FEASIBILITY STUDY RESULTS 4.

0 FINANCIAL AND ECONOMIC ANALYSIS

57

Financial and economic analysis was undertaken to determine the profitability of various production/marketing options which were found technically sound. Financial analysis was undertaken in two levels:

Farmer level The farmer-members of ALYANSA shall be the input providers of fresh ilang-ilang flowers for the ilang-ilang essential oil extraction plant to be operated by the new organization who will take charge of the enterprise..

The profitability of planting ilang-ilang has to be attractive to the input providers (the farmer-members) compared to other competing land uses for them to be encouraged in switching from one land use to ilang-ilang production..

Households of primary-cooperative/association members of ALYANSA shall be the input providers of sampaguita flowers for garlands making to be managed by the primary cooperative/association which has jurisdiction over the targeted barangay.

As a household home garden, sampaguita production must be able to provide additional income to the household.

ALYANSA/Member Cooperative(s)/Association The ALYANSA or a new member cooperative will operate and manage the essential oil production and marketing.

The profitability of the proposed enterprise has to be attractive for the organization.

The primary cooperative/association who has jurisdiction over the targeted barangay shall manage the production and marketing of the garlands out of the sampaguita flowers produced by individual households.

The profitability of the proposed enterprise has to be attractive for the organization.

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS 4.1 Financial Profitability of Ilang-ilang Fresh Flowers Production 4.1.1

58

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-ilang production 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 YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 GROSS SALES (P) 0 0 150 300 500 750 1,050 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 COST OF PRODUCTION (P) 90 39 58 76 104 125 165 241 247 241 247 241 247 241 247 NET INCOME (P) (90) (39) 92 224 396 625 885 1,559 1,553 1,559 1,553 1,559 1,553 1,559 1,553

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS

59

On a per tree basis, a farmer will have an annual net income of P1,559 when the ilang-ilang tree is on its 8th year onwards. As can be seen in the above table, ilang-ilang production is very profitable as shown 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 YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 GROSS SALES (P) 0 0 30,000 60,000 100,000 150,000 210,000 360,000 360,000 360,000 360,000 360,000 360,000 360,000 360,000 COST OF PRODUCTION (P) 18,079 7,822 11,652 15,172 20,892 25,072 32,992 48,172 49,492 48,172 49,372 48,172 49,372 48,172 49,372 NET INCOME (P) (18,079) (7,822) 18,348 44,828 79,108 124,928 177,008 311,828 310,508 311,828 310,628 311,828 310,628 311,828 310,628

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-year period. 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

FEASIBILITY STUDY RESULTS

60

Table 18. Net Present Value and Financial Internal Rate of Return per Tree, Ilang-ilang Fresh Flower Production YEAR CASH INFLOW CASH OUTFLOW 90 39 58 76 104 125 165 241 247 241 247 241 247 241 247 = = NET CASHFLOW (90) (39) 92 224 396 625 885 1,559 1,553 1,559 1,553 1,559 1,553 1,559 1,553 2,340 109%

1 0 2 0 3 150 4 300 5 500 6 750 7 1,050 8 1,800 9 1,800 10 1,800 11 1,800 12 1,800 13 1,800 14 1,800 15 1,800 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR)

Table 19. Net Present Value and Financial Internal Rate of Return per Hectare, Ilang-ilang Fresh Flower Production YEAR CASH INFLOW CASH OUTFLOW 18,079 7,822 11,652 15,172 20,892 25,072 32,992 48,172 49,492 48,172 49,372 48,172 49,372 48,172 49,372 = = NET CASHFLOW (18,079) (7,822) 18,348 44,828 79,108 124,928 177,008 311,828 310,508 311,828 310,628 311,828 310,628 311,828 310,628 468,090 109%

1 0 2 0 3 30,000 4 60,000 5 100,000 6 150,000 7 210,000 8 360,000 9 360,000 10 360,000 11 360,000 12 360,000 13 360,000 14 360,000 15 360,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR)

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS 4.1.3

61

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, unforeseen increases 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 YEAR CASH INFLOW CASH OUTFLOW 90 39 58 76 104 125 165 241 247 241 247 241 247 241 247 = = NET CASHFLOW (90) (39) (28) (16) (4) 25 45 119 113 119 113 119 113 119 113 17 22%

