Project appriasal work

MJIS COMPANY LTD.
Project Appraisal
Group Work
March 28, 2012
FEASIBILITY STUDIES FOR THE ESTABLISHMENT OF A MJIS
LTD- ASANA BOTTLED DRINK COMPANY
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©MJIS Company LTD- Clean Water Production Feasibility Studies

EXECUTIVE SUMMARY................................................................................................4
CHAPTER ONE................................................................................................................6
1.0 NAME, IDENTITY, STATUS...................................................................................6
1.1 NAME OF OWNER..................................................................................................7
1.1.1 MJIS TEAM OF EXPERTS...................................................................................7
1.2 OBJECT.....................................................................................................................7
1.3 BACKGROUND TO THE PROJECT.......................................................................7
CHAPTER TWO...............................................................................................................8
PURPOSE AND OBJECTIVES.......................................................................................8
2.0 PROJECT LOCATION..............................................................................................8
2.1 WHY THIS PROJECT..............................................................................................8
2.2 DETAILS OF THE PROPOSED PROJECT.............................................................9
CHAPTER FOUR: INDUSTRY ANALYSIS..................................................................9
3.0 Industry Analysis.......................................................................................................9
3.1 Understanding the Customer......................................................................................9
3.1.1 Main Competitors.................................................................................................10
3.1.2 Major.....................................................................................................................10
3.1.2.1 Strengthsof some of the Competitors.................................................................10
3.1.2.2 Weaknesses.........................................................................................................11
3.1.2.3Weaknessesof Competitors.................................................................................11
3.3 The Industry Analysis..............................................................................................11
4.5 Competitive nature of the Industry..........................................................................12
4.5.1 Maturity of the Industry........................................................................................12
4.5.2 Barriers to Entry....................................................................................................12
4.5.3 Barriers to Growth................................................................................................12
4.5.3 Barriers of Exit......................................................................................................13
4.6 Industry Rules and Regulations...............................................................................13
4.6.1 Regulation of Industry..........................................................................................13
4.7 Risk Analysis & Socio Economic Feasibility..........................................................15
4.7.1 Business Risks and Controls.................................................................................15
MJIS COMPANY LTD- ASANA BOTTLED DRINK COMPANY
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4.7.2 Political Feasibility...............................................................................................15
4.7.3 Market Feasibility.................................................................................................16
4.7.4 Technical Risk Feasibility.....................................................................................16
4.7.5 FINANCIAL RISK FEASIBILITY......................................................................16
5.0 CHAPTER FIVE: AN OVERVIEW OF THE GHANAIAN ECONOMY...........17
5.1 UNDERSTANDING THE ENVIRONMENT.........................................................17
5.2 IMPACT OF WORLD ECONOMIC FACTORS..................................................17
5.1 GHANA’S DEVELOPMENTAL CHALLENGES.................................................18
5.2 HISTORICAL PERSPECTIVE AND REFORM....................................................18
5.3 THE GHANAIAN ECONOMIC ENVIRONMENT...............................................18
5.4 SECTORAL PERFORMANCE..............................................................................20
5.5 THE MAUFACTURING SUB-SECTOR................................................................21
5.6 COMMERCIAL LENDING RATES AND CREDIT ANALYSIS..........................21
5.7 POPULATION TRENDS AND URBANISATION................................................21
5.8 POLITICAL ENVIRONMENT...............................................................................21
5.9 EMERGING OPPORTUNITIES IN A CHANGING GLOBAL.............................22
ENVIRONMENT..........................................................................................................22
5.12 THE FUTURE OUTLOOK...................................................................................22
CHAPTER SEVEN: FINANCIALANALYSIS AND PROJECTIONS.....................22
7.1 Capital Requirement................................................................................................22
7.2 Investment Plan........................................................................................................22
7.3 Financial Plan...........................................................................................................23
7.4 Profitability Analyses...............................................................................................24
7.4.1 Production.........................................................................................................24
7.4.2 REVENUE........................................................................................................24
7.4.3 Operating Expenses..........................................................................................24
7.4.4 Profitability.......................................................................................................25
7.4.5 Internal Rate of Return.....................................................................................25
7.4.6 Payback Period..................................................................................................25
7.4.7 Ratio Analyses..................................................................................................25
7.5 Breakeven Analyses.................................................................................................26
7.5.1 Break Even Point – Production.............................................................................26
7.5.2 Break Even Point – Pricing...............................................................................26
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7.6 Sensitivity Analyses.................................................................................................26
5.6.1 Introduction...........................................................................................................26
5.6.2 10% Increase in Operating Expenses...................................................................26
5.6.3 10% Decrease in Revenue................................................................................27
5.6.4 10% Increase in Operating Expense + 10% Decrease in Revenue...................27
5.6.5 15% Increase in Operating Expenses................................................................27
5.6.6 15% Decrease in Revenue................................................................................27
5.6.7 Conclusion on Sensitivity Analyses..................................................................27
5.7 Underlying Base Case Assumptions........................................................................27
5.7.1 Inflation.............................................................................................................28
5.7.2 Exchange Rates.................................................................................................28
5.7.3 Dividend Policy................................................................................................28
5.7.4 Depreciation......................................................................................................28
APPENDICES..................................................................................................................29
TABLE 1: CAPITAL REQUIREMENT, US$...............................................................29
TABLE 2: INVESTMENT PLAN US$.........................................................................29
Table 3: Investment Plan................................................................................................30
Table 4: Loan Repayment Plan......................................................................................30
Table 5: Production........................................................................................................30
Table 6: Production US$................................................................................................31
TABLE 7: ESTIMATED CAPITAL COSTS OF RUNNING THE COMPANY US$..31
Fixed Asset Schedule (From Year 1-5)..........................................................................32
PROJECTED 5 YEAR STATEMENT OF CASH FLOWS..........................................35
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DESCLIAMER
All the figures, assumptions, and analysis used in this report is solely based on the writers
research and findings, therefore they are held correct.
