7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
1/24
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
2/24
FEASIBILITY STUDY RESULTS
4.1 Financial Profitability of Ilang-ilang Fresh Flowers Production
4.1.1 Ilang-ilang Fresh Flowers Production (Farm Level)
Ilang-ilang production entails plantation establishment, care and maintenance of
the trees and harvesting activities.
Given the recommended cultural management practices for ilang-ilangproduction in Carranglan, the labor cost, material input costs and other cost items
were computed.
Ilang-ilang trees start to bear flowers on the 3rd year from year of planting
(Table 4). Production gradually increases until the 8th year. A 15-year yield
projection was made.
A projected income statement was prepared to evaluate the profitability of
ilang-ilang production at the farm level (on a per tree and per hectare basis).
Tables 16 & 17 present the summary of the projection. The details are shown in
Appendix Tables 1 & 2.
Table 16. Financial Analysis per Tree, Ilang-ilang Fresh Flower Production
1 0 90 (90)2 0 39 (39)
3 150 58 92
4 300 76 224
5 500 104 396
6 750 125 625
7 1,050 165 885
8 1,800 241 1,559
9 1,800 247 1,553
10 1,800 241 1,559
11 1,800 247 1,553
12 1,800 241 1,559
13 1,800 247 1,553
14 1,800 241 1,559
15 1,800 247 1,553
YEARGROSS SALES COST OF PRODUCTION NET INCOME
(P) (P) (P)
FINANCIAL AND ECONOMIC ANALYSIS
58
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
3/24
FEASIBILITY STUDY RESULTS
On a per tree basis, a farmer will have an annual net income of P1,559 when theilang-ilang tree is on its 8th year onwards.
As can be seen in the above table, ilang-ilang production is very profitable asshown by the annual net income ranging from P18,348 to as high as P311,828.
During the plantation establishment years (Year 1 & 2), a net loss of
approximately P26,000 is incurred on a per hectare basis.
Table17. Financial Analysis per Hectare, Ilang-ilang Fresh Flower Production
1 0 18,079 (18,079)
2 0 7,822 (7,822)3 30,000 11,652 18,348
4 60,000 15,172 44,828
5 100,000 20,892 79,108
6 150,000 25,072 124,928
7 210,000 32,992 177,008
8 360,000 48,172 311,828
9 360,000 49,492 310,508
10 360,000 48,172 311,828
11 360,000 49,372 310,628
12 360,000 48,172 311,828
13 360,000 49,372 310,628
14 360,000 48,172 311,828
15 360,000 49,372 310,628
NET INCOME
(P)YEAR
GROSS SALES COST OF PRODUCTION
(P) (P)
4.1.2 Financial Internal Rate of Return (FIRR) and Net Present Value (NPV)
Discounted measures of project worth, FIRR and NPV were also computed to
determine the profitability of operation within a 15-year period.
A discount factor of 20% (the current commercial borrowing rate) was used in
computing the NPV. The results are shown in Tables 18 & 19.
Both measures show high profits in ilang-ilang production over a 15-yearperiod.
The very large and positive NPV at 20% discount factor means the earning
capacity of the enterprise is way above the commercial rate of borrowing. The
FIRR result of 109% supports this conclusion.
FINANCIAL AND ECONOMIC ANALYSIS
59
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
4/24
FEASIBILITY STUDY RESULTS
Table 18. Net Present Value and Financial Internal Rate of Return per Tree, Ilang-ilang Fresh Flower
Production
1 0 90 (90)
2 0 39 (39)
3 150 58 92
4 300 76 224
5 500 104 396
6 750 125 625
7 1,050 165 885
8 1,800 241 1,559
9 1,800 247 1,553
10 1,800 241 1,559
11 1,800 247 1,553
12 1,800 241 1,55913 1,800 247 1,553
14 1,800 241 1,559
15 1,800 247 1,553
= 2,340
= 109%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH NET
INFLOW OUTFLOW CASHFLOW
Table 19. Net Present Value and Financial Internal Rate of Return per Hectare, Ilang-ilang Fresh Flowe
Production
1 0 18,079 (18,079)
2 0 7,822 (7,822)
3 30,000 11,652 18,348
4 60,000 15,172 44,828
5 100,000 20,892 79,108
6 150,000 25,072 124,928
7 210,000 32,992 177,008
8 360,000 48,172 311,828
9 360,000 49,492 310,508
10 360,000 48,172 311,828
11 360,000 49,372 310,628
12 360,000 48,172 311,82813 360,000 49,372 310,628
14 360,000 48,172 311,828
15 360,000 49,372 310,628
= 468,090
= 109%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
CASHFLOWYEAR
CASH CASH
INFLOW OUTFLOW
FINANCIAL AND ECONOMIC ANALYSIS
60
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
5/24
FEASIBILITY STUDY RESULTS
4.1.3 Sensitivity Analysis
A sensitivity analysis was done to determine the ability of the enterprise to
withstand risks from decreases in the yield and price of output, unforeseenincreases in the cost of production, and a combination of these variables.
