Dry Cleaning - Minieh

11
AFC Consultants International DRY CLEANING PROJECT TABLE OF CONTENTS 1 EXECUTIVE SUMMARY............................................................................ 2 2 PROJECT DESCRIPTION ......................................................................... 2 2.1 DRY CLEANING PROCESS ....................................................................................... 3 2.2 DRY-CLEANING WASTES ........................................................................................ 4 3 MARKET ANALYSIS ................................................................................ 4 3.1 TARGET MARKET ................................................................................................ 4 3.2 SWOT ANALYSIS .............................................................................................. 5 4 MARKETING PLAN.................................................................................. 5 5 FINANCIAL PLAN ................................................................................... 6 5.1 INITIAL INVESTMENT ........................................................................................... 6 5.2 MAJOR ASSUMPTIONS .......................................................................................... 6 5.3 PROJECTED INCOME STATEMENT .............................................................................. 8 5.4 PROJECTED BALANCE SHEET ................................................................................... 9 5.5 PROJECTED CASH FLOWS ...................................................................................... 9 5.6 RATIO ANALYSIS ............................................................................................... 10 5.7 BREAK-EVEN ANALYSIS ........................................................................................ 10 5.8 SENSITIVITY ANALYSIS ........................................................................................ 11 6 RECOMMENDATIONS AND KEY SUCCESS FACTORS ................................ 11 7 ECONOMIC IMPACT EVALUATION......................................................... 11

description

The project consists in establishing a dry cleaning outlet in the Minieh-Donnieh Caza region inNorth of Lebanon. This outlet will cater to the Minieh-Donnieh Caza and North of Lebanonregion and will reach its peak during the summer season where all the Lebanese expatriatescome back for the summer to visit their families and a large number of vacationing residentsfrom Tripoli and other areas come to spend the summer season.

Transcript of Dry Cleaning - Minieh

  • AFC Consultants International

    DRY CLEANING PROJECT

    TABLE OF CONTENTS

    1 EXECUTIVE SUMMARY............................................................................ 2

    2 PROJECT DESCRIPTION ......................................................................... 2

    2.1 DRY CLEANING PROCESS ....................................................................................... 3 2.2 DRY-CLEANING WASTES........................................................................................ 4

    3 MARKET ANALYSIS ................................................................................ 4

    3.1 TARGET MARKET ................................................................................................ 4 3.2 SWOT ANALYSIS .............................................................................................. 5

    4 MARKETING PLAN.................................................................................. 5

    5 FINANCIAL PLAN................................................................................... 6

    5.1 INITIAL INVESTMENT ........................................................................................... 6 5.2 MAJOR ASSUMPTIONS .......................................................................................... 6 5.3 PROJECTED INCOME STATEMENT .............................................................................. 8 5.4 PROJECTED BALANCE SHEET ................................................................................... 9 5.5 PROJECTED CASH FLOWS ...................................................................................... 9 5.6 RATIO ANALYSIS ...............................................................................................10 5.7 BREAK-EVEN ANALYSIS ........................................................................................10 5.8 SENSITIVITY ANALYSIS ........................................................................................11

