ESTABLISHMENT OF CHICKEN LAYERS PROJECT

A project is a planned set of interrelated tasks to be expected over a fixed and within a certain cost and other limitations.

My project worth 20 million of which 15 million is the loan from Mkombozi Bank and our own contribution is 5 million. This project is the benefit based with the five year implementation. Different techniques of project decision criteria will be used to determine if the project is recommended to be implemented. The techniques are:

·         Benefit Cost Ratio (BCR)

·         Net Present Value (NPV)

·         Internal Rate of Return (IRR)

The cost will be incurred by our project will be divided in the following explanations;

EQUIPMENT COSTS

S/N	Equipment	Quantity	@ Price	Total Cost
1.	Chicken shed (rent)	1	2,000,000	2,000,000.00
2.	Trays	100	2,000	200,000.00
3.	Feeders at ·         Chick level ·         Chicken level	300 150	2,000 3,000	600,000.00 450,000.00
4.	Electricity bulbs	50	1,000	50,000.00
5.	Wheel barrow	2	50,000	100,000.00
6.	Spade	2	15,000	30,000.00
7.	Blooms	5	2,000	10,000.00
8.	Exercise books	2	3,000	6,000.00
9.	Pens	5	200	1,000.00
10.	Weight	1	200,000	200,000.00
11.	Generator	1	800,000	800,000.00
Grand total				4,447,000/=

MATERIAL COST

S/N	Material	Quantity	@ Cost (price)	Total cost (price)
1.	Food	25,833 Kgs	275.00	6,625,000.00
2.	Chicks	2,000	1,500	3,000,000.00
3.	Drugs i.                    Antibiotics ii.                  Vaccines	60 Kgs 60 Kgs	4,000.00 4,000.00	240,000.00 240,000.00
4.	Glucose	40 packets	500.00	20,000.00
Grand total				10,125,000/=

OTHER COSTS INCLUDING LABOUR

S/N		Per month	Per year	Total
1.	Four (4) people	100,000	1,200,000	3,600,000
2.	Water	50,000	600,000	600,000
3.	Electricity	20,000	240,000	240,000
4.	Announcement and setting cost			5,000
5.	Communication costs			20,000
6.	Miscellaneous			963,000/=
Grand total				5,428,000/=

Loan from Mkombozi bank has to be paid in the 10% interest rate

Provided loan is 15,000,000/=

How the loan is going to be paid the bellow information explain

The compounding formula needs to be used in order to find the future value from the present benefits

Therefore, 15,000,000/= million after five years

From;

Future value is 24,157,650/= Tshs to be paid for 5 years.

Therefore, we are required to pay Mkombozi bank 4,831,530 each year for five years at the interest rate of 10%.

BENEFIT OF THE FIRST YEAR

At the first year the project will produce for six month; where per day will produce 300,000/=, T.shs, per month will be 9,000,000/= T.shs and per half of whole year will produce 54,000,000 which complete the first year (Gross Benefit).

Costs

RUNNING COSTS INCURRED DURING THE FIRST YEAR
S/N	Item	Per month	Total Per year
1.	Food	2,250,000/=	20,500,000/=
2.	Drugs	40,000/=	240,000/=
3.	Electricity bill payment	20,000/=	120,000/=
4.	Water bill payment	15,000/=	90,000/=
5.	4 Labors	@ 100,000/=	2,400,000/=
6.	Loan payment	-	4,831,530/=
7.	Tax payment	-	13,500,000/=
Grand total			41,681,530/=

Therefore,

Net benefit = Gross Benefit – all costs

Net profit for first year = 54,000,000 – 41,681,530

                                                = 12,318,470/=

Net profit for the first year is 12,318,470/=

BENEFIT OF THE SECOND YEAR

The project will produce 385,000/= per day for the second year which 11,550,000/= per month and 138,600,000/= per year (Gross Benefit).

Costs

RUNNING COSTS INCURRED DURING THE SECOND YEAR
S/N	Item		Per month	Total Per year
1.	Food		1,968,750	23,625,000/=
2.	Chicks			5,000,000/=
3.	Feeders			500,000/=
4.	Water bill payment		25,000	300,000/=
5.	Electricity bill payment		23333.30	280,000/=
6.	Tax payment			17,000,000/=
7.	4 Labors	@ 225,000/=		10,800,000/=
8.	Buying car			20,000,000/=
9.	Loan payment			4,831,530/=
10.	Transport cost			5,663,470/=
11.	Chicken shed renting			8,000,000/=
Grand Total				96,000,000/=

Therefore,

Net benefit= gross benefit – all costs

Net benefit for the second year = 108,000,000 - 96,000,000

                                                            = 12,000,000/=

Net benefit for the second year = 12,000,000/= (undiscounted cash flow)

BENEFITS OF THE THIRD YEAR

The project will produce 300,000/= per day, 9,000,000/= per month and 99,000,000/= per year. (gross benefits).

