Feasibility Report

DISCLAIMER The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information.

SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form.

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Revision 1 Prepared by SMEDA-Sindh Approved by Provincial Chief-Sindh Issue Date July, 2004 Issued by Library Officer Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 3 TABLE OF CONTENTS 1 INTRODUCTION TO SMEDA…………………….. …. 4 2 PURPOSE OF THE DOCUMENT ………………………………. 5 3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT IN THE PROJECT .. ……………………………. 5 4 PROJECT PROFILE . …………………………………………….. 6 5 STRATEGIC RECOMMENDATIONS . ………………………… 11 6 KEY SUCCESS FACTOR . ………………………………………. 11 7 SECTOR AND INDUSTRY ANALYSIS . ………………………. 4 8 MACHINERY & EQUIPMENT REQUIREMENTS .. ………… 20 9 HUMAN RESOURCE REQUIREMENT .. ……………………… 21 10 LAND & BUILDING REQUIREMENTS . ……………………… 22 11 FINANCIAL ASSUMPTIONS ……………………………………. 24 12 KEY ASSUMPTIONS …………………………………………….. 25 13 FINANCIAL STATEMENTS … ………………………………… 27 Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 4 1 INTRODUCTION TO SMEDA The Small and Medium Enterprise Development (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program

so far successfully formulated strategies for sectors including fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, transport and dairy. Whereas the task of SME development at a boarder scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation. Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors.

In order to facilitate these investors, SMEDA provides helpdesk services as well as development of project specific documents. These documents consist of information required to make wellresearched investment decisions. Sectoral research studies, pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 5 2 PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurships in project identification for investment. The project pre-feasibility may from the basis of an important investment decision and in order to serve this objective; the document/study covers various aspects of project concept development, start-up, production, marketing, finance and business management. The document also provides sectoral information, brief on Government policies and international scenario, which have some bearing on the project itself.

This particular pre-feasibility is regarding production of purified drinking water on commercial basis, which comes under food sector. Before studying the whole document one must consider following critical aspects, which forms the basis of any investment decision. 3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT IN THE PROJECT

Table: Mineral Water Imports in Pakistan Year Quantity Value (‘000’ Rs. ) 1992-93 694,249 3,188 1993-94 814,338 5,384 1994-95 1,660,951 10,741 1995-96 2,328,460 12,856 Source: Federal Bureau of Statistics 4. 2 Opportunity Rationale The market for mineral water has been showing a mushroom growth trend over the last few years.

The country’s market is very small on a global scale and was estimated at 33 million liters a year by the end of 1992. The last three years have shown more growth and the market has been estimated to grow 70 million liters and Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 7 the per capita consumption is 0. 5 liter. The annual growth rate for bottled water is 40%. According to a study conducted in 2001, Pakistan registered the highest growth of 140% in 2000 amongst the countries in Asia and Middle East region.

It is recommended to fulfill all the requirements of the Pakistan Quality Control Authority for getting a license for the production and marketing of bottled / mineral water in Pakistan. Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 20 8 MACHINERY & EQUIPMENT REQUIREMENTS Most of the water purification plants being installed in the country are reverse osmosis based. Government also recommends the RO based technology. This prefeasibility study is based on the reverse osmosis plant. The details of the machinery & equipment are as following. Table: Machinery Details in Rs.

Machinery Name Quantity Unit Cost (Rs. ) Total Cost Reverse Osmosis Water purification plant 1 1,495,000 1,495,000 Ozonator (included in the filling plant) 1 – – Washing, Filling & Capping Plant (inclusive of sales tax) 1 2,645,000 2,645,000 Washing, Filling & Capping Plant (inclusive of sales tax) 1 2,070,000 2,070,000 UV Lamp (included in the RO Plant 1 30,000 30,000 Total 6,240,000 Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 21 9 HUMAN RESOURCE REQUIREMENT The following requirement of staff along with their levels and monthly salary is foreseen for this project.

Table: Human Resource Requirement Designation No. of Staff Monthly Salary Annual Cost CEO 1 50,000 600,000 Admin & Accounts Manager 1 30,000 360,000 Area Sales Manager 1 40,000 480,000 Sales Supervisor 2 30,000 360,000 Sales Rep 25 10,000 3,000,000 Driver 2 20,000 240,000 Washer 1 9,000 108,000 Filler 2 15,000 180,000 Laoder 2 15,000 180,000 Plant Helper 1 8,000 96,000 Packing Supervisor 1 8,000 96,000 Marketing Manage 1 30,000 360,000 Marketing Officer 1 15,000 180,000 Watchman 1 5,000 60,000 Total 42 6,300,000 Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 22 10 LAND & BUILDING REQUIREMENTS

