FINANCIAL FEASIBILITY STUDY ON SPA ESTABLISHMENT WITH

LANNA WISDOM IN CHIANG RAI

1
THATPHONG AWIROTHANANON, 2PARNPARE CHAOPRAYOON, 3WARACH
MADHYAMAPURUSH, 4CHALERMCHAI PANYADEE
1,2,2,4
Faculty of Business Administration, Maejo University, Chiang Mai, Thailand
E-mail: 1thatphong@hotmail.com, 2ajmint.chaoprayoon@gmail.com, 3warachm@gmail.com, 4cpanyadee@yahoo.com

Abstract- This study aims to analyse the financial feasibility on spa establishment with Lanna wisdom in Chiang Rai. The
project life is set at five years and uses a discount rate of 6.75% per annum. The initial investment is six million Baht, which
comes from bank loan and owner funding equally. The main use of initial investment is building with applied Lanna
architecture, decoration, and office equipment. The results show that the net present value (NPV) is 2,055,058.61 Baht, the
benefits cost ratio (BCR) of 1.41, while the return of the project (internal rate of return: IRR) equals 18.06% and the payback
period (PB) is 3.64 years. This study also changes the proportion of bank loan for the sensitivity analysis. The study also
finds that NPV, BCR, and IRR are greater than zero, one, and lending interest rate, respectively. The study, therefore,
concludes that the financial feasibility of project is a worthwhile investment.

Keywords- Financial feasibility, Spa establishment, Lanna wisdom, Chiang Rai.

I. INTRODUCTION centre of health. The standard of spa services in

The individual lifestyle has been changed with amidst
the hustle and tension, which affect the health and
fitness of occupation and livelihood. This leads to a
chance of entrepreneurs in offering choice to
consumers by opening a number of health facilities in
both urban and tourist areas to meet the needs of
people who are looking to relax. Spas in Thailand are
known and have been accepted very well. Spas can
also be expanded in leading hotels with a difference
of Thai wisdom in conjunction with the service in
different ways. The spa industry in Thailand has,
therefore, grown steadily. In addition, the Thai
government has established a development strategy
for the centre of health (Medical Hub of Asia) in the
South Asia, which contains medical services, medical
promotion business, Thai herbal health products, and
medical supplements. At present, there are several
spa businesses in the Northern provinces as well as
the spa association is established to exchange
information and defines the quality and standard of
Lanna spa services. There are 52 entrepreneurs of an
investment of 2,250 million Baht with the revenue of
86.4 million Baht as revenue from local services
14.17 million Baht as well as 72.23 million Baht on
revenues from tourism services to tourists. In
addition, revenue more than 83.60% is from tourists
who stay in Chiang Mai and 16.4% is from services
of local residents. Value added in the spa business in
Chiang Mai is worth 40.93 billion Baht (or 91.34% of
total value added) and the proportion of value added
per worker is equal to 89,620 Baht per person per
year (or 7,468 Baht per person per month) (Koasa-
ard, 2005). Furthermore, the Ministry of Tourism and
Sports has set a policy to promote Thailand as an
Asian health centre and the spa capital of Asia. This
shows that such a policy cannot happen if Thailand
does not have enough potential to develop into a
Thailand is under the supervision of the Ministry of
Health to be together five criteria to evaluate the
standard of service personnel and products, location
and environment, tools and equipment, and
organisation management.
The Northern provinces, including Chiang Mai,
Chiang Rai, Phayao, Phrae, Nan, Lampang,
Lamphun, and Mae Hong Son, have applied the
identity of the Thai spa with the wisdom of a
particular body of Lanna knowledge and a way of life
in health care. It has also procedures to protect and
maintain the health by four Lanna ways, including
healing rituals, herbal therapy, physical therapy, and
nutritional therapy (Thaoprasert, 2008) .The Lanna
spa is a business that has been the focus of both large
and small enterprises. There are also quite a number
of consumers, as shown in the revenue of health
tourism and spa of the Northern provinces with the
value in Chiang Mai of 40.93 million Baht per year.
In addition, the proportion of value added of hiring
staffs of 89,620 Baht per person per year (or 7,468
Baht per person per month). It can be seen that spas
could create jobs and income to the community as
well as result in economic growth and balanced
growth (Office of Strategy Management Upper
Northern Provincial Cluster 1, 2013).
Some reasons of using Chiang Rai as the study area
for using wisdom of Lanna spa are the potential of
tourism as well as various tourist spots. In addition,
Chiang Rai has plenty of natural resources as well as
history and culture that are unique. It is also the
gateway to the Greater Mekong Sub-region countries
and the special economic zone for transporting goods
from China. Chiang Rai has also set a vision to
develop the city as "City of Lanna Culture, Leading
International Trade and Public Peace" with the
mission of adding value to the economy, trade,
investment, tourism, agriculture and processing

