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Feasibility Study on Fish Farming Activity

Prepared by
Economic Performance Sector
Central Department of Feasibility Studies
General Department of Economic Feasibility Studies

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Contents
Preface: Objective of Economic Feasibility Study of Project: ...................... 3
I.Project Basic Information:……………………............................................. 4
II.Introduction to the Activity of the Study:………………… ....................... 5
III.Preliminary Feasibility Study and the Reason for Choosing the
Project:……………………………………………………………….. ............. 5
IV.Project Marketing Study…………………. ................................................ 6
V.Project Legal Feasibility Study…………………. ....................................... 9
VI.Project Environmental Feasibility Study……………….. ...................... 10
VII.Project Technical Feasibility Study……………….. .............................. 11
VIII.Project Financial Feasibility Study……………… ............................... 15
IX.Project Social Feasibility Study…………………. ................................... 29
X.Results and Recommendations……………………................................... 30

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Preface: Objective of Economic Feasibility Study of Project:

 The project is considered one of the cornerstones of the country's economic
development process and a means to achieve the economic, social and development
goals to be achieved.
 Economic Feasibility Studies of projects is the approach that defines investment
decisions related to investment projects, whether mega or small projects, to ascertain
the feasibility of setting up the project.
 Feasibility Studies is based on a set of methods, tools, scientific foundations and
detailed studies in all aspects (marketing, technical, financial, administrative,
environmental, and legal) that carefully examine the possibilities of success of the
investment project and the extent of its ability to achieve the highest possible rate of
profitability over the life expectancy of it.
 Accordingly, the feasibility study could be defined as an integrated set of specialized
studies conducted to determine the viability of the investment project from several
legal, marketing, production, financial, economic and social aspects to achieve
specific goals, which in the end enable the investment decision to be made for the set
up of the project, in other words the acceptance or rejection of the project.
Thus, the new planning of projects ensures the extent of success and effectiveness of these
projects, in addition to ensuring the good financial return (profit) expected from these
projects. Therefore, before starting any economic project, an economic feasibility study
must be conducted for it.

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I. Project Basic Information:

Project Name Earthen Pond Fish Farm

Project Surface Area 4 feddans

Life Expectancy Five years

Targeted Products: Tilapia or mullet fish

Expected Labor 6 workers + 1 consultant

Expected Investment Costs EGP 500,000

Expected Annual Costs EGP 365,000

Break-Even Sales 11.35 tons

Margin of Safety 72%

Expected Annual Revenues EGP 640,000

Average Annual Profit EGP 205,375

Return on Investment (ROI) 41%

Expected Net Present Value (NPV) EGP 154,659

Expected Internal Rate of Return (IRR) 46%

Payback Period 2 years

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II. Introduction to the Activity of the Study:

Fish farming is the process of raising fish in a specific aquatic environment and under
human control in terms of choosing the type of fish to be produced, the quality and
quantity of water and the food used. Fish farming is carried out in various ways in the
world, but the spreading type is called the open system (extensive).

Fish farming is the third source of fish in Egypt, after seas and lakes. In Egypt, fish
farming projects have developed since 1970. The land areas used for fish farming
reached approximately 250 thousand feddans. Most of these lands are located next to the
northern lakes and the northern coasts of the Mediterranean.
The open fish farming system is the most prevalent type of aquaculture in Egypt and
depends on the establishment of ponds in muddy lands, where agriculture is not suitable
or that is heavy and has the ability to retain water. Agricultural drainage water is also
used in aquaculture, taking into account the necessary degree of salinity, or well water
of salinity suitable for fish farming and not suitable for agricultural crops.

The aquaculture season begins in April and ends in September or according to weather
conditions, (the appropriate temperature for culture is from 18 – 35 degrees Celsius).
The climate in Egypt is considered good for the practice of fish farming, especially with
the presence of seas, lakes and the Nile River, which provide the water and environment
necessary for this activity. According to the final issue of the Central Agency for Public
Mobilization and Statistics (CAPMAS) (at the end of 2016), the volume of Egypt’s fish
exports reached approximately 34,000 tons, while the imports amounted to 220,000 tons.

III. Preliminary Feasibility Study and the Reason for Choosing the
Project:
Fish farming project is one of the main sources of food. In light of what this industry
witnessed from the great breakthrough and progress in scientific and technical researches
related to production, as well as the development of refrigerated transport, storage and
logistics, which helped to break into global markets alongside local markets, which led
to the emergence of these types of projects and became of appropriate economic
feasibility.

Factors that enhance fish farming in Egypt

 The Nile River and its tributaries that penetrate into various parts of Egypt.
 Abundance of lands suitable for fish farming.
 Abundance of various kinds of water sources that could be relied upon, such as the
seas, the Nile River, tributaries of lakes, wells, and agricultural sewage water that
receive the necessary treatment.
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 Abundance of the necessary species to compensate for the lack of fish in their
natural environment.
 The State’s interest in the activity and the food security such activity achieves,
especially with the increasing population.
 The State's interest in opening foreign markets and granting facilities and support
for export in order to provide hard currency.

