INTRODUCTION Fruits are an important source of energy for human beings but they are perishable items.

Since many years various products are made from juice of fruits so that they can be consumed during off season as well. Fruit based beverages are relished when served, chilled, particularly during summers. These are delicious as well as nutritious containing the goodness of fresh fruit. This project deals with the product squash. Squashes are a concentrated form of fruit beverages. They are normally consumed after reconstitution with water to the extent of 5 to 7 times. They are preferred because of their ready to serve nature. They need no terminal processing except dilution with water to form a ready to serve beverage. They also have a good nutritive value and therefore are liked by one and all. Among squashes orange, mango, lemon and grapes are the most commonly consumed.

MARKET POTENTIAL

India is the second largest producer of fruits (45 million tones) and vegetables (90 million tones). Fruits are liked by people of all age groups .But they are available only during specific seasons. Due to high water or juice contents they are perishable. Certain fruits require very careful and consequently costly transportation. hence many down the-line products like squash, fruit juice concentrates etc are made from fruits with preservatives which increase in disposable incomes and changing life style, demand for them is steadily going up .The products find placement in all stores and margin free shops. Despite various brands such as kissan, Happy etc. being available in the market, on a national scale, many small scale manufacturers have a market share because of the ever increasing market size and demand for the product

MARKETING STRATEGY There are some established brands available in the market but they are costly and hence people would prefer low cost, good quality products. It is possible to introduce competitive pricing for a small scale unit due to its inherent features. MANUFACTURING PROCESS

The manufacturing process for making fruit juice and squash is standardized and not very complicated or time consuming. In the first process, fully ripe and matured fruits are washed, cleaned and then peeled. Thereafter juice is then processed, sterilized. In case of squash, syrup of sugar along with preservatives is added to juice and this mixture is stirred. To improve the flavor and colors are added and finally stirred to get a perfect homogenous mix. After mixing all ingredients, the preservative meta-bi-sulphite is to be added. The squash is then filled in washed and sterilized bottles leaving about one inch space. Then they are closed with crown, capsuled and labeled. They are then stored in a cool place. The product keeps well for one year without change in colour or taste. LOCATION OF THE UNIT

The unit can be set up in the area where there is near to market, where the availability of raw materials is available in plenty. POLLUTION CONTROL

There is no major pollution problem associated with this industry except for disposal of waste which is to be managed appropriately.

BASIS AND PRESUMPTIONS.

1. The unit proposes to work at least 300 days per annum 2. The wages for workers is taken as prevailing rates in this type of industry. 3. Interest rate for total capital investment is calculated at 12 percent per annum 4. The entrepreneur is expected to raise 30 percent of the capital as margin money.

ORGANISATIONAL CHART

ENTREPRENEUR

SKILLED WORKERS

CHEMIST/LAB ASSISTANT

UNSKILLED WORKERS

HELPERS

CAPITAL INPUTS

LAND AND BUILDING Total requirement of built up area shall be around 150 square meters and hence land measuring about 500 square meters will be adequate. Cost of land is estimated to be 100000 where as that of civil work. Table 3.1 Land and Building Sl.No 1 Particulars Land Building Area(square meters) 500 150 Cost( Rs) 100000 200000 300000

PLANT AND MACHINERY In view of size of the market and to ensure economic viability of the project, rated production capacity of 100 tones per year with a shift working and 300 working days is advisable. To install this capacity following machines shall be required.

Table 3.2 Plant and machinery Sl.no. 1 2 3 4 5 6 7 8 Item Fruit washing Tank Juice Extractors Stirrer Baby boiler Bottle washing and machine Sealing machine Testing equipments salinometer, pipette etc. Working tables and equipments Total Quantity 2 2 1 1 filling 1 1 like other Price(Rs.) 10000 90000 15000 60000 80000 20000 10000 30000 315000

MISCELLANEOUS ASSETS Many other assets like stainless steel utensils, plastics tubs etc. shall be needed. A provision of Rs. 50,000 is made for the same. UTILITIES Power requirement will be Rs.1500 per month and water requirement will be Rs. 750 per month. RAW MATERIAL The all important raw material will be fresh, ripe and matured fruits. Other items like sugar, salt additives and preservatives etc. shall be available locally. Packing materials are also available.