COPYRIGHT STATEMENT
© 2012 by MJIS CO LTD
All rights reserved. No part of this document may be used, reproduced or transmitted in
any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without prior written permission of MJIS CO.LTD.
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MJIS COMPANY LTD PROJECT FEASIBILITY REPORT
EXECUTIVE SUMMARY
MJIS COMPANY LTD wishes to operate Pure asana bottled drink company and other
local drinks to service points and retail shops in southern part of Ghana. The report
herein is therefore the Business Plan for the establishment of the above project proposal.
The market analyses indicate that there is a great demand for this product since
most people like the Asana Drink but will not just buy it because of how it been prepared
and sold by mostly old women. It is important to mention that with the demands
also comes intensive competition. Currently there are no company or venture producing
the local asana in large quantities or commercial base.
MJIS has decided to venture into the production of Asana in commercial quantities for
both the local markets and the internal markets.
Analysis from the research conducted by the company indicated that the project is
feasible and can be taken and that the demand will be increasing gradually every day. In
connection with the expansion process MJIS Ltd is seeking for a loan/grant to
enable it see expansion in Markets and developments.
Providing access to safe drinking water, by marketing purely treated drinking water such
as Baron Water House is one of the one of the answers.
The project links the work to The Global Need for Improved Water and
Sanitation.
MJIS Ltd Water intends to be among the top ten Pure Clean Sachet after
Producers in Ghana within ten years.
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The total capital required for investment required by MJIS Limited is estimated to be
(US$580,288.13). A summary is presented in the table below:
TABLE 1: CAPITAL REQUIREMENT, US$
Description Amount
1. Machinery &Equipement $ 7,850.45
2. Land Acquisition $ 75,000.45
3. Building & Infrastructure $ 1,250.00
4. Vehicles & Plants Machines $ 435,046.60
5. Office Equipment, Furniture Provision $ 3,780.00
6. Preliminary Expenses $ 4,960.00
7. Total Working Capital $ 25,890.00
8. Contingency $ 26,510.63
9. Total Capital Requirement $ 580,288.13
The investment plan for the undertaking has been presented in the table below:
TABLE 2: INVESTMENT PLAN US$
Description Amount Equity Loan
1. Machinery & Equipment $ 7,850.45 $ 7,850.45
2. Land Acquisition $ 75,000.45 $ 75,000.45
3. Building & Infrastructure $ 1,250.00 $ 1,250.00
4. Vehicles & Plants Machines $ 435,046.60 $ 10,000.00 $ 445,046.60
5. Office Equipment, Furniture
Provision $ 3,780.00 $ 3,780.00
6. Preliminary Expenses $ 4,960.00 $ 4,960.00
7. Total Working Capital $ 25,890.00 $ 25,890.00
8. Contingency $ 26,510.63 $ 26,510.63
9. Total Capital Requirement $ 580,288.13 $ 155,241.53
$
445,046.60
MJIS Company LTD requires a loan of US$445,046.60.00 to finance the acquisition
of the plant vehicles, Production Equipment’s, Plant vehicles, and if possible acquire
additional distribution vans The loan has been affixed with a maximum annual
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interest rate of 20%, which is expected to be paid on declining balance (Please
see Loan Repayment Schedule, Appendix 4). The repayment of the loan is
expected to be spread over 5 years, applying the straight-line amortisation. Please see
loan repayment schedule in the table below:
Table II: Loan Repayment, US$
Year 1 Year 2 Year 3 Year 3 Year 4 Year 5
Amount
Outstanding
$
445,046.60 $ 353,046.60 $ 261,046.60
$169,046.6
0 $ 77,046.60 $ 77,046.60
Principal
Repayment $ 92,000.00 $ 92,000.00 $ 92,000.00 $92,000.00 $ 92,000.00 $ 77,046.60
Interest $ 92,000.00 $ 72,500.00 $ 53,000.00 $33,500.00 $ 14,000.00 $ -
The undertaking is expected to yield US$ 468,000.00 as revenue, in the first year
of operation and to level off at US$ 874,506.60 in the tenth year of operation.
The cumulative revenue value in the tenth year of operation amounts to
US$6,650,680.92.
CHAPTER ONE.
1.0 NAME, IDENTITY, STATUS
MJIS is a manufacturing firm that is mainly into as manufacturing and bottling of water
and its related equipment. The company was incorporated under the companies’ code,
1963 (Act 179) as a company limited by guarantee at Victoriaborg, Accra on the 6th
,
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January, 2012. It was then entitled to commence business after it had been certified to
have complied with the provision of Sections 27 and 28 of the Companies code, Act 179
on the March 18th, 2012.They are specialized in bottling and manufacturing of drinks.
1.1 NAME OF OWNER
The sole-director of MJIS Ltdis Miss. Elizabeth Okrah.
1.1.1 MJIS TEAM OF EXPERTS
The team of professionals offers anexcellent solution to the installation and operations of
manufacturing and bottling of water. They have the experience and personnel to provide
the highest quality bottled and sachet clean water and beat the industry leaders. They
offer supportto their clients from project inception, to the commissioning of the fully
operational facility.
1.2 OBJECT.
The nature of the businesses, which the company is authorized to carry on are:
• Installation of Manufacturing and Bottling Equipment
• General Merchants (Exports and Imports of Drinkables)
1.3 BACKGROUND TO THE PROJECT.
MJIS Ltdhas just been incorporated. The enthusiastic professionals are willing to
undertake a construction work regardless of the size, value or location of their projects;
they bringing to theguarantee to quality and customer service which is their hallmark to
excellence. The current project to be undertaking is the installation and operation of MJIS
Clean Water Production Plant.