On a per tree basis, the results are shown in Tables 20 23.
In Table 20, it can be seen that the proposed project can withstand as much as
80% reduction in yield per tree of ilang-ilang flowers assuming that the cost of
production does not increase.
Table 20. Sensitivity Analysis (% Decrease in Yield), Ilang-ilang Fresh Flower Production Per Tree
1 0 90 (90)
2 0 39 (39)
3 30 58 (28)
4 60 76 (16)
5 100 104 (4)
6 150 125 25
7 210 165 45
8 360 241 119
9 360 247 113
10 360 241 119
11 360 247 11312 360 241 119
13 360 247 113
14 360 241 119
15 360 247 113
= 17
= 22%
SENSITIVITY ANALYSIS
Reduction in yield 80%
Decrease in price of output/unit 0%
Cost overran 0%
NET
CASHFLOWYEAR
CASH CASH
INFLOW OUTFLOW
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
FINANCIAL AND ECONOMIC ANALYSIS
61
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
6/24
FEASIBILITY STUDY RESULTS
The same conclusion is reached if the price per kilogram of fresh flowers isreduced. It can withstand 80% reduction in the price of fresh flowers. This is
shown in Table 21.
Table 21. Sensitivity Analysis (% Decrease inPrice/Kg Yield), Ilang-ilang Fresh Flower Production Per Tree
1 0 90 (90)
2 0 39 (39)
3 30 58 (28)
4 60 76 (16)
5 100 104 (4)
6 150 125 25
7 210 165 45
8 360 241 119
9 360 247 113
10 360 241 119
11 360 247 113
12 360 241 119
13 360 247 113
14 360 241 119
15 360 247 113
= 17
= 22%
SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in price of output/unit 80%
Cost overran 0%
NET
CASHFLOWYEAR
CASH CASH
INFLOW OUTFLOW
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
In Table 22, changes in NPV and FIRR were evaluated assuming cost overrun
(i.e. increase in the cost of production).
Results show that the proposed project on a per tree basis can withstand an
increase in the cost of production (cost overrun) of as high as 370%.
Based on the above changes the proposed project can withstand various
combinations of these above-stated risks.
FINANCIAL AND ECONOMIC ANALYSIS
62
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
7/24
FEASIBILITY STUDY RESULTS
Table 22. Sensitivity Analysis (% Cost Overrun), Ilang-ilang Fresh Flower Production Per Tree
1 0 425 (425)
2 0 184 (184)
3 150 274 (124)
4 300 357 (57)
5 500 491 9
6 750 589 161
7 1,050 775 275
8 1,800 1,132 668
9 1,800 1,163 637
10 1,800 1,132 668
11 1,800 1,160 640
12 1,800 1,132 668
13 1,800 1,160 640
14 1,800 1,132 66815 1,800 1,160 640
= 255
= 25%
SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in price of output/unit 0%
Cost overran 370%
NET
CASHFLOWYEAR
CASH CASH
INFLOW OUTFLOW
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
On a per hectare basis, the results of the sensitivity analysis are discussed and
shown in Tables 23 & 24 below.
The ability to withstand decreases in yield is shown in Table 23.
Results show that the proposed project can withstand a decrease of 90% inthe projected yield per hectare. This means that even if the yield is just 10% of the
estimated yield per hectare, assuming that other factors do not change, the FIRR of
fresh flowers production per hectare is still above the borrowing rate of 20%.
The resulting NPV is also positive indicating the same results as that of the
computed FIRR.
In Table 24 changes in NPV and FIRR were evaluated assuming an increase in
cost of production.
Result shows that the proposed project can withstand even if cost of
production increased by 390%.
