Project appriasal work

MJIS Company LTD.

Project Appraisal

Group Work

March 28, 2012

FEASIBILITY STUDIES FOR THE ESTABLISHMENT OF A MJIS LTD- ASANA BOTTLED DRINK COMPANY

i ©MJIS Company LTD- Clean Water Production Feasibility Studies

EXECUTIVE SUMMARY...............................................................................................1

CHAPTER ONE................................................................................................................4

1.0 NAME, IDENTITY, STATUS.............................................................................4

1.1 NAME OF OWNER..................................................................................................4

1.1.1 MJIS TEAM OF EXPERTS...................................................................................4

1.2 OBJECT.....................................................................................................................4

1.3 BACKGROUND TO THE PROJECT......................................................................5

CHAPTER TWO...............................................................................................................6

PURPOSE AND OBJECTIVES.......................................................................................6

2.0 PROJECT LOCATION........................................................................................6

2.1 WHY THIS PROJECT..............................................................................................7

2.2 DETAILS OF THE PROPOSED PROJECT............................................................7

CHAPTER FOUR: INDUSTRY ANALYSIS.................................................................8

3.0 Industry Analysis.......................................................................................................8

3.1 Understanding the Customer.....................................................................................8

3.1.1 Main Competitors...................................................................................................8

3.1.2 Major.......................................................................................................................8

3.1.2.1 Strengthsof some of the Competitors..................................................................8

3.1.2.2 Weaknesses..........................................................................................................9

3.1.2.3 Weaknessesof Competitors..................................................................................9

3.3 The Industry Analysis................................................................................................9

4.5 Competitive nature of the Industry..........................................................................10

4.5.1 Maturity of the Industry........................................................................................10

4.5.2 Barriers to Entry...................................................................................................10

4.5.3 Barriers to Growth................................................................................................11

4.5.3 Barriers of Exit................................................................................................11

4.6 Industry Rules and Regulations..........................................................................11

4.6.1 Regulation of Industry..........................................................................................11

4.7 Risk Analysis & Socio Economic Feasibility..........................................................13

4.7.1 Business Risks and Controls.................................................................................13

4.7.2 Political Feasibility...............................................................................................14

4.7.3 Market Feasibility.................................................................................................14

MJIS COMPANY LTD- ASANA BOTTLED DRINK COMPANY

ii

4.7.4 Technical Risk Feasibility....................................................................................15

4.7.5 FINANCIAL RISK FEASIBILITY.....................................................................15

5.0 CHAPTER FIVE: AN OVERVIEW OF THE GHANAIAN ECONOMY..........15

5.1 UNDERSTANDING THE ENVIRONMENT.......................................................15

5.2 IMPACT OF WORLD ECONOMIC FACTORS.................................................15

5.1 GHANA’S DEVELOPMENTAL CHALLENGES................................................16

5.2 HISTORICAL PERSPECTIVE AND REFORM...................................................16

5.3 THE GHANAIAN ECONOMIC ENVIRONMENT..............................................16

5.4 SECTORAL PERFORMANCE..............................................................................18

5.5 THE MAUFACTURING SUB-SECTOR...............................................................19

5.6 COMMERCIAL LENDING RATES AND CREDIT ANALYSIS........................19

5.7 POPULATION TRENDS AND URBANISATION...............................................20

5.8 POLITICAL ENVIRONMENT..............................................................................20

5.9 EMERGING OPPORTUNITIES IN A CHANGING GLOBAL............................20

ENVIRONMENT..........................................................................................................20

5.12 THE FUTURE OUTLOOK...................................................................................21

CHAPTER SIX: DATA COLLECTION AND ANALYSIS.......................................21

CHAPTER SEVEN: FINANCIAL ANALYSIS AND PROJECTIONS....................21

7.1 Capital Requirement................................................................................................21

7.2 Investment Plan.......................................................................................................22

7.3 Financial Plan..........................................................................................................22

7.4 Profitability Analyses..............................................................................................23

7.4.1 Production.........................................................................................................23

7.4.2 REVENUE........................................................................................................23

7.4.3 Operating Expenses..........................................................................................24

7.4.4 Profitability.......................................................................................................24

7.4.5 Internal Rate of Return....................................................................................24

7.4.6 Payback Period.................................................................................................25

7.4.7 Ratio Analyses..................................................................................................25

7.5 Breakeven Analyses.................................................................................................25

7.5.1 Break Even Point – Production.............................................................................25

7.5.2 Break Even Point – Pricing...............................................................................25

7.6 Sensitivity Analyses.................................................................................................26


iii

5.6.1 Introduction...........................................................................................................26

5.6.2 10% Increase in Operating Expenses..................................................................26

5.6.3 10% Decrease in Revenue................................................................................26

5.6.4 10% Increase in Operating Expense + 10% Decrease in Revenue...................26

5.6.5 15% Increase in Operating Expenses...............................................................26

5.6.6 15% Decrease in Revenue................................................................................27

5.6.7 Conclusion on Sensitivity Analyses.................................................................27

5.7 Underlying Base Case Assumptions........................................................................27

5.7.1 Inflation.............................................................................................................27

5.7.2 Exchange Rates.................................................................................................27

5.7.3 Dividend Policy................................................................................................27

5.7.4 Depreciation......................................................................................................28

APPENDICES....................................................................................................................1

TABLE 1: CAPITAL REQUIREMENT, US$................................................................1

TABLE 2: INVESTMENT PLAN US$..........................................................................1

Table 3: Investment Plan.................................................................................................2

Table 4: Loan Repayment Plan........................................................................................2

Table 5: Production..........................................................................................................2

Table 6: Production US$.................................................................................................3

TABLE 7: ESTIMATED CAPITAL COSTS OF RUNNING THE COMPANY US$..3

Fixed Asset Schedule (From Year 1-5)...........................................................................4

PROJECTED 5 YEAR STATEMENT OF CASH FLOWS...........................................7


iv

DESCLIAMER

All the figures, assumptions, and analysis used in this report is solely based on the writers

research and findings, therefore they are held correct.