Proceedings of Academics World 17th International Conference, Tokyo, Japan, 15th January 2016, ISBN: 978-93-82702-12-2
24
 Financial Feasibility Study On Spa Establishment With Lanna Wisdom In Chiang Rai
industry. The main strategy is "strategic economic
value with sufficient lifestyle" and the sub-strategy is
to "promote the development of tourism and
services." The guidelines for the development of
tourism and the service are 1) to develop and promote
eco-, historical, cultural and health tourism 2) to
develop Chiang Rai as the tourist centre of land,
water, and air with linkage of neighbouring countries,
3) to develop of niche tourism, which are the long
stay, eco-, educational, and health tourism, including
meetings, incentive, conferences, and exhibition
(MICE) 4) to develop a standard of service and
personnel, and 5) to develop and promote tourism and
marketing (Chiang Rai, 2014). This is conducive to
the fostering of Lanna spa business by bringing
products derived from biodiversity. This study aims
to investigate the financial feasibility of spa business
in Chiang Rai with the use of products derived from
traditional knowledge.
II. PROJECT EVALUATION METHODS
The project of spa establishment with Lanna wisdom
in Chiang Rai is set at 6.75% per annum, which is
minimum loan rate (MLR) from the loan interest rate
of Krung Thai Bank (2014) on 2 June 2014. This rate
will be used to calculate net present value (hereafter
called NPV), benefit cost ratio (hereafter called
BCR), internal rate of return (hereafter called IRR),
and payback period (hereafter called PB) of the
project. This study also uses these four methods to
evaluate the project of spa establishment with Lanna
wisdom in Chiang Rai as below:
2.1. Net present value (NPV)
NPV is the difference present value between the
project’s revenue and its expense. In other words,
NPV is a measure of how much value is created or
added today by undertaking the project (Ross, et al.,
2002). Based on NPV rule, the project will be
accepted when the present value of its revenue is
greater than the present value of its expense. This will
lead the value of NPV to be positive. On the other
hand, when the value of NPV is negative, the project
will be rejected. However, if there is more than one
project, the chosen project must have the highest
value of NPV. The calculation of NPV is shown
below:
B −C
NPV =
(1 + i)
where Bt and Ct are revenue and expense of the
project at time t, respectively,
i, t, and n are a discount rate, time t, and a project life.
2.2. Benefit cost ratio (BCR)
BCR is defined as the present value of revenue
divided by the initial investment (Ross, et al., 2002).
More generally, if a project has a positive NPV, then
the present value of revenue must be higher than the
Proceedings of Academics World 17th International Conference, Tokyo, Japan, 15th January 2016, ISBN: 978-93-82702-12-2
25
initial investment. The value of BCR would, thus, be
greater than one for a positive NPV investment and
less than one for a negative NPV investment. Based
on BCR decision criteria, when the value of BCR is
greater than one, it indicates that the present value of
revenue of the project is higher than the present value
of its expense, while the value of BCR is less than
one; it implies that the present value of revenue of the
project is lower than the present value of its expense.
It can also be calculated as:
B
∑
(1 + i)
BCR =
C
∑
(1 + i)
2.3. Internal rate of return (IRR)
It is a required rate of return from the project or is
simply the discount rate that makes the value of NPV
is equal to zero (Ross, et al., 2002). This is the
relationship between the interest rate and NPV. If the
interest rate for discounting makes NPV is positive,
the new interest rate should be higher than the
previous one. This will make the value of NPV lower.
At the end, the interest rate that makes the value of
NPV is equal to zero will be IRR. According to IRR
decision criteria, if the value of IRR is greater than
the discount rate (or the lending interest rate) of the
project, it implies that the project is worth to invest.