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CHAPTER TWO
PURPOSE AND OBJECTIVES
2.0 PROJECT LOCATION
The project will be located at the Eastern Region of Ghana precisely in the Ayekuma
Hills.
Figure 1: THE ENVISAGED FACTOIRY; PICTORIAL VIEW
Figure
2:
THE
ENVISAGED COMPANY ESTABLISHEMENT FLOOR PLAN
2.1 WHY THIS PROJECT
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We group members of the project management class at Regent University College of
Science and Technology is pleased to present this report investigating the feasibility of
operating a Clean Water Production company utilizing the knowledge they have acquired
in Project management to the setting up of the of MJIS LTD. The purpose of this
feasibility study is to investigate the viability of the proposed business venture and in so
doing the primary objectives of is study were to:
• Perform operational analyses to determine the technical viability of establishing
the MJIS Company.
• Select and perform savings and cost analysis based on project management skills
will have acquired
• Make recommendation for a financial consideration to pursue the project.
2.2 DETAILS OF THE PROPOSED PROJECT
The proposed project is to established a water bottling, treatment, and sachet water plant
and distribution services
CHAPTER FOUR: INDUSTRY ANALYSIS
3.0 Industry Analysis
3.1 Understanding the Customer
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The major customer groups of the services in the industry are:
Retail Shops in the Southern part of Ghana, Villages and Surrounding communities in
Accra, Koforidua, Cape Coast.
3.1.1 Main Competitors
There are nine groups of competitors; each of them has its own strengths and weaknesses,
which have been elaborated on below:
3.1.2 Major
The main suppliers in the region are:
 Voltic Ghana Limted
 Bel-Aqua
 Fell Bella Enterprise
 Divine Love
 Baron Water House
 Aqua-Splash
 Mobile Water
 Le Country
 Nsuopa
 Nacool
 IC4uEnterprice
3.1.2.1 Strengthsof some of the Competitors
These are either international companies or have overwhelming international
contacts, lots of experience, huge revenues, and enviable reputations. They have
managers with good degrees of experience in the industry.
They also have a comprehensive range of services.
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They usually have well trained and relatively well paid staff, presence in most parts of the
country. Some even have presence in the other countries in the West African sub-
region. They usually have state of the art dispensersandmarketing systems. They are
aggressive competitors.
3.1.2.2 Weaknesses
The main weaknesses of this group are: employment of illiterate drivers’ bureaucracy in
decision making employment of too many people, making the administrative set up
cumbersome
3.1.2.3Weaknessesof Competitors
Their employees are usually badly paid and therefore tend to be a bit unethical in their
dealings. A good number of these employees do not benefitfrom any skills
upgradingprogrammes. The companies are usually manned by one person or a duo,
who are the backbones of these firms, without whom much cannot be achieved. A
number of these companies do not apply any form of quality management.
They use old, obsolete and at most of the time, weak trucks, rending them unreliable.
3.3 The Industry Analysis
Competitors’ Comparison Apart from the explanations elaborated on in `"Main
Competitors", the most significant competition for this project with regards to the
vision of the promoters is constituted by the large and medium and small-scale
players. The most interesting point with regards to advantage for the undertaking
in comparison with the competition is extensive contacts of the project promoters in
the 3 northern regions of Ghana. The figure below shows the sector performance for the
country as far as 2011 is concerned.
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Source: GSS
4.5 Competitive nature of the Industry
With regards to the competitive nature off the industry, the intensity of competition
is high (intensive) with the players in the industry joggling each other for
customers in the market place. This is expected to raisequality standards, which are
badly needed to raise the confidence of clients in the industry players.
4.5.1 Maturity of the Industry
On a 1r-5 degree of maturity, the industry participants indicated an average of 3.8.
This means that the Sachet Water and haulage industry has played and continues to
play immense role in the socio-economic activities of Ghana. This is also seen
intheintense competition in theindustry. The industry is thus in its growth stage.
4.5.2 Barriers to Entry
The barriers depend on the level at which an entrepreneur desires to enter the industry.
The main difficulty, which cuts across the entry levels, is the large investment to be
made in acquiring Machines trucks to undertake assignments. On a 1-5 degree
ofdifficulty, the industry participants indicated an average of 4.6.
4.5.3 Barriers to Growth
On a 1-5 degree of difficulty, the industry participants indicated an average of 4.2. With
regards to growth the difficulties identified during the industry survey are:
 The lack of qualified and educated drivers
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 The bad roads in Ghana
 The operations of such an industry being highly capital intensive
 The management style of managers
 The lack of proper financial control
 The high cost of fuel and Rubers.
4.5.3 Barriers of Exit
With regards to exit, the industry participants indicated that it is relatively easy. On a 1-5
degree of difficulty, the industry participants indicated an average of 2.8. The main
difficulty is disposing of obsoleteandbrokendown vehicles.
4.6 Industry Rules and Regulations
The following are some of the rules of the regulations governing the industry.
4.6.1 Regulation of Industry
The main regulatory bodies in the country with regards to Pure Clean sachet water
production and haulage of general goods activities are:
Department of Vehicle Licensing Authority (DVLA)
Ghana Police Service
Ghana National Fire Service
Environmental Protection Agency
Ghana Standard Board
The Food AND Drugs Board
The following are regulatory bodies that regulate all businesses:
Registrar General’s Department (RGD)
Internal Revenue Services (IRS)
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Social Security National Investment Trust (SSNIT)
Department of Vehicle Licensing Authority (DVLA)
The DVLA has the mandate to inspect vehicles in Ghana for roadworthiness once
a year. The certificate of roadworthiness is to be kept in the vehicle at all times
and it will enable the owners to obtain insurance for the said vehicle.
