 17,500,000.00 14,520,000.00 3,520,000.00 4,527,000.00 6,520,000.00 7,250,000.00 6,270,000.00 0.00 0.00 0.00 Finance Costs Depreciation 520,000.00 520,000.00 1,250,000.00 1,250,000.00 1,250,000.00 1,250,000.00 1,250,000.00 The balance sheet of ABC Company maintains a net earnings of P 60,000,000.00, 45% of which shall be used for the financing of the expansion in Cebu. Also, its current available cash in bank is only 30,000,000.00, existing properties and plants were valued at P 160,000,000.00, while the remaining balance is attributed to the receivable balance. There were no existing liabilities as of December 31, 2021. In particular, as of the year ended December 31, 2021, its equity shows: Authorized Share Capital (5,000,000 shares with par value of P 100) Issued and Outstanding Share Capital (2,500,000 shares with par value of P 100) Retained Earnings 500,000,000.00 250,000,000.00 60,000,000.00 Also, the Security Bank Corporation is willing to lend a maximum of P 100,000,000.00 to ABC Company for an annual interest of 5.6% for a term of 5 years. The loan, if ever, shall be payable in 5 equal annual installments plus the interest based on the diminishing balance. With enough funds, ABC also plans to introduce new segment in its Cebu expansion - the manufacturing of mackerel, to complement its sardines line. Although same process will be required for the new business line, ABC is required to invest in the following to successfully launch the new segment: Building for the expansion (over 70% of which 10,000,000.00 shall be used for the canning of the new segment) Laboratory for the new segment 3,000,000.00 Machineries and Equipment for the new segment 5,600,000.00 Research Costs (salaries of researchers and market feasibility studies) Prototyping and market testing costs 3,600,000.00 5,200,000.00 Other research-related costs 3,642,000.00 The above items are all subject to VAT, and the figures presented above are all vat-inclusive. Aside from the above capital funds, the operation of the expansion will need at most P 30,000,000.00 cash for the first 2 years of operation. The management of ABC Company suggested that it could borrow up to P 50 million, and use the 45% of its