FINANCIAL AND ECONOMIC ANALYSIS
63
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
8/24
FEASIBILITY STUDY RESULTS
Table 23. Sensitivity Analysis (% Decrease in Yield), Ilang-ilang Fresh Flower Production Per Hectare
1 0 18,079 (18,079)
2 0 7,822 (7,822)
3 3,000 8,682 (5,682)
4 6,000 9,232 (3,232)
5 10,000 10,992 (992)
6 15,000 10,222 4,778
7 21,000 12,202 8,798
8 36,000 12,532 23,468
9 36,000 13,852 22,148
10 36,000 12,532 23,468
11 36,000 13,732 22,268
12 36,000 12,532 23,468
13 36,000 13,732 22,268
14 36,000 12,532 23,468
15 36,000 13,732 22,268
= 2,835= 22%
SENSITIVITY ANALYSIS
Reduction in yield 90%
Decrease in price of output 0%
Cost overran 0%
YEARCASH CASH
NET PRESENT VALUE at 20% d.f. (P)FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOW
Table 24. Sensitivity Analysis (% Cost Overrun), Ilang-ilang Fresh Flower Production Per Hectare
1 0 90,396 (90,396)
2 0 39,112 (39,112)
3 30,000 58,262 (28,262)
4 60,000 75,862 (15,862)
5 100,000 104,462 (4,462)
6 150,000 125,362 24,639
7 210,000 164,962 45,039
8 360,000 240,862 119,139
9 360,000 247,462 112,539
10 360,000 240,862 119,139
11 360,000 246,862 113,139
12 360,000 240,862 119,139
13 360,000 246,862 113,139
14 360,000 240,862 119,139
15 360,000 246,862 113,139
= 17,079
= 22%SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in price of output 0%
Cost overran 400%
YEARCASH CASH
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOW
4.2 Financial Profitability of Ilang-ilang Essential Oil Production
FINANCIAL AND ECONOMIC ANALYSIS
64
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
9/24
FEASIBILITY STUDY RESULTS
The new cooperative member of ALYANSA will directly manage the production and
marketing of essential oil production. The profitability of operation is shown in Table
25.
4.2.1 Net Income
Essential oil production starts on the 3rd year after the ALYANSA membershave established ilang-ilang plantation. This is the year the ilang-ilang trees start to
bear flowers.
Net income from operation gradually increases from the 3rd year onwards.
Table 25. Financial Analysis, Essential Oil Production
1 0 0 0
2 0 0 0
3 291,600 260,587 31,013
4 583,200 322,414 260,786
5 972,000 351,516 620,484
6 1,458,000 487,894 970,106
7 2,041,200 651,548 1,389,652
8 3,499,200 1,060,682 2,438,518
9 3,499,200 1,060,682 2,438,518
10 3,499,200 1,060,682 2,438,518
11 3,499,200 1,060,682 2,438,518
12 3,499,200 1,060,682 2,438,518
13 3,499,200 1,060,682 2,438,518
14 3,499,200 1,060,682 2,438,518
15 3,499,200 1,060,682 2,438,518
NET INCOME
(P) (P) (P)YEAR
GROSS SALES TOTAL EXPENSES
The oil extraction operation is highly dependent on the ability of the members of
produce ilang-ilang fresh flowers which is the basic input of the operation.
4.2.2 Financial Internal Rate of Return (FIRR) and Net Present Value (NPV)
Using the current commercial rate of borrowing (20%) as the discount factor,
the net cash flow was discounted to determine the net present value of the
enterprise.
FINANCIAL AND ECONOMIC ANALYSIS
65
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
10/24
FEASIBILITY STUDY RESULTS
In addition, FIRR was computed to determine the earning capacity of the saidenterprise. Table 26 shows the FIRR and NPV of essential oil production.
An NPV of approximately P3.419M was computed using 20% discount factor. The FIRR computed is 89%.
Both of the positive NPV and FIRR are higher than the commercial borrowing
rate of 20%. This suggests that essential oil extraction given the technical
assumptions proposed is highly profitable.
Changes in the assumed quantity of essential oil produced, prices of essential
oil and increases in the cost of production have been altered to find out the extent of
flexibility of essential oil production given the above variable factors. Theprofitability of the essential oil production and marketing was tested.
The results are shown in Tables 27 - 29.
It can be seen in Tables 27 & 28 that the proposed essential oil production canwithstand a yield reduction of up to 80% or a 69% reduction in price of output.