Ghana Police Service
The Ghana Police Service also inspects vehicles for roadworthiness and insurance
certificates.
Environmental Protection Agency
Under the Ghana Environmental Assessment Regulations, 1999 (LI 1652), the
distribution and storage of general good is identified as an undertaking that requires
Registration and the submission of an Environmental Impact Statement to the
Environmental Protection Agency (EPA) toward the issuance of an Environmental
Permit.
The legal requirements under theEPA laws mentioned above have already been discussed
above. Under the plan, the Environmental Protection Agency (EPA) isdesignated as the
authority, which on behalf of the Ministry of Environment and Science is responsible
for the management of the environment, including production of Pure Clean Sachet
Water, General Goods response and cooperation. The EPA will coordinate the
development and maintenance of a national capability to respond to accidents at
sea, on land, inland waterways or in connection with the Industry, storage,
transport facilities and installation which have caused or is likely to cause any
kind of pollution. Particularly, the EPA as the Pollution Executive Body, will establish a
National Reporting Centre, which will receive all reports of spill incidents or any
observed pollution inside the geographical coverage of this plan.
Ghana National Fire Service
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The Ghana National Fire Service Act of 1997 (Act 537) states that a Fire Certificate
shall be required for premises used as a place of work. The owner or occupier
of the premises shall apply to the Chief Fire Officer for a Fire Certificate, which
will be valid for 12 months from the date of issue and subject to renewal. The
truck yard will require a fire certificate.
4.7 Risk Analysis & Socio Economic Feasibility
4.7.1 Business Risks and Controls
Business risk is the threat that an event or action will adversely affect an organization’s
ability to successfully achieve its business objectives and execute its strategies. Business
risk is an important concern to company and none is immune from at least some form of
risk.
MJIS Ltd will put in place a control system of its management and finances with the help
of a retained consultant. This however will have to be reviewed twice yearly to
consistently put a check on the business.
4.7.2 Political Feasibility
This risk relates to the political environment and government policy and how these
impact the future of the MJIS LTD. The policy of the government is aimed at
providing an enabling environment for the private sector to serve as the engine for
economic growth.
Consequently, the government is working with the private sector as developing partners.
The promotion of the private sector is government’s priority, which is expected to impact
positively on the industry.
The current democratic dispensation in Ghana and economic climate rather offer
good prospects and opportunities for the attainment of the goals and objectives of
MJIS Ltd
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However there are palpable risks for industry participants, when they overindulge with
political parties.
4.7.3 Market Feasibility
There is the possibility that the undertaking will not have market for its services
and therefore will have difficulty in obtaining the projected income to make it
palpably profitable. This risk alwaysexists.
The bulk of service centres depend on the availability for the supply of products and
services. Some companies and the bulk of sachet water services do not own trucks
and therefore have to rely on vehicle owners to haul products and general goods to
parts of the regions. The market is huge and there should not be problem in
obtaining contracts with new contracts or others in very good conditions.
4.7.4 Technical Risk Feasibility
There is always a technical risk when working with products services and haulage,
weight of the cargo, tyre pressure, road size and allowed total vehicle weights, etc.
This risk is directly related to the staff of the undertaking, especially the drivers. MJIS
Company LTD will employ driver-mechanics/technicians, who are polytechnic or
technical school graduates with salaries and wages corresponding to their
educationallevel in order to reduce the technical risks. The remuneration has been
duly budgeted for in the financial projections in the appendices.
4.7.5 FINANCIAL RISK FEASIBILITY
The financial risk is related to the ability of the company to adequately reward
investors with good financial returns. The extent of returns by the project is detailed in
the Financial Analyses, andmost especially in the Breakeven and Sensitivity Analyses.
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5.0 CHAPTER FIVE: AN OVERVIEW OF THE GHANAIAN ECONOMY
5.1 UNDERSTANDING THE ENVIRONMENT
The economic analysis shows desirable trends in the major economic indicators. This
positive outlook in the economy coupled with the active private sector drive could
help our business industry to actualize its potential.
5.2 IMPACT OF WORLD ECONOMIC FACTORS
For the greater part of 2006, the world economy slipped into recession.
There was a general slowdown in the economic activities of the major
industrialised economies. Despite the aggressive policy measures established by the
US and European Union through interest cuts, tax cuts in some cases and optimistic
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forecast, the year 2003 closed with a weak recovery. Investment demand and
consumer spending remained weak. Financial markets appeared unsettled and weighed
down growth. Investor’s nervousness and the wide-ranging uncertainties in the
financialmarkets held back prospects of recovery in 2004/2005
5.1 GHANA’S DEVELOPMENTAL CHALLENGES
That the manufacturing and transportation industry plays an incalculable role in the
national developing agenda is an unquestionable fact. What however appears to be
debatable is whether the industry wields the much expected driving force required to
pronounce its vital contribution towards accelerated national growth in terms of
infrastructural development. The macroeconomic environment in Ghana is analysed in
this chapter to provide insight into the macroeconomic conditions under which the project
will be operating and to highlight opportunities and incentives for the private sector.
5.2 HISTORICAL PERSPECTIVE AND REFORM
5.3 THE GHANAIAN ECONOMIC ENVIRONMENT
The Ghanaian economy has experienced substantial growth since the introduction of the
economic recovery program in the 1980’s. The country’s economy has been tuned to the
conditions of a free market where it is expected of the private sector to play a leading role
in Ghana’s accelerated economic development. According to the recent budget for 2012
GDP growth of 7.7 percent in 2010and grew further to 13.5as Ghana started it
commercial oil exploration.
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Source :Ghana Budget, 2012
• The fiscal deficit for the first three quarters was GH¢1,132.2 million, equivalent
to 2.0 per cent of GDP, compared to a budget target of GH¢2,473.2 million,
equivalent to 4.4 per cent of GDP.
