PENCIL AND

PEN
PRODUCTION
 PEN AND PENCIL PRODUCTION 2017

1 Executive Summary

The proposed business is on production of pen and pencil in Bhutan and it has potential to
produce domestically as the major raw materials are available. According to the Annual
Education statistics 2016, there are 522 schools, which consist of 486 public schools including
51 central schools, and 36 private schools with the total number of1 72, 741 student. The demand
for the both pen and pencil is likely to grow at a very fast pace keeping in view the future
economic growth in Bhutan leading to higher purchase power.

The pen and pencil have become most important items required by the students and along with
exercise book, pen and pencil constitute the major segment of the school supplies which are
mostly purchased in the market by the student. At present, there are no manufacturing facilities
for the production of pen and pencil in Bhutan and the requirement is being met through imports
from India.

Pen and pencil production being a monopoly business, it can render its product to entire school
in Bhutan

The sources of finance for the proposed business are as follows:

 REDCL (Rural Enterprise Development Corporation Limited)
 Loden Foundation
 Self funding
 Financial institutions at average rate of 12%

The report presents in detail the justification of the project, market analysis, Resources required,
technology used, plant location, environmental aspects, implementation of project, cost
presentation and financial analysis:

i. Justification of the Project: Every year a large number of pen and pencil are imported
form Indian and other countries. The proposed business has a monopoly power and
available of raw material in the Bhutan.
ii. Market Analysis: Presently there is no business that produces pen and pencil in Bhutan.
Every year number of school and student increases and there is high demand for imported
pen and pencil.
iii. Resources required: The main raw material for the production of pen and pencil is
Pencil slat, black lead, and glue, packing material, pipe, ink, nozzle and plain rapper. Part
from all the raw materials machinery, water and electricity are required.
iv. Technology required: The production of pen and pencil will use automatic machinery
which will be imported from Zhengzhou Gashili Machinery co. ltd and
www.CHINA.HAIJIANG.COM from china.

1 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

v. Plant location: Location of the business will be at Thimphu, Phuentsholing and Paro
since this place have high number of schools and student whereby the proposed business
can distribute it product.
vi. Environmental Aspects: The production of pen and pencil causes’ air and water
pollution as well as degradation of the environment but this may reduce up to a great
extent by the recommended measures.

vii. Cost Presentation and Financial Analysis:

Table 1: Project summary

Total Project Startup Cost 1,778,810

Total Investment 1,879,110
Working Capital 100,300
BEP 62009
ROI 9%
ROI on Net profit 30.9%

2 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

TABLE OF CONTENTS
1 Executive Summary ...................................................................................................................................... 1
2 Justification of the project ........................................................................................................................... 5
2.1 The need of the project ........................................................................................................................ 5
2.2 Competition Analysis ........................................................................................................................... 5
2.3 SWOT analysis ...................................................................................................................................... 5
3 Market Analysis .............................................................................................................................................. 6
3.1 Structure of the industry ...................................................................................................................... 6
3.2 Demand vs. Supply ............................................................................................................................... 7
3.3 Pricing and Marketing Strategies .................................................................................................. 7
3.4 Technological changes that could impact costing................................................................... 8
3.5 Competitiveness of the project....................................................................................................... 8
3.6 Packaging & Transportation ........................................................................................................... 9
3.7 Assessment of Comparative Advantage ...................................................................................... 9
3.8 Determine potential for marketing collaboration ............................................................... 10
4 Resources ..................................................................................................................................................... 10
4.1 Sources of inputs............................................................................................................................... 10
4.2 Sources of raw material ................................................................................................................. 10
4.3 Assess the availability of manpower & skills ......................................................................... 11
4.4 Assess the need for skill development ..................................................................................... 12
5 The plant ....................................................................................................................................................... 12
5.1 Choice of the technology ................................................................................................................ 12
5.2 Rate of consumption of power, fuel, utilities & consumables ......................................... 14
5.3 Man power requirement and organization chart ................................................................ 15
5.4 Extent of technical assistance needed including training ................................................. 15
6 Plant Location & Infrastructure with layout ................................................................................... 15
6.1 Raw material Availability .............................................................................................................. 15
6.2 Environmental aspects- Regulation & environment issues ............................................. 15
7 Project Implementation Schedule....................................................................................................... 16
8 Financial Analysis...................................................................................................................................... 16

