Prepared by: Amal Azab, Karim ElKot, Walid Saafan Sep., 2009 Topics Introduction The location study The legal study The marketing study The technical study The financial study The economical study Conclusion
'Car Care' Project feasibility study, Sep.,2009 2 Introduction Car-Care center is a car service center that is specialized in providing interior and exterior car cleaning The following services will be offered: Water washing, Steam washing, Car polishing, Carpet cleaning, Air condition odor cleaning etc..
'Car Care' Project feasibility study, Sep.,2009 3 The location study The project will be located in Al Rehab city AlRehab service area has a good advantage of serving residents of new Cairo. The service area has other competitors providing low service. The shop has the area of 100 m 2 .
'Car Care' Project feasibility study, Sep.,2009 4 The legal study There is no legal constrains to establish the project, similar small scale project already operating in the city for long time without obligations. Commercial registration documents and tax file are required.
'Car Care' Project feasibility study, Sep.,2009 5 The marketing study Target customers and market segmentation Geographic segmentation: The target customers are AlRehab city and the surrounding area residents. Demographic segmentation Middle to high income level.
'Car Care' Project feasibility study, Sep.,2009 6 The marketing study Studying the potential market/ demand Demand Gap Through our market observations and testing we find a demand gap > available market capacity. The following schedule shows a simple weekly study of potential market /target demand:
'Car Care' Project feasibility study, Sep.,2009 Sun Mon Tue Wed Thu Fri Sat Total 12:00-15:00 1 1 1 1 1 3 3 11 15:00-18:00 2 2 2 2 2 6 6 22 18:00-21:00 2 2 2 2 2 8 8 26 21:00-00:00 4 4 3 3 3 6 6 29 Total 9 8 8 8 8 23 23 88 Average served card per day 12.4
7 The marketing study Studying the potential market/ demand, cont., Throughout the observations and conducted market survey, we found the following: Long waiting time. Unsatisfied customers with the available service. Lack of service quality. Lack of some services like steam washing machines.
'Car Care' Project feasibility study, Sep.,2009 8 The marketing study Demand estimation/ Projection of the Market demand: Car Care services:
'Car Care' Project feasibility study, Sep.,2009 9 Serial Product Price 1 Inside/ outside car water wash 30 2 Motor cleaning 25 3 Sterilizing 25 4 Internal car polish 75 5 Car waxing 200 Average price
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The marketing study Demand estimation/ Projection of the Market demand, cont., The estimated population of AlRehab city is about 25,000 families, we assume 1 person per family. We estimate the 60% of the apartments are occupied with full residencies. We estimated that the target customers owns 1.5 cars in average. We estimated the each customer will request the cleaning service twice a month. Our estimated actual target customers will be around 10% of the customers pool .
'Car Care' Project feasibility study, Sep.,2009 10 The marketing study Demand estimation/ Projection of the Market demand, cont., 'Car Care' Project feasibility study, Sep.,2009 Population (n) 45,000 Sample accepted the product (d) 10% Universe (K) 4,500 Expected demand over 1st year D(t) = K * X' 319,500
11 The marketing study Factors affecting the demand: 1. Estimation of demand changes due to population changes R= 2% 2. Estimation of demand changes due to price changes: The price should be left constant as this is a new project. Xp=Ep*p Where: Xp: Change in demand as a result of change in price. Ep: the partial elasticity of price. p": the % of change in relative price.
'Car Care' Project feasibility study, Sep.,2009 12 The marketing study Factors affecting the demand, cont.,: 3. Estimation of demand changes due to income changes: Xy=Ey* y 6%=2%*3% Where: Xy": Change in demand as a result of change in income. Ey: the partial income elasticity of demand. y: the % of change in income
'Car Care' Project feasibility study, Sep.,2009 13 The marketing study Factors affecting the demand, cont.,: 4. Estimation of demand changes due to advertising changes: The Number of people attracted due to advertising will decrease as time passes. Xa= Ea. a. bt
'Car Care' Project feasibility study, Sep.,2009 Years Xa= Ea *a * bt Xa Y1 1.5%*2%*1% 3% Y2 1.5%*2%*0.6% 1.80% Y3 1.5%*2%*0.4% 1.20% Y4 1.5%*2%*0.2% 0.60% Y5 1.5%*2%*0.1% 0.30%
Xa: is the expected growth rate of demand caused by % change in advertising. Ea: is the partial elasticity of advertising. a: is the change in advertising spending. bt: is the arbitrary factor that measures the change in sales caused by advertising over time. 14 The marketing study Factors affecting the demand, cont.,: When combining all the four Factors: Ft= r + xy + xp + xa
R: rate of growth of population. Xp: percentage changes in demand caused by change in relative prices. Xy: expected growth rate of demand caused by change in per capita income. Xa: expected growth rate of demand caused by advertising spending. 15 The marketing study Factors affecting the demand, cont.,: We assume that there will be no sales in Y0.