The initial justification for the economic feasibility of the project

 Increase of demand for fish and fish products as a source of food.
 Success of similar projects that invest in this field.
 Demand for fish and fish products to be exported.
 Ease of access to lands needed for the activity.
 Possibility to use water not suitable for traditional agriculture, such as well water of
salinity suitable for fish farming, and agricultural sewage water that receive the
necessary treatment.
 The possibility of recycling and operation of waterworks.
 Increase of return rates which may exceed 40% for some projects.

Detailed Economic Feasibility Study

IV. Project Marketing Study
General Market Indicators (SWOT Analysis)
1. Opportunities
 Fish farming is one of the main projects since it has various advantages because
of its ability to make use wastelands unsuitable for agriculture, as well as the
well water of high salinity and other sources that are not suitable for agriculture.
 Continuous market gap that continuously provides local and foreign markets.
 Interest of the State with fish farming to achieve food security, especially within
the increase of population.
 Obtainment of export subsidies in case of production for export.
2. Threats
 There are two kinds of diseases, one of which is called "no blood"; it affects fish
that feed on feed with no important vitamins. Fish affected by such disease look
pale, and the gills have no color or not red. The other diseases is called "broken
back syndrome" that is due to vitamin C deficiency in feed, that could be
overcome through the feed used.
 Pollution problems resulting from the use of agricultural drainage water, which
may be unsuitable or polluted, and this could be overcome by analyzing the used
water and adding filters to water sources to treat it before its use in fish
production.
 Fish are subject to stress due to changes in temperature, poor quality of the water
used in culture, loud noises or intense lights, which make the fish in a state of
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constant agitation, and this could be overcome by using appropriate technical

methods to create the appropriate environment.
3. Strengths
 The project does not need huge investment costs
 The project does not need large number of labor
 Availability of the required species with reasonable prices
 Availability of feed with reasonable prices
 Availability of multiple markets for distribution
4. Weaknesses
 Spread of disease in the absence of know-how
 Difficulty of obtaining the required water in some areas
 Increase of costs of refrigerated transport to far markets
 Increase of prices of oil and fuel used in irrigation equipment and machinery
SWOT Analysis Outcomes
It is clear from the previous analysis the possibility of using strengths in dealing
with external threats with the presence of great opportunities in the market as well
as the possibility of overcoming weaknesses by following modern scientific
methods.

Field Marketing Study Outcomes

1. Demand Volume
We find that the demand for fish as a source of protein has increased, especially
after the increase in the prices of poultry and animal production, and consumers
tended to compensate for the shortage of meat by eating fish, especially since it is
of appropriate prices.
In addition to the increase in external demand for fish and the presence of export
opportunities in the case of aquaculture suitable for foreign markets and producing
fish in the appropriate means and specifications.
2. Supply Volume
We find that the market still has a gap, especially with the increase in population
and the lack of supply, especially with the lack of supply with appropriate quality
specifications, in which there may be a shortage. In addition to the possibility of
exporting around the world to many countries with water poverty and a lack of
fish supply.
3. Potential Competition
Competition in this field is characterized by two types, and appropriate
competition strategies can be dealt with according to the marketing trend, either
price competition with large-scale production, or competition in quality and
production with high specifications that fit a segment with a deficit in those
specifications.

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4. Marketing Outlets
Fish to be marketed may require a marketing effort by making pamphlets and
brochures explaining to the consumer the nature of the product and the difference
between it and other products, and that it is does not harm the health because it
depends primarily on pure water free of pollution. In addition to contacting major
food distribution companies, hotels, restaurants, tourist villages, etc.
Marketing is carried out as follows:
 Wholesalers
 Markets: Obour market - Mounib Fish Market in Giza – fish markets in
governorates such as: Portsaid, Suez, Alexandria, Kafr el-Sheikh, Damietta,
Fayoum.
 Sale to major consumers as the hotels and restaurants
 Direct sale through establishing various distribution outlets in different
neighborhoods
5. Products and expected sale volume and prices in the fiscal year:
According the field inspection, the attached prices as considered indicative as per
the last season, and in light of normal rates, that may be subject to modification by
the date of the study.

They could be summarized during the annual season as per the following table:

Volume of Expected tons Expected total

Product Measuring unit
expected sales sale price annual sales
Tilapia fish tons 40 16000 640000

Or
Volume of Expected tons Expected total
Product Measuring unit
expected sales sale price annual sales
Mullet fish tons 25 25000 625000

6. Expected Costs of Marketing Campaigns

Annual costs of the marketing campaign, especially at the beginning of the project
to achieve proliferation, are estimated at EGP 20 thousand.

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V. Project Legal Feasibility Study

In accordance with the provisions of Investment Law, aquaculture and exploitation of
wastelands are from the activities subject to aforementioned Law. Moreover, the State
gives attention and incentives to such activity.
Companies incorporated for such purpose may be incorporated in accordance to the
provisions of Investment Law, Companies Law, and Commerce Law as per the desire
of the owners.
There are some legal limitations that must be taken into consideration to obtain the
activity license from the concerned bodies, which are as follows:
 General Authority for Fish Resources Development "GAFRD"
 The Governorate having jurisdiction over the land and its affiliated local units
 Marine police
 Necessary health licenses required from the Ministry of Health
 Civil defense requirements
 Ministry of Supply
In case of export, the project must obtain an import card indicating the nature and
description of the products, provided that the project capital is no less than EGP 2
million, or export through an intermediary company that undertakes the export and
customs release procedures on behalf of the project.
Incorporation expenses and required licenses obtainment fees could be estimated:
Pre-commencement, incorporation, and licenses obtainment fees are estimated at EGP 50
thousand.

