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Chapter 1

INTRODUCTION

A. Brief History of the Project

Industrialization is the aim of the Philippine economy today. As a developing

country we need to open business opportunities which will enhance opening of jobs

to the unemployed. When people open up a business they consider many aspects,

the best project, how profitable it is and what is their market share. It has been

known that in the Philippines transportation is an important part of living. It enhances

economic growth, and brings people from place to place. Since no part of

motorbikes is permanent, there are always demand for parts, accessories and

services for maintaining it on a regular basis.

Therefore, the researcher decided to conduct a study on putting up a

motorcycle parts, accessories, and service center in Barangay Tartaria. Tartaria is a

Barangay of the Philippine municipality Silang in the province Cavite in

CALABARZON. The target market of the proposed business are the motorcycle

owners in Barangay Tartaria, Silang, Cavite.

The business will be registered as Sam Motorcycle Parts, Accessories and

Service Center, a single proprietorship business that will be located in Barangay

Tartaria, Silang, Cavite. The financier of the business is Mr. Michael Barolo, a

businessman from Pasay City, Metro Manila.


B. Statement of the Problem

The central problem of this study is the evaluation of the viability of

establishing Motorcycle Parts, Accessories and Service Center in Barangay Tartaria,

Silang, Cavite.

C. Objective

The main objective of this study is to ascertain the viability and feasibility of

the proposed venture. Specifically, objectives from the point of view of the four

functional areas as follows:

1. Marketing

a. To provide a clear descriptions of the business products and services.

b. To understand the industry profile of the proposed project focusing on its

Strengths, Weaknesses, Opportunities, and Threats.

c. To determine the demand and supply for the motorcycle parts,

accessories and services in the target area.

d. To formulate the best marketing system and strategy in order to compete

fairly and be able to sell the proposed product to its target market.

2. Technical

a. To know the steps required in the service process in availing products

and services of the business in order to determine the time involved and labor cost.

b. To determine the equipment, machinery, furniture and fixtures, and

materials that will be used by the business to ensure smooth operation.

c. To design and layout the floor plan of the business to ensure smooth and

effective operation activity.


d. To decide where the proposed business will be located considering its

target market for the effective selling of its product and services.

e. To determine the operating cost, labor costs, and other cost of production

in order to project how much budget is to be allocated during its operations.

3. Organization and Management

a. To determine the most appropriate form of business organization suited

for the project.

b. To design an organizational structure for the proposed business for

efficient operation.

c. To determine the number of workers needed to ensure that the projected

business capacity will be met.

d. To consider the compensation package for each employee to ensure

workers’ satisfactions and good working conditions.

e. To make a schedule of production activities in order to use time and

resources effectively and efficiently during its production operations.

4. Financial

a. To estimate the initial cost in putting up the business to be able to meet

the needed capital requirement.

b. To present the projected five-year financial forecast of the business.

c. To evaluate the profitability, liquidity, and stability of the proposed

business.

d. To specify the optimal source of financing to be adopted in the business.

e. To make realistic assumptions as basis for financial projections.


D. Significance of the Study

This study bears significance to the following:

To the businessmen, this will serve as a guide to those who are interested in

this similar kind of business;

To the researchers, this study will supply them the opportunities to apply the

theories and knowledge obtained in the preparation to their planned professions;

To the school, this study will give additional guide and reference to the body

of knowledge;

To the readers, this will serve as reference for their related studies and

adventure into a profitable business; and

To the community, this may offer new information and ideas that could

contribute to the improvement and innovation of the similar business.

To the researcher himself, this may serve as an additional knowledge on his

chosen field of education and can be used on his future business plans.

E. Scope and Limitations

This research cover the area of Barangay Tartaria, Silang, Cavite. The

location of the proposed project is in Tartaria, Silang, Cavite.

The target market of the proposed business are the motorcycle owners in

Barangay Tartaria, Silang, Cavite. This study is projected for a span of five (5)

years. Information were taken through personal interviews, books, magazines, and

internet observations.
There were certain limitations with regards to gathering of data and

information due to the relatively short time that the researcher needs to cope up. A

number of sources of information includes survey questionnaires, personal

interviews, and research findings. Some of the informations were limited due to the

confidentiality of records especially on trade secrets.