It means that even if the price per liter of essential oil is only P2,000, theoperation is still profitable given the 20% borrowing rate. At this rate,
FINANCIAL AND ECONOMIC ANALYSIS
Table 26. Net Present Value and Financial Internal Rate of Return, Essential Oil Production
1 0 0 0
2 0 430,000 (430,000)3
291,600 260,587 31,0134
583,200 322,414 260,7865
972,000 351,516 620,4846
1,458,000 487,894 970,1067
2,041,200 651,548 1,389,6528
3,499,200 1,060,682 2,438,5189
3,499,200 1,060,682 2,438,518
10 3,499,200 1,060,682 2,438,518
11 3,499,200 1,060,682 2,438,518
12 3,499,200 1,060,682 2,438,518
13 3,499,200 1,060,682 2,438,518
14 3,499,200 1,060,682 2,438,518
15 3,499,200 1,060,682 2,438,518=3,418,536
=89%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOWYEAR
CASH CASH
66
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
11/24
FEASIBILITY STUDY RESULTS
Table 27. Sensitivity Analysis (% Decrease in Yield), Essential Oil Production
1 0 0 0
2 0 430,000 (430,000)
3 72,000 211,464 (139,464)
4 144,000 231,328 (87,328)
5 240,000 204,480 35,520
6 360,000 270,920 89,080
7 504,000 350,648 153,352
8 864,000 549,968 314,032
9 864,000 549,968 314,032
10 864,000 549,968 314,032
11 864,000 549,968 314,032
12 864,000 549,968 314,032
13 864,000 549,968 314,032
14 864,000 549,968 314,032
15 864,000 549,968 314,032
= 1,762= 20%
SENSITIVITY ANALYSIS
Reduction in yield 80%
Decrease in price of output 0%
Cost overran 0%
NET
INFLOW OUTFLOW CASHFLOW
NET PRESENT VALUE at 20% d.f. (P)FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH
Table 28. Sensitivity Analysis (% Decrease in Price/Liter Yield), Essential Oil Production
1 0 0 0
2 0 430,000 (430,000)
3 111,600 250,920 (139,320)
4 223,200 310,240 (87,040)
5 372,000 336,000 36,000
6 558,000 468,200 89,800
7 781,200 626,840 154,360
8 1,339,200 1,023,440 315,760
9 1,339,200 1,023,440 315,760
10 1,339,200 1,023,440 315,760
11 1,339,200 1,023,440 315,760
12 1,339,200 1,023,440 315,760
13 1,339,200 1,023,440 315,760
14 1,339,200 1,023,440 315,760
15 1,339,200 1,023,440 315,760
= 4,550
= 20%SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in price of output 69%
Cost overran 0%
NET
INFLOW OUTFLOW CASHFLOW
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH
FINANCIAL AND ECONOMIC ANALYSIS
67
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
12/24
FEASIBILITY STUDY RESULTS
Table 29. Sensitivity Analysis (% Cost Overrrun), Essential Oil Production
1 0 0 0
2 0 430,000 (430,000)
3 360,000 658,404 (298,404)
4 720,000 931,888 (211,888)
5 1,200,000 1,243,200 (43,200)
6 1,800,000 1,732,340 67,660
7 2,520,000 2,319,308 200,692
8 4,320,000 3,786,728 533,272
9 4,320,000 3,786,728 533,272
10 4,320,000 3,786,728 533,272
11 4,320,000 3,786,728 533,272
12 4,320,000 3,786,728 533,272
13 4,320,000 3,786,728 533,272
14 4,320,000 3,786,728 533,27215 4,320,000 3,786,728 533,272
= 58,896
= 22%
SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in price of output 0%
Cost overran 270%
NET
INFLOW OUTFLOW CASHFLOW
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH
competition of organic based ilang ilang essential oil with synthetic oil will
pose competition to synthetic oil.
In terms of cost overran (or increases in the cost of production), the proposedproject can with stand a 270% increase in cost. (Table 29).
4.3 Profitability of Sampaguita Fresh Flower Home Garden
An area of 30 m2 with 25 sampaguita shrubs is proposed per household ofprimary cooperative or association member of ALYANSA in areas along the
national highway.
The technical assumptions in sampaguita production (Table 6) shows an
average flower production of 15 liters/shrub/year except on the first year where
only 5 liters/shrub/year is assumed.
In addition, these households are expected to sell their sampaguita flowers to
their primary cooperative or association which in turn strings these flowers into
garlands and distribute them to the market.