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VI. Project Environmental Feasibility Study

The project must take into account the environmental requirements for such activity,
which stipulate many points due to the special nature of the activity:
 Consider the quality of the water used and carry out the necessary treatments for any
plankton or impurities by adding filters and primary treatment plants for water used
in production, especially in the case of using agricultural drainage water, which may
have been exposed to pesticides, and salinity treatments in the case of wells.
 Take into account the water drained because of production and what it may contain
of parasites and sediments after each production cycle, and not to be drained directly
into lakes and water bodies, and the need for wastewater treatment plants in case of
need, and it is preferable to recycle and reuse water.
 Consider the limited quantities of water, especially in the case of wells, and use water
sources from the tributaries of the Nile and the lakes, which need special licenses.
 Consider not to use sewage water or to mix it with aquaculture ponds.
 Take into account the type of feed used and the storage means, as well as the usage
of packing and packaging materials that do not harm the environment.
 Ascertain the presence of a waste disposal system that conforms to the requirements
of the environment, especially in the case of rotten fish or invalid feed.
 Take into account the requirements of the environment in the installation of exhaust
filters on used irrigation equipment and machinery in a way that does not harm the
environment.

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VII. Project Technical Feasibility Study

Project Set up Stages

1. Choose the appropriate location to set up the project.

2. Obtain the licenses and permits required to practice the activity.
3. Prepare the ponds needed for the aquaculture.
4. Establish buildings for security, electricity, feed, and machinery bases.
5. Determine the required machinery and equipment, as well as the specifications of
each and the source to get them.
6. Purchase the machinery and equipment.
7. Hire labor and provide trainings for them.
8. Buy fish as fingerlings and not as seeds at first to ensure a short production cycle.
9. Determine the feed-supply sources and enter into contracts to purchase in batches to
prevent storing in large quantities that may be spoilt.
10. Conduct periodic follow-up with the work team until harvest time.
11. Coordinate with merchants and agree on prices and delivery schedule.
12. Harvest and sale stage.

Determination of Required Investment Costs:

Project Location:
Project is proposed to be set up in Kafr el-Sheikh governorate, or east Portsaid, or in any
suitable area in A.R.E. governorates. It is preferable to divide the land into four ponds, the
area of which is one feddan to be facilitate the aquaculture process and have control over
the ponds, feeding, and disease combat.
The land could be annually rented for EGP 20 thousand/annually.

Buildings:
It is preferable to use the materials found in nature to decrease the cost.

 Line and treat the sides of the ponds, if necessary, to avoid leakage with an estimated
cost of EGP 10 thousand/pond.
 Build a 5×5 security room with an estimated cost of EGP 10 thousand.
 Build 10×10 rest areas for the workers with an estimated cost EGP 20 thousand with
the furniture.
 A 5×5 Electricity room with an estimated cost of EGP 10 thousand.
 A 10×10 feed warehouse with an estimated cost of EGP 20 thousand.

Thus, the total expected cost of buildings is EGP 100 thousand. If the value of annual
depreciation is EGP 10000 with life expectancy of 10 years, the net book value by the end
of the estimated duration of the project of 5 years will be EGP 50000.
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Required Machinery and Equipment:

No. of Total cost Net book value by
Useful Technical Unit Annual
Asset required of asset the end of the
life specifications Cost depreciation
units units duration

7 horsepower
Irrigation
10 – 1 piston with 4 15000 60000 3000 45000
pump
inclusions

Lab
5 1 10000 10000 2000 0
equipment

Paddle Wheel 2 horsepower –

5 8 6000 48000 9600 0
Aerators 8 paddles

Feeders 5 16 500 8000 1600 0

Nets 5 4 1000 4000 800 0

Tables and
boxes to 5 200 100 20000 4000 0
transport fish

Total 32600 150000 21000 45000

Irrigation Pump:
Due to the use of advanced fish farming methods, which require an increase in the number
of seeds per cubic meter, thus followed by an increase in the consumption of dissolved
oxygen in the water. Therefore, part of the water in the ponds must be changed at frequent
intervals whenever necessary according to the need and the results of the analysis and each
pond would need its own pump, and thus the total pumps required are 4 machines for 4
ponds, with 7 horsepower – one piston with inclusions.

Lab Equipment:
They are some simple guides that the project needs to learn about the analysis of water and
follow it up continuously to determine the degree of acidity or alkalinity – the concentration
of dissolved oxygen – the concentration of ammonia – the temperature – the salinity of the
water.

Paddle Wheel Aerators:

Due to the increase in the density of fish per cubic meter, and thus the increase in need for
oxygen and water through pumping air into the water, paddle wheel aerators are used in
ponds to stir water and mix it with air to increase its oxygen content. One pond needs an
average of two wheel aerators of eight paddles with two horsepower.

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Feeders:
There are several ways to feed fish; it is preferable to use feed basins that are 25 cm below
the surface of the water, and submerged feed is preferred so as not to be exposed to birds.
One pond needs four feeders; one is placed on each side.