Table 3.3 Raw Materials Required at 100% Sl.No 1 Products Fresh Quantity(kg) fruits(oranges, 5000 Price/Kg 20 Value 1200000

2 3 4 Total

pineapple, grapes etc.) Sugar 600 Citric Acid 56 Flavour, colours and other 25 preservatives

25 50 150

180000 33600 45000 1458600

Table 3.4 Man power requirement

Sl.No 1 2 3 4 Total

Particulars Skilled worker Semi-skilled

Nos. 6 2

Monthly Salary(Rs.) 6000 3000 7000 1000

Total Monthly Salary(Rs.) 432000 72000 84000 12000 600000

workers Technician/ lab 1 assistant Helpers 1

Table 3.5 Other contingent expenses Sl.no 1 2 3 4 5 Other Contingent Expenses Postage and stationery Transportation Other expenses Telephone Administrative expenses and others Total 6 120000 Per Month 2000 2000 500 1333 4167 Rs/ Year 24000 24000 6000 6000 5000

MACHINERY Production capacity of 80 tonnes can be installed with investment under this head to the extent of Rs 3.15 lakhs. MISCELLANEOUS ASSETS A provision of Rs. 50000 is adequate to have support assets. SELLING EXPENSES There will be competition from some national brands and local brands as well. Hence, a provision @15% of sales income has been made towards selling commission and publicity in local media. INTEREST Interest on working capital assistance from the bank is calculated at 14 % per annum. Interest on term loan of Rs. 1006726 is calculated at 12 % per annum considering repayment of loan in 5 years.

DEPRECIATION It is computed on the Written down value Method Basis at 10% on building and 20% on machinery and miscellaneous assets. PRE-OPERATIVE EXPENSES It includes consultancy fee, project report, deposit with electricity department etc. It costs Rs.50000

WORKING CAPITAL REQUIREMENT Against installed production capacity of 80 tonnes per year, actual utilization in the first year is expected to be 65%. At this level of activity, the working capital needs will be as under. Recurring Expenditure for one year. Man power requirements Utilities Raw Materials Other Expenses Total Working Capital Margin (30%) Bank Loan (70%) - Rs. 600000 - Rs. 27000 - Rs. 1458600 - Rs. 120000 - Rs 2205600 = 2205600*30/100 = 661680 = 2205600*70/100 = 1543920

Table 3.6 Working Capital Requirement Sl.No 1 2 3 Items Working Capital Promoters (30%) Bank Rs 2205600 661680 1543920

Table 3.7 Cost of the project and means of financing Sl.No 1 2 3 Item Land and Building Plant and Machinery Miscellaneous assets 8 Amount 300000 315000 50000

4 5 6

Pre operative expenses 50000 Contingencies at 10%on land and Building 61500 and Plant and Machinery Working Capital Margin Total Means of Finance Promoters contribution Term loan From Bank Total Debt equity Ratio Promoters contribution 661680 1438180 431454 1006726 1438180 2.33:1 30%

Financial assistance in the form of grant is available from the Ministry of Food Processing Industries, Govt of India, towards expenditure on technical civil works and plant and machinery for eligible projects subject to certain terms and conditions.

PROFITABILITY CALCULATIONS Production capacity and Build-up The rated production capacity of the plant will be 80 tones per year. But actual utilization is restricted to 65% in the first year, 75 % in the second year and 80% there after. Table 3.8 Sales Revenue at 100 % Sl.No 1 Product squashes Quantity 60000 Selling price Sales (Rs./Li) 70 4200000

PROJECTED PROFITABILITY Table 3.9 Projected Profitability No. Particulars A Installed Capacity Capacity utilization Sales Realization B Cost of production Raw material utilities Salaries Selling and distribution@ 15% Administrative expense Total Profit Interest 1st year 2nd year 80 Tonnes 65% 75% 2730000 3150000 948090 17550 600000 409500 78000 1093950 20250 660000 37500 90000 2336700 813300 3rd year 80% 3360000 1166880 21600 666000 504000 50400 2454480 905520 4th year 80% 3360000 1166880 21600 666600 504000 96000 2455080 904860 5th 80% 3360000 1166880 21600 666660 504000 96000 2455140

2053140 before 676860 and

Depreciation Interest on Term 120807 loan Interest on Working 216149 capital Depreciation 103000