COPYRIGHT STATEMENT

© 2012 by MJIS CO LTD

All rights reserved. No part of this document may be used, reproduced or transmitted in

any form or by any means, electronic, mechanical, photocopying, recording, or other-

wise, without prior written permission of MJIS CO.LTD.


v

MJIS COMPANY LTD PROJECT FEASIBILITY REPORT

EXECUTIVE SUMMARY

MJIS COMPANY LTD wishes to operate Pure asana bottled drink company and other

local drinks to service points and retail shops in southern part of Ghana. The report

herein is therefore the Business Plan for the establishment of the above project proposal.

The market analyses indicate that there is a great demand for this product since

most people like the Asana Drink but will not just buy it because of how it been prepared

and sold by mostly old women. It is important to mention that with the demands

also comes intensive competition. Currently there are no company or venture producing

the local asana in large quantities or commercial base.

MJIS has decided to venture into the production of Asana in commercial quantities for

both the local markets and the internal markets.

Analysis from the research conducted by the company indicated that the project is

feasible and can be taken and that the demand will be increasing gradually every day. In

connection with the expansion process MJIS Ltd is seeking for a loan/grant to

enable it see expansion in Markets and developments.

Providing access to safe drinking water, by marketing purely treated drinking water such

as Baron Water House is one of the one of the answers.

The project links the work to The Global Need for Improved Water and

Sanitation.

MJIS Ltd Water intends to be among the top ten Pure Clean Sachet after

Producers in Ghana within ten years.

1 ©MJIS Company LTD- Clean Water Production Feasibility Studies

The total capital required for investment required by MJIS Limited is estimated to be

(US$580,288.13). A summary is presented in the table below:

TABLE 1: CAPITAL REQUIREMENT, US$

Description Amount

1. Machinery &Equipement $ 7,850.45

2. Land Acquisition $ 75,000.45

3. Building & Infrastructure $ 1,250.00

4. Vehicles & Plants Machines $ 435,046.60

5. Office Equipment, Furniture Provision $ 3,780.00

6. Preliminary Expenses $ 4,960.00

7. Total Working Capital $ 25,890.00

8. Contingency $ 26,510.63

9. Total Capital Requirement $ 580,288.13

The investment plan for the undertaking has been presented in the table below:

TABLE 2: INVESTMENT PLAN US$

Description Amount Equity Loan

1. Machinery & Equipment $ 7,850.45 $ 7,850.45

2. Land Acquisition $ 75,000.45 $ 75,000.45

3. Building & Infrastructure $ 1,250.00 $ 1,250.00

4. Vehicles & Plants Machines $ 435,046.60 $ 10,000.00

$

445,046.60

5. Office Equipment, Furniture

Provision $ 3,780.00 $ 3,780.00

6. Preliminary Expenses $ 4,960.00 $ 4,960.00

7. Total Working Capital $ 25,890.00 $ 25,890.00

8. Contingency $ 26,510.63 $ 26,510.63


2

9. Total Capital Requirement $ 580,288.13 $ 155,241.53

$

445,046.6

0

MJIS Company LTD requires a loan of US$445,046.60.00 to finance the

acquisition of the plant vehicles, Production Equipment’s, Plant vehicles, and if

possible acquire additional distribution vans The loan has been affixed with a

maximum annual interest rate of 20%, which is expected to be paid on declining

balance (Please see Loan Repayment Schedule, Appendix 4). The repayment of

the loan is expected to be spread over 5 years, applying the straight-line amortisation.

Please see loan repayment schedule in the table below:

Table II: Loan Repayment, US$

Year 1 Year 2 Year 3 Year 3 Year 4 Year 5

Amount

Outstanding

$

445,046.60

$

353,046.60

$

261,046.60

$169,046

.60

$

77,046.60

$

77,046.60

Principal

Repayment

$

92,000.00

$

92,000.00

$

92,000.00

$92,000.

00

$

92,000.00

$

77,046.60

Interest

$

92,000.00

$

72,500.00

$

53,000.00

$33,500.

00

$

14,000.00

$

-

The undertaking is expected to yield US$ 468,000.00 as revenue, in the first year

of operation and to level off at US$ 874,506.60 in the tenth year of operation.

The cumulative revenue value in the tenth year of operation amounts to

US$6,650,680.92.


3

CHAPTER ONE.

1.0 NAME, IDENTITY, STATUS

MJIS is a manufacturing firm that is mainly into as manufacturing and bottling of water

and its related equipment. The company was incorporated under the companies’ code,

1963 (Act 179) as a company limited by guarantee at Victoriaborg, Accra on the 6 th,

January, 2012. It was then entitled to commence business after it had been certified to

have complied with the provision of Sections 27 and 28 of the Companies code, Act 179

on the March 18th, 2012.They are specialized in bottling and manufacturing of drinks.

1.1 NAME OF OWNER

The sole-director of MJIS Ltdis Miss. Elizabeth Okrah.

1.1.1 MJIS TEAM OF EXPERTS

The team of professionals offers anexcellent solution to the installation and operations of

manufacturing and bottling of water. They have the experience and personnel to provide

the highest quality bottled and sachet clean water and beat the industry leaders. They

offer supportto their clients from project inception, to the commissioning of the fully

operational facility.

1.2 OBJECT.

The nature of the businesses, which the company is authorized to carry on are:

Installation of Manufacturing and Bottling Equipment


4

General Merchants (Exports and Imports of Drinkables)

1.3 BACKGROUND TO THE PROJECT.

MJIS Ltdhas just been incorporated. The enthusiastic professionals are willing to under-

take a construction work regardless of the size, value or location of their projects; they

bringing to theguarantee to quality and customer service which is their hallmark to excel -

lence. The current project to be undertaking is the installation and operation of MJIS

Clean Water Production Plant.


5

CHAPTER TWO

PURPOSE AND OBJECTIVES

2.0 PROJECT LOCATION

The project will be located at the Eastern Region of Ghana precisely in the Ayekuma

Hills.

Figure 1: THE ENVISAGED FACTOIRY; PICTORIAL VIEW


6

Figure 2: THE ENVISAGED COMPANY ESTABLISHEMENT FLOOR PLAN

2.1 WHY THIS PROJECT

We group members of the project management class at Regent University College of

Science and Technology is pleased to present this report investigating the feasibility of

operating a Clean Water Production company utilizing the knowledge they have acquired

in Project management to the setting up of the of MJIS LTD. The purpose of this

feasibility study is to investigate the viability of the proposed business venture and in so

doing the primary objectives of is study were to:

Perform operational analyses to determine the technical viability of establishing

the MJIS Company.