FINANCIAL AND ECONOMIC ANALYSIS
68
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
13/24
FEASIBILITY STUDY RESULTS
4.3.1 Net Income
In as much that sampaguita seedlings start to bear flowers on the 6 th month after
planting and that production gradually increases until the 2nd year, the net incomefrom operation also gradually increases.
The computed net income per household is shown in Table 30.
As shown in the table below, an annual net income of approximately P6,000
can be realized by the household for their 25 shrubs of sampaguita.
4.3.2 Financial Internal Rate of Return (FIRR) and Net Present Value (NPV)
Using the current commercial rate of borrowing (20%) as the discount factor,
the net cash flow was discounted to determine the net present value of theenterprise.
In addition, FIRR was computed to determine the earning capacity of the saidenterprise. Table 31 shows the FIRR and NPV of sampaguita flower production.
A positive NPV (at 20% d.f.) of P17,585 was computed.
FINANCIAL AND ECONOMIC ANALYSIS
Table 30. Financial Analysis, Sampaguita Fresh Flower Production, Household Level.
13,750 8,949 (5,199)
211,250 5,607 5,643
311,250 5,532 5,718
411,250 5,532 5,718
511,250 5,532 5,718
611,250 5,532 5,718
711,250 5,532 5,718
811,250 5,532 5,718
911,250 5,532 5,718
10 11,250 5,532 5,718
11 11,250 5,532 5,718
12 11,250 5,532 5,718
13 11,250 5,532 5,718
14 11,250 5,532 5,718
15 11,250 5,532 5,718
YEAR
GROSS SALES COST OF PRODUCTION NET INCOME
(P) (P) (P)
69
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
14/24
FEASIBILITY STUDY RESULTS
An FIRR of 109% was computed.
Both discounted measures indicate that sampaguita production on a homegarden scale is very profitable no matter how small the size is.
Table 31. Net Present Value and Financial Internal Rate of Return, Sampaguita Fresh Flower Production.
1 3,750 8,949 (5,199)
2 11,250 5,607 5,643
3 11,250 5,532 5,718
4 11,250 5,532 5,718
5 11,250 5,532 5,718
6 11,250 5,532 5,718
7 11,250 5,532 5,718
8 11,250 5,532 5,718
9 11,250 5,532 5,718
10 11,250 5,532 5,718
11 11,250 5,532 5,718
12 11,250 5,532 5,718
13 11,250 5,532 5,718
14 11,250 5,532 5,718
15 11,250 5,532 5,718
= 17,585
= 109%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH NET
INFLOW OUTFLOW CASHFLOW
4.3.3 Sensitivity Analysis
The sampaguita home garden was also subjected to sensitivity test to determine
the extent of flexibility of operation given the variability of yield, selling price ofsampaguita fresh flowers and the cost of production.
Yield reduction and output price reduction are sources of variation insampaguita production. Results of the tests show that:
The sampaguita home garden operation can withstand 37% yield reduction.
This means sampaguita home gardens will still be profitable even if the yieldper shrub per year is decreased (Table 32) or the price per unit of fresh
sampaguita flowers is reduced (Table 33).
FINANCIAL AND ECONOMIC ANALYSIS
70
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
15/24
FEASIBILITY STUDY RESULTS
Table 32. Sensitivity Analysis (Decrease in Yield), Sampaguita Fresh Flower Production
1 2,325 8,949 (6,624)
2 6,975 5,607 1,368
3 6,975 5,532 1,443
4 6,975 5,532 1,443
5 6,975 5,532 1,443
6 6,975 5,532 1,443
7 6,975 5,532 1,443
8 6,975 5,532 1,443
9 6,975 5,532 1,443
10 6,975 5,532 1,443
11 6,975 5,532 1,443
12 6,975 5,532 1,443
13 6,975 5,532 1,443
14 6,975 5,532 1,443
15 6,975 5,532 1,443
= (27)
= 20%
SENSITIVITY ANALYSIS
Reduction in yield 38%
Decrease in output price/unit 0%
Cost overran 0%
NET PRESENT VALUE at 20%d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH NET
INFLOW OUTFLOW CASHFLOW
Table 33. Sensitivity Analysis )% Decrease in the Price/unit of Output) Fresh Flower Production,
Household Level.
