Chapter I INTRODUCTION A.

Brief History

Bananas are among the most widely consumed foods in the world. Based on UN Foods and Agriculture Organization, 2005, the four leading banana exporting countries were Ecuador, Costa Rica, Philippines, and Colombia. Philippines is the 3rd cou ntry leading of growing bananas. Because of that supply of banana can be easily be found in the Philippines. This is the reason why the researcher had chosen th is topic for research. In the article in the Mar et Manila, 2007, it says that m any Filipinos would li e to eat banana, whether eating ripe banana or banana tha t have processed into many varieties. Saba Bananas which abound in many parts of the country, are seldom eaten raw. Tr aditionally, these products are consumed boiled, fried or even barbecued. Howeve r, due to the innovative efforts Saba Bananas are processed into delicious and c rispy chocolate chips. Banana products as a processed product was introduced in the domestic mar et by enterprising entrepreneurs who saw the great potential for the product as early as the 1960s (Bureau of International Trade Relations, 1995). In 1964, banana chips soon found mar et abroad, particularly in some states of A merica. The product, as a non-traditional export, has boomed and gained wide acc eptance not only in the United States but also in neighboring Asian Countries li e Japan, Hong Kong and Australia. When raw materials are only one-third of what the prices are today, the export price for banana chips mar ed US$0.32 /lbs. Gr adually, the export price increased as the cost of production-raw materials, lab or, fuel, oil and other factors immensely surged (BETP, 1998). Chocolates have captured the hearts of everyone young and old, have been captiva ted by its extraordinary and addictive taste that eeps them as ing for more. It has proved to be the favorite snac to all (Anderson, 1995). It is one or the f ew food that people feel as passionate about a passion that goes beyond a love f or the sweetness. Chocolate is, well, different. For the true chocoholic, just t hin ing about chocolate can evo e a pleasurable response. Researchers observe that it is the best way to put up a chocolate coated banana chipsproduction in Tagaytay area because it is one of the most visited place by Filipino and Foreigners; hence, it is a good prospect of income and consumer des irability. B. Statement of the Problem

The central problem of the study is the evaluation of the viability of establish ing a chocolate coated banana chips production in Tagaytay area. C. Objectives of the Study The main objective this study is to determine the viability and feasibility of t he proposed business ta ing into consideration the following for functional area s of management, and its social desirability. 1. Mar eting a. To describe the products to be manufactured and sold. b. To study the industry profile of the proposed project. c. To determine the demand for the proposed business. d. To identify the supply of banana and chocolate products. e. To analyze the interaction of demand and supply of the proposed business . f. To formulate mar eting strategies for successful business operation. 2. Production/Technical Aspects a. To identify the best method of processing in order to operate efficientl y. b. To determine necessary equipment, furniture and fixture and their corres

ponding cost. c. To choose the best location for the proposed project. d. To study the best layout or floor plan of the proposed business. e. To determine the capacity of production and describe the scheduling prod uction. f. To define the most economical waste disposal method. g. To estimate the cost of production and operation of the project. 3. Organization and Management a. To determine the most appropriate form of business organization. b. To design and organizational structure of the business to operate effici ently. c. To find out precisely the numbers of wor ers needed in the organization. d. To study the best compensation pac age for the wor ers. e. To determine the projected time table for the project. 4. Financial a. To ma e financial assumptions to be adopted in the projections estimatio ns and computations in the study. b. To now the capital requirements of the project. c. To specify the source and mode of financing to be needed by the business . d. To present the projected financial statements of the proposed business c overing the five year period. e. To evaluate the profitability of the proposed business by using financia l analysis. 5. Socio-economic Desirability a. To establish the importance of the business to customers in its target m ar et. b. To inform the prospective employees the benefits they will receive from the business. c. The describe the significance of the business to its creditors and suppl iers. d. To now the reputation of the business to its community and the whole s ociety. e. To identify socio-economic benefits the business will provide to the loc al and national government. D. Significance of the Study. An ideal business ta es minimal capital, requires simple production requirements , and earns handsome returns needed in the present economic situation. Developin g a small enterprise, particularly in a progressive town, can be considered the bac bone of the Philippine economy. To the researchers, this study will provide the opportunity to apply the theoret ical s ills acquired in the confines of their classrooms. To the students, it will serve as reference and guide in establishing businesses in the near future. To the interested readers, this serves as an inspiration to ma e use of their ti me and money by establishing their own businesses. This also enhances their unde rstanding of the importance of businesses for the stabilization of the economy. To the school, this will serve as an addition to its numerous study guidelines a nd references. To the community, it will serve as a means of conveying ideas and awareness conc erning establishing business in the future. And to the government, this serves as a factor in strengthening the economy of t he country. E. Scope and Limitations The location of the project is in Tagaytay area. The target mar et of the propos ed business is the resellers in the said area. Moreover, this study is projected for a span of five (5) years and information w as ta en through personal interviews, boo s, and internet observations.