106310 185888 85400

93553 159864 71020

82327 137483 59246

72448 118235 49584

10

Net Profit Income Tax @20% Profit after Tax Cash Accruals

236904 47381 189523 292532

435702 87140 348562 433962

581083 116217 464866 535886

749564 149913 599651 658897

664593 132919 531674 581258

BREAK EVEN ANALYSIS Break Even Point is the specific level of activity or the volume of sales which breaks the total revenues and total costs evenly. In other words, it is the level of activity or volume of sales at which the total costs are exactly to the revenues. The break even point may be defined as that point of sales volume at which total revenue is equal to total cost. It is a point of no profit, no loss. A business is said to break even at which total revenue is equal to its total costs. The break even point refers to that level of output which evenly breaks the costs and revenues and hence the name. At this point, contribution, i.e. sales minus marginal cost, equals the fixed costs and hence this point if often called as Critical point or equilibrium point or balancing point. Break Even Point contingencies = (103000+115641+216149)+240000+7020+24020 All depreciation Interests 14% on working capital loan = 216149 12% on Term loan = 120807 = 240000+10800+24600+48000 11 40% of salary, wages, contingencies and utilities) = (300000*10/100 +315000*20/100+ 50000*10/100) = 103000 = Annual Fixed cost*100/ Annual Fixed cost+ Profit

Annual Fixed Cost = All depreciation + Interest+ 40% of salaries, wages,

= 323400 Profit(1st year) Break Even Point = 189523 = 763356*100/763356+189523 = 80%

DEBT SERVICE COVERAGE RATIO The D ebt Coverage Ratio (DCR), also known as "debt coverage ratio," is the ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity's (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan. The phrase is also used in commercial banking and may be expressed as a minimum ratio that is acceptable to a lender; it may be a loan condition or covenant. Debt service coverage ratio is calculated using the formula DSCR = Cash flow available for debt service/debt service

Table 3.10 Debt Service Coverage Ratio Particulars Cash accruals Interest on term loan Interest on Working 1st year 292532 120807 216149 2nd year 433962 106310 185888 726160 106310 185888 201324 308784 3rd year 535886 93553 159864 789303 93553 159864 201324 308784 4th year 658897 82327 137483 878707 82327 137483 201324 308784 5th year 581258 72448 118235 771941 72448 118235 201324 308784

capital loan Total(A) 629488 Interest on Term Loan 12087 Interest on working 216149 capital loan Repayment of Term 201345 loan Repayment of 308784

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Working Capital loan Total(B) DSCR(A/B) Average DSCR

738365 .8525 1.0191

802327 .9050

763546 1.033

729939 1.2038

700812 1.1014

Inference: DSCR shows that the amount of cash flow available to meet the annual interest and principal payment on debt. As we got 1.0191 as DSCR. DSCR>1 means the cash flow from the project is strong enough to support the level of debt REPAYMENT SCHEDULE (1)Term loan Table 3.11 Repayment schedule of term loan Year 0 1 2 3 4 5 Principal 201345 201345 201345 201345 201345 201345 Interest(*12%) 24161 96646 72484 48323 24162 Total 225506 297991 273829 249668 225507 Loan outstanding 1006726 1805381 604036 402691 201345 -

The loan amount is 1006726 has to be repaid in 5 years at the rate of interest of 12%. (2)Working capital loan Table 3.12 Repayment schedule of Working capital loan Year 0 1 2 3 4 5 Principal 308784 308784 308784 308784 308784 308784 Interest (*14%) 43230 172919 129689 86460 43230 352013 481703 438473 395244 352013 Total Loan outstanding 1543920 1235136 926352 617568 308784 -

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Here the interest rate is 14%. The principal amount 1543920 and repayment period is 5 years. STATEMENT OF DEPRECIATION Table 3.13 Statement of depreciation Category Land and Building@ 10% Plant and Machinery@ 20% Miscellaneous assets@ 20% 1st year 300000 63000 10000 2nd year 27000 50400 8000 3rd year 24300 40320 6400 4th year 21870 32256 5120 5th year 19683 25805 4096

Depreciation is calculated on the basis of Written down Value Method.

Table 3.14 Calculation of Depreciation

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Year

Land Building 10% 300000 30000

and Plant @ 20% 315000 63000 252000 50400

and Miscellaneous assets@ 20% 50000 10000 40000 8000

Total

@ Machinery

Principal Amount Depreciation for 1st

103000

year Principal amount after 270000 27000 depreciation Depreciation for the 2nd year Amount depreciation Depreciation year Amount depreciation year Amount for after 243000 24300 3rd after 218700 21870

85400

201600 40320

32000 6400

71026

161280 32256

25600 5120

59246

Depreciation for 4 th after 196830 1580624 25805 20480 4096 59246 49584

depreciation Depreciation for the 5th 19683 year

NET PRESENT VALUE It is one of the discounted cash flow techniques, which fully recognize the time value of money. It stipulates that cash flows accruing in different time periods are having different value and are comparable only when the present values are found out NPV=(A1/(1+k) + A2/(1+k)^2 + .+(An/(1+k)^n) A0 Where A0 = Initial Cash out flows A1, A2 K n = Represent cash flow = the firms cost of capital or discount rate = Period of expected life of the project in years