3 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

8.1 Total Project capital Costs ............................................................................................................. 16

8.2 Working Capital Costs..................................................................................................................... 16
8.3 Cost of Production per unit........................................................................................................... 16
8.4 Human Resource cost ..................................................................................................................... 17
8.5 Marketing Cost................................................................................................................................... 17
8.6 Project profit and Loss Statement .............................................................................................. 17
8.7 Projected Cash flow statement .................................................................................................... 18
8.8 Projected Balance sheet statement............................................................................................ 19
9 Financial Ratio analysis .......................................................................................................................... 20
9.1 Interest on loan ................................................................................................................................. 20
9.2 Break Even Point .............................................................................................................................. 20
9.3 Return on Investment ..................................................................................................................... 20
9.4 Net Present Value and Internal Rate of Return..................................................................... 20
10 Conclusion ............................................................................................................................................... 21
11 References ............................................................................................................................................... 22

4 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

2 Justification of the project

2.1 The need of the project

With the growth in education sector, there is consequent rise in demand for the pen and pencil of
school supplies and every year more number of modern system of education both in government
sector as well as private sector are being set up. Consequently, there has been a change in the
demand for the proposed business.

The pen and pencil have become most important items required by the students and along with
exercise book, pen and pencil constitute the major segment of the school supplies which are
mostly purchased in the market by the student. At present, there are no manufacturing facilities
for the production of pen and pencil in Bhutan and the requirement is being met through imports
from India.

The proposed business has been drawn for the production of pen and pencil. The proposed has
two separate departments, the first for the production of pen and the second for the production of
pencil. As there is no such industrial unit’s production, there exist a good potential for
establishment of setting up of business in Bhutan. The proposed business unit would be equipped
with the machines for the production of pen and pencil. The ideal location for the proposed
business would be Thimphu, Phuntsholing, and Samdrupjongkhar as they constitute the major
market both school supplies as well as general market supplies.

2.2 Competition Analysis

The competitor includes mostly those of the producer from India. This imported Pen and Pencil
are of cheaper in price with high quality product. If the proposed business established in Bhutan,
the demand for the pen and Pencil will be high since the business have a monopoly power.

2.3 SWOT analysis

Strengths Weakness
 Ideal location to run the business  Competitions from new entrance.
 Monopoly Business  Poor access to distribution
 Available of laborer  Weak brands

Opportunities
 Contribute o the nation’s economy
 Growing number of schools and
students
 Produce pen and pencil of better
quality
 To reduce import of pen and pencil
and limit the outflow of foreign
exchange.
Threats
 New entrance
 Technological advance
 Availability of similar product at
cheaper rate.
 Threat of losing market.

5 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

The proposed business has a threat and weakness in terms of losing its market, advance
technology, and new entrance. However, the proposed business has a monopoly power to capture
all the market in the Bhutan as well as it will contribute to the nation economy.

2.1 Critical success factor

1) Monopoly Market
2) Location and it accessibility

3 Market Analysis

3.1 Structure of the industry

Manufacturer/Importers

Wholesalers

Retailers

Ultimate users

6 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

3.2 Demand vs. Supply

The country requirement for most type of pen and pencils are largely met through import.
According to the Annual Education statistics 2016, there are 522 schools, which consist of 486
public schools including 51 central schools, and 36 private schools with the total number of1 72,
741 students. The demand for the both pen and pencil is likely to grow at a very fast pace
keeping in view the future economic growth in Bhutan leading to higher purchase power.