F. Methodology

The researcher used both primary and secondary data in collecting facts and

information. Primary data came from the original sources and were collected

especially for the task at hand which includes interviews and surveys. Secondary

data were based on the original piece of written or printed material conveying

relevant information about the study derived from magazines and other related

books.

1. Sources of Data

a. Primary Data

The data were gathered through personal interviews, observations, and

survey questionnaires. The researcher conducted a research and interviews in some

similar businesses located in Sta. Rosa, Laguna.

The survey questionnaire was first presented for validation to the experts

as well as to laymen to make sure that the survey questionnaire will be understood

by the respondents. After validation, the survey questionnaire was revised and

finalized before being administered to sample size that represents the total

population of the target market.


b. Secondary Data

The data were derived from the printed materials, books, magazines,

Microsoft Encarta and internet related to the study. The researcher obtained

information from J. L Detwiler Memorial Library, and the Department of Trade and

Industry. To compute the sample size, the Slovin’s formula was used:

(Mariampolski, (2001)

N
n=
1+Ne2

Where n = sample size


N = estimated population
e = margin of error (expressed in percentage)

2,563
n =
1+641(.052)

2,563
n =
7.41

n = 346

2. Research Design

The researcher used exploratory method which is concerned with the

gathering, classification, and presentation of data. Personal interviews conducted to

those who are currently in this type of business or have experienced in business.
Table 1 shows the target market population of the proposed business with the

number of survey questionnaires distributed and retrieved.

The researcher distributed a total of 346 survey questionnaires that

represents the total population of 2,563. Out of 346 survey questionnaires distributed

only 341 questionnaires were retrieved.

Table 1
Survey Questionnaires Distributed

Survey Questionares Survey Questionares


Barangay Population % %
Distributed Retrieved
Tartaria 2,563 100% 346 99% 341
Total 2,563 100% 346 99% 341
Source: Silang Municipal Hall

3. Treatment of Data

All data gathered were treated manually which has been tallied and tabulated

according to the result of the survey questionnaires. Treatment of data was done

through the use of ratios to determine profitability, liquidity, and stability of the

business venture such as:

To determine the earning power of the project, the researcher applied the

following formulas:

1. Net Present Value ( NPV ) is a standard method for the financial

appraisal of long-term projects. It measures the excess or shortfall of cash flows, in

present value (PV) terms, once financing charges are met. (Brealey, 2007)
Formula: NPV = (Bi – Ci)/ (1 + r) n

Where; 1=0

Bi = Benefit in period 1

Ci = Benefit in period 1

r = Discount Rate

a = Discount Period

A NPV: if computed to be positive, it means that the benefits are

greater than cost, accept:

If NPV > 0, accept

If NPV < 0, reject

2. Internal Rate Return ( IRR ) is a capital budgeting metric used by firms

to decide whether they should make investments. It is an indicator of the efficiency of

an investment, as opposed to net present value (NPV), which indicates value or

magnitude. (Brealey, 2007)

Formula: IRR = NPV = ( Bi – Ci ) / ( 1 + r ) = 0

If IRR is higher than the cut off rate, then the return is high, accept

The higher IRR the better.

3. Benefit Cost Ratio ( B/CR ) is an indicator, used in the formal discipline

of cost-benefit analysis, that attempts to summarize the overall value for money of a

project or proposal. (Brealey, 2007)


Formula: B/CR = [Bi/1 = a (1 = r)n: [Ci/1 = n (1=r) n]

Where: Bi = Benefit in Period 1

Ci = Cost in Period 1

R = Discount Rate

N = Discount Period

If B/CR is positive, the gross benefits are greater than the gross cost,

accept.

B/CR > 1, accept

B/CR < 1, reject.

To show how viable the project is in terms of financial soundness and

condition, the following ratios and their formula will be used.