COSTS

Running costs incurred during the third year
S/N	Item	Per month	Total per year
1.	Food	2,250,000/=	35,000,000/=
2.	Water bill payment	16.666.60	200,000/=
3.	Electricity bill payment	20,833.30	250,000/=
4.	4 labors	329,000/=	15,800,000/=
5.	Tax payment	2,250,000/=	27,000,000/=
6.	Transport cost		15,800,000/=
7.	Loan payment		4,831,530/=
Grand total			93,081,530/=

Therefore,

Net benefit = Gross benefit – All costs

Net benefits for third year = 108,000,000/= - 93,081,530/=

Net benefit for third year is 14,918,470/= T.shs

BENEFITS OF THE FOURTH YEAR

The project will produce 275,000/= per day for the first year, which is equal to 8,250,000/= per month and 99,000,000/= per year (Gross benefits).

COSTS

Running Costs incurred during the fourth year
S/N	Item	Costs per Month	Total Per year
1.	Water bills payment	18,333.30	220,000/=
2.	Electricity bill payment	22,500/=	270,000/=
3.	4 labors	@ 225,000/=	10,800,000/=
4.	Food		35,000,000/=
5.	Chicks		6,000,000/=
6.	Tax payment		24,750,000/=
7.	Transport costs		5,500,000/=
8.	Loan payment		4,831,530/=
9.	Communication costs		500,000/=
Grand total			87,871,530/=

Net benefit = Gross benefit – All costs

Net benefits for the fourth year = 99,000,000/= - 87,871,530/=

                                                = 11,126,470/=

Net benefits for the fourth year is 11,126,470/=

BENEFITS FOR THE FIFTH YEAR

The project will produce 165,000/= per day for the fifth year which is 4,950,000 per month and 59,400,000/= per year.

COSTS

Running cost during the fifth year
S/N	Items	Costs per Month	Total Costs per Year
1.	Water bill payment	18,333.30	220,000/=
2.	Electricity bill payment	25,000/=	300.000/=
3.	4 labor payment	@ 300,000/=	14,400,000/=
4.	Food		32,000,000/=
5.	Tax payment		14,850,000/=
6.	Communication Costs		520,000/=
7.	Transport cost		8,000,000/=
8.	Loan payment		4,831,530/=
Grand total			67,921,530/=

Therefore,

Net benefit = Gross benefits – All costs

Net benefit for the fifth year = 59,400,000/= - 67,921,530/=

                                                = -8,921,570/=

Net benefits for fifth year = -8,921,570/=

After the analysis of net benefits of each year, then we need to calculate; the Benefit Cost Ratio (BCR), the Net Present Value (NPV) and Internal Rate of Return (IRR).

a)      THE BENEFIT COST RATIO

Benefit cost ratio (BCR) =

The Benefit Cost Ratio (BCR) = 1.7

Therefore, the benefit cost ratio (BCR) of the chicken layering is 1.7. This project is worth to undertaken.

a)      NET PRESENT VALUE (NPV)

To calculate NPV is given by the formula

Before we calculate the NPV we have to calculate the discounted cash flow at the rate of 10%.

This is given by the formula,

 

NPV (THE CASH FLOW IN T.SHs
Year	Cash Flow in T.shs	Discounting factors at 10%	Discounted Cash Flow
0	20,000,000/=
1	12,318,400/=	0.9091	11,198,721.08
2	12,000,000/=	0.8264	9,916,800.00
3	14,918,470/=	0.7515	11,208,246.51
4	11,128,470/=	0.6830	7,600,745.01
5	-8,921,570/=	0.6209	-5,539,402.09
NPV			33,845,707.79

a)      THE INTERNAL RATE OF RETURN

To calculate the IRR there is a need of to find the NPV₂ with a negative value because there is already NPV₁ with the positive value. The NPV₂ here is calculated using at the rate of 50% as follows.

This has summarized in the table below

Year	Cash Flow in T.shs	Discounting factors at 50%	Discounted Cash Flow
0	20,000,000/=
1	12,318,400/=	0.6667	8,212,723.95
2	12,000,000/=	0.4444	5,332,800.00
3	14,918,470/=	0.2963	4,420,342.66
4	11,128,470/=	0.1975	2,197,872.86
5	-8,921,570/=	0.1317	-1,174,970.77
NPV			18,988,768.7

From,

            Therefore to calculate the NPV_t at the interest rate of 50% is given by

Therefore, IRR (the Internal Rate of Return) is given by the formula

Where,

IRR=               Internal rate of Return

NPV₁ =            Highest NPV (with positive value)

NPV₂ =            Lowest NPV (with negative value)

R₁ =                 Discount rate for NPV₁

R₂ =                 Discount rate for NPV₂

Given data,

IRR=               …?

NPV₁ =            13,845,707.79

NPV₂ =            -1,011,231.3

R₁ =                 0.1

R₂ =                 0.5

Therefore,

IRR= 0.5

IRR= 50%

Therefore, the Internal Rate of Return is 50%.

All in all this project (chicken rearing establishment), is worth because it has the Net Present Value of 33,845,707.79 which is greater than zero. Also this project will have more benefit than coast Ratio of 1.7; This shows that the project will have more benefits than costs. The internal rate of return is 50%, this shows the maximum interest rate that the project could pay for the resources used if the project is to recover its investment and operating costs and still break even.