    6 RECOMMENDATIONS AND KEY SUCCESS FACTORS................................ 11

    7 ECONOMIC IMPACT EVALUATION......................................................... 11

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 2

    1 Executive Summary The project consists in establishing a dry cleaning outlet in the Minieh-Donnieh Caza region in North of Lebanon. This outlet will cater to the Minieh-Donnieh Caza and North of Lebanon region and will reach its peak during the summer season where all the Lebanese expatriates come back for the summer to visit their families and a large number of vacationing residents from Tripoli and other areas come to spend the summer season. The initial investment for the project is estimated at $49,500 which includes $35,500 in dry cleaning equipment, $5,000 in generator, $2,000 in furniture, $2,000 in office equipment, and $5,000 in working capital. The main assumptions consider average daily cleaning of 25 pieces over an average period of 6 months. This is a conservative figure due to the high demand during the summer season and limited competition in the region. The success of the business will rely on a convenient and accessible location. The projections are taken over a period of 7 years. The dry cleaning outlet is expected to provide an average annual net profit of $8,086. It will be able to distribute dividends starting year 1. The dry cleaning outlet provides an internal rate of return (IRR) of 30% and a payback period of 4 years and 2 months. These results show that the project is feasible if it is well managed. A worst-case scenario was developed with the assumption of lower number of units from 25 pcs/day to 20 pcs/day for the dry cleaning outlet, gave an IRR of 22% and a payback period of 5 years and 6 months. A best-case scenario based on higher number of units per day from 25 pcs/day to 30 pcs/day provides the dry cleaning outlet an IRR of 37% and a payback period of 3 years and 5 months. The project will offer 2 full time job opportunities (including the project owner) and will provide a convenient dry cleaning facility in the Donnieh area. 2 Project description The project consists in establishing a dry cleaning outlet in Donnieh area in North of Lebanon. Currently, there is only one dry cleaning facility in the whole Donnieh area, which is also located at the borders of Minieh and is not convenient for the Donnieh residents. In fact, this facility could not be sufficient, especially during the summer season when all the vacationing people come to spend the summer season, running away from the heat on the coast. Dry cleaning is any cleaning process for clothing and textiles using an organic solvent rather than water. The solvent used is typically tetrachloroethylene (perchloroethylene), abbreviated "perc" in the industry and "dry-cleaning fluid" by the public. Dry cleaning is necessary for cleaning items which would otherwise be damaged by water and soap or detergent. It may be used if hand washing needed for some delicate fabrics is excessively laborious. The dry cleaner places cleaned clothes on metallic hangers, inside thin clear plastic garment bags before delivering to the clients.

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 3

    2.1 Dry cleaning process A dry cleaning machine is similar to a combination of a domestic washing machine, and clothes dryer. Garments are placed into a washing/extraction chamber (referred to as the basket, or drum), which is the core of the machine. The washing chamber contains a horizontal, perforated drum that rotates within an outer shell. The shell holds the solvent while the rotating drum holds the garment load. The basket capacity is between 9 and 36 kg of garments. During the wash cycle the chamber is filled approximately 1/3 full of solvent and begins to rotate, agitating the clothing. The solvent temperature is maintained at 29.4C, as a higher temperature may extract dye from garments, causing color loss. During the wash cycle, the chamber is constantly fed a supply of fresh solvent from the working solvent tank while spent solvent is removed and sent to a filter unit comprising a distillation boiler and condenser. The ideal flow rate is roughly 8 liters of solvent per kilogram of garments per minute, depending on the size of the machine. Before being placed in the machine, garments are inspected for stains and soils by the operator. Depending on the nature of the soil, a catalyst may be applied to it. This depends on the operator's judgment of the makeup of the textile and the soil itself. Oil-based soils (such as grease, oil, or lipstick) typically are removed well by perchloroethylene, while water-based soils (such as coffee, wine, perspiration, blood, and semen) will need a catalyst to allow the dry cleaning solvent to emulsify and lift them. Food-based grease soils fall in between the two, and a milder catalyst may be applied. Garments are also checked for foreign objects. Items such as plastic pens will dissolve in the solvent bath and may damage textiles beyond recovery. Some textile dyes are "loose" (red being the main culprit), and will shed dye during solvent immersion. These will not be included in a load along with lighter colored textiles to avoid color transfer. The solvent used must be distilled to remove impurities that may transfer to clothing. Garments are checked for dry-cleaning compatibility, including fasteners. Many decorative fasteners either are not dry cleaning solvent proof or will not withstand the mechanical action of cleaning. These will be removed and re-stitched after the cleaning, or protected with a small padded protector. Fragile items, such as feather bedspreads or tasseled rugs or hangings may be enclosed in a loose mesh bag. The density of perchloroethylene is around 1.7 g/cm at room temperature (70% heavier than water), and the sheer weight of absorbed solvent may cause the textile to fail under normal force during the extraction cycle unless the mesh bag provides mechanical support. A typical wash cycle lasts for 8-15 minutes depending on the type of garments and amount of soiling. During the first three minutes, solvent-soluble soils dissolve into the perchloroethylene and loose, insoluble soil comes off. It takes approximately ten to twelve minutes after the loose soil has come off to remove the ground-in insoluble soil from garments. Machines using hydrocarbon solvents require a wash cycle of at least 25 minutes because of the much slower rate of solvation of solvent-soluble soils. A dry-cleaning surfactant "soap" may also be added. At the end of the wash cycle, the machine starts a rinse cycle, and the garment load is rinsed with fresh distilled solvent from the pure solvent tank. This pure solvent rinse prevents discoloration caused by soil particles being absorbed back onto the garment surface from the "dirty" working solvent. After the rinse cycle the machine begins the extraction process, which recovers dry-cleaning solvent for reuse. Modern machines recover approximately 99.99% of the solvent employed. The extraction cycle begins by draining the solvent from the washing chamber and accelerating the basket to 350 to 450 rpm, causing much of the solvent to spin free of the fabric. When no more solvent can be spun out, the machine starts the drying cycle. During the drying cycle, the garments are tumbled in a stream of warm air (145F/63C) that