1 2,363 8,949 (6,587)2 7,088 5,607 1,481
3 7,088 5,532 1,556
4 7,088 5,532 1,556
5 7,088 5,532 1,556
6 7,088 5,532 1,556
7 7,088 5,532 1,556
8 7,088 5,532 1,556
9 7,088 5,532 1,556
10 7,088 5,532 1,556
11 7,088 5,532 1,556
12 7,088 5,532 1,556
13 7,088 5,532 1,556
14 7,088 5,532 1,556
15 7,088 5,532 1,556
= 436= 22%
SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in output price/unit 37%
Cost overran 0%
NET PRESENT VALUE at 20% d.f. (P)FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH NET
INFLOW OUTFLOW CASHFLOW
FINANCIAL AND ECONOMIC ANALYSIS
71
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
16/24
FEASIBILITY STUDY RESULTS
In terms of its ability to withstand increases in the cost of production, thesampaguita home garden can withstand approximately 60% increase in the cost
of production (Table 34).
Table 34. Sensitivity Analysis (% Cost Overrun)), Sampaguita Fresh Flower Production
1 3,750 14,319 (10,569)
2 11,250 8,971 2,279
3 11,250 8,851 2,399
4 11,250 8,851 2,399
5 11,250 8,851 2,399
6 11,250 8,851 2,399
7 11,250 8,851 2,3998 11,250 8,851 2,399
9 11,250 8,851 2,399
10 11,250 8,851 2,399
11 11,250 8,851 2,399
12 11,250 8,851 2,399
13 11,250 8,851 2,399
14 11,250 8,851 2,399
15 11,250 8,851 2,399
= 327
= 21%
SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in output price/unit 0%Cost overran 60%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH NET
INFLOW OUTFLOW CASHFLOW
Combining decreases in yield/output, price decrease and cost overrun, theproposed sampaguita home garden can withstand a combination of 15% yield
decrease and output price decrease, and 16% increase in the cost of production
(Table 35).
FINANCIAL AND ECONOMIC ANALYSIS
72
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
17/24
FEASIBILITY STUDY RESULTS
Table 35. Sensitivity Analysis (Combined Effect), Sampaguita Fresh Flower Production
1 2,709 10,381 (7,672)
2 8,128 6,504 1,624
3 8,128 6,417 1,711
4 8,128 6,417 1,711
5 8,128 6,417 1,711
6 8,128 6,417 1,711
7 8,128 6,417 1,711
8 8,128 6,417 1,711
9 8,128 6,417 1,711
10 8,128 6,417 1,711
11 8,128 6,417 1,711
12 8,128 6,417 1,71113 8,128 6,417 1,711
14 8,128 6,417 1,711
15 8,128 6,417 1,711
= 121
= 20%
SENSITIVITY ANALYSIS
Reduction in yield 15%
Decrease in output price/unit 15%
Cost overran 16%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
YEARCASH CASH NET
INFLOW OUTFLOW CASHFLOW
4.4 Profitability of Sampaguita Garlands
On the primary cooperative/association level, the profitability of garlands
making and marketing was also evaluated.
4.4.1 Net Income
On the basis of the technical assumption in garlands making and marketing, thenet income on the association level was computed. The result is shown in Table 36.
Results show a very high net income for the primary cooperative orassociation if they engage in garlands making and marketing, an attractiveopportunity for members to engage in garlands making.
FINANCIAL AND ECONOMIC ANALYSIS
73
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
18/24
FEASIBILITY STUDY RESULTS
This high net income, however, is dependent on the success ofsampaguita home gardening being operated by household members, being the
providers of sampaguita blooms (flowers).
Table 36. Net Present Value and Financial Internal Rate of Return, Garlands Production
0 23,958 (23,958)
1 416,667 287,500 129,167
2 1,250,000 862,500 387,500
3 1,250,000 862,500 387,500
4 1,250,000 862,500 387,500
5 1,250,000 862,500 387,500
6 1,250,000 862,500 387,500
7 1,250,000 862,500 387,500
8 1,250,000 862,500 387,5009 1,250,000 862,500 387,500
10 1,250,000 862,500 387,500
11 1,250,000 862,500 387,500
12 1,250,000 862,500 387,500
13 1,250,000 862,500 387,500
14 1,250,000 862,500 387,500
15 1,250,000 862,500 387,500
= 1,596,468
= 678%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOWYEAR
CASH CASH
4.4.2 Financial Internal Rate of Return (FIRR) and Net Present Value (NPV)
Using the current commercial rate of borrowing (20%) as the discount factor,the net cash flow was discounted to determine the net present value of garlands
production and marketing.
In addition, FIRR was computed to determine the earning capacity of the said
enterprise. Table 36 above shows the FIRR and NPV of sampaguita garlands
production and marketing.