Presently, there are no manufacturing units for Pen and pencil. The demand is being met through
imports. There being sufficient demand, both in school supplies sector as well as in open market
and the proposed unit is expected to have bright prospects for capturing a substantial share of
domestic market. As the unit is setup in the vicinity of Thimphu, Phuentsholing and Samdrup
Jongkhar, the distribution channels could be well utilized for marketing of the readymade pen
and pencil all over the Bhutan. Similarly, every student needs pen and pencil for noting down the
note in the school. The maximum life of pen is 7 days and pencil is 4 days, the student buys a
new pen and pencil and a demand becomes a recurring demand. A wide variety range of pen and
pencil in varying price range are available in the market and the proposed business needs to
product it at a reasonable price as per product being currently sold in the market

Government Private Total

Early Childhood Development
ECCD Centre 231 59 290
School Education
1) Primary school 307 14 321
2) Lower Secondary School 68 1 69
3) Middle Secondary School 71 2 73
4) Higher Secondary School 40 19 59
Sub-Total 486 36 522
Extended Classrooms 96 - 96
Central Schools 51 - 51
Schools with SEN programme & Special institutes 12 2 14
Source: Annual Education Statistics 2016.

3.3 Pricing and Marketing Strategies

3.3.1 Pricing Strategies
The proposed business will utilize media such as broadcast, newspapers, instagram and also
Facebook at certain interval of time to introduce the products in the market and also attract
more customers. The proposed business will distribute its product in 37 central schools in
Bhutan as well as shops around twenty Dzongkhag.

7 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

3.3.2 Marketing Strategies

Presently, most of the pen and pencil are being imported in Bhutan. As of now there are no
organized business units in Bhutan that produce pen and pencil and the requirement is being met
through imports. Accordingly, the following marketing strategies could be adopted by:

 Marketing through trade channels by whole- sellers in major cities or direct sales to
stationery shops.
 Distributing the pen and pencil around twenty dzongkhag schools and institutions.

The proposed business needs to mainly focus on school supply sector and market their products
through school students on major educational centers. The proposed business must identify shops
which could function as the retail outlets for selling its product. The business need to produce the
pen and pencil as per the demand of the customer with all the quality to that of imported one.

3.4 Technological changes that could impact costing

One of the biggest technological changes that can impact the way the unit would conduct
business in the future would be the progress of information technology in shaping e-commerce
and its adaption in the Bhutanese economy.

It may be used to find out the customers on line. Similarly, it may be possible to generate and
respond to customer enquiries on line and transact business with those who stay outside the
country. It has been also found out that most of the raw materials are imported. So, if these
things are produced within the country it would make the product more cost effective.

The basic impact of all this would help to reduce the cost and therefore the price of the product.

3.5 Competitiveness of the project

The proposed business is on production of pen and pencil. This business has a monopoly power
in Bhutan and it could reduce the import rate of pen and pencil but it would compute against
India market.

The unit aspires to deliver quality product which would be beneficial for the student, institute
and market as a whole. It is expected that there would be a demand pull at the customer end
which can be further strengthened through innovative promotional strategies. The demand pull is
estimated to be significant thereby ensuring lowering of costs through economies of scale.

8 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

1.1 Special attributes desired by target customers

In general customers would prefer:
 High quality lead pencil and pen
 Water proof pen

However, the customer needs and wants may vary from one customer segment onto the other.

1.2 Terms &conditions and product specifications desired by target customers

The proposed business is for production of two distinct products, viz., Pen and pencil. The
proposed unit shall comprise of following two product departments.

1.2.1 Pencil Manufacturing Department: This department would be equipped with

the facilities for the production of pencil. The pencil will be of 3HB quality with
much softer, darker and quality writing.
1.2.2 Pen Manufacturing Department: This department would be equipped with the
facilities for the production of pen. The pen will be of high quality, long lasting
at the possible low cost.

3.6 Packaging & Transportation

The pen and pencil will be packed into “4 x 6” high quality paper and cardstock featuring
designs and each of the pack will include six cards, six envelopes and six sentiments for a final
touch. It needs to satisfy the objective to protects the quality of the product and provide
information to buyers, such as quality, producer and name of the producer, country, area, etc.