Select and perform savings and cost analysis based on project management skills

will have acquired

Make recommendation for a financial consideration to pursue the project.

2.2 DETAILS OF THE PROPOSED PROJECT

The proposed project is to established a water bottling, treatment, and sachet water plant

and distribution services


7

CHAPTER FOUR: INDUSTRY ANALYSIS

3.0 Industry Analysis

3.1 Understanding the Customer

The major customer groups of the services in the industry are:

Retail Shops in the Southern part of Ghana, Villages and Surrounding communities in

Accra, Koforidua, Cape Coast.

3.1.1 Main Competitors

There are nine groups of competitors; each of them has its own strengths and weaknesses,

which have been elaborated on below:

3.1.2 Major

The main suppliers in the region are:

Voltic Ghana Limted

Bel-Aqua

Fell Bella Enterprise

Divine Love

Baron Water House

Aqua-Splash


8

Mobile Water

Le Country

Nsuopa

Nacool

IC4uEnterprice

3.1.2.1 Strengthsof some of the Competitors

These are either international companies or have overwhelming international

contacts, lots of experience, huge revenues, and enviable reputations. They have

managers with good degrees of experience in the industry.

They also have a comprehensive range of services.

They usually have well trained and relatively well paid staff, presence in most parts of the

country. Some even have presence in the other countries in the West African

sub-region. They usually have state of the art dispensersandmarketing systems. They are

aggressive competitors.

3.1.2.2 Weaknesses

The main weaknesses of this group are: employment of illiterate drivers’ bureaucracy in

decision making employment of too many people, making the administrative set up

cumbersome

3.1.2.3Weaknessesof Competitors

Their employees are usually badly paid and therefore tend to be a bit unethical in their

dealings. A good number of these employees do not benefitfrom any skills

upgradingprogrammes. The companies are usually manned by one person or a duo,

who are the backbones of these firms, without whom much cannot be achieved. A

number of these companies do not apply any form of quality management.

They use old, obsolete and at most of the time, weak trucks, rending them unreliable.


9

3.3 The Industry Analysis

Competitors’ Comparison Apart from the explanations elaborated on in `"Main

Competitors", the most significant competition for this project with regards to the

vision of the promoters is constituted by the large and medium and small-scale

players. The most interesting point with regards to advantage for the undertaking

in comparison with the competition is extensive contacts of the project promoters in

the 3 northern regions of Ghana. The figure below shows the sector performance for the

country as far as 2011 is concerned.

Source: GSS

4.5 Competitive nature of the Industry

With regards to the competitive nature off the industry, the intensity of competition

is high (intensive) with the players in the industry joggling each other for

customers in the market place. This is expected to raisequality standards, which are

badly needed to raise the confidence of clients in the industry players.

4.5.1 Maturity of the Industry

On a 1r-5 degree of maturity, the industry participants indicated an average of 3.8.

This means that the Sachet Water and haulage industry has played and continues MJIS COMPANY LTD- ASANA BOTTLED DRINK

COMPANY10

to play immense role in the socio-economic activities of Ghana. This is also seen

intheintense competition in theindustry. The industry is thus in its growth stage.

4.5.2 Barriers to Entry

The barriers depend on the level at which an entrepreneur desires to enter the industry.

The main difficulty, which cuts across the entry levels, is the large investment to be

made in acquiring Machines trucks to undertake assignments. On a 1-5 degree

ofdifficulty, the industry participants indicated an average of 4.6.

4.5.3 Barriers to Growth

On a 1-5 degree of difficulty, the industry participants indicated an average of 4.2. With

regards to growth the difficulties identified during the industry survey are:

The lack of qualified and educated drivers

The bad roads in Ghana

The operations of such an industry being highly capital intensive

The management style of managers

The lack of proper financial control

The high cost of fuel and Rubers.

4.5.3 Barriers of Exit

With regards to exit, the industry participants indicated that it is relatively easy. On a 1-5

degree of difficulty, the industry participants indicated an average of 2.8. The main

difficulty is disposing of obsoleteandbrokendown vehicles.

4.6 Industry Rules and Regulations

The following are some of the rules of the regulations governing the industry.MJIS COMPANY LTD- ASANA BOTTLED DRINK

COMPANY11

4.6.1 Regulation of Industry

The main regulatory bodies in the country with regards to Pure Clean sachet water

production and haulage of general goods activities are:

Department of Vehicle Licensing Authority (DVLA)

Ghana Police Service

Ghana National Fire Service

Environmental Protection Agency

Ghana Standard Board

The Food AND Drugs Board

The following are regulatory bodies that regulate all businesses:

Registrar General’s Department (RGD)

Internal Revenue Services (IRS)

Social Security National Investment Trust (SSNIT)

Department of Vehicle Licensing Authority (DVLA)

The DVLA has the mandate to inspect vehicles in Ghana for roadworthiness once

a year. The certificate of roadworthiness is to be kept in the vehicle at all times

and it will enable the owners to obtain insurance for the said vehicle.

Ghana Police Service

The Ghana Police Service also inspects vehicles for roadworthiness and insurance

certificates.

Environmental Protection Agency

Under the Ghana Environmental Assessment Regulations, 1999 (LI 1652), the

distribution and storage of general good is identified as an undertaking that requires

Registration and the submission of an Environmental Impact Statement to the


12

Environmental Protection Agency (EPA) toward the issuance of an Environmental

Permit.

The legal requirements under theEPA laws mentioned above have already been discussed

above. Under the plan, the Environmental Protection Agency (EPA) isdesignated as the

authority, which on behalf of the Ministry of Environment and Science is responsible

for the management of the environment, including production of Pure Clean Sachet

Water, General Goods response and cooperation. The EPA will coordinate the

development and maintenance of a national capability to respond to accidents at

sea, on land, inland waterways or in connection with the Industry, storage,

transport facilities and installation which have caused or is likely to cause any

kind of pollution. Particularly, the EPA as the Pollution Executive Body, will establish a

National Reporting Centre, which will receive all reports of spill incidents or any

observed pollution inside the geographical coverage of this plan.

