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Car Care Project feasibility study

Supervisor: Prof. Dr. Ashraf Saleh


Prepared by: Amal Azab,
Karim ElKot,
Walid Saafan
Sep., 2009
Topics
Introduction
The location study
The legal study
The marketing study
The technical study
The financial study
The economical study
Conclusion

'Car Care' Project feasibility study, Sep.,2009 2
Introduction
Car-Care center is a car service center that is specialized in
providing interior and exterior car cleaning
The following services will be offered:
Water washing,
Steam washing,
Car polishing,
Carpet cleaning,
Air condition odor cleaning
etc..

'Car Care' Project feasibility study, Sep.,2009 3
The location study
The project will be located in Al Rehab city
AlRehab service area has a good advantage of serving
residents of new Cairo.
The service area has other competitors providing low
service.
The shop has the area of 100 m
2
.

'Car Care' Project feasibility study, Sep.,2009 4
The legal study
There is no legal constrains to establish the project, similar
small scale project already operating in the city for long
time without obligations.
Commercial registration documents and tax file are
required.

'Car Care' Project feasibility study, Sep.,2009 5
The marketing study
Target customers and market segmentation
Geographic segmentation:
The target customers are AlRehab city and the surrounding
area residents.
Demographic segmentation
Middle to high income level.

'Car Care' Project feasibility study, Sep.,2009 6
The marketing study
Studying the potential market/ demand
Demand Gap
Through our market observations and testing we find a demand gap >
available market capacity.
The following schedule shows a simple weekly study of
potential market /target demand:

'Car Care' Project feasibility study, Sep.,2009
Sun Mon Tue Wed Thu Fri Sat Total
12:00-15:00 1 1 1 1 1 3 3 11
15:00-18:00 2 2 2 2 2 6 6 22
18:00-21:00 2 2 2 2 2 8 8 26
21:00-00:00 4 4 3 3 3 6 6 29
Total 9 8 8 8 8 23 23 88
Average served card per day 12.4

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The marketing study
Studying the potential market/ demand, cont.,
Throughout the observations and conducted market survey,
we found the following:
Long waiting time.
Unsatisfied customers with the available service.
Lack of service quality.
Lack of some services like steam washing machines.

'Car Care' Project feasibility study, Sep.,2009 8
The marketing study
Demand estimation/ Projection of the Market demand:
Car Care services:

'Car Care' Project feasibility study, Sep.,2009 9
Serial Product Price
1 Inside/ outside car water wash
30
2 Motor cleaning
25
3 Sterilizing
25
4 Internal car polish
75
5 Car waxing
200
Average
price

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The marketing study
Demand estimation/ Projection of the Market demand, cont.,
The estimated population of AlRehab city is about 25,000
families, we assume 1 person per family.
We estimate the 60% of the apartments are occupied with
full residencies.
We estimated that the target customers owns 1.5 cars in
average.
We estimated the each customer will request the cleaning
service twice a month.
Our estimated actual target customers will be around 10%
of the customers pool .

'Car Care' Project feasibility study, Sep.,2009 10
The marketing study
Demand estimation/ Projection of the Market demand, cont.,
'Car Care' Project feasibility study, Sep.,2009
Population (n) 45,000
Sample accepted the product (d) 10%
Universe (K) 4,500
Expected demand over 1st year
D(t) = K * X' 319,500

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The marketing study
Factors affecting the demand:
1. Estimation of demand changes due to population
changes R= 2%
2. Estimation of demand changes due to price changes: The
price should be left constant as this is a new project.
Xp=Ep*p
Where:
Xp: Change in demand as a result of change in price.
Ep: the partial elasticity of price.
p": the % of change in relative price.


'Car Care' Project feasibility study, Sep.,2009 12
The marketing study
Factors affecting the demand, cont.,:
3. Estimation of demand changes due to income changes:
Xy=Ey* y
6%=2%*3%
Where:
Xy": Change in demand as a result of change in income.
Ey: the partial income elasticity of demand.
y: the % of change in income

'Car Care' Project feasibility study, Sep.,2009 13
The marketing study
Factors affecting the demand, cont.,:
4. Estimation of demand changes due to advertising
changes:
The Number of people attracted due to advertising will decrease as
time passes.
Xa= Ea. a. bt

'Car Care' Project feasibility study, Sep.,2009
Years Xa= Ea *a * bt Xa
Y1 1.5%*2%*1% 3%
Y2 1.5%*2%*0.6% 1.80%
Y3 1.5%*2%*0.4% 1.20%
Y4 1.5%*2%*0.2% 0.60%
Y5 1.5%*2%*0.1% 0.30%

Xa: is the expected growth rate of demand caused by % change in advertising.
Ea: is the partial elasticity of advertising.
a: is the change in advertising spending.
bt: is the arbitrary factor that measures the change in sales caused by
advertising over time.
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The marketing study
Factors affecting the demand, cont.,:
When combining all the four Factors:
Ft= r + xy + xp + xa

'Car Care' Project feasibility study, Sep.,2009
Ft R+xy+xp+xa %
Ft1 2%+6%+0+3% 11%
Ft2 2%+6%+0+1.8% 9.80%
Ft3 2%+6%+0+1.2% 9.20%
Ft4 2%+6%+0+0.6% 8.60%
Ft5 2%+6%+0+0.3% 8.30%

R: rate of growth of population.
Xp: percentage changes in demand caused by change in relative prices.
Xy: expected growth rate of demand caused by change in per capita income.
Xa: expected growth rate of demand caused by advertising spending.
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The marketing study
Factors affecting the demand, cont.,:
We assume that there will be no sales in Y0.