Nets:
Each pond needs a net, which is proportional to the size of the fish farmed, to harvest and
collect fish.

Tables and Boxes to transport Fish:

Each pond needs 50 boxes, which are proportional to the size of the fish farmed, to harvest
and collect fish.
Therefore, the total expected cost of machinery would be EGP 150 thousand.

Third: Determine the Required Annual Running Cost:

Production Requirements of the Fish Farmed:

1- In case of choosing tilapia seeds:

One feddan needs 15000 fingerlings of tilapia for one production cycle of weight (25
– 30 g.) to achieve a production rate of 10 tons. The cost of one thousand fingerlings
is EGP 200, thus, the expected cost would be EGP3000/feddan.

2- In case of choosing mullet seeds:

One feddan needs 2000 fingerlings of mullet for one production cycle of weight (25
– 30 g.) to achieve a production rate of 10 tons. The cost of one thousand fingerlings
is EGP 1500, thus, the expected cost would be EGP 3000/feddan.
Therefore, the total expected cost of seeds is EGP 12 thousand.

Quantity of Feed Needed to Achieve the Expected Sales Volume

In order to be able to produce and achieve the expected sales volume of 40 tons of tilapia,
or 25 tons of mullet, the project needs to provide 45 tons of feed. The estimated price of a
ton of feed is EGP 4000/ton (EGP 4/ kilo).

Therefore, the total expected cost of feed is EGP 180 thousand.

Motors, Oils and Maintenance

They are estimated at EGP 5000 annually for each irrigation machine.

Therefore, the total expected cost of machinery, oils and maintenance is EGP 20 thousand.
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Labor
One consultant in the field of fish farming is needed to provide technical support, especially
at the beginning of the project, provided that the consultant is present at a rate of four times
a year to prepare feeding and follow-up plans. The annual professional fees are estimated at
EGP 5000 for each pond, with a total amount of EGP 20000 annually.

One worker is needed for each pond to follow up on the feeding process and the water status,
as well as daily chores to implement the plan prepared by the consultant, with the possibility
to stay at the farm with a salary of EGP 2000/month.

Two security guards are needed for the farm, one during the day, and one for the night to
guard the farm from being robbed, as well as keep sea birds that eat fish away, with a salary
of EGP 1500/ month each.
That labor could be summarized to calculate the total cost as follows:
Educational Monthly Annual
Job Number Cost of total labor
Degree Salary Salary
Academic - 20000
Consultant 1 20000
degree
Minimum 2000 24000
Worker 4 96000
diploma
Security Guard 2 Literate 1500 18000 36000
Total 62000 152000

Other General and Administration Expenses

Item Expected Annual Cost
Electricity and lighting cost 3000
Transport and transfer expenses 2000
Attorney fees for reviewing various
5000
contracts
Hospitality and reception expenses 2000
Accountant fees 5000
Invoices, publications and stationery 2000
Miscellaneous expenses 1000
Total 20000

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VIII. Project Financial Feasibility Study

1. Foundations and Hypothesis of the Financial Feasibility Study:
 In this financial feasibility study, data and sales revenue estimates are based on the
volume and sales value as per market study results.
 Investment cost values and other costs and expenses have been estimated based on the
technical study results.
 Buildings and machinery annual depreciation is estimated based on the technical study
results. Same buildings and machinery sale value is presumed to be matching their
book value at the end of the expected lifetime of the project.
 It is assumed that the first operating cycle requirements are obtained with 50% facility
from the suppliers.
 It is taken into account that the estimated value of the fixed assets mentioned in this
study is time-and-circumstance limited. Accordingly, such value may change by
change of circumstances or by report time prescription or change of economic climate
in general.
 Pursuant to the Egyptian Accounting Standards, it is presumed that incorporation and
pre-commencement costs are fully expired by the first year of revenue.
 The project life expectancy is presumed to be five (5) years.
 The estimated income statements have been prepared on the presumption that there is
no fundamental change in the revenue values and expected annual costs during the
study period.
 A tax rate (TR) of 22.5% for the annual profits of companies, 20% for the returns of
treasury bonds issued by the Egyptian Ministry of Finance, was relied on, in
accordance with the Egyptian legislation prevailing at the time of preparing the study.
 Annual cash flows are estimated using the indirect estimation method; necessary
adjustments have been applied to the results of the estimated income statements of the
years in this study.
 The criteria of Return on Investment (ROI), the Pay-back Period (PBP), the Net
Present Value (NPV), and the Internal Rate of Return (IRR) were relied upon in
evaluating the economic feasibility of the project, taking into account the Required
Rate of Return on investment (RRR).
 RRR is determined as per the weighted average cost of capital (WACC), and
presuming the project is fully financed by the owners.
 Future financial estimates contain estimated and other unforeseen risks, and other
factors that may lead to different performance and actual results that the project would
achieve from the expected performance according to the assumptions on which the
estimated statements were prepared according to the prevailing business climate at the
time of preparing the study.

