car care project feasibility study-130916161800-phpapp02

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„Car Care‟ Project feasibility studySupervisor: Prof. Dr. Ashraf Saleh

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.,20092



Introduction

Car-Care center is a car service center that is specialized inproviding interior and exterior car cleaning

The following services will be offered:

• Water washing,

• Steam washing,

• Car polishing,

• Carpet cleaning,

• Air condition odor cleaning

• etc..




The location study

The project will be located in Al Rehab city

AlRehab service area has a good advantage of servingresidents of new Cairo.

The service area has other competitors providing lowservice.

The shop has the area of 100 m2.




The legal study

There is no legal constrains to establish the project, similarsmall scale project already operating in the city for longtime without obligations.

Commercial registration documents and tax file are

required.




The marketing studyTarget customers and market segmentation

Geographic segmentation:

The target customers are AlRehab city and the surroundingarea residents.

Demographic segmentation

Middle to high income level.




The marketing studyStudying 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:


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 29Total 9 8 8 8 8 23 23 88

Average served card per day 12.4

7



The marketing studyStudying 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.




The marketing studyDemand estimation/ Projection of the Market demand:

“Car Care” services:


Serial Product Price

1 Inside/ outside car water wash

30

2 Motor cleaning

25

3 Sterilizing25

4 Internal car polish

75

5 Car waxing

200

Average

price 71



The marketing studyDemand estimation/ Projection of the Market demand, cont.,

The estimated population of AlRehab city is about 25,000families, we assume 1 person per family.

We estimate the 60% of the apartments are occupied withfull residencies.

We estimated that the target customers owns 1.5 cars inaverage.

We estimated the each customer will request the cleaning

service twice a month.

Our estimated actual target customers will be around 10%of the customer‟s pool .




The marketing studyDemand estimation/ Projection of the Market demand, cont.,


Population (n) 45,000 Sample accepted the product (d) 10%

Universe (K) 4,500

Expected demand over 1st yearD(t) = K * X' 319,500

11



The marketing studyFactors affecting the demand:

1. Estimation of demand changes due to populationchanges R= 2%

2. Estimation of demand changes due to price changes: Theprice should be left constant as this is a new project.

Xp=Ep* Δp

Where:

“Xp”: Change in demand as a result of change in price.

“Ep”: the partial elasticity of price.

“Δp": the % of change in relative price.




The marketing studyFactors affecting the demand, cont.,:

3. Estimation of demand changes due to income changes:Xy=Ey* Δy

6%=2%*3%

Where:

“Xy": Change in demand as a result of change in income.

“Ey”: the partial income elasticity of demand.

“Δy”: the % of change in income





4.Estimation of demand changes due to advertisingchanges:

The Number of people attracted due to advertising will decrease astime passes.

Xa= Ea. ∆a. bt


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.

“Δa”: is the change in advertising spending.

“bt”: is the arbitrary factor that measures the change in sales caused byadvertising over time.

14




When combining all the four Factors:

Ft= r + xy + xp + xa


Ft R+xy+xp+xa %

Ft1 2%+6%+0+3% 11%Ft2 2%+6%+0+1.8% 9.80%

Ft3 2%+6%+0+1.2% 9.20%

Ft4 2%+6%+0+0.6% 8.60%

Ft5 2%+6%+0+0.3% 8.30%

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




We assume that there will be no sales in Y0.


Years Ft Dt+1=Dt*(1+Ft)Y0 0% 319,500

Y1 11% 354,645

Y2 9.80% 389,400

Y3 9.20% 425,225

Y4 8.60% 461,794

Y5 8.30% 500,123

16



The technical studyService cycle and flow chart


Receiving car from customer

2.Car washing (inside/

outside), 20min

1.Motor washing, 10min

3. Sterilization and removeair condition odors, 10min

4. Car polishing (inside/outside), 30min

5. Finishing

5. Waxing the car, 30min

17



The technical studyInitial costs:

Site internal preparationsRent

The location will be rented by 8,000 LE per month.

Payment of 3 months in advance = 3 * 8,000 = 24,000 LE.