On the other hand, the project should be rejected,
when the value of IRR is lower than the lending
interest rate of the project. The calculation of IRR is
shown below:
B C
=
(1 + i) (1 + i)
2.4. Payback period (PB)
PB is an analysis of the length of time that recovers
the initial investment (Ross, et al., 2002). Based on
PB rule, a project is acceptable, if its calculated PB is
less than some pre-specified number of years. On the
other hand, the project will be rejected, when its PB is
greater than some pre-specified period. It can also be
calculated as:
where Cost of project and Project cash
flow are the present value of the initial investment
and revenue, respectively.
III. RESULTS AND DISCUSSION
The spa establishment with Lanna wisdom in Chiang
Rai will use the initial investment of six million Baht
with the project life of five years. This amount will be
divided equally into two parts: bank loan and owner
funding. The initial investment includes the building
with applied Lanna architecture as well as four spa
rooms (two beds per room) and two open air massage
rooms (two beds per room), one herbal sauna room,
 Financial Feasibility Study On Spa Establishment With Lanna Wisdom In Chiang Rai
one living room, one storage room, and seven rest
rooms. The total initial investment is 5,792,000 Baht,
while the remaining amount of 208,000 Baht is in
cash. The straight-line depreciation is calculated for
fixed assets, as shown in Table 1. For example, the
cost of building is 2.5 million Baht and the lifetime of
building is 20 years. As a result, the depreciation of
building is 125,000 Baht per year.
As above discussed, the initial investment of spa
establishment with Lanna wisdom in Chiang Rai
comes from two parts equally: bank loan and owner
funding. The amount value that borrows from bank is,
therefore, three million Baht and the lending interest
rate is set at 6.75% per annum. This loan will be fully
repaid within five years, which is the project life,
with the amount of 726,800 Baht per year, as shown
in Table 2. For instance, the payment of 726,800 Baht
in the first year covers the principal of 524,300 Baht
and the interest of 202,500 Baht.
Table1: Value and depreciation of fixed assets
Table 2: Loan repayment
Table 3: Price and proportion of spa services
The cost of each spa services, which apply Lanna
wisdom, is shown in Table 4. The cost of
aromatherapy service, for instance, is set at 250 Baht
per time and the cost will increase 5% in the third
year. The cost of aromatherapy service will thus be
263 Baht per time.
From the above information, the decision criteria
results are shown in Table 5. This study finds that the
value of NPV is 2,055,058.61 Baht; this implies that
this project of spa establishment with Lanna wisdom
in Chiang Rai is worth to invest since the revenue is
greater than the expense of project (or the value of
NPV is greater than zero). The project of spa
establishment with Lanna wisdom in Chiang Rai is,
therefore, a worthwhile investment. This study also
finds that the value of BCR is 1.41 times, which is
greater than one. This suggests that the project of spa
establishment with Lanna wisdom in Chiang Rai is
worth to invest. For IRR, this study finds that the
value of IRR is 18.06%, which is higher than 6.75%
per annum (the lending interest rate of commercial
Proceedings of Academics World 17th International Conference, Tokyo, Japan, 15th January 2016, ISBN: 978-93-82702-12-2
26
The proportion of spa services and the price of each
service are shown in Table 3. There are eight spa
services, including aromatherapy, Thai herbal heat
treatment, facial massage, body scrub, foot massage,
Thai massage, Lanna exotic, and sauna & steam. The
aromatherapy service, for instance, accounts 25% of
total spa services. The price of this service is also set
at 1,500 Baht per service for the first year and it will
increase 5% in the third year. As a result, the price of
aromatherapy services in the third year will be 1,575
Baht per serive.
banks). This means the project of spa establishment
with Lanna wisdom in Chiang Rai is a worthwhile