• Inflation has trended downwards in sixteen (16) consecutive months from 20.74 percent
at the end of June 2009 to reach 9.38 percent in October 2010, the lowest in the last two
decades; the inflation for January was 8.60
• The stock of gross international reserves at the end of October 2011 stood at
US$4.98 billion, compared with US$4,680.01 million as at the end of December
2010.; and
• The Cedi has depreciated by 0.6percent, 0.59percent and 0.59percent against the US
dollar, the pound sterling and the euro respectively.www.mofep.gov.gh. The chart below
shows the trend in the growth rate of the Ghanaian economy from the period 2009 to
2011.
Growth rate (%) Figure 6: SECTORAL GDP-REAL GROWTH RATE FOR 2009-2011
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5.4 SECTORAL PERFORMANCE
The Ghanaian economy is made up of three main sectors namely the agriculture, industry
and service. Agriculture is by far the largest sector of the economy contributing an
estimated GH 6, 452.5 million to the national economy in terms of GDP in 2010 atȻ
Current Market Prices by economic activity. It is also the largest employer of the active
population. The services sector, which is dominated by the Government sector, is the
second largest sector in the economy contributing GH 11, 714,068 million of GDP inȻ
2010. The industry sector contributes GH 4,988.4 million to GDP as at 2010Ȼ
Contributions for these sectors over the few years are shown below in the figure 5.4
Sectoral Performance
Sub-Sectors 2006 2007 2008 2009 2010
Source: GSS
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5.5 THE MAUFACTURING SUB-SECTOR
The planned project is a Clean Water Processing Company project which falls under
themanufacturing and construction sub-sectors. The performance of manufacturing and
construction sector is shown on the figure above from 2006-2010. The figure above
shows a consistent increase or growth in manufacturing and construction activities within
the country indicating improved economic and fiscal environment which makes
investment in the sub-sector attractive. It may also give an indication of the level of
competition that would be faced by the Stanberry depending on whether there is
increased investment or otherwise. In terms of percentage contribution to the overall GDP
of the industrial sector, the chart below
5.6 COMMERCIAL LENDING RATES AND CREDIT ANALYSIS.
in line with Government initiative and support policies banks lending rates started to‟
decline during the year. The market leaders namely, Barclays Bank, Standard
Chartered Bank and Agricultural Development Bank (ADB) have responded positively
by reducing their base rates to 17 per cent, 16.95 per cent and 16.75 per cent
respectively. This clearly shows that the banks are borrowing at a lower rate and
therefore there is availability of credit for business borrowing.
5.7 POPULATION TRENDS AND URBANISATION
Ghana's first post-independence population census in 1961 counted about 6.7 million
inhabitants. By 1970 the national census registered 8.5 million people, about a 27 per
cent increase, while the most recent official census in 1984 recorded a figure of 12.3
million almost double the 1960.The nation's population was estimated to have increased
to about 15 million in 1990 and to an estimated 17.2 million in mid-1994. With an annual
growth rate of 2.2 percent for the period between 1965 and 1980, a 3.4 per cent growth
rate for 1981 through 1989, and a 1992 growth rate of 3.2 per cent, the country's
population was projected to surpass 20 million by the year 2000 and 35 million by 2025.
The population of Ghana as per 2010 census was estimated to be 24,223,431.
5.8 POLITICAL ENVIRONMENT
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Ghana’s political environment seems to be very stable for survival and the attraction of
foreign and local investment. As a beacon of the democracy in the Africa, Ghana had it
independence in 6th
March, 1957 and since has seen several political leaders. The past
two decades has seen fully democratic governance and sustainable democracy. Ghana
will be going to the polls come this December, 2012.
5.9 EMERGING OPPORTUNITIES IN A CHANGING GLOBAL
ENVIRONMENT
5.12 THE FUTURE OUTLOOK.
The economy of Ghana looks very bright for business and investment as it develops it oil
exploration and the consistent growth in cocoa yield and gold tonnes being exported
every year,
CHAPTER SEVEN: FINANCIALANALYSIS AND PROJECTIONS
7.1 Capital Requirement
The total capital required for investment required by MJIS Limited is estimated to be
(US$473,035.25). A summary is presented in the table below:
TABLE 1: CAPITAL REQUIREMENT, US$
Description Amount
1. Machinery &Equipement $ 7,850.45
3. Building & Infrastructure $ 1,250.00
4. Vehicles & Plants Machines $ 435,046.60
5. Office Equipment, Furniture Provision $ 3,780.00
6. Preliminary Expenses $ 4,960.00
7. Total Working Capital $ 25,890.00
9. Total Capital Requirement $ 580,288.13
7.2 Investment Plan
The investment plan for the undertaking has been presented in the table below:
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1. Machinery &Equipement $ 7,850.45 $ 7,850.45
5. Office Equipment, Furniture
Provision $ 3,780.00 $ 3,780.00
8. Contingency $ 26,510.63 $ 26,510.63
$
445,046.60
7.3 Financial Plan
The undertaking’s capital cost for its implementation is being financed with a loan of GH
¢$ 445,046.60and equity of GH¢155,241.53. The financial plan for the project is
therefore as follows:
TABLE 3: FINANCIAL PLAN
Description Amount Percentage
Equity GH¢155,241.53 26%
Loans GH¢ 445,046.60
74%
The loan has been affixed with an annual interest rate of 20%, which is expected to be
paid on declining balance. The repayment of the loan is expected to be spread over
5 years, applying the straight-line amortisation. Please see loan repayment schedule in
the table below
TABLE 4: LOAN REPAYMENT SCHEDULE
Amount
Outstanding
$
445,046.60 $ 353,046.60 $ 261,046.60 $169,046.60 $ 77,046.60 $ 77,046.60
Principal
Repayment $ 92,000.00 $ 92,000.00 $ 92,000.00 $92,000.00 $ 92,000.00 $ 77,046.60
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Interest $ 92,000.00 $ 72,500.00 $ 53,000.00 $33,500.00 $ 14,000.00 $ 14,000.00
7.4 Profitability Analyses
7.4.1 Production
The production figures for the first five years of operations have been presented in
the table below:
TABLE 5: PRODUCTION
Description Year 1 Year 2 Year 3 Year 4 Year 5
Estimated # of
trips/vehicle/week
1.5 1.5 1.5 1.5 1.5
Number of Trucks 4 4 4 4 4
Total Number of Trips/Week 6 6 6 6 6
Total Number of Trips/Year 312 312 312 312 312
7.4.2 REVENUE
Appendices 1 and9 present the revenues from the undertaking’s operations. The revenue
has been estimated at GH ¢468,000.00 in the first year of operation, which levels off at
GH¢ 874,506.60 in the tenth year of operation. The cumulative revenue value in the
tenth year of operation amounts to GH¢6,650,680.00.