Ghana National Fire Service

The Ghana National Fire Service Act of 1997 (Act 537) states that a Fire Certificate

shall be required for premises used as a place of work. The owner or occupier

of the premises shall apply to the Chief Fire Officer for a Fire Certificate, which

will be valid for 12 months from the date of issue and subject to renewal. The

truck yard will require a fire certificate.

4.7 Risk Analysis & Socio Economic Feasibility

4.7.1 Business Risks and Controls

Business risk is the threat that an event or action will adversely affect an organization’s

ability to successfully achieve its business objectives and execute its strategies. Business

risk is an important concern to company and none is immune from at least some form of

risk.


13

MJIS Ltd will put in place a control system of its management and finances with the help

of a retained consultant. This however will have to be reviewed twice yearly to

consistently put a check on the business.

4.7.2 Political Feasibility

This risk relates to the political environment and government policy and how these

impact the future of the MJIS LTD. The policy of the government is aimed at

providing an enabling environment for the private sector to serve as the engine for

economic growth.

Consequently, the government is working with the private sector as developing partners.

The promotion of the private sector is government’s priority, which is expected to

impact positively on the industry.

The current democratic dispensation in Ghana and economic climate rather offer

good prospects and opportunities for the attainment of the goals and objectives of

MJIS Ltd

However there are palpable risks for industry participants, when they overindulge with

political parties.

4.7.3 Market Feasibility

There is the possibility that the undertaking will not have market for its services

and therefore will have difficulty in obtaining the projected income to make it

palpably profitable. This risk alwaysexists.

The bulk of service centres depend on the availability for the supply of products and

services. Some companies and the bulk of sachet water services do not own trucks

and therefore have to rely on vehicle owners to haul products and general goods to


14

parts of the regions. The market is huge and there should not be problem in

obtaining contracts with new contracts or others in very good conditions.

4.7.4 Technical Risk Feasibility

There is always a technical risk when working with products services and haulage,

weight of the cargo, tyre pressure, road size and allowed total vehicle weights, etc.

This risk is directly related to the staff of the undertaking, especially the drivers. MJIS

Company LTD will employ driver-mechanics/technicians, who are polytechnic or

technical school graduates with salaries and wages corresponding to their

educationallevel in order to reduce the technical risks. The remuneration has been

duly budgeted for in the financial projections in the appendices.

4.7.5 FINANCIAL RISK FEASIBILITY

The financial risk is related to the ability of the company to adequately reward

investors with good financial returns. The extent of returns by the project is detailed in

the Financial Analyses, andmost especially in the Breakeven and Sensitivity Analyses.


15

5.0 CHAPTER FIVE: AN OVERVIEW OF THE GHANAIAN ECONOMY

5.1 UNDERSTANDING THE ENVIRONMENT

The economic analysis shows desirable trends in the major economic indicators. This

positive outlook in the economy coupled with the active private sector drive could

help our business industry to actualize its potential.

5.2 IMPACT OF WORLD ECONOMIC FACTORS

For the greater part of 2006, the world economy slipped into recession.

There was a general slowdown in the economic activities of the major

industrialised economies. Despite the aggressive policy measures established by the

US and European Union through interest cuts, tax cuts in some cases and optimistic

forecast, the year 2003 closed with a weak recovery. Investment demand and

consumer spending remained weak. Financial markets appeared unsettled and weighed

down growth. Investor’s nervousness and the wide-ranging uncertainties in the

financialmarkets held back prospects of recovery in 2004/2005


16

5.1 GHANA’S DEVELOPMENTAL CHALLENGES

That the manufacturing and transportation industry plays an incalculable role in the

national developing agenda is an unquestionable fact. What however appears to be

debatable is whether the industry wields the much expected driving force required to

pronounce its vital contribution towards accelerated national growth in terms of

infrastructural development. The macroeconomic environment in Ghana is analysed in

this chapter to provide insight into the macroeconomic conditions under which the project

will be operating and to highlight opportunities and incentives for the private sector.

5.2 HISTORICAL PERSPECTIVE AND REFORM

5.3 THE GHANAIAN ECONOMIC ENVIRONMENT

The Ghanaian economy has experienced substantial growth since the introduction of the

economic recovery program in the 1980’s. The country’s economy has been tuned to the

conditions of a free market where it is expected of the private sector to play a leading role

in Ghana’s accelerated economic development. According to the recent budget for 2012

GDP growth of 7.7 percent in 2010and grew further to 13.5as Ghana started it

commercial oil exploration.


17

Source :Ghana Budget, 2012

• The fiscal deficit for the first three quarters was GH¢1,132.2 million, equivalent

to 2.0 per cent of GDP, compared to a budget target of GH¢2,473.2 million,

equivalent to 4.4 per cent of GDP.

• Inflation has trended downwards in sixteen (16) consecutive months from 20.74 percent

at the end of June 2009 to reach 9.38 percent in October 2010, the lowest in the last two

decades; the inflation for January was 8.60

• The stock of gross international reserves at the end of October 2011 stood at

US$4.98 billion, compared with US$4,680.01 million as at the end of December

2010.; and

• The Cedi has depreciated by 0.6percent, 0.59percent and 0.59percent against the US

dollar, the pound sterling and the euro respectively.www.mofep.gov.gh. The chart below

shows the trend in the growth rate of the Ghanaian economy from the period 2009 to

2011.