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2. Definition of Required Rate of Return (RRR)

 It is the minimum return required by the investor, in order to invest his/her money in
a project inside Egypt, evaluated by the industrial risks of the economic activity of the
project under study.
 The study is concluded by an RRR of 32% as per the fish industry risks in Egypt, and
is calculated as follows:
RRR= [RFR+ (CRP× 𝛽)]
 The risk-free rate (RFR) is calculated according to the official data published by the
Central Bank of Egypt for treasury bonds due at the end of 2023, which is close to the
evaluation period of the project within 5 years, using the weighted average yield of
different bond issues for that period.

https://www.cbe.org.eg/en/Auctions/Pages/AuctionsEGPTBondsCouponHistorical.aspx

Average return before tax ‫متوسط العائد قبل خصم الضرائب‬

Average return after 20% tax discount %02 ‫متوسط العائد بعد خصم الضرائب‬

 A CRP of 14.99% was used according to the classification of Egypt globally issued
by S&P "Standard & Poor's" – Moody's as per the latest update of the global professor
Damodaran's website about the Egyptian market data for the year 2018.

http://www.stern.nyu.edu/~adamodar/pc/datasets/ctryprem.xlsx

 Third, the beta factor of the risks of the Egyptian market for the fish industry is
assumed to be 1.23 as per the technical reports issued by National Company for
Fisheries and Aquaculture (NCFA).

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Thus, the RRR is determined as follows:

RRR=(13.84+14.99×1.23)= approximately 32%

3. Project Investment Cost

 According to Article (11) of the Executive Regulations of Investment Law No. 72 of
2017, enacted by Prime Minister Decree No. 2310 of 2017, the project investment cost
is defined as follows:
"Project investment cost shall mean such costs required to set up an Investment
Project represented in property rights, in addition to long-term liabilities invested in
setting up or establishing fixed corporeal (tangible) assets or incorporeal
(intangible) assets, conditional on payment of value thereof in cash, and working
capital."
The opening budget for the investment project can be prepared according to the
results of the estimated technical feasibility study as follows:
Item EGP
Long-term Assets
 Incorporation, and pre-commencement expenses 50,000
 Buildings 100,000
 Machinery and equipment 150,000
Total long – term assets 300,000
Current Assets
 Reservoir of tilapia seeds 12,000
 Reservoir of feed 180,000
 Reservoir of fuel and motors 20,000
 Cash and likewise (1) 94,000
Total current assets 306,000
Current Liabilities
 Tilapia seeds suppliers 6,000
 Feed suppliers 90,000
 Fuel and motors suppliers 10,000
Total current liabilities 106,000
Working capital 200,000
Total investment 500,000
To be financed as follows:
Property Rights
Capital 500,000
Total investment financing 500,000

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(1) To satisfy the expenses of the first operating cycle, the required cash value is
estimated at EGP 94,000, including (land lease EGP 20 thousand – labor wages
EGP 40 thousand – marketing expenses EGP 20 thousand – electricity, stationery,
and other professional fees EGP 14 thousand).

Diagram of Investment ‫رسم بياني لهيكل اإلنفاق االستثماري‬

Spending Structure
Incorporation and pre- ‫مصروفات تأسيس وما قبل النشاط‬
commencement expenses
Buildings ‫المباني‬
Machinery and equipment ‫اآلالت والمعدات‬
Working capital ‫رأس المال العامل‬

Thus, the total investment cost of the project is

Total long-term assets + working capital= approximately EGP 500,000

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4. Expected Income Statements for the Years of Investment Project:

Could be prepared as per the outcomes of the Technical Feasibility Study as
follows:

Item ‫البيان‬
First Year ‫السنة األولى‬
Second Year ‫السنة الثانية‬
Third Year ‫السنة الثالثة‬
Fourth Year ‫السنة الرابعة‬
Fifth Year ‫السنة الخامسة‬
Total revenue ‫إجمالي اإليرادات‬
Subtract ‫يخصم‬
Cost of Sales ‫تكلفة المبيعات‬
Gross Profit ‫مجمل الربح‬
Incorporation and pre-commencement ‫مصروفات التأسيس وما قبل النشاط‬
expenditure
Depreciation of fixed assets ‫إهالك األصول الثابتة‬
General and administration expenses ‫مصروفات عمومية وإدارية‬
Net accounting profit before tax ‫صافي الربح المحاسبي قبل الضرائب‬
Tax (at a rate of 22.5%) )%..22 ‫الضريبة (بمعدل‬
Net accounting profit after tax ‫صافي الربح المحاسبي بعد الضرائب‬
Rate of Return on Investment (ROI) ROI ‫معدل العائد على رأس المال‬

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Development of Annual Profits ‫رسم بياني لتطور األرباح السنوية‬

5. Estimating the cash flow stream for the years of the investment project:
According to the foregoing, the cash outflow in year (zero) = EGP 500,000.
The cash flow stream of the economic life of the project can be estimated indirectly
through adjusting the net accounting profit by re-adding the depreciation premium
because it is a non-cash expense, and by re-adding the incorporation and pre-
commencement expenditure (EGP 50,000) because they are calculated within the
value of the outgoing investment costs in the year (zero).