TABLE 6: REVENUE US$
Est.
Revenue
468,000.00 514,800.00 540,540.00 594,594.00 624,523.70
Total
Revenue
468,000.00 514,800.00 540,540.00 594,594.00 624,323.70
Cumulative 468,000.00 982,800.00 1,523,340.0
0
2,117,934.00 2,742,257.70
7.4.3 Operating Expenses
All the calculations for revenue and operating expenses have been done in real terms, i.e.,
the rate of increase in costs have been matched by similar increases in prices and incomes
and hence, revenues. The total capital required to run the business in the first five years
of operation have been presented in the table below:
26

TABLE 7: ESTIMATED CAPITAL COSTS OF RUNNING THE COMPANY US$
Utilities 1,527.00 1,382.70 1,520.97 1,673.07 1,840.37
Operating
Supplies
421.00 463.10 509.41 560.35 616.39
Salaries & Wages 27,783.00 29,172.15 30,630.76 32,162.3
0
33,770.41
Insurance 4,111,09 4,179.17 4,267.54 4,258.15 4,451.10
General Admn.
Exp
5,336.63 5,870.29 6,457.32 7,103.06 7,813.35
Maintenance 5,066.30 5,185,.22 5,308.28 5,435.74 5,567.88
Vehicle Running
Exp
78,881.50 86,769.65 95,446.62 104,991.28 115,490.40
Marketing
Expenses
2,250.00 2,295.00 2,340.90 2,387.72 2,435.47
Subtotal 125,106.51 135,317.28 146,481.79 158,671.65 171,985.39
Depreciation 82,596.70 82,596.78 82,596.78 82,259.78 82,596.78
Total 207,703.29 217,914.06 229,078.52 241,268.43 254582.16
Interest On Loan 92,000.00 72,500.00 53,000.00 33,500.00 14,000.00
Grand Total 288,295.29 2823387.66 277,433.77 273,505.23 270.700.56
7.4.4 Profitability
The Operating Statement and the Cash Flow Analyses (See Appendices 1 and 2)
reveal that the undertaking is profitable. The estimates show that it will yield a profit after
tax of US$139,271.15 in the first year of operation and level off at US$411,589.45 at
the tenth year of operation. The cumulative value in the tenth year of operation is
US$2,894,454.47.
The cash flow analyses (see Appendix 2) reveal that MJIS Ltd will yield enough
cash to meet its operational and debt servicing obligations.
7.4.5 Internal Rate of Return
The internalrates of return on investment forthe first Four, Five, Seven and Ten years are
21%, 29%, 38%, and 43% respectively.
7.4.6 Payback Period
The theoretical payback period for the project is 2.0 years.
7.4.7 Ratio Analyses
The gross, operating and net margins for the first year of operation are 73%, 56%, and
30% respectively. These analyses show that the returns from the undertaking are highly
favourable.
27

7.5 Breakeven Analyses
7.5.1 Break Even Point – Production
The break-even analysis with regards to production indicates that the undertaking
needs to carry out 192 total trips per year, about 3.7 total trips per week in order to
break even in the first year of operation. Please see details for the first three years of
operation in the table below and
Table 8.1: Break-even Point: Production
Description Year 1 Year 2 Year 3
Grand Total Operating Exp. 288,295.29 282,387.66 277,433.77
Estimated Average Price/Trip 1500.00 1650.00 1,732.50
Break Even Point, # of Trips/Week 3.7 3.3 3.1
Break Even Point, # of Trips/Yr 192 171 160
7.5.2 Break Even Point – Pricing
The break-even analysis with regards to pricing indicates that the undertaking has to
fix its price per trip at not less than GH¢ 924.02 in the first year of operation in order to
break even. Please see details for the first three years in the table below and in Appendix
9.
Table 8.2: Break-even Point: Pricing
Description Year 1 Year 2 Year 3
Grand Total Operating Exp. 288,295.29 282,387.66 277,433.77
Total Number of Trips per Year 312 312 312
Price to Break Even, Cedis/Trip 924.02 905.09 889.21
7.6 Sensitivity Analyses
5.6.1 Introduction
The sensitivity analyses have been carried out according to the following scenarios,
typifying hikes in prices and therefore expenditure and reduction in income:
10% Increase in Operating Expenses
10% Decrease in Revenue
10% Increase in Operating Expense and 10% Decrease in Revenue
15% Increase in Operating Expenses
15% Decrease in Revenue
5.6.2 10% Increase in Operating Expenses
With a 10% hike in operating expenses at a constant income, the undertaking will
be raking in a Profit after Tax of US$116,928.27 in the first year of operation and
will level off at US$GH¢384,974.13 in the tenth year of operation. The rate of return on
28

investment will thus be 25% and the internal rates of return on investment for the first
Five, Seven and Ten years of operation are 24%, 34%, and 39% respectively.