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 4

    circulates through the basket, evaporating any traces of solvent left after the spin cycle. The air temperature is controlled to prevent heat damage to the garments. The exhausted warm air from the machine then passes through a chiller unit, where solvent vapors are condensed and returned to the distilled solvent tank. Modern dry cleaning machines use a closed-loop system where the chilled air is reheated and re-circulated. This results in high solvent recovery rates and reduced air pollution. In the early days of dry cleaning, large amounts of perchlorethylene were vented to the atmosphere, because it was regarded as cheap and believed to be harmless. After the drying cycle is complete, a deodorizing (aeration) cycle cools the garments and removes the last traces of solvent, by circulating cool outside air over the garments and then through a vapor recovery filter made from activated carbon and polymer resins. After the aeration cycle, the garments are clean and ready for pressing/finishing. 2.2 Dry-cleaning wastes

    Cooked muck - Cooked Powder Residue the waste material generated by cooking down or distilling muck. Cooked powder residue is a hazardous waste and contains solvent, powdered filter material (diatomite), carbon, non-volatile residues, lint, dyes, grease, soils and water. This material should then be disposed of in accordance with the municipality.

    Sludge - The waste sludge or solid residue contains solvent, water, soils, carbon and

    other non-volatile residues. Still bottoms from chlorinated solvent dry cleaning operations are hazardous wastes.

    Environment - Perc is classified as a hazardous air contaminant by the EPA and must

    be handled as a hazardous waste. To prevent it from getting into drinking water, dry cleaners that use perc must take special precautions against site contamination.

    3 Market Analysis Minieh-Donnieh Caza region is a perfect location for the establishment of a Dry cleaning outlet as this part of the country has only two similar projects in Meriata which is located on the coastal part of the caza on the border between Minieh and Donnieh. For that matter it is advisable to locate this project towards the upper part of Donnieh, which does not have any dry cleaning facility. 3.1 Target market It is expected to have seasonal effects on the productivity of the dry-cleaning facility: During the summer season, some expatriates and locals that reside in the capital and other main cities come to spend the vacations in their native villages. Moreover, the region of Donnieh consists in a vacationing area for residents from the coast extending from Tripoli to Minieh and part of Akkar. These visitors flow will create increased demand for the dry-cleaning facility as they will need services for items such as:

    Suits Shirts Wedding events Curtain cleaning Dresses etc...

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 5

    3.2 SWOT Analysis STRENGTHS WEAKNESSES

    The dry cleaning facility will offer

    convenient, competitively priced, quality service to a number of villages in the area of Donnieh and part of Minieh.

    Since this business is repetitive, it is more likely to have repeat customers from season to season.

