Take-Out Pizza, Inc. plans to issue 10,150 shares of ₱100 per share common stock.

The issued and outstanding par value common stock will be $101,500. John and Lisa Walker
will invest ₱36,000 each in the company's capital. They will receive respectively 3,600 shares of
₱100 par value, or 35.47 percent ownership. Together, they will hold more than 50 percent of
the voting stock, allowing them to exercise control over the operating and financial policies of
the company. For investing ₱29,500 in the company's capital, the new investor would receive a
portion of ownership of 29.06 percent (2,950 shares of ₱100 par value). As the investor will hold
between 20 and 50 percent of the voting stock, he or she will exercise significant influence over
the company's policies.
According to our conservative estimates, the cumulative dividends that would be paid to
the new investor, based on 29.06 percent of ownership, over the next five years, would be
$187,618. Dividend payments to the investor would be made as follows:
Year 1 ₱17,892

Year 2 27,091

Year 3 37,213

Year 4 48,613

Year 5 56,809

Totals ₱187,618

The other co-owners, Amer and Mickyle, will not take dividends over the next five years. The
reasons for this decision are: a) they will receive employment compensation and benefits, and
b) the undistributed dividends will increase the amount of retained earnings, as a strategy to
strengthen the company's financial position for sustainable future growth, to increase the
company's net worth, and subsequently the market value when it goes public.

Key measures of the expected benefit from the investment include:

Payback period (the minimum time to recover the initial investment) for the investor's initial
capital contribution of ₱29,500 is very short, only one year five months, computed as follows:
Initial Cash Investment ₱29,500

Less Dividends Paid

Year 1 17,892

Year 2 (42.85 % of ₱27,091) 11,608

Unrecovered Investment ₱0

Payback Period: 1.4285 years, or 1 year 5 months

Weighted average cost of capital (the lowest acceptable rate of return) is estimated at 16%.

Net present value (NPV), which evaluates the capital investment by discounting at 16 percent
its future cash flows to their present values, and subtracting the initial investment of ₱29,500
from their sum of ₱187,618 is ₱83,778, computed as follows:
 Net Cash Inflows x Factor Values

Year 1 ₱17,892 x .862 ₱15,422

Year 2 27,091 x .743 20,128

Year 3 37,213 x .641 23,853

Year 4 48,613 x .552 26,834

Year 5 56,809 x .476 27,041

Total present value of cash inflows discounted at 16% ₱113,278

Less initial investment ₱29,500

NPV Net present value ₱83,778

Because the net present value is positive, the investment would achieve at least the minimum
rate of return of 16 percent, and is expected to yield significant additional returns to the investor.

Internal rate of return (IRR) of 87 percent is computed as follows:

Year 1 Year 2 Year 3 Year 4 Year 5

Initial Investment (₱29,500)

Returns ₱17,892 ₱27,091 ₱37,213 ₱48,613 ₱56,809

Discount rate 16%

IRR = 87%
The level of 87 percent measures the estimated performance of the capital investment, and
because it is higher than 16 percent minimum desirable return, it might be considered as
adequate to the investment risk.