5.6.3 10% Decrease in Revenue
With a 10% decrease in revenue at a constant operating expenditure, the
undertaking will have as Profit after Tax of US$103,001.15 in the first year of operation
and will level off at US$343,815.19 in the tenth year of operation. The rate of
return on investment will thus be 22% and the internal rates of return on
investment for the first Five, Seven and Ten years of operation are 19%, 30%, and
35% respectively.
5.6.4 10% Increase in Operating Expense + 10% Decrease in Revenue
With a 10% decrease in revenue in addition to a 10% increase in operating expenses, the
undertaking will have as Profit after Tax US$80,658.27 in the first year of operation
and will level off at US$317,199.87 in the tenth year of operation. The rate of return on
5.6.5 15% Increase in Operating Expenses
With a 15% hike in operating expenses at a constant income, the undertaking will
be raking in a Profit after Tax US$105,756.82 in the first year of operation and will
level off at US$371,666.47 in the tenth year of operation. The rate of return on
investment will thus be 22% and theinternal rates of return on investment for the
first Five, Seven and Ten years of operation are 22%, 32%, and 37% respectively.
5.6.6 15% Decrease in Revenue
With a 15% decrease in revenue at a constant operating expenditure, the
undertaking will have, as Profit after Tax US$84,866.15 in the first year of operation and
level off at US$309,928.06 in the tenth year of operation. The rate of return on
5.6.7 Conclusion on Sensitivity Analyses
It can be observed from the Sensitivity Analyses that none of the five scenarios can
adversely affect the profitability of the undertaking and its ability to yield enough cash to
meet its operational and debt servicing obligations. However, it must be mentioned that
the decrease in revenue appears to have a more serious impact on the undertaking’s
finances than the hike in expenditure. It is therefore recommended that when
necessary,additional expenditure should be made to ensure achieving the projected
production and revenue levels in this document.
5.7 Underlying Base Case Assumptions
29

The following are the underlying assumptions for the financial analysis:
5.7.1 Inflation
The financial statements have been prepared assuming constant prices as the effect of
inflation is expected to affect the operating expenses and Revenues in almost equal
measure.
5.7.2 Exchange Rates
All US Dollar costs have been converted at a Cedi/dollar exchange rate of GH
¢1.45/US$1.00, and have been frozen to reflect the constant price assumption.
5.7.3 Dividend Policy
Dividends are expected to be paid at 50% per annum of profits after all major
commitments have been met during the first five years. The difference will be
ploughed back into the company. Subsequently, 75% will be paid in the tenth year, which
appears to be the theoretical end point of the project.
The above is a statutory requirement for the companies incorporated under the
Companies Code, Act 179 of 1963, to ensure that dividends do not exceed the
income surplus of the preceding year.
5.7.4 Depreciation
For the purpose of the balance sheet calculations, depreciation is calculated on the
straight-line method and cognisance is taken of the estimated useful life of the
assets. The following rates of depreciation or amortisation have been used.
Land and Building : 5%
Machinery and Equipment : 10%
Administrative Vehicles : 20%
Plant Vehicles / : 10%
Office Eq. & Furniture : 20%
30

APPENDICES
TABLE 1: CAPITAL
REQUIREMEN
T, US$
Description Amount
1. Machinery
&Equipement $ 7,850.45
3. Building &
Infrastructure $ 1,250.00
4. Vehicles & Plants
Machines $ 435,046.60
5. Office Equipment,
Furniture Provision $ 3,780.00
6. Preliminary
Expenses $ 4,960.00
7. Total Working
Capital $ 25,890.00
9. Total Capital
Requirement $ 580,288.13
1. Machinery &Equipement $ 7,850.45 $ 7,850.45
5. Office Equipment, Furniture $ 3,780.00 $ 3,780.00
31

Provision
8. Contingency $ 26,510.63 $ 26,510.63
$
445,046.60
Table 3: Investment Plan
Description Amount Percentage
Equity GH¢155,241.53 26%
Loans GH¢ 445,046.60
74%
Table 4: Loan Repayment Plan
Amount
Outstanding
$
445,046.60 $ 353,046.60 $ 261,046.60 $169,046.60 $ 77,046.60 $ 77,046.60
Principal
Repayment $ 92,000.00 $ 92,000.00 $ 92,000.00 $92,000.00 $ 92,000.00 $ 77,046.60
Interest $ 92,000.00 $ 72,500.00 $ 53,000.00 $33,500.00 $ 14,000.00 $ 14,000.00
Table 5: Production
Estimated # of trips/vehicle/week 1.5 1.5 1.5 1.5 1.5
Number of Trucks 4 4 4 4 4
Total Number of Trips/Week 6 6 6 6 6
Total Number of Trips/Year 312 312 312 312 312
32

Table 6: Production US$