1 0 2 0 3 30 4 60 5 100 6 150 7 210 8 360 9 360 10 360 11 360 12 360 13 360 14 360 15 360 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 80% Decrease in price of output/unit 0% Cost overran 0%

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS

62

The same conclusion is reached if the price per kilogram of fresh flowers is reduced. 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 YEAR CASH INFLOW CASH OUTFLOW 90 39 58 76 104 125 165 241 247 241 247 241 247 241 247 = = 17 22% NET CASHFLOW (90) (39) (28) (16) (4) 25 45 119 113 119 113 119 113 119 113

1 0 2 0 3 30 4 60 5 100 6 150 7 210 8 360 9 360 10 360 11 360 12 360 13 360 14 360 15 360 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in price of output/unit 80% Cost overran 0%

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

FEASIBILITY STUDY RESULTS

Table 22. Sensitivity Analysis (% Cost Overrun), Ilang-ilang Fresh Flower Production Per Tree YEAR CASH INFLOW CASH OUTFLOW 425 184 274 357 491 589 775 1,132 1,163 1,132 1,160 1,132 1,160 1,132 1,160 = = 255 25% NET CASHFLOW (425) (184) (124) (57) 9 161 275 668 637 668 640 668 640 668 640

63

1 0 2 0 3 150 4 300 5 500 6 750 7 1,050 8 1,800 9 1,800 10 1,800 11 1,800 12 1,800 13 1,800 14 1,800 15 1,800 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in price of output/unit 0% Cost overran 370%

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% in the 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

FEASIBILITY STUDY RESULTS

Table 23. Sensitivity Analysis (% Decrease in Yield), Ilang-ilang Fresh Flower Production Per Hectare YEAR CASH INFLOW CASH OUTFLOW 18,079 7,822 8,682 9,232 10,992 10,222 12,202 12,532 13,852 12,532 13,732 12,532 13,732 12,532 13,732 = = 2,835 22% NET CASHFLOW (18,079) (7,822) (5,682) (3,232) (992) 4,778 8,798 23,468 22,148 23,468 22,268 23,468 22,268 23,468 22,268

64

1 0 2 0 3 3,000 4 6,000 5 10,000 6 15,000 7 21,000 8 36,000 9 36,000 10 36,000 11 36,000 12 36,000 13 36,000 14 36,000 15 36,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 90% Decrease in price of output 0% Cost overran 0%

Table 24. Sensitivity Analysis (% Cost Overrun), Ilang-ilang Fresh Flower Production Per Hectare YEAR CASH INFLOW CASH OUTFLOW 90,396 39,112 58,262 75,862 104,462 125,362 164,962 240,862 247,462 240,862 246,862 240,862 246,862 240,862 246,862 = = 17,079 22% NET CASHFLOW (90,396) (39,112) (28,262) (15,862) (4,462) 24,639 45,039 119,139 112,539 119,139 113,139 119,139 113,139 119,139 113,139

1 0 2 0 3 30,000 4 60,000 5 100,000 6 150,000 7 210,000 8 360,000 9 360,000 10 360,000 11 360,000 12 360,000 13 360,000 14 360,000 15 360,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in price of output 0% Cost overran 400%

4.2

Financial Profitability of Ilang-ilang Essential Oil Production

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS

65

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 members have 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 YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 GROSS SALES (P) 0 0 291,600 583,200 972,000 1,458,000 2,041,200 3,499,200 3,499,200 3,499,200 3,499,200 3,499,200 3,499,200 3,499,200 3,499,200 TOTAL EXPENSES (P) 0 0 260,587 322,414 351,516 487,894 651,548 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 NET INCOME (P) 0 0 31,013 260,786 620,484 970,106 1,389,652 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518

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. Financial Internal Rate of Return (FIRR) and Net Present Value (NPV)

4.2.2

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

FEASIBILITY STUDY RESULTS

66

In addition, FIRR was computed to determine the earning capacity of the said enterprise. 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.