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Item ‫البيان‬
First Year ‫السنة األولى‬
Second Year ‫السنة الثانية‬
Third Year ‫السنة الثالثة‬
Fourth Year ‫السنة الرابعة‬
Fifth Year ‫السنة الخامسة‬
Total revenue ‫إجمالي اإليرادات‬
Subtract ‫يخصم‬
Cost of Sales ‫تكلفة المبيعات‬
Gross Profit ‫مجمل الربح‬
Incorporation and pre-commencement expenditure ‫مصروفات التأسيس وما قبل النشاط‬
Depreciation of fixed assets ‫إهالك األصول الثابتة‬
General and administration expenses ‫مصروفات عمومية وإدارية‬
Net accounting profit before tax ‫صافي الربح المحاسبي قبل الضرائب‬
Tax (at a rate of 22.5%) )%..22 ‫الضريبة (بمعدل‬
Net accounting profit after tax ‫صافي الربح المحاسبي بعد الضرائب‬
Adding non-cash and operating expenses ‫ تشغيلية‬/‫يضاف مصروفات غير نقدية‬
Depreciation and incorporation and pre-commencement ‫اهالك ومصروفات التأسيس وما قبل النشاط‬
expenditure
Net operating cash flow ‫صافي تدفق نقدي تشغيلي‬
Adding other revenues for the last year ‫يضاف إيرادات أخرى للسنة األخيرة‬
Net working capital ‫صافي رأس المال العامل المسترد‬
Salvage Value of Fixed Assets ‫القيمة التخريدية لألصول الثابتة‬
Net annual cash flow ‫صافي التدفق النقدي السنوي‬

Annual Cash Flow Stream ‫رسم بياني لتيار التدفق النقدي السنوي‬

Thus, the annual cash flow stream could be summarized as follows:

Years 0 1 2 3 4 5

Net Annual (500,000) 255,375 244,125 244,125 244,125 539,125

Cash Flow

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6. Indicators of Project Financial Feasibility Study:

A. Break-Even Analysis (BEA)
B. Return on Investment (ROI)
C. Pay-Back Period (PBP)
D. Net Present Value (NPV)
E. The Internal Rate of Return (IRR)
A. Break-Even Analysis (BEA):
BEA is used in feasibility studies because it helps to know the lowest level of production
and/or sales that the project would be able to continue in the market without deciding to stop
production and exit the market.
Break-even point of the project under study can be reached after completing the sales
estimate through the marketing study, and the cost estimate through the technical study. The
lower the break-even point, the higher the chances of the project to achieve profits and the
lower the probability of realizing losses. The difference between the expected energy use
limit of the project and the break-even point represents the safety zone, which is the larger
the better.
To sum up, break-even point expresses the lowest production level that can be allowed to
use the productive capacity of the project.
The basis for technically calculating break-even sales is based on estimating the sales
value, which equals the total value of fixed costs adding to it the variable costs resulting
from such sales, and it can be concluded as follows:
Sales revenues = Total costs
Sales revenues = total fixed costs + total variable costs
(Sales volume × price per unit) = fixed costs + (sales volume × variable cost of the unit)
(Sales volume × price per unit) – (sales volume × variable cost of the unit) = fixed costs
Sales volume (price per unit – variable cost of the unit) = fixed costs
Sales volume = fixed costs ÷ (price per unit – variable cost of the unit)
Sales volume = fixed costs ÷ unit contribution margin
The break-even sales could be calculated as follows:
Value of break-even sales = break-even sales volume × unit sale price
According to the results of the technical study and marketing study, the costs of the
project could be divided, and the required data for BEA could be calculated as follows:
 Sale price of a ton of tilapia fish, as per the results of the marketing study, is EGP 16,000.
 The variable costs required to produce each ton of tilapia, as per the technical study,
could be clarified as follows:
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Item Value

Tilapia seeds 300

Expected feed 4,500

Engines 500

Direct labor payroll 1,100

Total variable cost/ton 6,400

 According to the technical study of the project, annual fixed costs are as follows:
Item Value

Land lease 20,000

Buildings depreciation 10,000

Machinery and equipment depreciation 21,000

Marketing expenses 20,000

Security guards payroll 18,000

Electricity and lighting cost 3,000

Transport and transfer expenses 2,000

Attorney fees for reviewing various 5,000
contracts
Hospitality and reception expenses 2,000

Accountant fees 5,000

Invoices, publications and stationery 2,000

Miscellaneous expenses 1,000

Total of fixed costs 109,000

 Thus, the contribution margin of a ton of fish could be calculated in the coverage of
the fixed costs as follows:
Unit contribution margin = (unit price sale – unit variable cost)
Unit contribution margin = (16,000 – 6,400) = EGP 9,600

 Break-even sales volume is as follows:

Break-even sales volume = fixed costs ÷ unit contribution margin
Break-even sales volume = 109,000 ÷ 6,400 = 11.35 tons of tilapia.

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 Break-even sales value is as follows:

Break-even sales value = break-even sales volume × unit sale price
Break-even sales value = 11.35 tons × EGP 16,000 = EGP 181,667 annually.