Growth rate (%) Figure 6: SECTORAL GDP-REAL GROWTH RATE FOR 2009-2011


18

http://www.mofep.gov.gh/

5.4 SECTORAL PERFORMANCE

The Ghanaian economy is made up of three main sectors namely the agriculture, industry

and service. Agriculture is by far the largest sector of the economy contributing an

estimated GH Ȼ 6, 452.5 million to the national economy in terms of GDP in 2010 at

Current Market Prices by economic activity. It is also the largest employer of the active

population. The services sector, which is dominated by the Government sector, is the

second largest sector in the economy contributing GHȻ11, 714,068 million of GDP in

2010. The industry sector contributes GHȻ 4,988.4 million to GDP as at 2010

Contributions for these sectors over the few years are shown below in the figure 5.4

Sectoral Performance

Sub-Sectors 2006 2007 2008 2009 2010


19

Source: GSS

5.5 THE MAUFACTURING SUB-SECTOR

The planned project is a Clean Water Processing Company project which falls under

themanufacturing and construction sub-sectors. The performance of manufacturing and

construction sector is shown on the figure above from 2006-2010. The figure above

shows a consistent increase or growth in manufacturing and construction activities within

the country indicating improved economic and fiscal environment which makes

investment in the sub-sector attractive. It may also give an indication of the level of

competition that would be faced by the Stanberry depending on whether there is

increased investment or otherwise. In terms of percentage contribution to the overall

GDP of the industrial sector, the chart below

5.6 COMMERCIAL LENDING RATES AND CREDIT ANALYSIS.

in line with Government initiative and support policies banks‟ lending rates started to

decline during the year. The market leaders namely, Barclays Bank, Standard

Chartered Bank and Agricultural Development Bank (ADB) have responded positively

by reducing their base rates to 17 per cent, 16.95 per cent and 16.75 per cent

respectively. This clearly shows that the banks are borrowing at a lower rate and

therefore there is availability of credit for business borrowing.

5.7 POPULATION TRENDS AND URBANISATION


20

Ghana's first post-independence population census in 1961 counted about 6.7 million

inhabitants. By 1970 the national census registered 8.5 million people, about a 27 per

cent increase, while the most recent official census in 1984 recorded a figure of 12.3

million almost double the 1960.The nation's population was estimated to have increased

to about 15 million in 1990 and to an estimated 17.2 million in mid-1994. With an annual

growth rate of 2.2 percent for the period between 1965 and 1980, a 3.4 per cent growth

rate for 1981 through 1989, and a 1992 growth rate of 3.2 per cent, the country's

population was projected to surpass 20 million by the year 2000 and 35 million by 2025.

The population of Ghana as per 2010 census was estimated to be 24,223,431.

5.8 POLITICAL ENVIRONMENT

Ghana’s political environment seems to be very stable for survival and the attraction of

foreign and local investment. As a beacon of the democracy in the Africa, Ghana had it

independence in 6th March, 1957 and since has seen several political leaders. The past

two decades has seen fully democratic governance and sustainable democracy. Ghana

will be going to the polls come this December, 2012.

5.9 EMERGING OPPORTUNITIES IN A CHANGING GLOBAL

ENVIRONMENT

5.12 THE FUTURE OUTLOOK.

The economy of Ghana looks very bright for business and investment as it develops it oil

exploration and the consistent growth in cocoa yield and gold tonnes being exported

every year,

CHAPTER SEVEN: FINANCIAL ANALYSIS AND PROJECTIONS


21

7.1 Capital Requirement

The total capital required for investment required by MJIS Limited is estimated to be (US$473,035.25). A summary is presented in the table below:

TABLE 1: CAPITAL REQUIREMENT, US$Description Amount 1. Machinery &Equipement $ 7,850.45 2. Land Acquisition $ 75,000.45 3. Building & Infrastructure $ 1,250.00 4. Vehicles & Plants Machines $ 435,046.60 5. Office Equipment, Furniture Provision $ 3,780.00 6. Preliminary Expenses $ 4,960.00 7. Total Working Capital $ 25,890.00 8. Contingency $ 26,510.63 9. Total Capital Requirement $ 580,288.13

7.2 Investment Plan

The investment plan for the undertaking has been presented in the table below:

TABLE 2: INVESTMENT PLAN US$Description Amount Equity Loan1. Machinery &Equipement $ 7,850.45 $ 7,850.45 2. Land Acquisition $ 75,000.45 $ 75,000.45 3. Building & Infrastructure $ 1,250.00 $ 1,250.00

4. Vehicles & Plants Machines $ 435,046.60 $ 10,000.00 $ 445,046.60

5. Office Equipment, Furniture Provision $ 3,780.00 $ 3,780.00 6. Preliminary Expenses $ 4,960.00 $ 4,960.00 7. Total Working Capital $ 25,890.00 $ 25,890.00 8. Contingency $ 26,510.63 $ 26,510.63


$ 445,046.60

7.3 Financial Plan


22

The undertaking’s capital cost for its implementation is being financed with a loan of GH¢$ 445,046.60and equity of GH¢155,241.53. The financial plan for the project is therefore as follows:

TABLE 3: FINANCIAL PLAN

Description Amount PercentageEquity GH¢155,241.53 26%Loans GH¢ 445,046.60

74%

The loan has been affixed with an annual interest rate of 20%, which is expected to be paid on declining balance. The repayment of the loan is expected to be spread over 5 years, applying the straight-line amortisation. Please see loan repayment schedule in the table below

TABLE 4: LOAN REPAYMENT SCHEDULE Year 1 Year 2 Year 3 Year 3 Year 4 Year 5

Amount

Outstandi

ng

$

445,046.60

$

353,046.60

$

261,046.60

$169,046.

60

$

77,046.60 $ 77,046.60

Principal

Repayment

$

92,000.00

$

92,000.00

$

92,000.00

$92,000.0

0

$

92,000.00 $ 77,046.60

Interest

$

92,000.00

$

72,500.00

$

53,000.00

$33,500.0

0

$

14,000.00

$

14,000.00

7.4 Profitability Analyses

7.4.1 ProductionThe production figures for the first five years of operations have been presented in the table below:


23

TABLE 5: PRODUCTION

Description Year 1 Year 2 Year 3 Year 4 Year 5

Estimated # of trips/vehicle/week 1.5 1.5 1.5 1.5 1.5

Number of Trucks 4 4 4 4 4

Total Number of Trips/Week 6 6 6 6 6

Total Number of Trips/Year 312 312 312 312 312

7.4.2 REVENUE

Appendices 1 and9 present the revenues from the undertaking’s operations. The revenue has been estimated at GH ¢468,000.00 in the first year of operation, which levels off at GH¢ 874,506.60 in the tenth year of operation. The cumulative revenue value in the tenth year of operation amounts to GH¢6,650,680.00.