Table 26. Net Present Value and Financial Internal Rate of Return, Essential Oil Production YEAR 1 2 3 4 5 6 7 8 9 CASH INFLOW 0 0 CASH OUTFLOW 0 430,000 260,587 322,414 351,516 487,894 651,548 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 1,060,682 NET CASHFLOW 0 (430,000) 31,013 260,786 620,484 970,106 1,389,652 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518 2,438,518 3,418,536 89%

291,600 583,200 972,000 1,458,000 2,041,200 3,499,200 3,499,200 10 3,499,200 11 3,499,200 12 3,499,200 13 3,499,200 14 3,499,200 15 3,499,200 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR)

= =

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. The profitability 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 can withstand 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, the operation is still profitable given the 20% borrowing rate. At this rate,

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS

Table 27. Sensitivity Analysis (% Decrease in Yield), Essential Oil Production YEAR CASH INFLOW CASH OUTFLOW 0 430,000 211,464 231,328 204,480 270,920 350,648 549,968 549,968 549,968 549,968 549,968 549,968 549,968 549,968 = = 1,762 20% NET CASHFLOW 0 (430,000) (139,464) (87,328) 35,520 89,080 153,352 314,032 314,032 314,032 314,032 314,032 314,032 314,032 314,032

67

1 0 2 0 3 72,000 4 144,000 5 240,000 6 360,000 7 504,000 8 864,000 9 864,000 10 864,000 11 864,000 12 864,000 13 864,000 14 864,000 15 864,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 80% Decrease in price of output 0% Cost overran 0%

Table 28. Sensitivity Analysis (% Decrease in Price/Liter Yield), Essential Oil Production YEAR CASH INFLOW CASH OUTFLOW 0 430,000 250,920 310,240 336,000 468,200 626,840 1,023,440 1,023,440 1,023,440 1,023,440 1,023,440 1,023,440 1,023,440 1,023,440 = = 4,550 20% NET CASHFLOW 0 (430,000) (139,320) (87,040) 36,000 89,800 154,360 315,760 315,760 315,760 315,760 315,760 315,760 315,760 315,760

1 0 2 0 3 111,600 4 223,200 5 372,000 6 558,000 7 781,200 8 1,339,200 9 1,339,200 10 1,339,200 11 1,339,200 12 1,339,200 13 1,339,200 14 1,339,200 15 1,339,200 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in price of output 69% Cost overran 0%

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS

Table 29. Sensitivity Analysis (% Cost Overrrun), Essential Oil Production YEAR CASH INFLOW CASH OUTFLOW 0 430,000 658,404 931,888 1,243,200 1,732,340 2,319,308 3,786,728 3,786,728 3,786,728 3,786,728 3,786,728 3,786,728 3,786,728 3,786,728 = = NET CASHFLOW 0 (430,000) (298,404) (211,888) (43,200) 67,660 200,692 533,272 533,272 533,272 533,272 533,272 533,272 533,272 533,272 58,896 22%

68

1 0 2 0 3 360,000 4 720,000 5 1,200,000 6 1,800,000 7 2,520,000 8 4,320,000 9 4,320,000 10 4,320,000 11 4,320,000 12 4,320,000 13 4,320,000 14 4,320,000 15 4,320,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in price of output 0% Cost overran 270%

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 proposed project can with stand a 270% increase in cost. (Table 29). Profitability of Sampaguita Fresh Flower Home Garden

4.3

An area of 30 m2 with 25 sampaguita shrubs is proposed per household of primary 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

FEASIBILITY STUDY RESULTS 4.3.1

69

Net Income

In as much that sampaguita seedlings start to bear flowers on the 6th month after planting and that production gradually increases until the 2nd year, the net income from 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.
Table 30. Financial Analysis, Sampaguita Fresh Flower Production, Household Level. YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 GROSS SALES (P) 3,750 11,250 11,250 11,250 11,250 11,250 11,250 11,250 11,250 11,250 11,250 11,250 11,250 11,250 11,250 COST OF PRODUCTION (P) 8,949 5,607 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 NET INCOME (P) (5,199) 5,643 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718

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 the enterprise. In addition, FIRR was computed to determine the earning capacity of the said enterprise. 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

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70

An FIRR of 109% was computed. Both discounted measures indicate that sampaguita production on a home garden 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.

YEAR

CASH INFLOW

CASH OUTFLOW 8,949 5,607 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 = =

NET CASHFLOW (5,199) 5,643 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 5,718 17,585 109%

1 3,750 2 11,250 3 11,250 4 11,250 5 11,250 6 11,250 7 11,250 8 11,250 9 11,250 10 11,250 11 11,250 12 11,250 13 11,250 14 11,250 15 11,250 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR)

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 of sampaguita fresh flowers and the cost of production. Yield reduction and output price reduction are sources of variation in sampaguita 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 yield per shrub per year is decreased (Table 32) or the price per unit of fresh sampaguita flowers is reduced (Table 33).