3.7 Assessment of Comparative Advantage

a) Abundance of Hydroelectric Power

Bhutan is an energy surplus state. 97% of its energy is obtained from hydro power. According
to Bhutan Trade Statistic 01st January- 31st March, 2017, total exports to India were Nu. 549.23
million. The cost of electricity is lower than many power deficient economies.

b) Availability of Water

Bhutan is endowed with rich perennial water resources fed with permanent glaciers, glacier
lakes and recurrent monsoons. The per capita mean flow availability is as high as 109,000 m3.
This compares very favorably with a developing economy like India which has per capita mean
flow availability as low as 1,588 m3.

9 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

3.8 Determine potential for marketing collaboration

There is potential for marketing collaboration at the customer end of the supply chain. The
proposed business can distribute its product to wholesaler and the schools in twenty
dzongkhag.

4 Resources
4.1 Sources of inputs
Utilities required by the plant consist of electrify and water.

Electricity is required to run the production machinery and to provide lighting for the plant. So
except for very remote areas availability of electricity is not a handicap.

Water is required for general purposes and for supplying to the boiler, where steam is
produced to be supplied to the molasses tank. Bhutan is drained by many rivers flowing south
between these ranges and for the most part ultimately emptying into the Brahmaputra River in
India. The river basins are oriented north-south and are, from west to east, the Jadalkha, Torsa,
Raidak, Sankosh, Mao Khola/Aie, Manas and eastern river basins, this last basin being
composed of the Bada and Dhansiri rivers. Two wastewater treatment projects are being
implemented in the cities of Thimphu and Phuntsoling.

4.2 Sources of raw material

For the proposed business major raw materials required for the production of pen and pencil are
pipe, Ink, Nozzle, Plain Rapper, Pencil salt, Black lead, Glue, Lacquer enamel and packing
material.

Ink: Ink is a liquid that contain pigments used to produce an image, text, or design.

Nozzle: Nozzle is a tube use to fill the ink. Nozzle can be of brass and other metal.

Pencil slat: Pencil slats are the wooden component used for pencil manufacturing to produce
wood-cased pencil.

Black Lead: The lead of the pencil is a mix of final ground graphite and clay powers.

Glue: Glue is used to inject in a groove. Glue helps to stick the groove slat in to sandwich to
prevent the breakage.

Lacquer enamel: Lacquer is used for the shiny finished applied to material.

10 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

4.3 Assess the availability of manpower & skills

According to the Labour Force Survey Report 2015 finds that the working age population which
is 15 years and above is estimated at 558, 959 people of which 352,953 people are in the labour
force and 206,006 people are not in labour force. The diagram below shows the percentage share
of employed person in 2015 by the type of enterprise highlights that 58% of the employed person
are in agriculture farming followed by 19.1% in private businesses and 7% in civil service

Figure 1. Percentage share of employed person by the type of enterprise, 2015

According to the Trading Economic report 2016 state that the unemployment rate in Bhutan have
decreased to 2.50 percent in 2016 from 2.60 percent in 2015.

Figure 2. Unemployment Rate in Bhutan (2006-2016)

However, higher technical courses for engineering and technology, international law and finance
are required to meet the requirement of the imminent future.

11 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

4.4 Assess the need for skill development

As the workforce is mostly unskilled, there is a need to develop their skills according to the need
of the industry. Workshops or on-site short term trainings may be organized by the suppliers of
machineries on how to control the temperature, operate machineries etc. The training should be a
combination of theory sessions, on the job coaching sessions and on the job supervision. For
people joining with no relevant experience training in their respective functional area would be
mandatory. There should be a periodic skill assessment done by the management on the basis of
observation of on the job performance. Based on the findings, a training calendar needs to be
drawn up

5 The plant

5.1 Choice of the technology

An automatic mechanized plant has been used for the production of pen and pencil. The plant
has the capacity of producing 10000 set of pencil per month and 500 sets of pen per month.