TABLE 6: REVENUE US$ Description Year 1 Year 2 Year 3 Year 4 Year 5

Est. Revenue 468,000.00 514,800.00 540,540.00 594,594.00 624,523.70

Total Revenue

468,000.00 514,800.00 540,540.00 594,594.00 624,323.70

Cumulative 468,000.00 982,800.00 1,523,340.00 2,117,934.00 2,742,257.70

7.4.3 Operating ExpensesAll the calculations for revenue and operating expenses have been done in real terms, i.e., the rate of increase in costs have been matched by similar increases in prices and incomes and hence, revenues. The total capital required to run the business in the first five years of operation have been presented in the table below:

TABLE 7: ESTIMATED CAPITAL COSTS OF RUNNING THE COMPANY US$ Description Year 1 Year 2 Year 3 Year 4 Year 5

Utilities 1,527.00 1,382.70 1,520.97 1,673.07 1,840.37

Operating Supplies 421.00 463.10 509.41 560.35 616.39

Salaries & Wages 27,783.00 29,172.15 30,630.76 32,162.30 33,770.41

Insurance 4,111,09 4,179.17 4,267.54 4,258.15 4,451.10

General Admn. Exp 5,336.63 5,870.29 6,457.32 7,103.06 7,813.35

Maintenance 5,066.30 5,185,.22 5,308.28 5,435.74 5,567.88


24

Vehicle Running Exp 78,881.50 86,769.65 95,446.62 104,991.28 115,490.40

Marketing Expenses 2,250.00 2,295.00 2,340.90 2,387.72 2,435.47

Subtotal 125,106.51 135,317.28 146,481.79 158,671.65 171,985.39

Depreciation 82,596.70 82,596.78 82,596.78 82,259.78 82,596.78

Total 207,703.29 217,914.06 229,078.52 241,268.43 254582.16

Interest On Loan 92,000.00 72,500.00 53,000.00 33,500.00 14,000.00 Grand Total 288,295.29 2823387.66 277,433.77 273,505.23 270.700.56

7.4.4 ProfitabilityThe Operating Statement and the Cash Flow Analyses (See Appendices 1 and 2) reveal that the undertaking is profitable. The estimates show that it will yield a profit after tax of US$139,271.15 in the first year of operation and level off at US$411,589.45 at the tenth year of operation. The cumulative value in the tenth year of operation is US$2,894,454.47.

The cash flow analyses (see Appendix 2) reveal that MJIS Ltd will yield enough cash to meet its operational and debt servicing obligations.

7.4.5 Internal Rate of ReturnThe internalrates of return on investment forthe first Four, Five, Seven and Ten years are 21%, 29%, 38%, and 43% respectively.

7.4.6 Payback PeriodThe theoretical payback period for the project is 2.0 years.

7.4.7 Ratio AnalysesThe gross, operating and net margins for the first year of operation are 73%, 56%, and 30% respectively. These analyses show that the returns from the undertaking are highly favourable.

7.5 Breakeven Analyses

7.5.1 Break Even Point – Production

The break-even analysis with regards to production indicates that the undertaking needs to carry out 192 total trips per year, about 3.7 total trips per week in order to break even in the first year of operation. Please see details for the first three years of operation in the table below and

Table 8.1: Break-even Point: Production Description Year 1 Year 2 Year 3


25

Grand Total Operating Exp. 288,295.29 282,387.66 277,433.77 Estimated Average Price/Trip 1500.00 1650.00 1,732.50

Break Even Point, # of Trips/Week 3.7 3.3 3.1 Break Even Point, # of Trips/Yr 192 171 160

7.5.2 Break Even Point – PricingThe break-even analysis with regards to pricing indicates that the undertaking has to fix its price per trip at not less than GH¢ 924.02 in the first year of operation in order to break even. Please see details for the first three years in the table below and in Appendix 9.

Table 8.2: Break-even Point: Pricing Description Year 1 Year 2 Year 3 Grand Total Operating Exp. 288,295.29 282,387.66 277,433.77 Total Number of Trips per Year 312 312 312 Price to Break Even, Cedis/Trip 924.02 905.09 889.21

7.6 Sensitivity Analyses

5.6.1 Introduction

The sensitivity analyses have been carried out according to the following scenarios, typifying hikes in prices and therefore expenditure and reduction in income: 10% Increase in Operating Expenses 10% Decrease in Revenue 10% Increase in Operating Expense and 10% Decrease in Revenue 15% Increase in Operating Expenses 15% Decrease in Revenue

5.6.2 10% Increase in Operating Expenses

With a 10% hike in operating expenses at a constant income, the undertaking will be raking in a Profit after Tax of US$116,928.27 in the first year of operation and will level off at US$GH¢384,974.13 in the tenth year of operation. The rate of return on investment will thus be 25% and the internal rates of return on investment for the first Five, Seven and Ten years of operation are 24%, 34%, and 39% respectively.


26

5.6.3 10% Decrease in RevenueWith a 10% decrease in revenue at a constant operating expenditure, the undertaking will have as Profit after Tax of US$103,001.15 in the first year of operation and will level off at US$343,815.19 in the tenth year of operation. The rate of return on investment will thus be 22% and the internal rates of return on investment for the first Five, Seven and Ten years of operation are 19%, 30%, and 35% respectively.

5.6.4 10% Increase in Operating Expense + 10% Decrease in RevenueWith a 10% decrease in revenue in addition to a 10% increase in operating expenses, the undertaking will have as Profit after Tax US$80,658.27 in the first year of operation and will level off at US$317,199.87 in the tenth year of operation. The rate of return on investment will thus be 17% and the internal rates of return on investment for the first Five, Seven and Ten years of operation are 14%, 25%, and 31% respectively.

5.6.5 15% Increase in Operating ExpensesWith a 15% hike in operating expenses at a constant income, the undertaking will be raking in a Profit after Tax US$105,756.82 in the first year of operation and will level off at US$371,666.47 in the tenth year of operation. The rate of return on investment will thus be 22% and theinternal rates of return on investment for the first Five, Seven and Ten years of operation are 22%, 32%, and 37% respectively.