16 The technical study Service cycle and flow chart 'Car Care' Project feasibility study, Sep.,2009
Receiving car from customer 2.Car washing (inside/ outside), 20min 1.Motor washing, 10min 3. Sterilization and remove air condition odors, 10min 4. Car polishing (inside/ outside), 30min 5. Finishing 5. Waxing the car, 30min 17 The technical study Initial costs: Site internal preparations Rent The location will be rented by 8,000 LE per month. Payment of 3 months in advance = 3 * 8,000 = 24,000 LE.
21 Raw materials costs Serial Item Unit price Quantity Total price 1 Polishing (litre) 290 60 17,400 2 Cleaning sprays (interior) 25 120 3,000 3 Wax 40 36 1,440 21,840 Total
The technical study Operating costs, cont.,: Cost of funds
Taxes
'Car Care' Project feasibility study, Sep.,2009 Cost of funds Bank loan 260K over 5 years 11% Principal 260,000 interst rate (annual) 11% Interst amount (annual) 28,600 Duration (years) 5 Total interst 143,000 Administrative fees (1.5%) 3,900 Total 406,900 The loan will be amotrized 6,782 per month Cost of funds 81,380 per year
22 The technical study Total yearly cash flow: 'Car Care' Project feasibility study, Sep.,2009 Year Item Cash in Cash out Cash in 354,645 Rent (+10%) 105,600 Salaries (+10%) 40,440 Raw materials (+5%) 22,932 Utilities (+2%) 13,056 Miscellaneous 1,000 Cost of funds 81,380 Net 354,645 264,408 1
Year Item Cash in Cash out Cash in 389,400 Rent (+10%) 116,160 Salaries (+10%) 44,484 Raw materials (+5%) 24,079 Utilities (+2%) 13,317 Miscellaneous (+10%) 1,100 Cost of funds 81,380 Net 389,400 280,520 2
Year Item Cash in Cash out Cash in 425,225 Rent (+10%) 127,776 Salaries (+10%) 48,932 Raw materials (+5%) 25,283 Utilities (+2%) 13,583 Miscellaneous (+10%) 1,210 Cost of funds 81,380 Net 425,225 298,164 3
Year Item Cash in Cash out Cash in 461,794 Rent (+10%) 140,554 Salaries (+10%) 53,826 Raw materials (+5%) 26,547 Utilities (+2%) 13,855 Miscellaneous (+10%) 1,331 Cost of funds 81,380 Net 461,794 317,492 4
Year Item Cash in Cash out Cash in 500,123 Rent (+10%) 154,609 Salaries (+10%) 59,208 Raw materials (+5%) 27,874 Utilities (+2%) 14,132 Miscellaneous (+10%) 1,464 Rent advance payment 24,000 Cost of funds 81,380 Net 524,123 338,667 5
23 The technical study Total yearly cash flow: Total aggregated income and expenditures for the project over 5 years
24 The financial study Source of finance The project s economic life is planned to be extended to 5 years which will be categorized as a long term project so We will seek CIB bank for a long term loan over 5 years period amounting to 260,000 LE with annual interest rate of 11% and bank administration fees of 1.5%.
'Car Care' Project feasibility study, Sep.,2009 Cost of funds Bank loan 260K over 5 years 11% Principal 260,000 interst rate (annual) 11% Interst amount (annual) 28,600 Duration (years) 5 Total interst 143,000 Administrative fees (1.5%) 3,900 Total 406,900 The loan will be amotrized 6,782 per month Cost of funds 81,380 per year
25 The financial study Investment profitability analysis 1. Simple rate of return SRR
The simple rate of return is higher than the interest rate in the market which is acceptable.
26 Where R is the simple rate of return, y is the cost of fund. Y is the bank interest The financial study Investment profitability analysis, cont., 2. Payback period PBP
The expected positive amount per day at the 3 rd year = Cash out of the 3 rd year divided by 360 = 828.23 Remaining period = initial investment divided by expected positive amount per day The payback period is 2 year and 10 months which is acceptable.
29 The economical study the SRR is positive and greater than the interest rate found in the market. The payback period in the financial study is somewhere between the second and third year, The NET PRESENT VALUE is positive, which implies the feasibility of the project. The IRR ratio is equal to 27% which is higher than the interest rate present in the market. The project is acceptable and feasible.