For the production of pencil, automatic pencil production machinery is used and the machinery
will be imported from Zhengzhou Gashili Machinery co.ltd from China. The process starts with
the grooved slat which will be imported from India at the initial stage. The grooved slat is a half
pencil, is coated with the glue and the lead are placed in the groove and then covered with the
second slat. The block is dried in the drying machine and it’s passed through shaping machine
that shapes the raw pencil. The raw pencils are then lacquered in a painting machine, which is
made to apply three to ten times of lacquer coating depending on the quality of finish required.

After the final coat of lacquer, the pencil is placed in heading and sizing machine which sands
off excess wood and paint from the ends of the pencil and trims the pencil in good finished
length.

For the production of Pen, automatic pen producing machinery is used and the machinery will be
brought from China Haijiang.com ltd. For the pen production process the pipe and ink will be
imported from India. Raw plastic materials are injected into injection molds and the readymade
ink is filled into the pipe.

Pencil manufacturing process

Step
the wooden slats are formed/ shaped on the slat machine
1:
Step
Pencil slat are treated with wax
2:
Step
groovier machine cuts grooves in to slat to accept the writing core
3:
Step Writing core is placed in to the grooves

12 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

4:
Step A second grooves is glued on to the first grooves by a lead layering and its dried in
5: drying machine
Step
The grooved slat is cut into individual pencils.
6:
Figure 3: Pencil manufacturing process

• Eight shallow groves are sawed lengthwise into each slat

Step 1

• Grooved slat are glued on top, sandwiching the leads

• The slats are fed through a cutting machine
Step 2

• Cut pencil are put into the drying machine

• The pencil are ready , packed, and used
Step 3

Pen manufacturing process

Step 1: Making the Ink

Step 2: Stamping and forming
Step 3: Molding the housing
Step 4: Ink filling and assembling
Step 5: Final assembling, packaging and shipping
Figure 4: Pen manufacturing process

Press Ink
Start: Raw Fill Ink pen Press Plug Pen Finish :
Place Pen
pen cartridge into pen Cartridge assembled
cap on Pen
materials with Ink Barrel into Pen Pen
Barrel

13 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

Details of supplier (pen and pencil production plant)

1. SHENZHEN GEREKE MACHINERY CO.,LTD

Address:No.19,Unit2,JiaDe Maluan Industry Park,Pingshan New District,

ShenZhen,GuangDong
Tel:0755-8990 6421
Fax:0755-8990 6385
Web:www.geruike.com
www.szgeruike.cn
E-mail:555@geruike.com

2. www.gsl-machine.com
Contact: Nancyle:
Mobile: 0086-13643842763
TEL\FAX:0086-371-60317344
Email: gashilinancy@gmail.com
Yahoo: gashilinancy@yahoo.com
MSN: gashilinancy@hotail.com
Skype: gashilinancy

3. Daphne Zhou
Tel:86-451-86646708
Fax: 86-451-86811059
Skype: meixue.zhou
We chat: 1322468646
What’s up: +8618345168420
Add: No.388 Songhua Road, Haping Centralized Zone, Economic Developing
Area.Harbin china 150090

5.2 Rate of consumption of power\, fuel, utilities & consumables

The table below shows the annual requirement of utilities:
Sl. nos Description Annual consumption Unit
1 Electricity 175 Kwh
2 Water 3200 M^3

14 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

5.3 Man power requirement and organization chart

SL.NOS Particulars Required no.
1 Manager 1
2 ADM cum Accountant 1
3 Technician 2
4 Salesperson 1
5 Skilled Workers 3
6 Wage Worker
8

5.4 Extent of technical assistance needed including training

As the workforce is not so much skilled there is a need to develop their skills according to the
need of the industry. Workshops or on-site short term trainings may be organized by the
suppliers of machineries on how to control the temperature, operate machineries etc. The
training should be a combination of theory sessions, on the job coaching sessions and after that
on the job supervision. The duration of training will be of 2 weeks, 1 week for the theory and
on the job training and 1 week for the supervision at a pre-fixed rate. The duration of training
may be extended later on if required.

6 Plant Location & Infrastructure with layout

6.1 Raw material Availability

Raw material for the production of the pen and pencil will be imported from india which would
be easy as Phuentsholing has close proximity to the Indian towns of Jaigaon and other.