4. Profitability Ratio

This used to measure the success of the firm in generating profit. The ratios

used to determine profitability of the project are as follows:

a. Return on Sales. This ratio indicates the amount of net income per peso

sales or the profitability based on sales. A ratio significantly greater than zero

signifies profitable based on sales, therefore, the project is to be pursued. (Brealey,

2007)

Net Profit after Tax


Return on Sales =
Sales

b. Return on Investment. This measures the amount of net income per peso

of investment indicating profitability relative to investment. a ratio which is more than


zero indicates profitability in that investment yields again, therefore, the proposed

project is to be accepted. (Brealey, 2007)

Net Income
Return on Investment =
Total Investment (Average)

c. Gross Profit Ratio. The ratio indicates the gross margin per peso of sales.

A resulting gross profit ratio which is adequate to cover operation expenses and

provide desired income shows that the proposed project is to be accepted. (Brealey,

2007)

Gross Profit
Gross Profit Ratio =
Net Sales

5. Liquidity Ratio

This measures the business ability to meet current obligation as they

come due, and to remain solvent in the event of adversities.

a. Current Ratio. This shows the ability to pay current obligations.

A current ratio higher than 100% may indicate liquidity; therefore, the project

may be accepted. (Brealey, 2007)

Current Assets
Current Ratio =
Current Liabilites

b. Quick or Acid-Test Ratio. Since this ratio indicates the ability

to extinguish current obligations from liquid assets, a ratio greater than 100%

will signify liquidity, therefore, the project is reasonable and should be

accepted. (Brealey, 2007)


Cash + Marketable Sec+ A/R
Quick of Acid- Test Ratio =
Current Liabilities

6. Test of Return on Capital Investment

These financial tools evaluate the justification for investing in the

project.

a. Average Rate of Return. Since this shows the amount of net

income per peso of average investment, a rate greater than 100% is

favorable to the project. (Brealey, 2007)

Average Net Income


Average Rate of Return =
Initial - Year Cash Outflow
2

b. Payback Period in Years. This refers to the length of period or

number of years it would take to recover an investment. A shorter period

signifies a large earning capacity of the project, therefore, it is favorable.

(Brealey, 2007)

Initial – Year Cash Outflow


Payback Period in Years =
Succeeding Annual Net Cash Flow

G. Review of Related Literature

Most motorcycle shops are small to medium sized businesses operated as

sole proprietorships, small partnerships, or closely held corporations. They range in

size from the corner shop to large franchises with many locations. Specializations

range from domestic or foreign vehicle repair to classic vehicle restorations.

Motorcycle shops are interesting in that they are combinations of service type
businesses with retailing aspects mixed in. Although they provide the labor and skill,

they must also purchase and resell the needed parts. This often creates conflicts in

determining whether shops are required to maintain inventories. (Ibisworld, 2013)

Modern motorcycles are being constructed with lighter and more flexible

materials. On one hand lighter construction has made some aspects of the repair

process easier because of the quick replacement process. On the other hand,

because of the lighter materials, vehicles are more susceptible to damage on impact

at lower speeds. (Johns, 2009)

Motorcycle repair shops generate business income by providing and selling

parts and services to the customer and the rebilling of subcontracted or sublet

materials and services. Additional income may be generated by some shops through

the purchase, repair, and sale of salvage vehicles. (Abeto, 2009)

The repair process in a motorcycle shop typically begins with the preparation

of an estimate by the shop, either on the premises, or in the field if the vehicle is not

drivable. The estimate includes detailed categories of expense for labor, parts (at the

retail list price), the cost of work to be done off the premises, and towing, if

necessary. (Pennfoster Career School)

Labor is usually broken down by category in a motorcycle repair shop since

rates differ for each category of service. The distinction is usually made between

metal and less highly compensated service or finishing labor. Frame labor, if not

sublet, may also be stated separately and will command the highest hourly rate.