'Car Care' Project feasibility study, Sep.,2009
Years Ft Dt+1=Dt*(1+Ft)
Y0 0% 319,500
Y1 11% 354,645
Y2 9.80% 389,400
Y3 9.20% 425,225
Y4 8.60% 461,794
Y5 8.30% 500,123

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The technical study
Service cycle and flow chart
'Car Care' Project feasibility study, Sep.,2009

Receiving car from customer
2.Car washing (inside/
outside), 20min
1.Motor washing, 10min
3. Sterilization and remove
air condition odors, 10min
4. Car polishing (inside/
outside), 30min
5. Finishing
5. Waxing the car, 30min
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The technical study
Initial costs:
Site internal preparations
Rent
The location will be rented by 8,000 LE per month.
Payment of 3 months in advance = 3 * 8,000 = 24,000 LE.

Construction costs:


'Car Care' Project feasibility study, Sep.,2009
Item Cost
Floor preperations 10,000
Wall painting and preperations 4,000
Electricity preperations 3,000
Others 5,000
Total 22,000

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The technical study
Initial costs, cont.,:
Site external preparations

Advertising costs

Miscellaneous costs


Legal documents:



'Car Care' Project feasibility study, Sep.,2009
Item Cost
Singage 3,000
Lights 1,000
Total 4,000

Item Price
10000 colored Flyers 2,000
Big Banners at the Entrance of AlRehab city 2,000
Total 4,000

Item Price
Fire equipments 1,000
Workers uniform 1,000
Miscellanous 1,500
Total 3,500

Item Cost
Commercial registration and tax card & licence 7,000
others 500
Total 7,500

Total initial expense for Y0 254,580

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The technical study
Operating costs:
Operating costs:
Equipments and machines







'Car Care' Project feasibility study, Sep.,2009
Serial Item Unit price Quantity Total price
1 Machine wash in cold water high pressure 5000 1 5,000
2 Steam washing machine 30000 1 30,000
3 Vacuum cleaner 3000 1 3,000
4 Disks washing and polishing 500 1 500
5 Air compressor 4000 1 4,000
42,500 Total

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The technical study
Operating costs, cont.,:
Raw materials costs



Manpower structure and costs



Rent
'Car Care' Project feasibility study, Sep.,2009
Serial Job description Quantity Cost Total cost
1 Supervisor (1500 LE) 1 18000 18,000
2 Skilled worker (750 LE) 1 9000 9,000
3 Worker (500LE) 2 6000 12,000
4 Social insurance 4 360 1,440
Total cost 40,440

Rent (8000LE per month) 96,000

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Raw materials costs
Serial Item Unit price Quantity Total price
1 Polishing (litre) 290 60 17,400
2 Cleaning sprays (interior) 25 120 3,000
3 Wax 40 36 1,440
21,840 Total

The technical study
Operating costs, cont.,:
Cost of funds





Taxes


'Car Care' Project feasibility study, Sep.,2009
Cost of funds
Bank loan 260K over 5 years 11%
Principal 260,000
interst rate (annual) 11%
Interst amount (annual) 28,600
Duration (years) 5
Total interst 143,000
Administrative fees (1.5%) 3,900
Total 406,900
The loan will be amotrized 6,782 per month
Cost of funds 81,380 per year

Year Gross profit Tax (18%)
2009 (254,580) -
2010 90,237 16,243
2011 108,880 19,598
2012 127,061 22,871
2013 144,302 25,974
2014 185,456 33,382

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The technical study
Total yearly cash flow:
'Car Care' Project feasibility study, Sep.,2009
Year Item Cash in Cash out
Cash in 354,645
Rent (+10%) 105,600
Salaries (+10%) 40,440
Raw materials (+5%) 22,932
Utilities (+2%) 13,056
Miscellaneous 1,000
Cost of funds 81,380
Net 354,645 264,408
1

Year Item Cash in Cash out
Cash in 389,400
Rent (+10%) 116,160
Salaries (+10%) 44,484
Raw materials (+5%) 24,079
Utilities (+2%) 13,317
Miscellaneous (+10%) 1,100
Cost of funds 81,380
Net 389,400 280,520
2

Year Item Cash in Cash out
Cash in 425,225
Rent (+10%) 127,776
Salaries (+10%) 48,932
Raw materials (+5%) 25,283
Utilities (+2%) 13,583
Miscellaneous (+10%) 1,210
Cost of funds 81,380
Net 425,225 298,164
3