Finally, the researchers find it hard to gather comprehensive data due to the li mited time, resources and resellers care of confidential data. F. Methodology Sources of Data Primary Data The researchers conducted personal interviews and distributed survey que stionnaires. Experts in the areas of Mar eting, Management and Finance validated the survey questionnaires. College students of AUP also too part in the valida tion. After this, all suggestions were incorporated and the questionnaires then distributed. The validation data is presented in Exhibit ___, then sample survey in Exhibit ___ . As mentioned earlier, after the data were validated, the questionnaires were distributed to resellers in Tagaytay. The table below shows the target mar et and its percentage in the total population. Barangay Population Percentage (%) 1 Francisco 13 4.63% 2 Guinahawa North 2 0.71% 3 Guinahawa South 13 4.63% 4 Iruhin Central 1 0.36% 5 Iruhin West 15 5.34% 6 Iruhin East 1 0.36% 7 Kaybagal central 30 10.68% 8 Kaybagal North 17 6.05% 9 Kaybagal South 37 13.17% 10 Mag-asawang Ilat 5 1.78% 11 Maharli a East 19 6.76% 12 Maharli a West 17 6.05% 13 Maitim II Central 1 0.36% 14 Maitim II East 18 6.41% 15 Maitim II West 3 1.07% 16 Mendez Junction West 7 2.49% 17 Neogan 17 6.05% 18 Patutong Mala i North 15 5.34% 19 Patutong Mala i South 4 1.42% 20 Sambong 3 1.07% 21 San Jose 15 5.34% 22 Silang Junction West 3 1.07% 23 Sungay East 8 2.85% 24 Sungay West 2 0.71% 25 Tolentino East 14 4.98% 26 Tolentino West 1 0.36% Total 281 100.00% Source: Tagaytay City Municipal Hall There researchers retrieved ___ % of the questionnaires. Personal interview wit h _________________________was made. The sample structures review is presented in Exhibit ___. The formula used in determining the sample size is: (Narbarte, 1998) n = 1+ (278) (0.1)2 Where: n = Sample size N = Estimate Population e = Margin of error = 73.54 or 74 278____ 1. A.

B. Secondary Design Secondary data were gathered from printed materials, boo s, magazines, and relat ed studies. These materials were researched in John Lawrence Detwiller Memorial Library.

1.

Treatment of data

In the treatment of data, the manual or personal method was applied since it has simple manipulative requirements in statistical analysis, time and clarity are given value, and the application of this method requires low cost. Data gathered from the questionnaires are tabulated manually and then the researcher opted to use the statistical parabolic method to forecast data since the historical data is of increasing and decreasing nature. The formula for Statistical Parabolic Method (Narbarte,1998) is: Yc = a + bx + cx, where; a b c Where: Y X n Now, to determine the earning capacity e used: a. Net Present Value (NPV) = given / gathered data = assigned value = number of years of the project, the following formulas ar = = = ( X4)( Y) ( X2)( X2Y) n( X4) ( X2)2 XY X2 n( X2Y) ( X2)( Y) n( X4) ( X2)2

This refers to the excess of the present value of cash returns discounted at a c hosen cut-off rate over the amount of investment. (Garrison, Noreen, Peter C. Br ewer, 2008) If, NPV>0, it means that the benefits are greater than costs, accept. If, NPV<0, reject. NPV = (bi ci) (1+ r) Where: 1 = 0 bi = benefit in the period i ci = cost in the period i r = discount rate n = discount period b. Internal Rate Return (IRR)