FINANCIAL AND ECONOMIC ANALYSIS

FEASIBILITY STUDY RESULTS

T able 32 S . ensitivity A lysis (D na ecrea in Y se ield), S paguita Fresh F er P am low rodu n ctio Y A E R C S A H IN FLO W C S A H O T O U FL W 8,94 9 5,60 7 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 5,53 2 = = N T E CS F W A H LO (6,624 ) 1,368 1,443 1,443 1,443 1,443 1,443 1,443 1,443 1,443 1,443 1,443 1,443 1,443 1,443 (2 7) 20 %

71

1 2,32 5 2 6,97 5 3 6,97 5 4 6,97 5 5 6,97 5 6 6,97 5 7 6,97 5 8 6,97 5 9 6,97 5 1 0 6,97 5 1 1 6,97 5 1 2 6,97 5 1 3 6,97 5 1 4 6,97 5 1 5 6,97 5 N T P E E T V LU a 20%d (P E RS N A E t .f. ) F A C L IN E N L R T O R T R (FIR ) IN N IA T R A AE F EU N R S N IT IT A A S E S IV Y N LY IS R eductio in yield n 38% D ecre ase in output price/unit 0% C overran ost 0%

Table 33. Sensitivity Analysis )% Decrease in the Price/unit of Output) Fresh Flower Production, Household Level. YEAR CASH INFLOW CASH OUTFLOW 8,949 5,607 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 5,532 = = NET CASHFLOW (6,587) 1,481 1,556 1,556 1,556 1,556 1,556 1,556 1,556 1,556 1,556 1,556 1,556 1,556 1,556 436 22%

1 2,363 2 7,088 3 7,088 4 7,088 5 7,088 6 7,088 7 7,088 8 7,088 9 7,088 10 7,088 11 7,088 12 7,088 13 7,088 14 7,088 15 7,088 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in output price/unit 37% Cost overran 0%

FINANCIAL AND ECONOMIC ANALYSIS

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72

In terms of its ability to withstand increases in the cost of production, the sampaguita home garden can withstand approximately 60% increase in the cost of production (Table 34).

Table 34. Sensitivity Analysis (% Cost Overrun)), Sampaguita Fresh Flower Production YEAR CASH INFLOW CASH OUTFLOW 14,319 8,971 8,851 8,851 8,851 8,851 8,851 8,851 8,851 8,851 8,851 8,851 8,851 8,851 8,851 = = NET CASHFLOW (10,569) 2,279 2,399 2,399 2,399 2,399 2,399 2,399 2,399 2,399 2,399 2,399 2,399 2,399 2,399 327 21%

1 3,750 2 11,250 3 11,250 4 11,250 5 11,250 6 11,250 7 11,250 8 11,250 9 11,250 10 11,250 11 11,250 12 11,250 13 11,250 14 11,250 15 11,250 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in output price/unit 0% Cost overran 60%

Combining decreases in yield/output, price decrease and cost overrun, the proposed 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

FEASIBILITY STUDY RESULTS

Table 35. Sensitivity Analysis (Combined Effect), Sampaguita Fresh Flower Production YEAR CASH INFLOW CASH OUTFLOW 10,381 6,504 6,417 6,417 6,417 6,417 6,417 6,417 6,417 6,417 6,417 6,417 6,417 6,417 6,417 = = NET CASHFLOW (7,672) 1,624 1,711 1,711 1,711 1,711 1,711 1,711 1,711 1,711 1,711 1,711 1,711 1,711 1,711 121 20%

73

1 2,709 2 8,128 3 8,128 4 8,128 5 8,128 6 8,128 7 8,128 8 8,128 9 8,128 10 8,128 11 8,128 12 8,128 13 8,128 14 8,128 15 8,128 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 15% Decrease in output price/unit 15% Cost overran 16%

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, the net 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 or association if they engage in garlands making and marketing, an attractive opportunity for members to engage in garlands making.

