Car care project feasibility study

‘Car Care’ Project feasibility study Supervisor: Prof. Dr. Ashraf Saleh

Prepared by: Amal Azab,

Karim ElKot,

Walid Saafan

Sep., 2009

'Car Care' Project feasibility study, Sep.,20092

Topics

Introduction

The location study

The legal study

The marketing study

The technical study

The financial study

The economical study

Conclusion


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..


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 m2.


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.


The marketing studyTarget customers and market segmentation

Geographic segmentation:

The target customers are AlRehab city and the surrounding area 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 29

Total 9 8 8 8 8 23 23 88Average served card per day 12.4


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 Sterilizing

25 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 25,000 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 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


The marketing studyFactors 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*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 advertising changes:

The Number of people attracted due to advertising will decrease as time 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 by

advertising over time.



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.



We assume that there will be no sales in Y0.

Years Ft Dt+1=Dt*(1+Ft)Y0 0% 319,500Y1 11% 354,645Y2 9.80% 389,400Y3 9.20% 425,225Y4 8.60% 461,794Y5 8.30% 500,123


The technical studyService cycle and flow chart

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


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 CostFloor preperations 10,000 Wall painting and preperations 4,000 Electricity preperations 3,000 Others 5,000 Total 22,000


The technical studyInitial costs, cont.,:

Site external preparations

Advertising costs

Miscellaneous costs

Legal documents:

Item CostSingage 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 CostCommercial registration and tax card & licence 7,000 others 500 Total 7,500

Total initial expense for Y0 254,580


The technical studyOperating costs:

Operating costs:Equipments and machines

Serial Item Unit price Quantity Total price1 Machine wash in cold water high pressure 5000 1 5,000 2 Steam washing machine 30000 1 30,000 3 Vacuum cleaner 3000 1 3,000 4 Disks washing and polishing 500 1 500 5 Air compressor 4000 1 4,000

42,500 Total


The technical studyOperating costs, cont.,:

Raw materials costs

Manpower structure and costs

Rent

Serial Job description Quantity Cost Total cost1 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

Raw materials costsSerial 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 fundsBank loan 260K over 5 years 11%Principal 260,000 interst rate (annual) 11%Interst amount (annual) 28,600 Duration (years) 5Total interst 143,000 Administrative fees (1.5%) 3,900 Total 406,900 The loan will be amotrized 6,782 per monthCost 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


The technical study Total yearly cash flow:

Year Item Cash in Cash outCash 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 389,400Rent (+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 outCash in 425,225Rent (+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


Cash in 461,794Rent (+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


Cash in 500,123Rent (+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


The technical study Total yearly cash flow:

Total aggregated income and expenditures for the project over 5 years

Year Cash-in Cash-out Gross profit Tax (18%) Net profit2009 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


The financial studySource 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%.

Cost of fundsBank loan 260K over 5 years 11%Principal 260,000 interst rate (annual) 11%Interst amount (annual) 28,600 Duration (years) 5Total interst 143,000 Administrative fees (1.5%) 3,900 Total 406,900 The loan will be amotrized 6,782 per monthCost of funds 81,380 per year


The financial studyInvestment 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.

𝑅= ሺ 𝐶𝑎𝑠ℎ 𝑖𝑛− 𝑐𝑎𝑠ℎ 𝑜𝑢𝑡+ 𝑦 ሻ∗100% 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡

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

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 of the 3rd 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.

Year Cash-in Cash-out Net profit accumulated2009 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



3. Net present value - NPVAssume discount rate = 10%

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

Year Cash-in Cash-out Gross profit Tax (18%) Net profit2009 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 = ሺ254,580ሻ+ 73,9941.1 + 89,2821.12 + 104,1901.13 + 118,3281.14 + 152,0741.15



4. Interest Rate of Return – IRR

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

0 = ሺ254,580ሻ+ 73,994(1+ 𝑟) + 89,282(1+ 𝑟)2 + 104,190(1+ 𝑟)3 + 118,328(1+ 𝑟)4 + 152,074(1+ 𝑟)5


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.


THANK YOU

Date post:	11-Nov-2014
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Car care project feasibility study

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