Internal Rate of Return or simply IRR refers to the rate of return that a long-t erm investment is earning. It is also as the discounted or time adjusted rate of return. IRR>cut-off, then return is high therefore accept the project. Reject if the opp osite results. The formula is (Garrison, Noreen, Peter C. Brewer, 2008): IRR = NPV b1 - C1 = 0 (1 + r) c. Benefit Cost Ratio (B/CR) This refers to the ratio of the present value of cash returns discounted at a ch osen cut-off rate to the investment requirement. (Garrison, Noreen, Peter C. Bre wer, 2008) If B/CR is positive, the gross benefits are greater than gross cost, accept. B/CR > 1, accept B/CR < 1, reject The formula is: B/CR =___bi______ Where: bi = benefit in period i 1= a (1 + r) ci = cost on period i

Ci______ r = discount rate 1 = a (1 + r) n = discount period To show how viable the project is in terms of financial soundness, the following ratios and formulas were used. Computations were done through the use of ratios , which determine the profitability of the business venture, such as: 1. Profitability Ratio. These are used to show the operational performancea nd efficiency of the project. (Garrison, Noreen, Peter C. Brewer, 2008) a. Return on Sales. Indicates the profitability based on sales. Measures pr ofit after taxes on the years sales. (profit earned per peso of sales). (Lourderb ac and Holmen, 2003 ) Return on sale = Net profit after tax Sales b. Return on Investment. This isused to compare returns on investment where the money gained or lost. It is most often stated as annual rate of return and its most often stated for a calendar or fiscal year. (Louderbac and Holmen, 200 3) Return on Investment = Net Income Total Investment

c. Gross Profit Ratio. The gross profit ratio compares sales to operating p rofit. Operating profit is whats left from sales after deducted cost of goods sol d and ordinary operating cost. (Louderbac and Holmen, 2003) Gross Profit Ratio = Gross Profit Net Sales

2. Liquidity Ratio. These measures are used to determine a firms ability to meet short-term obligation and to remain solvent in the event of adversaries. a. Current Ratio. This is to measure the ability of the proposed business p roject to meet its current liabilities. (Louderbac and Holmen, 2003) Current Ratio = Current Assets Current Liabilities

b. Acid Test or Quic Ratio. This is to measure the liquidity of the propos ed business project. (Louderbac and Holmen, 2003) Cash+Mar etableSecurities+Account Receivable Acid-test or Quic Ratio =

Current Liabilities

3. Test of Return on Capital Investment. These Financial tools evaluate the justification for investing in the project. (Garrison, Noreen, Peter C. Brewer, 2008) a. Average Rate of Return Average Net Income Initial Year Cash Outflow 2 b. Paybac Period in Years Initial Year Cash Outflow Succeeding Annual Net Cash Flow G. Review of Related Literature Production of banana chips from raw Saba bananas was introduced into the