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Table 3.14 Net Present Value Year 1 2 3 4 5 Cash flow 292532 433962 535886 658897 581258 Discount factor at Present value 16% 0.862 .743 0.641 0.552 0.476 252163 322434 343506 363711 276679 1558490

NPV

= Present value of cash inflow- Initial investment = 1558490-1438180 = 120310

Inference Since NPV is greater than Zero, The project can be accepted. Here we get a higher NPV. That is the present value of cash flow is much higher than the cash flow. The project will earn profit. INTERNAL RATE OF RETURN The IRR is the rate at which the discounted net returns equal to the original investment of the project. In other words, it is the rate at which the NPV is zero. If the IRR of a particular project is higher than the minimum require rate of return( also known as cost of capital ), the said project can be accepted otherwise, it can be rejected, if tit is less than the cost of capital. Cost of the project is 1438180 Table 3.15 Internal Rate of Return Year Cash flows Discount rate@ 16% Present value 16% 16 Discount @ rate @ 20% Present value @20%

1 2 3 4 5

292532 433962 535889 658897 581258

0.862 0.743 0.641 0.552 0.476

252163 322434 343503 363711 276679 1558490

.833 0.694 0.579 0.482 0.402

243679 301170 310278 317588 233666 1406381

IRR @HDR

= LDR+ (HDR-LDR) (PV @ LDR-Initial investment)/ PV@ LDR- PV

LDR= Lower discount rate HDR= Higher discount rate PV= present value IRR = = 16+2(120310)/112970 18.1% = 16+ 2.1 Since IRR is greater than the cost of capital. The project can be accepted.

PROFITABILITY INDEX (BENEFIT COST RATIO) It is the ratio of the present value of cash inflows, at the required rate of return to the initial cash out flows of the investment. It may be gross or net, Net is simply gross minus one. Profitability index (Gross) = NPV/ Cash out lay = 120310/1438180 = 0.083% CALCULATION OF PAY BACK PERIOD

17

The payback Period method is one of the popular and widely recognized traditional methods of evaluating investment proposal. This period is useful to ascertain the number of years required to recover the initial investment of a project. Thus, this method reveals the length of time required for the inflow of cash proceeds generated from the investments. The formula of this method is PBP = Original Investment/ Annual cash flows

Projects having short Pay back period (PBP) can be accepted. Cash flows of first 5 years Table 3.16 Cash inflows. Years 1. 2. 3. 4. 5. Cash inflows 292532 433962 535886 658897 581258

Out lay of the project

= 1438180

Time taken to get Rs. 1262380 = 3 years Time taken to get Rs. 1921277 = 4 years Since Cash flow is evenly spread over years time taken to get Rs.175800 = 12/658897*175800 = 3.20 Pay back period = 3 years and 3 months. Since the pay back period is small. The project can be accepted.

ACCOUNTING RATE OF RETURN The average rate of return represents the ratio of the average annual profits to the average investment in the project. The average investment would be

18

equal to the original investment plus salvage value, if any divided by 2. Alternatively it can be found out by dividing the total return on the investment after depreciation and taxes by the original investment of the project ARR =Average Income/ Average Investment = 2134281/5 = 426856.2 Average Investment = 1438180/2 = 719090 ARR = 426856.2/719090 = 59.36% Since the ARR is high, the project can be accepted. PERT (Performance Evaluation and Review Technique) It forms the basis for all planning and predicting which provides management with the ability to plan for best possible use of resources to achieve a given goal within time and cost limitations. It helps management handle the uncertainties involved on programs by answering such questions as to how time delays in certain elements influence project completion, where slack exists between elements and what elements are crucial to meet the completion date. It provides the basis for obtaining the necessary facts for decision making. It provides the basic structure for reporting information The expected time was calculated using the following formula: Average income = Total income after tax and depreciation/ No of years

te = to + 4tm + tp
6

Where,

to = Optimistic time

19

tm = Most likely time te = Expected time tp = Pessimistic time

ACTIVITY CHART (Time in weeks)

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Sl.No

Activity

Description

Proceeding Activity

Optimistic Time(to) 3 2 2

Most likely Pessimi time( tm) 4 4 3 stic time( tp) 6 6 4

Exact time 9 4 3

1 2 3

A B C

Procurement

of and Preparation of A project report Application for loan and sanctioning and licensing B