A very high positive NPV (at 20% d.f.) was computed.
A very high FIRR was computed.
Both discounted measures indicate that, if the cooperative or association will
engage in garlands production and marketing, a modest profit awaits themconsidering the potential market for garlands in nearby provinces.
FINANCIAL AND ECONOMIC ANALYSIS
74
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
19/24
FEASIBILITY STUDY RESULTS
4.4.3 Sensitivity Analysis
The proposed sampaguita garlands production and marketing on the cooperative
or association level was subjected to sensitivity test to determine how flexible theoperation can be given the variability of market, selling price of sampaguita
garlands and the cost of production and marketing of garlands.
Yield reduction and output price reduction are sources of variation. Result ofthe test shows that:
The sampaguita garlands production and marketing can withstand 30% decreasein price per unit of sampaguita garlands (Table 37) or 30% yield reduction or
price reduction (Table 38).
This means that the cooperative still has positive net profit even if the price ofgarlands is reduced by 30% or its level of operation is just 70% of the planned
scale.
Table 37. Sensitivity Analysis (% Decrease in Price/unit of Output), Barangay Association/Cooperative
Level.
0 23,958 (23,958)
1 291,667 287,500 4,167
2 875,000 862,500 12,500
3 875,000 862,500 12,5004 875,000 862,500 12,500
5 875,000 862,500 12,500
6 875,000 862,500 12,500
7 875,000 862,500 12,500
8 875,000 862,500 12,500
9 875,000 862,500 12,500
10 875,000 862,500 12,500
11 875,000 862,500 12,500
12 875,000 862,500 12,500
13 875,000 862,500 12,500
14 875,000 862,500 12,500
15 875,000 862,500 12,500
= 51,499
= 42%
SENSITIVITY ANALYSIS
Reduction in yield 30%
Decrease in price of output 0%
Cost overran 0%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOWYEAR
CASH CASH
FINANCIAL AND ECONOMIC ANALYSIS
75
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
20/24
FEASIBILITY STUDY RESULTS
Table 38. Sensitivity Analysis (% Decrease in Output), Barangay Association/Cooperative Level.
0 23,958 (23,958)
1 291,667 287,500 4,167
2 875,000 862,500 12,500
3 875,000 862,500 12,500
4 875,000 862,500 12,500
5 875,000 862,500 12,500
6 875,000 862,500 12,500
7 875,000 862,500 12,500
8 875,000 862,500 12,500
9 875,000 862,500 12,500
10 875,000 862,500 12,500
11 875,000 862,500 12,500
12 875,000 862,500 12,500
13 875,000 862,500 12,500
14 875,000 862,500 12,500
15 875,000 862,500 12,500
= 51,499
= 42%
SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in price of output 30%
Cost overran 0%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOWYEAR
CASH CASH
In terms of the ability of the cooperative to cope up with increases in the cost ofgarland production and marketing, the result of the sensitivity test showed that:
Even if the cost of production and marketing of sampaguita garlandsincreased by 44%, the operation of the cooperative or association is still
profitable given a zero change in the commercial borrowing rate of 20%,in the
price and level of production of garlands (Table 39).
FINANCIAL AND ECONOMIC ANALYSIS
76
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
21/24
FEASIBILITY STUDY RESULTS
Table 39. Sensitivity Analysis (% Cost Overrun), Barangay Association/Cooperative Level.
0 23,958 (23,958)
1 416,667 414,000 2,667
2 1,250,000 1,242,000 8,000
3 1,250,000 1,242,000 8,000
4 1,250,000 1,242,000 8,000
5 1,250,000 1,242,000 8,000
6 1,250,000 1,242,000 8,000
7 1,250,000 1,242,000 8,000
8 1,250,000 1,242,000 8,000
9 1,250,000 1,242,000 8,000
10 1,250,000 1,242,000 8,000
11 1,250,000 1,242,000 8,000
12 1,250,000 1,242,000 8,000
13 1,250,000 1,242,000 8,000
14 1,250,000 1,242,000 8,000
15 1,250,000 1,242,000 8,000
= 32,959
= 27%
SENSITIVITY ANALYSIS
Reduction in yield 0%
Decrease in price of output 0%
Cost overran 44%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOWYEAR
CASH CASH
The ability of the proposed enterprise to cope up with the combined effect ofdecreases in output, in output price, and in increases in the cost of production and
marketing was also computed. The result is shown in Table 40.