5.6.6 15% Decrease in RevenueWith a 15% decrease in revenue at a constant operating expenditure, the undertaking will have, as Profit after Tax US$84,866.15 in the first year of operation and level off at US$309,928.06 in the tenth year of operation. The rate of return on investment will thus be 18% and the internal rates of return on investment for the first Five, Seven and Ten years of operation are 14%, 25%, and 31% respectively.

5.6.7 Conclusion on Sensitivity AnalysesIt can be observed from the Sensitivity Analyses that none of the five scenarios can adversely affect the profitability of the undertaking and its ability to yield enough cash to meet its operational and debt servicing obligations. However, it must be mentioned that the decrease in revenue appears to have a more serious impact on the undertaking’s finances than the hike in expenditure. It is therefore recommended that when necessary,additional expenditure should be made to ensure achieving the projected production and revenue levels in this document.

5.7 Underlying Base Case Assumptions

The following are the underlying assumptions for the financial analysis:


27

5.7.1 InflationThe financial statements have been prepared assuming constant prices as the effect of inflation is expected to affect the operating expenses and Revenues in almost equal measure.

5.7.2 Exchange RatesAll US Dollar costs have been converted at a Cedi/dollar exchange rate of GH¢1.45/US$1.00, and have been frozen to reflect the constant price assumption.

5.7.3 Dividend PolicyDividends are expected to be paid at 50% per annum of profits after all major commitments have been met during the first five years. The difference will be ploughed back into the company. Subsequently, 75% will be paid in the tenth year, which appears to be the theoretical end point of the project.

The above is a statutory requirement for the companies incorporated under the Companies Code, Act 179 of 1963, to ensure that dividends do not exceed the income surplus of the preceding year.

5.7.4 DepreciationFor the purpose of the balance sheet calculations, depreciation is calculated on the straight-line method and cognisance is taken of the estimated useful life of the assets. The following rates of depreciation or amortisation have been used. Land and Building : 5% Machinery and Equipment : 10% Administrative Vehicles : 20% Plant Vehicles / : 10% Office Eq. & Furniture : 20%


28

APPENDICES

TABLE 1: CAPITAL REQUIREMENT, US$Description Amount 1. Machinery &Equipement $ 7,850.45 2. Land Acquisition $ 75,000.45 3. Building & Infrastructure $ 1,250.00 4. Vehicles & Plants Machines $ 435,046.60 5. Office Equipment, Furniture Provision $ 3,780.00 6. Preliminary Expenses $ 4,960.00 7. Total Working Capital $ 25,890.00 8. Contingency $ 26,510.63 9. Total Capital Requirement $ 580,288.13

TABLE 2: INVESTMENT PLAN US$Description Amount Equity Loan1. Machinery &Equipement $ 7,850.45 $ 7,850.45 2. Land Acquisition $ 75,000.45 $ 75,000.45 3. Building & Infrastructure $ 1,250.00 $ 1,250.00

4. Vehicles & Plants Machines $ 435,046.60 $ 10,000.00 $ 445,046.60

5. Office Equipment, Furniture Provision $ 3,780.00 $ 3,780.00 6. Preliminary Expenses $ 4,960.00 $ 4,960.00 7. Total Working Capital $ 25,890.00 $ 25,890.00 8. Contingency $ 26,510.63 $ 26,510.63


$ 445,046.60

1 ©MJIS Company LTD- Clean Water Production Feasibility Studies

Table 3: Investment Plan

Description Amount PercentageEquity GH¢155,241.53 26%Loans GH¢ 445,046.60

74%

Table 4: Loan Repayment Plan

Year 1 Year 2 Year 3 Year 3 Year 4 Year 5

Amount

Outstandin

g

$

445,046.60

$

353,046.60

$

261,046.60

$169,046.

60

$

77,046.60 $ 77,046.60

Principal

Repayment

$

92,000.00

$

92,000.00

$

92,000.00

$92,000.0

0

$

92,000.00 $ 77,046.60

Interest

$

92,000.00

$

72,500.00

$

53,000.00

$33,500.0

0

$

14,000.00

$

14,000.00

Table 5: Production


Estimated # of trips/vehicle/week 1.5 1.5 1.5 1.5 1.5

Number of Trucks 4 4 4 4 4

MJIS COMPANY LTD- ASANA BOTTLED DRINK COMPANY 2

Total Number of Trips/Week 6 6 6 6 6

Total Number of Trips/Year 312 312 312 312 312

Table 6: Production US$


Est. Revenue 468,000.00 514,800.00 540,540.00 594,594.00 624,523.70

Total Revenue 468,000.00 514,800.00 540,540.00 594,594.00 624,323.70

Cumulative 468,000.00 982,800.00 1,523,340.00 2,117,934.00 2,742,257.70

TABLE 7: ESTIMATED CAPITAL COSTS OF RUNNING THE COMPANY US$


Utilities 1,527.00 1,382.70 1,520.97 1,673.07 1,840.37Operating Supplies 421.00 463.10 509.41 560.35 616.39Salaries & Wages 27,783.00 29,172.15 30,630.76 32,162.30 33,770.41Insurance 4,111,09 4,179.17 4,267.54 4,258.15 4,451.10General Admn. Exp 5,336.63 5,870.29 6,457.32 7,103.06 7,813.35Maintenance 5,066.30 5,185,.22 5,308.28 5,435.74 5,567.88Vehicle Running Exp 78,881.50 86,769.65 95,446.62 104,991.28 115,490.40Marketing Expenses 2,250.00 2,295.00 2,340.90 2,387.72 2,435.47Subtotal 125,106.51 135,317.28 146,481.79 158,671.65 171,985.39Depreciation 82,596.70 82,596.78 82,596.78 82,259.78 82,596.78Total 207,703.29 217,914.06 229,078.52 241,268.43 254582.16Interest On Loan 92,000.00 72,500.00 53,000.00 33,500.00 14,000.00


Grand Total 288,295.29 2823387.66 277,433.77 273,505.23 270.700.56

Fixed Asset Schedule (From Year 1-5)