FINANCIAL AND ECONOMIC ANALYSIS

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74

This high net income, however, is dependent on the success of sampaguita 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 YEAR CASH INFLOW CASH OUTFLOW 23,958 287,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 = = NET CASHFLOW (23,958) 129,167 387,500 387,500 387,500 387,500 387,500 387,500 387,500 387,500 387,500 387,500 387,500 387,500 387,500 387,500 1,596,468 678%

0 1 416,667 2 1,250,000 3 1,250,000 4 1,250,000 5 1,250,000 6 1,250,000 7 1,250,000 8 1,250,000 9 1,250,000 10 1,250,000 11 1,250,000 12 1,250,000 13 1,250,000 14 1,250,000 15 1,250,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR)

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 them considering the potential market for garlands in nearby provinces.

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Sensitivity Analysis

The proposed sampaguita garlands production and marketing on the cooperative or association level was subjected to sensitivity test to determine how flexible the operation 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 of the test shows that:

The sampaguita garlands production and marketing can withstand 30% decrease in 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 of garlands 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. YEAR CASH INFLOW CASH OUTFLOW 23,958 287,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 = = NET CASHFLOW (23,958) 4,167 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 51,499 42%

0 1 291,667 2 875,000 3 875,000 4 875,000 5 875,000 6 875,000 7 875,000 8 875,000 9 875,000 10 875,000 11 875,000 12 875,000 13 875,000 14 875,000 15 875,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 30% Decrease in price of output 0% Cost overran 0%

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Table 38. Sensitivity Analysis (% Decrease in Output), Barangay Association/Cooperative Level. YEAR CASH INFLOW CASH OUTFLOW 23,958 287,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 862,500 = = NET CASHFLOW (23,958) 4,167 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 12,500 51,499 42%

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0 1 291,667 2 875,000 3 875,000 4 875,000 5 875,000 6 875,000 7 875,000 8 875,000 9 875,000 10 875,000 11 875,000 12 875,000 13 875,000 14 875,000 15 875,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in price of output 30% Cost overran 0%

In terms of the ability of the cooperative to cope up with increases in the cost of garland production and marketing, the result of the sensitivity test showed that:

Even if the cost of production and marketing of sampaguita garlands increased 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).

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FEASIBILITY STUDY RESULTS

Table 39. Sensitivity Analysis (% Cost Overrun), Barangay Association/Cooperative Level. YEAR CASH INFLOW CASH OUTFLOW 23,958 414,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 1,242,000 = =

77

0 1 416,667 2 1,250,000 3 1,250,000 4 1,250,000 5 1,250,000 6 1,250,000 7 1,250,000 8 1,250,000 9 1,250,000 10 1,250,000 11 1,250,000 12 1,250,000 13 1,250,000 14 1,250,000 15 1,250,000 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 0% Decrease in price of output 0% Cost overran 44%

NET CASHFLOW (23,958) 2,667 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 32,959 27%

The ability of the proposed enterprise to cope up with the combined effect of decreases 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.

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FEASIBILITY STUDY RESULTS

Table 40. Sensitivity Analysis (Combined Effect), Barangay Association/Cooperative Level. YEAR 0 1 2 3 4 5 6 7 8 9 CASH INFLOW CASH OUTFLOW 23,958 327,750 983,250 983,250 983,250 983,250 983,250 983,250 983,250 983,250 983,250 983,250 983,250 983,250 983,250 983,250 NET CASHFLOW (23,958) 2,292 6,875 6,875 6,875 6,875 6,875 6,875 6,875 6,875 6,875 6,875 6,875 6,875 6,875 6,875 = 28,324 = 24%

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330,042 990,125 990,125 990,125 990,125 990,125 990,125 990,125 990,125 10 990,125 11 990,125 12 990,125 13 990,125 14 990,125 15 990,125 NET PRESENT VALUE at 20% d.f. (P) FINANCIAL INTERNAL RATE OF RETURN (FIRR) SENSITIVITY ANALYSIS Reduction in yield 11% Decrease in price of output 11% Cost overran 14%

4.5

Economic and Environmental Impact Evaluation of Ilang-ilang and Sampaguita Production An economic and environmental impact evaluation was made to determine the desirability of the proposed project to the society.

On the economic impact, this could be in terms of the impact to employment generation, 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 than the 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

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return higher than the social rate of return (15%). The proposed enterprise can have both 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 farmermembers 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 a federation 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 other entrepreneurs 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 and will 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.

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Additional benefits will include the development of good values among children like industriousness, sense of responsibility towards the family and entrepreneurship. 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

On environmental Impact: Both the ilang-ilang and sampaguita production project have no negative environmental effect. Rather, the two projects are environmentfriendly. 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 will sustain the trees for its flowers not for its wood.

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