For the proposed set up of water purification plant, a total of 2050 square feet is required. This land requirement includes space for the installation of plant and machinery, management office and store for bottles, finished product and parking. Table: Covered Are Requirement Space Requirement Required Area (Sq. ft) Bottle Storage Room (50,000 bottles) 400 Bottle Washing & Mineral Water plant 200 Conveyer belt & finished product packing 300 Finished product storage room 350 Management office 500 Parking 300 Total Area 2050 Table: Total Land Cost & Construction Cost Total Land Cost (Rs. ) 2050 Square feet 1,230,000

Covered Area Requirement 2050 Time required for civil works 2 months Construction Cost Management building 500 sq. ft @ Rs. 600 300,000 Factory 900 sq. ft @ Rs. 600 540,000 Stores 350 sq. ft @Rs. 600 210,000 Parking 300 sq. ft @Rs. 25 7,500 Total Construction Cost 1,057,500 10. 1Recommended Mode of Land Acquisition Since purified bottled water is a kind of project, which needs an extended span of time for its perception and brand recognition, so the recommended mode for the acquisition of land owned or leased (100 years). 10. 2 Suitable Location This project has been developed with a focus of Karachi city.

The appropriate location would be any industrial area of Karachi city where KWSB water is available along with other infrastructure facilities. Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 23 Table: Furniture & Fixture Workstation Quantity Cost per unit (Rs. ) Total Cost (Rs. ) Table & Chair for CEO 1 9,600 9,600 Table & Chairs for Manager 3 8,000 24,000 Table & Chairs for Officers & Supervisors 3 5,500 16,500 Table & Chairs for other staff 10 4,400 44,000 Visitors Chairs for Management office 13 800 10,400 Other Staff chairs 10 400 4,000 Total 40 108,500 Table: Office Equipment Requirements

Equipment Quantity Cost per unit (Rs. ) Total Cost (Rs. ) Computer 4 22,000 88,000 Laser Printer 1 10,000 10,000 Dot Matrix 1 15,000 15,000 UPS 4 8,500 34,000 Air Conditioner 4 15,000 60,000 Total 14 207,000 Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 24 11 FINANCIAL ASSUMPTIONS Table: Project Capital Investment Rs. In actual Land 1,230,000 (not included in financing) Building / Infrastructure 1,057,500 Machinery & Equipment 6,240,000 Furniture & Fixture 108,500 Office Vehicles 2,056,360 Office Equipment 202,500 Pre-operating Cost 1,816,268 Total Capital Costs 11,485,628 Table: Means of Financing

Initial Financing Rs. In actual Debt 9,039,891 Equity 6,026,594 Total Investment 15,066,485 Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 25 12 KEY ASSUMPTIONS Table: Project Assumption Period of construction & machinery installation (months) 6 Total Covered Are 2050 Projected life of the project 10 Table: Operating Assumption No. of working days in one year 330 No. of working hours in one day 8 Table: Revenue Assumption Plant Capacity liters per day 2,363 Production per year (liters) 18,711,000 Ratio of 1. 5 liter and 0. 5 liter bottle 80:20 Production of 1. 5 liter bottle 9,979,200 Production of 0. liter bottle 7,484,4000 Total annual production 17,463,600 Sale price of 1. 5 liter bottle (Rs. ) 15 Sale price of 0. 5 liter bottle (Rs. ) 8 Capacity utilization in first yr 60% Sales price growth rates 10% Production capacity utilization growth rate 10% Maximum Capacity utilization 95% Table: Financial Assumption Debt 60% Equity 40% Interest Rate 12% Interest Rate on short term debt 16% Interest on cash in bank 0. 02% Corporate tax rate 41% Turnover tax rate 1% Dividend rate 50% Required rate of return on equity 25% WACC 15% Down payment on machinery & Equipment leased 20% Interest rate on machinery & Equipment 22%

Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/ Rev 1 26 leased Down payment on office equipment leased 20% Interest rate on office equipment leased 22% Down payment on vehicles leased 20% Interest rate on office vehicles leased 22% Table: Expense Assumption Description Cost / Rate Cost of goods sold growth rate 5. 0% Operating cists growth rate 5. 0% Administration benefits expense 3. 0% Traveling expense 3. 0% Communication expense 2. 0% Office Vehicles running expense 5. 0% Office expenses (stationary, entertainment, janitorial services etc. ) 1. 0% Promotional expense 10. 0%

Machinery & equipment insurance rate 2. 0% Office vehicles insurance rate 3. 0% Professional fees (legal, audit, consultants etc. ) 0. 5% Bad debt expense 3. 0% Table: Description Expense Description Method Straight Line Machinery & Equipment 10% Office Furniture & Fixture 10% Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/Rev 1 27 13 FINANCIAL STATEMENTS 13. 1 Projected Income Statement Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/Rev 1 28 13. 2 Projected Balance Sheet Pre-Feasibility Study Purified Bottled Water PREF-3/September, 2004/Rev 1 29 13. 3 Projected Cash Flow Statement

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