domestic mar et in 1960. It too intensive promotional effort and expense to de velop the industry. Banana chips is basically a snac item. Its mar et, therefor e, are individuals of all ages. In the country, banana chips are becoming popula r to the school children and high school students. This product is a good substi tute for jun food due to its high nutritional value. At present, a production o f banana chips caters only to household consumption (PTTC, 1997). Banana (Genevas Musa) is one of the most important fruit of commerce in the country. There are about 200 different inds of banana. It is generally inco me generating, for it is bought for home use and is converted into products by i ndustry, it is processed and made into banana sauce, chips and banana in syrup. (Mary Keith, 1992). In its recent manual on food and fruit preservation, the production depa rtment of the Bureau of Export Trade Promotion encouraged business industries to continue manufacturing and exporting processed fruits, particularly dried fruit s, because of high sales performance. The world demand of processed fruits regis tered a total average annual growth of 3.22 % from 1990-1994. Moreover, it is among the most important fruit crops in Mindanao, and in the Philippines, as a whole, in terms of volume of production and export earnin gs. Seventy-five percent (75%) of the production of banana comes from Mindanao w ith about 41% grown in Southern Mindanao. It is a commercially traded raw materi al for various food and non-food industrial products. About seventy-six percent (76%) of banana supply is used as food while sixteen percent (16%) is used as fe ed or industrial products. One of the most common varieties of banana is the Saba/ Cardava that can be coo ed or eaten as raw. It is usually processed into banana chips intended for local and mainly export mar ets. Banana chips production has emerged as one of the Mi ndanaos strategic industries and become more lucrative agribusiness in the countr y due to its high demand especially in the foreign mar et. This is also because of the various nutritional values ta en from banana. It is a good source of pota ssium, which lowers hypertension, and Vitamin C and B6, which boost human bodys i mmune system. It has high content of carbohydrates and fiber, has low protein levels and is free from fats. Along with other fruits and vegetables, consumptio n of bananas reduces ris of having colorectal cancer , breast cancer and rena l cell carcinoma (http://www.investinr12.net) On the other hand, premium chocolate, which, according to a January 2009 Wall S treet Journal article, "is typically characterized by an emphasis on sourcing an d the production process, much li e wine," was also growing. According to mar et research firm Mintel, sales of premium chocolate increased 129 percent between 2001 and 2006, reaching $2.05 billion in 2006. Mintel forecasted continued growt h and predicted sales of premium chocolate in the United States would top $3.5 m illion by 2011. As a result of its higher price, growth slowed somewhat during t he sluggish economic conditions of the late 2000s. Although unit sales of chocolate decreased about 3.8 percent in 2008, value of s ales continued to increase. For example, total chocolate candy sales in supermar ets, drugstores, and discount stores (excluding Wal-Mart) reached almost $5 bil lion in 2008, a 2.2 percent increase from the year before, according to Informat ion Resources Inc. (http://business.highbeam.com/industry-reports/food/chocolate -cocoa-products) Additionally, the chocolate industry offers a wide variety of opportunities for the small business owner, weathers economic recession well and is growing despit e increased health-consciousness and calorie counting. Growth will be driven by population growth as well as expansion into new mar ets, product innovation and rising disposable income levels leading to greater purchasing of premium offerin gs. Furthermore, it is wildly popular for individual consumption, gift giving and co o ing. Due to the dominance of large-scale production dynasties, franchises and small businesses tend to focus on unique or specialty items or services. Unique chocolates may be from a region famous for a particular technique, ba ed on-site

or offer a different ta e on tradition, while specialty services tend to focus on gift-pac aging or delivery. One of the primary demand drivers for chocolate and other sweets is consumer tas te, and consumers continue to love chocolate! Long a beloved treat in the wester n world, a recent study in Great Britain showed that 91% of females and 87% of m ales consume chocolate products. But the taste for chocolate is now expanding in to highly populated nations with a growing middle class, such as China and India . Rising disposable incomes and changing tastes will continue to drive growth in the industry overseas, just as improving domestic economic conditions increase sales at home. (http://www.franchisehelp.com/industry-reports/chocolate-industry -report) Lastly, according to Mindanao Business Council (MBC) vice chair Romy Serra, the public should now that the Philippines is number 1 in the world in terms of ban ana chips business and a good business for we have no competition (http://blog.a griculture.ph/tag/banana-chips-ma e-good-business-mbc). While the chocolate indu stry offers a wide variety of opportunities for the small business owner, weathe rs economic recession well and is growing despite increased health-consciousness and calorie counting. Growth will be driven by population growth as well as exp ansion into new mar ets, product innovation and rising disposable income levels leading to greater purchasing of premium offerings. (http://www.franchisehelp.co m/industry-reports/chocolate-industry-report) H. Definition of Terms

The following terms are defined for operational use in this feasibility study fo r readers better understanding. Saba. Known as Cardaba banana, is a triploid hybrid banana cultivar originating from the Philippines. It is primarily a coo ing banana though it can also be eat en raw. It is one of the most important banana varieties in Philippine cuisine. Chocolate i/t lt/ is a raw or processed food produced from the seed of the tropical T heobroma cacao tree. Chips, are deep-fried and/or dried slices of any food variety. They can be cover ed with sugar or honey and have a sweet taste, or they can be fried in oil and s pices and have a salty and/or spicy taste.