4 5

D E

Leveling

of B C,D

1 2

2 4

3 6

2 4

and Construction of Building and Boundary

6 7

F G

wall Electricity

1 2

2 4

3 6

2 4

connection Purchase of F plant and machinery Installation of G plant and machinery Collection of H rawmaterias Selection and I training of J K employees Trail production Start up

9 10

I J

1 3

2 5

3 7

2 5

11 12

K L

2 6

3 8

4 10

3 8

CRITICAL PATH

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There are different paths for the implementation of the project. Different paths for the above networks are, 1) A+B+C+E+F+G+H+I+J+K+L = 9+4+3+4+2+4+2+2+2+5+3+8 = 46 2) A+B+D+E+F+G+H+I+J+K+L = 9+4+2+4+2+4+2+2+5+3+8 = 45 Here Path one (46) is greater than path two (45). So we take path one as critical path. APPRAISAL OF PROJECT The term project appraisal refers to a detailed evaluation of the project to determine its technical, economic and financial viabilities. Financial Viability: Preparation of reports on the financial viability of a project is imperative for the soundness of the financial health of an organization. The financial analysis focuses on the financial viability, stability, and the profitability of the project. Moreover, regular financial analysis ensures timely changes in the strategies of business for betterment. No financial institution should sanction the financing of a project unless it is satisfied about the financial viability of the project. The financial institutions evaluate the project with the help of projected financial statements prepared for a number of years. Various tools of financial analysis, such as ratios, funds flow and cash flow statements etc. are also used for this purpose. The evaluation results not only to profitability but also to cash flows to determine the capacity of the firm to pay interest charges and repayment of debt installments. There are many capital budgeting techniques to judge the economic viability of the project. There are Pay Back Period (PBP), Accounting Rate of Return (ARR), Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index (PI). PBP is the period in which the total investment in the permanent assets pays back itself. Here the PBP is 3 years and 3 months. It is a short period compared to the investment of the project. The ARR shows the profitability of the investment. The ARR of the proposed project is 59.36 per cent, which shows the high profitability of the investment. Net Present Value calculates the return on investment by taking 22

into consideration the time value of money. The NPV of the proposed project is Rs.120310. which is favorable for the project. IRR shows the return on investment which also takes into consideration the time value of money. In the case of Vinaya squash unit it is 18.1%, which is good ratio when we consider the interest rates. PI shows the relationship between the present value of cash inflows and present value of cash outflows. The PI of Vinaya squashes 0.083%. so the project can be accepted.

No projects can be approved unless it is technically feasible to run the same. The promotional stages are explained with the help of network technique that is Programme Evaluation Review Technique. As per the PERT network it will take 43 weeks for the implementation of projects. . The materials used for the production are natural material it will not pollute the air in an unsystematic manner and production will be eco friendly. Thus, all the technical factors are favorable to the project. CONCLUSION The proposed project vinaya squashes are analyzed in three parts such as economic viability, technical feasibility and financial viability. The projected financial statements shows that the proposed project is a profitable one. The tools used to analyse the economic viability such as Pay Back Period, Accounting Rate of Return, Net Present Value, Internal Rate of Return, Profitability Index proves the worthwhile ness of the project. The technical factors are also favorable for the project. So the proposed project may be accepted. Hence the project is a feasible one.

PROJECT AT A GLANCE

NAME OF THE UNIT

: VINAYA SQUASHES

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NAME AND ADDRESS OF PROPRIETOR :NISHA.I, ROHINI,

PALAKKADAV,NEYYATTINKARA, THIRUVANANTHAPURAM

NAME OF THE PRODUCT NATURE OF THE UNIT DISTRICT TALUK BLOCK PANCHAYAT COST OF THE PROJECT CAPITAL EXPENDITURE WORKING CAPITAL (1 YEAR): OWN CONTRIBUTION TERM LOAN WORKING CAPITAL LOAN BREAK EVEN POINT PAY BACK PERIOD AVERAGE RATE OF RETURN NET PRESENT VALUE INTERNAL RATE OF RETURN BENEFIT COST RATIO (GROSS) AVERAGE DSCR

: FRUIT SQUASHES : AGRO PROCESSING : THIRUVANANTHAPURAM : NEYYATTINKARA : KARODE : KARODE : 1438180 : 13000000 2205600 : 661680 : 1006726 : 1543920 : 80% : 3 YEARS AND 3 MONTHS : 59.36% : 120310 : 18.1% : 0.083% : 1.019

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