    Pressure on cash flows of the project as

    the revenues are not evenly spread throughout the year. It is expected to have most of the business from vacationers and expatriates coming to their villages on holidays and in the summer.

    OPPORTUNITIES THREATS

    The Donnieh area needs a dry cleaning

    facility as there is a large resident population from vacationers to visiting expatriates during the spring and summer months that require dry cleaning services.

    Joint ventures are possible to increase the

    business volume to serve nearby villages. Hence, small satellite shops could quickly mushroom to share the existing facility.

    2 similar projects on the coastal part of

    the caza in Meriata could add some pressure on the sales if the prices are not competitive or the quality of the service is not at least comparable.

    The use of easier to wash fabrics might limit the use of the dry cleaning facility.

    The difficult economic and political situation in the country constitutes constant threat for Lebanese enterprises.

    4 Marketing Plan The main marketing objectives include:

    Direct contacts with local customers in order to quickly boost sales.

    Providing an excellent service to ensure customer satisfaction for repetitive business. It is very common to see a production facility share its resources (such as machinery,

    know-how, soap and chemicals etc) with other dry clean outlets. These outlets would not have to heavily invest in machinery and would be able to quickly launch their business. In this case, the dry clean project owner would be able to significantly boost his turnover.

    Need to differentiate the service from the existing two dry cleaning outlets that

    already exist in Meriata. That could be achieved by client awareness and excellent prices and quality of service.

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 6

    5 Financial Plan This section details the calculations, assumptions and methodology used as a basis for the projections of the expected financial performance of the dry cleaner outlet. 5.1 Initial Investment Investment Requirements Description Quantity Unit price Amount in $Industrial washing machine 20kg (used) 1 5,500 5,500Table for ironing (used) 1 2,000 2,000Drying press machine - 20kg (used) 1 3,000 3,000Professional dry/clean machine - 20kg 1 12,000 12,000Dryer machine - 20kg (used) 1 3,000 3,000Generator (used) 1 5,000 5,000Boiler sytem and exaust 1 5,000 5,000Installations of boiler system 1 2,000 2,000Spotting table 1 2,000 2,000Ventillation + ducting 1 1,000 1,000Computer and office equipment 2,000Furniture 2,000Total costs of equipments 44,500Working capital needs 5,000

    Total investment cost 49,500 The above table shows the various equipments needed for the establishment of the Dry cleaning shop facility. The initial investment for the project is estimated at $49,500 which include $35,500 in industrial equipment, $5,000 in generator, $2,000 in furniture, $2,000 in office equipment, and $5,000 in working capital. 5.2 Major assumptions The assumptions are conservative and are based on market achievable levels. They consider an average daily cleaning of 25 pieces over an average operating period of 6 months per year, which is a conservative figure due to the high demand and limited competition in the region. GENERAL ASSUMPTIONS

    Units per dayPercentage of 25

    Revenues assumptions price / item sales Total revenue / weekShirts $1.3 20% $39.8Pants $2.7 30% $119.4Suits $8.0 23% $274.6Dresses $6.6 10% $99.5Coats $6.6 4% $39.8Curtains $6.6 2% $19.9Leather coats / shirts $16.6 1% $24.9Blazers $5 10% $79.6

    Totals 100% $697.5

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 7

    The project assumes an average of 25 pieces of clothing per day for a 6 day/week schedule. The breakdown percentages of the items to be washed are also stated in the above mentioned table. From the 25 pcs per day we assumed that 30% of them were pants, 20% shirts, 23% suits etc. The total sales revenue per week has been calculated to be approximately $697.5/week. The following revenue growth assumptions are taken for the subsequent years. Revenue growth assumptions Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Sales growth 20% 15% 10% 5% 5% 5%Total units per year 3,900 4,680 5,382 5,920 6,216 6,527 6,853 Total units per day 25 30 35 38 40 42 44 The following table shows the main assumptions for the income statement:

    Income Statement Assumptions

    Working days 6 per weekWorking weeks per year 26 per yearWorking months per year 6 per yearNylon garment bags (price/kg) $3.1Nylon bags weight per garment 40 gr.Hangers (box of 450 units) $29Soap price per kg $1.7 1 kg/daySoap usage per garment 20 gr.Perclore (for dry clean) / 1 barrel $540 /yearMaintenance on equipment $100 /monthFuel cost 15% of salesElectricity 6% of salesAnnual rent-100 m2 premises $2,000 /yearIncrease in rent every 3 years 10%Annual increase in general expenses 3%Annual increase in salaries 2%Income Tax Rate 2%

    As stated earlier, conservatively, the income statement is based on an average of 6 months of operations. Hence, it will be mainly operated during part of spring, summer and part of the fall season to accommodate the local and expatriates clients during the summer. An annual increase in general expenses of 3% is taken into account for inflation factors. The electricity expenses are estimated to represent 6% of sales. The fuel cost is assumed at an average of 15% of sales. Staff structure The dry cleaning facility will have two full-time jobs: one manager (the owner) and one full time skilled worker. We have to note that the shop will be operational only 6 months of the year, hence, the project incurs wages during 6 months only, although the owner would continue the operations alone during the low season.

    The manager/owner will be responsible for running the daily operations, developing new marketing strategies, as well as dealing with the clients while ensuring quality servicing. Moreover, the manager will be in charge of the accounting operations of the outlet. The manager/owner will not have a monthly salary but will be able to have dividends starting in year 1.

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 8

    Furthermore, 1 skilled worker will be hired with a monthly salary of $300. 5.3 Projected Income Statement

    Dry Cleaning projectProjected Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

    Total revenuesSales revenues 18,135 21,762 25,027 27,529 28,906 30,351 31,869 Total revenues 18,135 21,762 25,027 27,529 28,906 30,351 31,869 Cost of materials-soap 673 699 723 741 751 762 773Cost of materials-packaging 735 882 1,014 1,116 1,171 1,230 1,291Electricity 1,088 1,306 1,502 1,652 1,734 1,821 1,912Fuel 2,720 3,264 3,754 4,129 4,336 4,553 4,780Maintenance of machines 600 618 637 656 675 696 716Total cost of sales 5,816 6,769 7,629 8,294 8,668 9,061 9,473 Gross margin 12,319 14,993 17,397 19,236 20,238 21,290 22,395

    Gross profit margin % 68% 69% 70% 70% 70% 70% 70%General & administrative expensesSalaries 1,800 1,836 1,873 1,910 1,948 1,987 2,027 Rental charges 2,000 2,000 2,000 2,200 2,200 2,200 2,420 Telephone expenses 300 309 318 328 338 348 358Other administrative costs 1,000 1,030 1,061 1,093 1,126 1,159 1,194Total General & Administrative Exp 5,100 5,175 5,252 5,531 5,612 5,694 5,999 EBITDA 7,219 9,818 12,146 13,705 14,626 15,596 16,396 Depreciation expenses 4,650 4,650 4,650 4,650 4,650 4,250 4,250 Tax expenses 51 103 150 181 200 227 243 Net Income 2,518 5,065 7,346 8,874 9,777 11,119 11,903

    Net profit Margin 14% 23% 29% 32% 34% 37% 37%

    The income statement shows satisfactory income levels with an average net profit margin of 30% starting from year 1. Of course, these results will depend on the projected sales. In subsequent years, the dry cleaning outlet will benefit from increased marketing efforts by the manager, and repeat business. The company reaches a net profit that exceeds $7,000 in year 3. With constant marketing and networking efforts from the site manager, the project is expected to reach a sales volume of $28,906 by year 5, which would provide net profits exceeding $9,000 for that year. The projections are taken over a period of 7 years. The dry cleaning outlet is expected to provide an average annual net profit of $8,086. It will be able to distribute dividends starting in year 1.