investment. This study further finds that the value of
PB is 3.64 years, which is shorter than the project life
(five years).
For sensitivity analysis, this study has changed the
proportion of bank loan from 50% to 25% and 75%
of the total initial investment, while all settings are
remained the same, as shown in Table 5. If reducing
the bank loan from 50% to 25% of the total initial
investment, all evaluation methods, including NPV,
BCR, and IRR, have increased in value, except PB,
which has a dropped value. For instance, the values
of NPV, BCR, and IRR rise from 2,055,058.61 Baht,
1.41 times, and 18.06% per annum to 2,171,477.34
Baht, 1.43 times, and 19.78% per annum,
respectively. Those values are also greater than zero,
one, and the lending interest rate of commercial
banks, respectively. In addition, the PB value is
shorter than the PB value of 50% bank loan. This
implies that the project of spa establishment with
 Financial Feasibility Study On Spa Establishment With Lanna Wisdom In Chiang Rai
Lanna wisdom in Chiang Rai is a worthwhile
investment.
When increasing the bank loan from 50% to 75% of
total initial investment, the values of NPV, BCR, and
IRR have decreased in the value, except PB, which is
increasing. The values of NPV and BCR, for
example, drop from 2,055,058.61 Baht and 1.41 times
to 590,267.32 Baht and 1.12 times, respectively. The
value of IRR is also decreased from 18.06% per
annum to 9.08% per annum. In the other hand, the PB
Table 4: Cost of spa services
Table 5: Evaluating results
The above analysis shows that the value of NPV is
worth 2,055,058.61 Baht, the BCR value is 1.41
times, the IRR value of 18.06%, and the PB value is
3.64 years. These values, therefore, represent the
project of spa establishment with Lanna wisdom in
Chiang Rai is a worthwhile investment. This result is
consistent with several previous studies, including
Kongcharoen and Jitsanguan (2004), Sanga-ngam
(2010), and Yaites and Anurakruenon (2013).
Kongcharoen and Jitsanguan (2004), for example,
find that a project on hot water production form
integrated solar energy system in Rayong province is
worth to invest. This project has a positive NPV and
the value of BCR is greater than one, while the value
of IRR is greater than a loan interest rate from
commercial banks.
CONCLUSIONS
The study of spas in Northern provinces shows that
they try to insinuate Lanna identity in terms of
culture, living hood, and wisdom into the spa
business. The spa requires investment budget totalled
six million Baht by the financing come from a loan
from the bank of 50% and owner funding of 50%.
The main use of initial investment is building with
applied Lanna architecture, decoration, and office
equipment. The building comprises of 1) four spa
rooms (two beds per room) and two open-air massage
rooms (two beds per room) 2) one steam room 3)
seven rest rooms 4) one living room, and 5) one
Proceedings of Academics World 17th International Conference, Tokyo, Japan, 15th January 2016, ISBN: 978-93-82702-12-2
27
value rises from 3.64 years to 4.07 years. This value
is also shorter than the project life. According to the
decision rules of all evaluation methods, the project
of spa establishment with Lanna wisdom in Chiang
Rai is worth to invest since the values of NPV and
BCR are greater than zero and one, respectively, as
well as the IRR value is higher than the lending
interest rate of commercial banks, which is 6.75% per
annum.
storage room. The project life is set at five years and
the project rate of return (IRR) is 18.06% per annum,
which means that the project yields higher than the
lending interest rate of 6.75% per annum. This project
also has the values of NPV and BCR of 2,055,058.61
Baht and 1.41 times, respectively. These values are
greater than zero and one, respectively. It implies that
this project, which is spa establishment with Lanna
wisdom in Chiang Rai, is worth to invest since the
revenue from this project is higher than its expense.
The PB value of the project is further 3.64 years.
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