As shown in Table 40, the proposed enterprise can withstand a combination of
changes in 11% decrease in output or in output price and 14% increase in the
cost of production and marketing of sampaguita garlands.
FINANCIAL AND ECONOMIC ANALYSIS
77
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
22/24
FEASIBILITY STUDY RESULTS
4.5 Economic and Environmental Impact Evaluation of Ilang-ilang andSampaguita Production
An economic and environmental impact evaluation was made to determine thedesirability of the proposed project to the society.
On the economic impact, this could be in terms of the impact to employmentgeneration, livelihood opportunities, and household income.
Environmental impact is limited to provision of quality air, soil conservation
impact and on carbon sequestration impact of the proposed project.
There will be positive net benefits to the whole society if the proposed project
will be implemented at the current social rate of return of 15%. This is lower thanthe private rate of return of 20%. This can be deduced (without actually computing
the net benefits) from the positive benefits generated at 20% private rate of return, a
FINANCIAL AND ECONOMIC ANALYSIS
Table 40. Sensitivity Analysis (Combined Effect), Barangay Association/Cooperative Level.
023,958 (23,958)
1330,042 327,750 2,292
2990,125 983,250 6,875
3990,125 983,250 6,875
4990,125 983,250 6,875
5990,125 983,250 6,875
6990,125 983,250 6,875
7990,125 983,250 6,875
8990,125 983,250 6,875
9990,125 983,250 6,875
10 990,125 983,250 6,875
11 990,125 983,250 6,875
12 990,125 983,250 6,87513 990,125 983,250 6,875
14 990,125 983,250 6,875
15 990,125 983,250 6,875=
28,324=
24%
SENSITIVITY ANALYSIS
Reduction in yield 11%
Decrease in price of output 11%
Cost overran 14%
NET PRESENT VALUE at 20% d.f. (P)
FINANCIAL INTERNAL RATE OF RETURN (FIRR)
NET
INFLOW OUTFLOW CASHFLOWYEAR
CASH CASH
78
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
23/24
FEASIBILITY STUDY RESULTS
return higher than the social rate of return (15%). The proposed enterprise can haveboth positive forward and backward effects.
In as much as the financial analysis in both the farm level and association level(new cooperative member of ALYANSA and primary cooperative/association)
show positive net benefits using commercial borrowing rate of 20% as the discount
factor, it can be deduced that;
First, ilang-ilang production offers an alternative land use in the whole
municipality of Carranglan and therefore additional employment opportunity to
the community. This employment opportunity is biased in favor of the farmer-members whose land areas are rolling.
Second, the ilang-ilang plantation offers a new business opportunity to
ALYANSA or a cooperative member, which has high potential to become afederation of cooperatives in the municipality of Carranglan.
This new business opportunity will create direct employment opportunities
to the members of ALYANSA as well as others residents of Carranglan.
Third, the essential oil production can encourage the ALYANSA or otherentrepreneurs to engage in the production of ilang-ilang scented soap, cologne,
perfumes, and others.
Again, this creates additional employment opportunities to the Carranglan
Community
The sampaguita home garden will have the following positive benefits to the
Carranglan people:
Considering the nature of the proposed project as small scale in nature andwill be located in the backyard, women members of the househol as well as the
children will be the direct beneficiaries.
It offers additional employment opportunity as well as additional household
income.
It will utilize household labor during the spare time of the members of the
household.
FINANCIAL AND ECONOMIC ANALYSIS
79
7/31/2019 Chapter 4 - Fs Financial & Economic Analysis
24/24
FEASIBILITY STUDY RESULTS
Additional benefits will include the development of good values amongchildren like industriousness, sense of responsibility towards the family and
entrepreneurship.
On the primary cooperative/association level:
Garlands production and marketing offers a new business venture which
can provide new sources of revenue to the coffer of the organization.
Can contribute to the empowerment of the organization.
On environmental Impact:
Both the ilang-ilang and sampaguita production project have
no negative environmental effect. Rather, the two projects are environment-friendly.
There will be improvement in the vegetative cover of the area.Therefore contributes to soil conservation program of the government.
Can contribute to the world-wide campaign on carbon sequestration.
Help reduce air pollution by providing scented air not only to
Carranglan but also to passers by.
Compatible with the community-based forest management program
(CBFM). Given the financial benefits it will generate, the land owners willsustain the trees for its flowers not for its wood.
FINANCIAL AND ECONOMIC ANALYSIS
80