Est. Revenue 468,000.00 514,800.00 540,540.00 594,594.00 624,523.70
Total Revenue 468,000.00 514,800.00 540,540.00 594,594.00 624,323.70
Cumulative 468,000.00 982,800.00 1,523,340.00 2,117,934.00 2,742,257.70
TABLE 7: ESTIMATED CAPITAL COSTS OF RUNNING THE COMPANY US$
Utilities 1,527.00 1,382.70 1,520.97 1,673.07 1,840.37
Operating Supplies 421.00 463.10 509.41 560.35 616.39
Salaries & Wages 27,783.00 29,172.15 30,630.76 32,162.30 33,770.41
Insurance 4,111,09 4,179.17 4,267.54 4,258.15 4,451.10
General Admn. Exp 5,336.63 5,870.29 6,457.32 7,103.06 7,813.35
Maintenance 5,066.30 5,185,.22 5,308.28 5,435.74 5,567.88
Vehicle Running Exp 78,881.50 86,769.65 95,446.62 104,991.28 115,490.40
Marketing Expenses 2,250.00 2,295.00 2,340.90 2,387.72 2,435.47
Subtotal 125,106.51 135,317.28 146,481.79 158,671.65 171,985.39
Depreciation 82,596.70 82,596.78 82,596.78 82,259.78 82,596.78
Total 207,703.29 217,914.06 229,078.52 241,268.43 254582.16
Interest On Loan 92,000.00 72,500.00 53,000.00 33,500.00 14,000.00
Grand Total 288,295.29 2823387.66 277,433.77 273,505.23 270.700.56
33

Fixed Asset Schedule (From Year 1-5)
MJIS CLEAN WATER PRODUCTION LTD
SCHEDULE I FIXED ASSETS
Year of Operation 1
ASSET RATE OPENING BALANCE ADDITION
S DURING
THE YEAR
TOTAL COST AS
ON 31-12-12
DEPRECIATION
FOR THE YEAR
COST AS ON
31.3.2013
1. Machinery &Equipement 0.05 $7,850.45 $7,850.45 392.52 $7,457.93
2. Land Acquisition 0.1 $75,000.45 $75,000.45 7,500.05 $67,500.41
3. Building & Infrastructure 0.1 $1,250.00 $1,250.00 125.00 $1,125.00
4. Vehicles & Plants Machines 0.2 $435,046.60 $435,046.60 87,009.32 $348,037.28
5. Office Equipment, Furniture Provision 0.1 $3,780.00 $3,780.00 378.00 $3,402.00
$522,927.50 - $522,927.50 95,404.89 $427,522.61
Year of Operation 2
ASSET RATE OPENING BALANCE ADDITION
S DURING
THE YEAR
TOTAL COST
AS ON
31.3.2013
DEPRECIATION
FOR THE YEAR
COST AS ON
31.3.2014
34

$427,522.61 - $427,522.61 77,183.09 $350,339.52
Year of Operation 3
ASSET RATE OPENING
BALANCE
ADDITIONS
DURING THE
YEAR
TOTAL COST
AS ON
31.3.2014
DEPRECIATI
ON FOR THE
YEAR
COST AS ON
31.3.2015
$445,744.41 - $445,744.41 80,744.48 $364,999.93
Year of Operation 4
ASSET RATE OPENING
BALANCE
ADDITIONS
DURING THE
YEAR
TOTAL COST
AS ON
31.3.2015
DEPRECIATION
FOR THE YEAR
COST AS ON
31.3.2016
1. Machinery &Equipement 0.05 $7,103.68 $7,103.68 $355.18 $6,748.49
2. Land Acquisition 0.1 $61,425.37 $61,425.37 $6,142.54 $55,282.83
35

3. Building & Infrastructure 0.1 $1,023.75 $1,023.75 $102.38 $921.38
4. Vehicles & Plants Machines 0.2 $292,351.32 $292,351.32 $58,470.26 $233,881.05
5. Office Equipment, Furniture Provision 0.1 $3,095.82 $3,095.82 $309.58 $2,786.24
$364,999.93 - $364,999.93 65,379.94 $299,619.99
Year of Operation 5
ASSET RATE OPENING
BALANCE
ADDITIONS
DURING THE
YEAR
TOTAL COST
AS ON
31.3.2016
DEPRECIATION
FOR THE YEAR
COST AS ON
31.3.2017
1. Machinery &Equipment 0.05 $7,458.86 $7,458.86 $372.94 $7,085.92
2. Land Acquisition 0.1 $55,282.83 $55,282.83 $5,528.28 $49,754.55
3. Building & Infrastructure 0.1 $921.38 $921.38 $92.14 $829.24
4. Vehicles & Plants Machines 0.2 $233,881.05 $233,881.05 $46,776.21 $187,104.84
5. Office Equipment, Furniture Provision 0.1 $2,786.24 $2,786.24 $278.62 $2,507.61
$300,330.36 - $300,330.36 53,048.20 $247,282.16
36

PROJECTED 5 YEAR STATEMENT OF CASH FLOWS
This worksheet estimates the key financial figures for a company over five years. The projections include abbreviated income and
cash flow statements, and a balance sheet.
Projected 5 Year Statement of Cash Flows
For MJIS Clean Water Company LTD
For the period ending April 30, 2012 to
April 30, 2016
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 TOTAL
Cash flow from operating activities
Receipts from customers $
150,000.00
$
180,000.00
$
210,000.00
$
250,000.00
$
300,000.00
$ 1,090,000.00
Payments to suppliers $
85,000.00
$
210,000.00
$
-
$
-
$
-
$ 295,000.00
Payments to employees 27,783.00 29,172.15 30,630.76 32,162.30 33,770.41 $ 153,518.62
Interest payments $
92,000.00
$
72,500.00
$
53,000.00
$
33,500.00
$
14,000.00
$ 265,000.00
Taxes paid $
2,560.00
$
3,152.00
$
3,256.00
$
45,048.00
$
48,000.00
$ 102,016.00
Marketing Expenses $
2,250.00
$
2,295.00
$
2,340.90
$
2,387.72
$
2,435.47
$ 11,709.09
Other $
82,596.70
$
82,596.78
$
82,596.78
$
82,259.78
$
82,596.78
$ 412,646.82
Net cash flow from operating
activities
$
442,189.70
$
579,715.93
$
381,824.44
$
445,357.80
$
480,802.66
$ 2,329,890.53
Cash flow from investing activities $
-
$
-
$
-
$
-
$
-
$ -
Purchases of equipment $
-
$
-
$
-
$
-
$
-
$ -
Purchases of property $ $ $ $ $ $ -
37

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