Year Item Cash in Cash out
Cash in 461,794
Rent (+10%) 140,554
Salaries (+10%) 53,826
Raw materials (+5%) 26,547
Utilities (+2%) 13,855
Miscellaneous (+10%) 1,331
Cost of funds 81,380
Net 461,794 317,492
4

Year Item Cash in Cash out
Cash in 500,123
Rent (+10%) 154,609
Salaries (+10%) 59,208
Raw materials (+5%) 27,874
Utilities (+2%) 14,132
Miscellaneous (+10%) 1,464
Rent advance payment 24,000
Cost of funds 81,380
Net 524,123 338,667
5

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The technical study
Total yearly cash flow:
Total aggregated income and expenditures for the project
over 5 years

'Car Care' Project feasibility study, Sep.,2009
Year Cash-in Cash-out Gross profit Tax (18%) Net profit
2009 0 254,580 (254,580) (254,580)
2010 354,645 264,408 90,237 16,243 73,994
2011 389,400 280,520 108,880 19,598 89,282
2012 425,225 298,164 127,061 22,871 104,190
2013 461,794 317,492 144,302 25,974 118,328
2014 524,123 338,667 185,456 33,382 152,074

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The financial study
Source of finance
The project s economic life is planned to be extended to 5
years which will be categorized as a long term project so
We will seek CIB bank for a long term loan over 5 years
period amounting to 260,000 LE with annual interest rate of
11% and bank administration fees of 1.5%.

'Car Care' Project feasibility study, Sep.,2009
Cost of funds
Bank loan 260K over 5 years 11%
Principal 260,000
interst rate (annual) 11%
Interst amount (annual) 28,600
Duration (years) 5
Total interst 143,000
Administrative fees (1.5%) 3,900
Total 406,900
The loan will be amotrized 6,782 per month
Cost of funds 81,380 per year

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The financial study
Investment profitability analysis
1. Simple rate of return SRR





The simple rate of return is higher than the interest rate in the
market which is acceptable.


'Car Care' Project feasibility study, Sep.,2009
=
+ 100%


R0 = ( 0-254580 ) / 254580 (100.0)
R1 = ( 354645-264408+28600 ) / 254580 46.7
R2 = ( 389400-280519+28600 ) / 254580 54.0
R3 = ( 425225-298164+28600 ) / 254580 61.1
R4 = ( 461794-317492+28600 ) / 254580 67.9
R5 = ( 524123-338667+28600 ) / 254580 84.1

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Where R is the simple rate of return, y is the cost of fund.
Y is the bank interest
The financial study
Investment profitability analysis, cont.,
2. Payback period PBP




The expected positive amount per day at the 3
rd
year = Cash out of
the 3
rd
year divided by 360 = 828.23
Remaining period = initial investment divided by expected positive
amount per day
The payback period is 2 year and 10 months which is
acceptable.


'Car Care' Project feasibility study, Sep.,2009
Year Cash-in Cash-out Net profit accumulated
2009 0 254,580 (254,580) (254,580)
2010 354,645 264,408 73,994 (180,586)
2011 389,400 280,520 89,282 (91,304)
2012 425,225 298,164 104,190 12,886
2013 461,794 317,492 118,328 131,214
2014 524,123 338,667 152,074 283,288

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The financial study
Investment profitability analysis, cont.,
3. Net present value - NPV
Assume discount rate = 10%







NPV = 128,214 , NPV is positive which is acceptable
'Car Care' Project feasibility study, Sep.,2009
Year Cash-in Cash-out Gross profit Tax (18%) Net profit
2009 0 254,580 (254,580) (254,580)
2010 354,645 264,408 90,237 16,243 73,994
2011 389,400 280,520 108,880 19,598 89,282
2012 425,225 298,164 127,061 22,871 104,190
2013 461,794 317,492 144,302 25,974 118,328
2014 524,123 338,667 185,456 33,382 152,074

NPV = 254,580 +
73,994
1.1
+
89,282
1.1
2
+
104,190
1.1
3
+
118,328
1.1
4
+
152,074
1.1
5

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The financial study
Investment profitability analysis, cont.,
4. Interest Rate of Return IRR


IRR = 27% , IRR is higher than the interest rate in the market
which is acceptable.



'Car Care' Project feasibility study, Sep.,2009
0 = 254,580 +
73,994
(1 +)
+
89,282
(1 +)
2
+
104,190
(1 +)
3
+
118,328
(1 +)
4
+
152,074
(1 +)
5

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The economical study
the SRR is positive and greater than the interest rate found
in the market.
The payback period in the financial study is somewhere
between the second and third year,
The NET PRESENT VALUE is positive, which implies the
feasibility of the project.
The IRR ratio is equal to 27% which is higher than the
interest rate present in the market.
The project is acceptable and feasible.

'Car Care' Project feasibility study, Sep.,2009 30
THANK YOU
'Car Care' Project feasibility study, Sep.,2009 31