MJIS CLEAN WATER PRODUCTION LTD SCHEDULE I FIXED ASSETS

Year of Operation 1

ASSET RATE OPENING BALANCE ADDI-TIONS

DURING THE YEAR

TOTAL COST AS ON 31-12-12

DEPRECIATION FOR THE YEAR

COST AS ON 31.3.2013

1. Machinery &Equipement 0.05 $7,850.45 $7,850.45 392.52 $7,457.93 2. Land Acquisition 0.1 $75,000.45 $75,000.45 7,500.05 $67,500.41 3. Building & Infrastructure 0.1 $1,250.00 $1,250.00 125.00 $1,125.00 4. Vehicles & Plants Machines 0.2 $435,046.60 $435,046.60 87,009.32 $348,037.28 5. Office Equipment, Furniture Provision 0.1 $3,780.00 $3,780.00 378.00 $3,402.00

$522,927.50 - $522,927.50 95,404.89 $427,522.61

MJIS CLEAN WATER PRODUCTION LTD


SCHEDULE I FIXED ASSETS Year of Operation 2

ASSET RATE OPENING BALANCE ADDI-TIONS

DURING THE YEAR

TOTAL COST AS ON

31.3.2013




$427,522.61 - $427,522.61 77,183.09 $350,339.52

MJIS CLEAN WATER PRODUCTION LTD SCHEDULE I FIXED ASSETS Year of Operation 3

ASSET RATE OPENING BAL-ANCE

ADDITIONS DURING THE

YEAR

TOTAL COST AS ON

31.3.2014

DEPRECI-ATION FOR THE YEAR



$445,744.41 - $445,744.41 80,744.48 $364,999.93


Year of Operation 4


ASSET RATE OPENING BAL-ANCE

ADDITIONS DURING THE

YEAR

TOTAL COST AS ON

31.3.2015



1. Machinery &Equipement 0.05 $7,103.68 $7,103.68 $355.18 $6,748.49 2. Land Acquisition 0.1 $61,425.37 $61,425.37 $6,142.54 $55,282.83 3. Building & Infrastructure 0.1 $1,023.75 $1,023.75 $102.38 $921.38 4. Vehicles & Plants Machines 0.2 $292,351.32 $292,351.32 $58,470.26 $233,881.05 5. Office Equipment, Furniture Provision 0.1 $3,095.82 $3,095.82 $309.58 $2,786.24

$364,999.93 - $364,999.93 65,379.94 $299,619.99


Year of Operation 5 ASSET RATE OPENING BAL-

ANCE ADDITIONS DURING THE

YEAR

TOTAL COST AS ON

31.3.2016



1. Machinery &Equipment 0.05 $7,458.86 $7,458.86 $372.94 $7,085.92 2. Land Acquisition 0.1 $55,282.83 $55,282.83 $5,528.28 $49,754.55 3. Building & Infrastructure 0.1 $921.38 $921.38 $92.14 $829.24 4. Vehicles & Plants Machines 0.2 $233,881.05 $233,881.05 $46,776.21 $187,104.84 5. Office Equipment, Furniture Provision 0.1 $2,786.24 $2,786.24 $278.62 $2,507.61

$300,330.36 - $300,330.36 53,048.20 $247,282.16


PROJECTED 5 YEAR STATEMENT OF CASH FLOWS

This worksheet estimates the key financial figures for a company over five years. The projections include abbreviated income and cash flow statements, and a balance sheet.

Projected 5 Year Statement of Cash Flows

For MJIS Clean Water Company LTDFor the period ending April 30, 2012 to April 30, 2016

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTALCash flow from operating activities Receipts from customers $

150,000.00 $ 180,000.00

$ 210,000.00

$ 250,000.00

$ 300,000.00

$ 1,090,000.00

Payments to suppliers $ 85,000.00

$ 210,000.00

$ -

$ -

$ -

$ 295,000.00

Payments to employees 27,783.00 29,172.15 30,630.76 32,162.30 33,770.41 $ 153,518.62 Interest payments $

92,000.00 $ 72,500.00

$ 53,000.00

$ 33,500.00

$ 14,000.00

$ 265,000.00

Taxes paid $ 2,560.00

$ 3,152.00

$ 3,256.00

$ 45,048.00

$ 48,000.00

$ 102,016.00

Marketing Expenses $ 2,250.00

$ 2,295.00

$ 2,340.90

$ 2,387.72

$ 2,435.47

$ 11,709.09

Other $ 82,596.70

$ 82,596.78

$ 82,596.78

$ 82,259.78

$ 82,596.78

$ 412,646.82

Net cash flow from operating activities

$ 442,189.70

$ 579,715.93

$ 381,824.44

$ 445,357.80

$ 480,802.66

$ 2,329,890.53


Cash flow from investing activities $

- $ -

$ -

$ -

$ -

$ -

Purchases of equipment $ -

$ -

$ -

$ -

$ -

$ -

Purchases of property $ -

$ -

$ -

$ -

$ -

$ -

Proceeds from sale of equipment $ -

$ -

$ -

$ -

$ -

$ -

Proceeds from sale of property $ -

$ -

$ -

$ -

$ -

$ -

Other $ -

$ -

$ -

$ -

$ -

$ -

Other $ -

$ -

$ -

$ -

$ -

$ -

Net cash flow from investing activities

$ -

$ -

$ -

$ -

$ -

$ -

Cash flow from financing activities $

- $ -

$ -

$ -

$ -

$ -

Proceeds from borrowings $ -

$ -

$ -

$ -

$ -

$ -

Payments of borrowings (repayment of principal)

$ -

$ -

$ -

$ -

$ -

$ -

Investment into business $ -

$ -

$ -

$ -

$ -

$ -

Drawings from business investment $ -

$ -

$ -

$ -

$ -

$ -

Other $ -

$ -

$ -

$ -

$ -

$ -

Other $ -

$ -

$ -

$ -

$ -

$ -

Net cash flow from financing activities

$ -

$ -

$ -

$ -

$ -

$ -

Net increase (decrease) in cash held

$ 442,189.70

$ 579,715.93

$ 381,824.44

$ 445,357.80

$ 480,802.66

$ 2,329,890.53

Cash at beginning of period $ -

$ 442,189.70

$ 1,021,905.

$ 1,403,730.

$ 1,849,087.

$ -


63 07 87 Cash at end of period $

442,189.70 $ 1,021,905.63

$ 1,403,730.07

$ 1,849,087.87

$ 2,329,890.53

$ 2,329,890.53