Mechanical labor in repair shops is generally billed at a flat hourly rate for all
services without the distinction made in body shops even though the skill level

required to perform different tasks varies. (Martin, 2013)

Industries in the Motorcycle repair and maintenance subsector restore

vehicles, equipment, and other products to working order. These establishments

also typically provide general or routine maintenance (i.e., servicing) on such

products to ensure they work efficiently and to prevent breakdown and unnecessary

repairs. (Zimmerman, 2012)

Automotive Repair industry group comprises establishments involved in

providing repair and maintenance services for automotive vehicles, such as

passenger cars, motorcycles, trucks, and vans, and all trailers. Establishments in

this industry group employ mechanics with specialized technical skills to diagnose

and repair the mechanical and electrical systems for automotive vehicles, repair

automotive interiors, and paint or repair automotive exteriors. (Hoovers, 2013)

The complexity of motorcycles continues to advance. Within the next three

years, motorcycles with carburetors will be a thing of the past, replaced by elaborate

computer-monitored fuel-injection systems. In addition, the old two-stroke engines

are being shelved in favor of more durable four-stroke versions. As a result, dealers

and shopkeepers are becoming hard-pressed to hire and retain mechanics that are

trained in high-tech computerized equipment and capable of adapting to the rapid

changes encroaching on the industry. (Dantayana, 2011)

A typical motorcycle repair mechanic is highly specialized and well-trained.

They've graduated from specialized small-engine training programs and have been

involved in apprentice work and mentoring programs as they've worked through the
early stages of their careers. Younger mechanics at the start of their careers can

expect a three- to five-year on-the-job training program just to become proficient in

all aspects of the motorcycle. Even so, the amount of basic electronic and computer

knowledge employers expect of the young mechanics they hire continues to rise.

(Vingno, 2011)

A typical repair shop will host a wide variety of tools. From the most common

tools, such as screwdrivers, drills and wrenches, to high-tech computerized analysis

machines, gauges, voltmeters and engine diagnostic equipment, the average shop

is equipped to repair any problem in the minimum amount of time. Repair shops will

purchase tools from a wide variety of sources. Mobile tool dealers are a traditionally

large and reliable source for many dealers. Specialty tools from manufacturers rank

a close second, with the local hardware store bringing up a distant third. (Dacillo,

2012)

The records kept by motorcycle repair shops are generally neither elaborate

nor complex. Most function as closely held small businesses with virtually no internal

controls in place and little on site accounting supervision. Larger shops may employ

some clerical help but often smaller establishments simply submit their check stubs

and a stack of repair orders and/or their banking records to an outside accountant on

a monthly or quarterly basis for posting and preparation of the accounting records

and tax returns. The source documents may be maintained in a file or a carton or

trashed, depending on the inclinations of the owner/operator. (Caoile, 2009)

A distinction should be made between the term "repair" and "replace". These

two terms involve separate processes. If a body component has been completely
mangled, it will simply be "replaced". This is the easiest type of body work since the

process involved is simply purchasing the part, installation, and painting. "Repair"

work may involve pounding out a dent if it is simple, or it may involve straightening

the frame which is the most extensive and complex type of body work. (Dela Peña,

2011)

The increasing use of Motorbikes, plus the upgrading of more complex parts

on the motorbike has provided a lucrative field for qualified mechanics. It has been

known that today there are so many motorbike repair shops and it continuously

growing which means that the business in this field has a big demand. Motorbike

repair shop is one of the most important places for the owners of the vehicles

whenever they have encountered problem with their vehicles. (Pasar, 2007)

H. Definition of Terms

The following terms are defined as used operationally in this research:

Brake bleeding is the procedure performed on motorcycle’s brake systems

whereby the brake lines (the pipes and hoses containing the brake fluid) are purged

of any air bubbles.

Dealership is a business that sells new or used motor vehicles at the retail

level, based on a dealership contract with an automaker or its sales subsidiary.

Detonation is an engine condition in which the usually smooth and controlled

combustion process has a violent and out of sequence burst.

Diagnose is a process of identifying the problem of a motorcycle.


Replace is to exchange an unserviceable component with a new or rebuilt

component or install new parts.Repair is to restore a malfunctioning components or

parts of system operating condition.

Resistance is a characteristic of an electrical circuit to resist flow of current,

measured in ohms.

Suspension are springs and shock absorbers, usually front and rear, the

soften the ride and make the motorcycle more comfortable.

Troubleshooting is systematic search for the source of motorcycle’s problem

so that it can be solved, and so it can be made operational again.

Original equipment manufacturer (OEM) are products or components that

are purchased by another company and retailed under that purchasing company's

brand name.

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