Construction costs:


Item Cost

Floor preperations 10,000

Wall painting and preperations 4,000 Electricity preperations 3,000

Others 5,000

Total 22,000

18



The technical studyInitial costs, cont.,:

Site external preparations

Advertising costs

Miscellaneous costs

Legal documents:


Item Cost

Singage 3,000 Lights 1,000

Total 4,000

Item Price

10000 colored Flyers 2,000

Big Banners at the Entrance of AlRehab city 2,000

Total 4,000

Item Price

Fire equipments 1,000

Workers uniform 1,000

Miscellanous 1,500

Total 3,500

Item Cost

Commercial registration and tax card & licence 7,000

others 500

Total 7,500

Total initial expense for Y0 254,580

19





The technical studyOperating costs, cont.,:

Raw materials costs

Manpower structure and costs

Rent


Serial Job description Quantity Cost Total cost

1 Supervisor (1500 LE) 1 18000 18,000

2 Skilled worker (750 LE) 1 9000 9,000

3 Worker (500LE) 2 6000 12,000

4 Social insurance 4 360 1,440

Total cost 40,440

Rent (8000LE per month) 96,000

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 studyOperating costs, cont.,:

Cost of funds

Taxes


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

Year Gross profit Tax (18%)

2009 (254,580) -

2010 90,237 16,243

2011 108,880 19,598

2012 127,061 22,871

2013 144,302 25,974

2014 185,456 33,382

22



The technical studyTotal yearly cash flow:


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


Cash in 389,400

Rent (+10%) 116,160

Salaries (+10%) 44,484



Miscellaneous (+10%) 1,100


Net 389,400 280,520

2


Cash in 425,225

Rent (+10%) 127,776 Salaries (+10%) 48,932





Net 425,225 298,164

3


Cash in 461,794

Rent (+10%) 140,554

Salaries (+10%) 53,826





Net 461,794 317,492

4


Cash in 500,123

Rent (+10%) 154,609

Salaries (+10%) 59,208




Rent advance payment 24,000


Net 524,123 338,667

5

23



The technical studyTotal yearly cash flow:

Total aggregated income and expenditures for the projectover 5 years


Year Cash-in Cash-out Gross profit Tax (18%) Net profit

2009 0 254,580 (254,580) (254,580)2010 354,645 264,408 90,237 16,243 73,994

2011 389,400 280,520 108,880 19,598 89,282

2012 425,225 298,164 127,061 22,871 104,190

2013 461,794 317,492 144,302 25,974 118,328

2014 524,123 338,667 185,456 33,382 152,074

24



The financial studySource of finance

The project „s economic life is planned to be extended to 5years which will be categorized as a long term project soWe will seek CIB bank for a long term loan over 5 yearsperiod amounting to 260,000 LE with annual interest rate of11% and bank administration fees of 1.5%.


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 studyInvestment profitability analysis

1. Simple rate of return – SRR

The simple rate of return is higher than the interest rate in themarket which is acceptable.


= ℎ − ℎ + ∗ 100%

R0 = ( 0-254580 ) / 254580 (100.0)

R1 = ( 354645-264408+28600 ) / 254580 46.7

R2 = ( 389400-280519+28600 ) / 254580 54.0 R3 = ( 425225-298164+28600 ) / 254580 61.1

R4 = ( 461794-317492+28600 ) / 254580 67.9

R5 = ( 524123-338667+28600 ) / 254580 84.1

26

Where R is the simple rate of return, y is the cost of fund.

Y is the bank interest



The financial studyInvestment profitability analysis, cont.,

2. Payback period – PBP

• The expected positive amount per day at the 3rd year = Cash out ofthe 3rd year divided by 360 = 828.23

• Remaining period = initial investment divided by expected positiveamount per day

The payback period is 2 year and 10 months which isacceptable.


Year Cash-in Cash-out Net profit accumulated

2009 0 254,580 (254,580) (254,580)

2010 354,645 264,408 73,994 (180,586)

2011 389,400 280,520 89,282 (91,304)

2012 425,225 298,164 104,190 12,886 2013 461,794 317,492 118,328 131,214

2014 524,123 338,667 152,074 283,288

27




3. Net present value - NPV Assume discount rate = 10%

NPV = 128,214 , NPV is positive which is acceptable


Year Cash-in Cash-out Gross profit Tax (18%) Net profit

2009 0 254,580 (254,580) (254,580)

2010 354,645 264,408 90,237 16,243 73,994

2011 389,400 280,520 108,880 19,598 89,282

2012 425,225 298,164 127,061 22,871 104,190

2013 461,794 317,492 144,302 25,974 118,328

2014 524,123 338,667 185,456 33,382 152,074

NPV = 254,580 + 73,9941.1

+ 89,2821.12

+ 104,1901.13

+ 118,3281.14

+ 152,0741.15

28




4. Interest Rate of Return – IRR

IRR = 27% , IRR is higher than the interest rate in the marketwhich is acceptable.


0 = 254,580 +73,994

(1 + )+

89,282

(1 + )2+

104,190

(1 + )3+

118,328

(1 + )4+

152,074

(1 + )5

29



The economical study

the SRR is positive and greater than the interest rate foundin the market.

The payback period in the financial study is somewherebetween the second and third year,

The NET PRESENT VALUE is positive, which implies thefeasibility 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.




THANK YOU


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car care project feasibility study-130916161800-phpapp02