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 9

    5.4 Projected Balance Sheet The balance sheet shows the projected assets and liabilities of the company.

    Dry Cleaning projectProjected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

    Cash & Equivalents 9,656 14,669 19,925 25,386 30,965 36,275 41,682Accounts Receivable 756 907 1,043 1,147 1,204 1,265 1,328Current Assets 10,412 15,576 20,968 26,533 32,169 37,539 43,010Equipment 40,500 40,500 40,500 40,500 40,500 40,500 40,500Furniture 2,000 2,000 2,000 2,000 2,000 2,000 2,000Computer & office equipment 2,000 2,000 2,000 2,000 2,000 2,000 2,000Accumulated Depreciation 4,650 9,300 13,950 18,600 23,250 27,500 31,750Net Fixed Assets 39,850 35,200 30,550 25,900 21,250 17,000 12,750Total Assets 50,262 50,776 51,518 52,433 53,419 54,539 55,760Expenses payable 510 518 525 553 561 569 600Total Liabilities 510 518 525 553 561 569 600Invested Capital 49,500 49,500 49,500 49,500 49,500 49,500 49,500Retained Earnings 252 758 1,493 2,380 3,358 4,470 5,660Shareholders Equity 49,752 50,258 50,993 51,880 52,858 53,970 55,160Total Liab. & Shrholders Equity 50,262 50,776 51,518 52,433 53,419 54,539 55,760

    Stat. Of Retained Earnings Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Begin. Retained Earnings 252 758 1,493 2,380 3,358 4,470 Net income 2,518 5,065 7,346 8,874 9,777 11,119 11,903 Dividends Paid 2,266 4,558 6,611 7,986 8,799 10,007 10,713

    Ending Retained Earnings 252 758 1,493 2,380 3,358 4,470 5,660 The company is expected to start distributing dividends starting in year 1 at 90% of net profits. 5.5 Projected Cash Flows The following table shows the projected cash flows of the project.

    Dry Cleaning projectSTATEMENT OF CASH FLOWS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

    Net income 2,518 5,065 7,346 8,874 9,777 11,119 11,903 Adjustments to reconcile net incometo cash provided by operating activitiesDepreciation 4,650 4,650 4,650 4,650 4,650 4,250 4,250 Change in receivables (756) (151) (136) (104) (57) (60) (63) Change in payables 510 8 8 28 8 8 30 Total Adjustments 4,404 4,506 4,522 4,574 4,601 4,198 4,217 Cash provided by operating activities 6,922 9,571 11,867 13,447 14,377 15,317 16,120

    Cash Flow from Investing ActivitiesCapital expendituresInvestment in fixed assets (44,500) - - - - - - Net cash used in investing activities (44,500) - - - - - -

    Cash flow from financing activitiesNet Investment by owners 49,500 Net borrowings & repayments of loansDividends distributed (2,266) (4,558) (6,611) (7,986) (8,799) (10,007) (10,713) Cash provided by financing activities 47,234 (4,558) (6,611) (7,986) (8,799) (10,007) (10,713)

    Cash at beginning of year - 9,656 14,669 19,925 25,386 30,965 36,275 Changes in cash 9,656 5,013 5,256 5,461 5,578 5,310 5,408 Cash at end of year 9,656 14,669 19,925 25,386 30,965 36,275 41,682 The projected cash flows show the initial net investment in the equipment in year 1. This investment is financed by capital injection of $49,500. In the same year, the dry cleaning outlet starts operations and is able to start distributing dividends.