6.2 Environmental aspects- Regulation & environment issues

The production process involved in the production of pen and pencil is basically a conversion
process from wood into pencil and plastic into a pen. There is no as such gaseous and liquid
affluent are generated in the process. Dying is the only process in the manufacturer of pen and
pencil which has pollution both noise and air. Some solid waste would be generated in the form
of plastic and other dust which can be easily disposed off. But the waste generation could be
minimized by using the method of economic cutting.

15 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

7 Project Implementation Schedule

PROJECT TIMELINE
2017
Activities
1st Month 2nd Month 3rd Month 4th Month
Feasibility study and
development of the project
proposal
Start of the Construction of
Semi-permanent Building
Purchase of Inventories
and Start of Production

8 Financial Analysis
8.1 Total Project capital Costs
Total Project Startup Cost 1,778,810
Total Investment 1,879,110
Working Capital 100,300

8.2 Working Capital Costs

Particulars Monthly Yearly
Advertising 500 6,000
Inventory Purchases 30,000 360,000
Miscellaneous 1,500 18,000
Payroll 33,000 396,000
Rent or Lease 10,000 120,000
Others: 25,300 303,600
Total 100,300 1,203,600

8.3 Cost of Production per unit

Year 1 Year 2 Year 3 Year 4 Year 5
Total Units 30,000 31,500 33,075 34,729 36,465
Cost of Production 1,210,922 1,258,502 1,308,461 1,360,917 1,415,997
Unit Cost of Production 40.36 39.95 39.56 39.19 38.83

16 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

8.4 Human Resource cost

MANPOWER COST
Particulars Monthly Year 1 Year 2 Year 3 Year 4 Year 5

Direct Labor
21,000 252,000 264,600 277,830 291,722 306,308
Salary &
Allowances 12,000 144,000 151,200 158,760 166,698 175,033

Wages
3,500 42,000 44,100 46,305 48,620 51,051

Total
36,500 438,000 459,900 482,895 507,040 532,392

8.5 Marketing Cost

Following table shows the marketing cost for annually:

Particulars Monthly Yearly

Advertising 500 6,000

8.6 Project profit and Loss Statement

INCOME STATETMENT PROJECTION FOR 5 YEARS

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Revenue
2,040,000 2,142,000 2,249,100 2,361,555 2,479,633

Cost of Goods Sold

621,600 652,680 685,314 719,580 755,559

Gross Profit / (Loss)

1,418,400 1,489,320 1,563,786 1,641,975 1,724,074

Expenses
589,322 605,822 623,147 641,338 660,439
Net Operating Income
/ (Loss) 829,079 883,499 940,640 1,000,638 1,063,636

Less: BIT (30%)

248,724 265,050 282,192 300,191 319,091

Net Income / (Loss)

580,355 618,449 658,448 700,446 744,545

17 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

8.7 Projected Cash flow statement

Projected Cash Flow Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Beginning Cash
Balance 936,700 1,814,920 2,737,051 3,705,289
Accts. Rec.
Collections 204,000 214,200 224,910 236,156 247,963

Loan Proceeds
1,879,110
Sales &
Receipts 1,836,000 1,927,800 2,024,190 2,125,400 2,231,669
Other:
Total Cash
Inflows 3,919,110 2,142,000 2,249,100 2,361,555 2,479,633
Available Cash
Balance 3,919,110 3,078,700 4,064,020 5,098,606 6,184,921

Advertising
6,000 6,300 6,615 6,946 7,293
Inventory
Purchases 360,000 378,000 396,900 416,745 437,582

Miscellaneous
18,000 18,900 19,845 20,837 21,879

Payroll
396,000 415,800 436,590 458,420 481,340

Rent or Lease
120,000 126,000 132,300 138,915 145,861

Other:
303,600 318,780 334,719 351,455 369,028

Subtotal
1,203,600 1,263,780 1,326,969 1,393,317 1,462,983

Capital
Other Cash Out
Purchases 1,778,810
Flows:
Subtotal
1,778,810 - - - -
Total Cash
Outflows 2,982,410 1,263,780 1,326,969 1,393,317 1,462,983
Ending Cash
Balance 936,700 1,814,920 2,737,051 3,705,289 4,721,938