 Value and percentage of margin of safety is as follows:

The margin of safety is the amount of increase in the target or actual sales over the sales
that achieve the break-even; the margin of safety shows the amount in which sales can
decrease without the occurrence of losses. In other words, the margin of safety shows the
strength and safety of project sales and their increase over the break-even sales. The
safety margin can be calculated as follows:
Value of margin of safety = target (actual) sales value – break-even sales value
Value of margin of safety = EGP 640,000 – EGP 181,667 = EGP 458,333

Percentage of margin of safety = value of margin of safety ÷ target (actual) sales value
Value of margin of safety = EGP 458,333 ÷ EGP 640,000 = 72%

Break-even sales and expected project sales are as follows:

Comparison between break-even sales ‫مقارنة بين مبيعات التعادل ومبيعات المشروع‬
and expected project sales ‫المتوقعة‬

Break-even sales ‫مبيعات التعادل‬

Expected sales ‫المبيعات المتوقعة‬

The results of the break-even analysis of the project under study:

1. It is clear from the above that the minimum production level to cover the costs of
the project without incurring losses is 11.35 tons of fish.
2. Comparing the value of the break-even sales revenues, which amount to EGP
181,667 with the expected annual revenues from the project according to the results
of the marketing study, which amounted to EGP 640,000, we conclude that the
expected project sales revenues amounted to approximately 3.5 times the value of
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the break-even sales revenues, which reflects the strength and stability of the
project’s sales.
3. The value of the safety margin amounted to EGP 458,333 and the safety margin
was 72%, which means that the value of the project’s sales could decrease within
72% of the project’s expected annual sales value without the project incurring
losses. This enhances the financial feasibility of the project, the high probability of
achieving profits, the low probability of realizing losses and the project's exposure
to risks, in light of the project achieving a large margin of safety.
B. Return on Investment (ROI)
According to what was previously explained and by reviewing the estimated income
statements for the project, the average ROI can be calculated as follows:
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
Ratio of average net accounting profit to investment cost = %
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡𝑠

Year ‫السنة‬
Net Accounting Profit After Tax ‫صافي الربح المحاسبي بعد الضرائب‬
Paid-in Capital ‫رأس المال المدفوع‬
Expected ROI on Investment ‫معدل العائد على رأس المال المتوقع‬
Average ROI ‫متوسط معدل العائد البسيط على االستثمار‬

Project ROI Results:

In respect of the paid-in capital, the project has recorded an average percentage of net
accounting profit of 41%, which exceeds the investors' required rate of return (RRR), which
was previously determined at 32%, and this stresses that the project is financially feasible.
It is worth noting that this indicator is an aid tool to evaluate the project. However, it cannot
be relied upon alone in determining the economic feasibility of the project, as this indicator
is faulted for the following:
1. Its dependence on the net accounting profit, which may be based on depreciation
and provisions estimates that may lead to a value that is different from the actual
value achieved by the project; and
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2. Not expressing the actual cash flows, which may give misleading results.
C. Pay-Back Period (PBP):
The payback period is the amount of time a project takes to recover its investment costs
through the net cash flows expected to be achieved during the operating years. It expresses
the period elapsed from the life of the project until it achieves net cash flows from operating
its assets equal to a value equal to the paid-in capital at the beginning of the project's
operation.
In accordance with the above mentioned, and by reviewing the estimated annual cash
flow statements for the project, PBP can be calculated as follows:

𝑃𝑎𝑦𝑏𝑎𝑐𝑘 = 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟 𝑜𝑓 𝑛𝑒𝑡 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑖𝑣𝑒 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤

𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑙𝑎𝑠𝑡 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑖𝑣𝑒 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤
+
𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑜𝑓 𝑡ℎ𝑒 𝑓𝑜𝑙𝑙𝑜𝑤𝑖𝑛𝑔 𝑦𝑒𝑎𝑟

Years Zero 1 2 3 4 5
Net Annual
(500,000) 255,375 244,125 244,125 244,125 539,125
Cash Flows
Net
Cumulative
(500,000) (244,625) (500) 243,625 487,750 1,026,875
Annual Cash
Flows
PBP by Years 2.002

500
𝑃𝑎𝑦𝑏𝑎𝑐𝑘 = 2 + = 2.002 𝑦𝑒𝑎𝑟𝑠
244,125
Project PBP Results:
The project has recorded the PBP of all of its annual costs within two years approximately
in operation, and this period does not exceed the expected economic life of the project,
which is five years. This stresses that the project is financially feasible and its potential risks
are reduced.

It is worth noting that the project has recovered its investment costs within a short period,
which presents an opportunity for investors to reinvest the recovered capital in other projects
or to make expansions in the project, and maximize ROI.

However, this indicator is criticized for having overlooked the time value of money, which
will be taken into consideration later in NPV and IRR below.

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D. Net Present Value (NPV) and Internal Rate of Return (IRR):

NPV is the difference between the present value of net cash inflows during the operating
years and the present value of net cash outflows throughout the set up phase.
𝑛𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
Present value of cash inflows = Σ [ ]
( 1 + 𝑟)𝑖

By reviewing the estimated annual cash flow statements for the project, NPV can be
calculated using a discount rate of 32%, and it represents the return requested by
investors as follows:

Years ‫السنوات‬
Net Annual Cash Flow ‫صافي التدفق النقدي السنوي‬
The Present Value Factor for an amount %20 ‫معامل القيمة الحالية لدفعة عند معدل خصم‬
at discount rate of 32% and (i) years ‫وعدد (ن) من السنوات‬
Present Value of Cash Flow ‫القيمة الحالية للتدفق النقدي‬
NPV of Cash Flow ‫صافي القيمة الحالية للتدفقات النقدية‬
 PV of net cash inflows during the operating years = (193,466 + 140,108 + 106,143
+ 80,411 + 134,530) = EGP 654,659
 PV of net cash outflows during the set up phase = EGP 500,000
 NPV = the present value of net cash inflows - the present value of net cash outflows.
NPV = EGP 654,659– EGP 500,000 = EGP 154,659

Project NPV Results:

The project recorded a positive NPV greater than zero, which means that the project fully
recovered the capital and achieved RRR and exceeded with surplus of EGP 154,659, thus,
the project is financially feasible and is able to face the potential risks and its exposure to a
decrease in its profits within the limits of the achieved surplus.
It is worth noting that this indicator takes into account the time value of money, which
reflects the project's ability to cover investment costs and achieve an additional return.

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E. The Internal Rate of Return (IRR)

It is the rate of return the project achieves from within, regardless of the RRR. It represents
the discount rate at which the present value of the net cash inflows equals the present value
of the net cash outflows of the project; i.e. it is the discount rate at which the NPV of the
project equals zero.
The IRR is extracted by searching for the discount rate that has NPV equals zero, and the
IRR can be deduced by trial and error method to reach the rate at which it achieves NPV
equals zero or by using complex mathematical methods or through the Excel program.

Years ‫السنوات‬
Net annual cash flows ‫صافي التدفق النقدي السنوي‬
Present value of a payment at a discount ‫ وعدد‬%64 ‫معامل القيمة الحالية لدفعة عند معدل خصم‬
rate of 46% and number (𝑖) of years ‫(ن) من السنوات‬
Present value of cash flows using discount %64 ‫القيمة الحالية للتدفق النقدي باستخدام معدل خصم‬
rate of 46%
NPV of cash flows ‫صافي القيمة الحالية للتدفقات النقدية‬
Calculated IRR ‫معدل العائد الداخلي المحسوب‬

Project IRR Results:

It is obvious that the project achieves an IRR of 46%, which exceeds the RRR of 32% by
14%, thus, the project is financially feasible and able to face potential risks and low revenues
within the rate of increase that the RRR achieves.
It is worth noting that this index considers the time value of money, which reflects the
project's ability to cover investment costs and achieve an additional return.

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IX. Project Social Feasibility Study:

 The project is one of the main pillars of the State's process of economic development and
a means to achieve the economic, social, and development objectives to be achieved,
which by the end is reflected on the achievement of good rates of well-being for the
society.
 Fish farming is the third source for fish in Egypt, which comes after seas and lakes.
Therefore, it is a key activity to achieve food security for the society, especially after the
increase of population.
 Fish farming contributes to the usage of agricultural wastewater and converting such
unusable water into useful sources for the society, instead of looking for means of its
disposal.
 Fish farming contributes to the usage of well water of high salinity, and converting this
unused water into useful sources for the society, which participates in the increase of
economic growth rates.
 The project helps in employing various categories of labor, either directly through
working in the project itself, or indirectly through the supply and distribution chains the
project deals with; starting from obtaining the raw materials needed for the production
until the distribution outlets, then to the end consumer.
 The project helps increase the State's tax revenue, which ultimately benefits the society.
 The project contributes to the exploitation of wastelands not suitable for agriculture or
flooded with water not suitable for construction, and converting them into lands useful
for the community.

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X. Results and Recommendations:

The project is economically feasible in light of the following:

 The project achieves ROI = 41%

𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑒𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑝𝑟𝑜𝑓𝑖𝑡
Since: Ratio of average net accounting profit to investment cost = 𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝑐𝑜𝑠𝑡𝑠
%

ROI = (205,375 ÷ 500,000) = 41%

 The speed of project's recovery of the costs where the PBP = 2 years

Since:𝑃𝑎𝑦𝑏𝑎𝑐𝑘 = 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟 𝑜𝑓 𝑛𝑒𝑡 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑖𝑣𝑒 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 +

𝑎𝑏𝑠𝑜𝑙𝑢𝑡𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑙𝑎𝑠𝑡 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑖𝑣𝑒 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤
𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑜𝑓 𝑡ℎ𝑒 𝑓𝑜𝑙𝑙𝑜𝑤𝑖𝑛𝑔 𝑦𝑒𝑎𝑟

PBP = 2 + (500 ÷ 244,125) = approximately 2 years

 The project achieves a positive NPV = EGP 24,420,021

𝑛𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑑𝑢𝑟𝑖𝑛𝑔 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
Since: Present value of cash inflows = Σ [ ( 1+𝑟)𝑖
]

NPV = present value of cash flows – investment costs

= EGP 654,659 – EGP 500,000 = EGP 154,659

 The project achieves IRR of 46%, which exceeds the RRR as per the industry rates.
 The availability of all the technical elements suitable for the set-up of the project in
Egypt, which are characterized by the availability of land and water sources suitable for
use in fish farming, as well as the availability of skilled labour at competitive prices.
 The availability of logistic elements and ports, as well as the distinct geographic location
of Egypt which achieves a comparative advantage contributes to the costs decrease and
fish produce export with the international standards as per the appropriate freezing times,
and thus, sale in global markets with competitive prices.

N.B.
(The present study is a preliminary study)

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