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 10

    5.6 Ratio analysis The following table shows the main financial ratios for the cold storage facility. Ratio Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Current Ratio 20.42 30.10 39.92 47.97 57.33 65.92 71.69Working capital 9,902 15,058 20,443 25,980 31,608 36,970 42,410 Profitability RatiosGross Profit Margin 68% 69% 70% 70% 70% 70% 70%Operating Profit Margin 40% 45% 49% 50% 51% 51% 51%Net Profit Margin 14% 23% 29% 32% 34% 37% 37%Financial StrengthTotal Debt to Owners' Equity 1.0% 1.0% 1.0% 1.1% 1.1% 1.1% 1.1%Management EffectivenessReturn on Average Assets 5% 10% 14% 17% 18% 20% 21%Return On Average Equity=ROE 5% 10% 14% 17% 18% 21% 22%Return on Investment = ROI 6% 14% 24% 34% 46% 65% 93%Asset Management (Efficiency)Total Assets Turnover: Sales / total assets 36% 43% 49% 53% 54% 56% 57%Total Debt to Total Assets 1.0% 1.0% 1.0% 1.1% 1.1% 1.0% 1.1% The current ratio, which is computed by dividing current assets by current liabilities, shows increasing and high levels throughout the years. The working capital is positive in all the years, confirming the ability of the company to meet its short term liabilities. The net profit margin increases gradually with the increased profitability. Starting year 2, this margin increases from 23% up to 37% in year 7. The return on average assets, which is computed by dividing net profits by total assets, shows how much profit the company is able to achieve from the use of its assets. This ratio reaches 18.3% by year 5 as the Dry cleaning shop achieves higher sales volume. The return on average investment shows healthy levels fueled by the growth in profitability. The average return on investment is around 15%. The total assets turnover shows how well the management is making use of its assets. The assets turnover is computed by dividing sales over total assets. This ratio shows satisfactory levels starting in year 2. The internal rate of return (IRR) is 30% and the payback period, which is the period necessary to pay back the investment, is 4 years and 2 months. These results show that the project is feasible. 5.7 Break-even analysis The following table shows the annual revenue levels needed for the Dry cleaning shop project to break even. Thus, an average of $14,529 in year 1 is a minimum level for the outlet to break even.

    Dry Cleaning projectBREAK-EVEN ANALYSIS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

    Total Revenues 18,135 21,762 25,027 27,529 28,906 30,351 31,869Total Variable Costs 5,216 6,151 6,993 7,638 7,993 8,366 8,757Total Fixed Costs 10,350 10,443 10,538 10,836 10,937 10,640 10,966

    Break-even revenues 14,529 14,558 14,625 14,997 15,117 14,689 15,121

  • LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

    Minieh-Donnieh Caza - Feasibility Study Dry cleaning project 11

    5.8 Sensitivity analysis A worst-case scenario was developed with the assumption of lower turnover from 25 pcs/day to 20 pcs/day for the dry cleaning outlet, gave an IRR of 22% and a payback period of 5 years and 6 months. In this case, the business will have an average profitability of $4,271 annually. A best-case scenario was based on higher turnover up from 25 pcs/day to 30 pcs/day. This scenario provided the dry cleaning project an IRR of 37%, an average profitability and a payback period of 3 years and 5 months.

    Sensitivity Analysis Worst-case Most likely Best-case20 pcs/day 25 pcs/day 30 pcs/day

    Average net income 4,271 8,086 11,901 Average net profit margin 19% 30% 37%

    Internal rate of return 22% 30% 37%Payback period in years 5 years and 6 months 4 years and 2 months 3 years and 5 months

    These results show that the project is feasible, especially if it is well-managed providing quality services and if the manager is able to market well the dry cleaning outlet to optimize the sales and leverage the projects capacity. 6 Recommendations and key success factors In order to achieve satisfactory results, there are some key success factors that should be highlighted:

    The management needs to invest in direct contacts and public relations efforts to attract the largest number of clients from neighboring villages to utilize the facility. The business should try to build a loyal clientele, which will come back every year.

    The manager needs to be able to operate on his own with the help of an additional skilled labor during high seasons in order for him to optimize his profit margins.

    The plant manager should ensure proper maintenance and regular daily cleaning services to keep the facility as clean and as efficient as possible.

    7 Economic Impact Evaluation The dry cleaning outlet will create 2 new jobs: one full time manager/owner and 1 skilled worker, thereby contributing positively to the socio-economic environment by offering new opportunities to Minieh-Donnieh caza citizens.