18 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

8.8 Projected Balance sheet statement

Projected Balance Sheet For 5 Years
Year 1 Year 2 Year 3 Year 4 Year 5

Assets

Cash & Bank

936,700 1,814,920 2,737,051 3,705,289 4,721,938
Accounts Receivable
204,000 214,200 224,910 236,156 247,963
Prepaid Expenses
50,000
Other Current Assets
Total Current
Assets 1,190,700 2,029,120 2,961,961 3,941,444 4,969,901
Net Fixed Assets
1,469,489 1,210,167 950,846 691,524 432,203
Other Assets

Total Assets
2,660,189 3,239,287 3,912,807 4,632,968 5,402,104

Liabilities & Capital

Accounts Payable
486,113 1,351,900 2,355,034 3,453,829 4,657,559
Total Current
Liabilities 486,113 1,351,900 2,355,034 3,453,829 4,657,559

Long-Term Notes
Payable 1,593,720 1,268,938 899,325 478,693 (0)
Total Long-Term
Liabilities 1,593,720 1,268,938 899,325 478,693 (0)

Total Liabilities
2,079,833 2,620,838 3,254,359 3,932,522 4,657,559
Net Profit
580,355 618,449 658,448 700,446 744,545

Total Capital
580,355 618,449 658,448 700,446 744,545

Total Liabilities &

Capital 2,660,188 3,239,287 3,912,806 4,632,968 5,402,104

19 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

9 Financial Ratio analysis

9.1 Interest on loan

Year 1 Year 2 Year 3 Year 4 Year 5
Interest 209,790 172,781 131,079 84,088 31,138
Loan Principle 291,807 328,816 370,518 417,509 470,460
Loan Balance 1,587,303 1,258,487 887,969 470,460 0
EMI 501,597 501,597 501,597 501,597 501,597

9.2 Break Even Point

BREAK EVEN X BREAK EVEN Y LABEL

62,009 4,216,612 break even unit =62009

9.3 Return on Investment

RETURN ON INVESTMENT
Product Year 1 Year 2 Year 3 Year 4 Year 5
Pencil(pkt) 5% 9% 12% 16% 20%
Pen(pkt) 3% 5% 8% 10% 12%
Total ROI 9% 14% 20% 26% 32%

9.4 Net Present Value and Internal Rate of Return

Net Present Value (NPV) 1,592,445

Internal Rate of Return (IRR) 38%

20 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

10 Conclusion

The proposed business is based on production of pen and pencil and until now there is no such
business established in Bhutan which acts as one of the advantage of the business since the
market can be captured with monopoly power. Even though the business has capability of
capturing with monopoly business in Bhutan. But the business not financially feasible since the
total start up cost leads to BNT 1,778,810, total investment BTN 1,879,110 and working capital
BTN 100,300.

Secondly, according to the Constitution of the Kingdom of Bhutan act, under Article 5
Environment, Bhutan should conserve the country’s natural resources and to prevent degradation
of the ecosystem, a minimum of sixty percent of Bhutan’s total land shall be maintained under
forest cover for all time. So, in order to produce pen and pencil the basic requirement is wood
and every year to produce pencil for 175,393 students will leads to destruction of environment.

Thirdly, the proposed business cannot compute with the India market price and quality since
they have a capability of producing high quality product at reasonable price which customer
prefer for

21 Compiled by IBEST consultancy service

 PEN AND PENCIL PRODUCTION 2017

11 References
 Labour Force Survey Report 2015, Department of Employment, Ministry of Labour and
Human Resources, Royal Government of Bhutan (2015).
 Statistical Yearbook of Bhutan 2016, National Statistics Bureau, Royal Government of
Bhutan (2016)
 www.alibaba.com
 Annual Education Statistics 2016

22 Compiled by IBEST consultancy service