Mobile Coffee Shop

Feasibility Study Report

Executive Summery
The mobile coffee shop is a simple familiar idea where you can enjoy your
time with a nice and unique taste of coffee from the marvelous farms ethiopia. The
shop is a cozy relaxing place where people will differentiate the kind of high
quality of coffee beans. mobile Coffee shop business is not familiar In ethiopian
market market and our project will be as one of un exploited business.

The Project will be different from what is available in the market due to the
unique type of coffee that will be supplied from the local supplier. The local
suppliers will supply us with the inventory the whole year period. The cafe will
have a menu similar to what is available in the competitors' menus, hot and cold
drinks. Also, the cafe will offer some desserts like cup cakes, muffins, cookies, etc
and some light food like sandwiches and salads that are suitable for snack.

Starting the project, we surveyed 180 people from both genders and different
occupations. The survey was held using a questionnaire consists of 17 questions.
Our respondents were mainly university students and employees. We mainly
focused our questions on how much people are willing to pay and visit the shop
and what is their favorite coffee shop they used to buy from. In the process of
calculating the number of visitors and the market share we used the annual report
of the Ministry of finance and investment.

We used the numbers and figures we obtained from the survey to estimate the
sales by estimating price, number of visitors and the expected market share. For the
coming years, our sales is expected to increase by the inflation rate.

Moving to numbers and analysis, we used capital budgeting tools with some
other tools that help in making the decision. The figures we got is encouraging,
starting with a promising positive NPV with payback period and the cost of capital

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(WACC) are used. Moreover, the discounted payback period is less than the
project life we assumed as well as the profitability index is more than one. All
these indicators lead us to one decision that is to go ahead with the project.

*Note: All figures and numbers are calculated based on assumptions and inputs
that will be discussed later in the report.

Introduction:

As we all know, the economy of any country is based on small businesses. It's
the best way to seek success at the beginning of your business life, moreover, it's
the way to fulfill aspiration as well as wants.

As we are young business students, we always approach to undertake attractive

opportunities that represent the corner stone of shinning life. We get the chance to
meet one of the inspiring investors who used to encourage youth people in business
field. He trusted us to start a feasibility study for a project that he is really
concerning about.

The idea of the project is not new in the local market, the idea of the project is
a traditional coffee shop like some well-known coffee shops kaldis coffee, liyou,
all cafetaria and more. The thing that will differentiate the project from what are in
the market is the new its movability from place to place. And not only that we are
available where there is ceremony like trade show bazar and exhibition and
religeus festivity. What makes this project so special is it’s moving type.

The idea of the project came from one of our group member who thinks that it
is the busines hole that is small but brings maximum possible benefit so we want
to open such a kind of project. We have been asked by him to think about it and

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check the feasibility of project in the local market to decide whether to accept or
reject.

Survey:

A survey was conducted with 180 people of different ages, gender and
occupations mainly students and employees. The survey was held through a
questionnaire consists of 17 questions (Appendix 1).

Based on the survey, we concluded some information as following:

1. Gender:
The surveyed sample was consisting of 66% females and 34% males.

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 2. Age:
The respondents were aimed to be chosen from the age group between 20-40
years and the reason behind this is that we believe that this age group is the
main customer of our product.

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 We choose this age category because of that this segment of the market are
assumed they can afford the price and students of university are estimated around
this age category.

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 3.
4.

Income:

The income of our surveyed sample is mostly ranged between (1000-2500)birr

by approximately 63% of the sample. The reason is derived from the fact
that a large number of the respondents are employees and college students.

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 5. Visiting and Spending:
Part of the questionnaire aimed to estimate the average number of visiting
per week and to know the amount each customer is willing to spend in each
visit. we noticed that the most frequent answer ( about 50% of the
respondents)that the respondents chose is 2-3 times per week with 20-40birr
to be spent per visit ( 63% of the respondents).

Sales Forecast:

The results derived from the survey were used in the estimation of the Sales and
the final results are summarized in following table:

Factor Expectation

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Price 6.3
Visiting &visited * 1
No customers* 350
Market share* 100%
Number of working days 300
Yearly salea 661500

 Price:
The price that we forecasted was calculated from the survey figures. We had
3 price categories in the survey 3-4birr, 7-8, 6-7,without VAT and as the
first step we calculated the average price of each of this categories' ranges.
Then we multiplied each of the price averages of each of the categories with
its weights that we have obtained.

 Visiting:
We followed the same manner of price calculations to get the number of
visiting daily. We got the number of 1 visits daily per customer.

 Number of customers:
Before calculating the number of customers, we had to estimate our market
share if we entered the local market. The market shares of each of the
competitors of this business were not predictable because there is not as such
known and developed market data and the other is we are the pioneer in the
mobile coffee shop but we estimated based on rule of thumb and we assume
that 100% market share we possess because it is new to the market.
Moving on to calculate the number of customers and based on the fact that
we want to establish our shop in arat kilo, we took the number of the
population in the area arat kilo, from the annual report of statistics bureau -
where we focused on the age groups between 18-45 because these age

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 category are assumed to early adopters years that fit our assumption. We
multiplied the total number of the age group by its weight that we have
observed. As a final step, we multiplied the total by the calculated market
share and end up with around 350 customers per day.

After getting all the required numbers, the forecasted yearly sales was
calculated as follows:

annual sales = Price × No. of customers per week × No. of visiting per day ×
market share × 300 day.

=6.3*350*100%*300 = 661500 birr

Assumptions (Inputs):

Regarding the inputs, we gathered our information from the statistics bureau
and micro and small scale enterprise for the estimation of market share and number
of population. For the rest of the inputs, the numbers were estimated based on the
current market situations and some consultants from different fields.

1. The Location of the shop is intended to be in the arat kilo and giving
services to customers by moving from one location to the other because it is
a mobile coffee shop. The intangible asset and the rent are estimated based
on this location and the current government highly encourages the opening
of small scale enterprises.

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 2. The project uses MACRS 5 as the method to estimate the depreciation.

3. Decoration and Advertising expenses are estimated on average by the teddy

advertising company.

4. Variable costs are estimated as 25% of the sales.

5. Required rate of return 30%. (Based on the current micro enterprise return)

6. Tax rate is 5%. ( To encourage micro enterprise what the government

impose)

7. Interest rate is 7% from National Bank of ethiopia.

8. The inflation rate is 10% even though there is fluctuation. (central statistics)

All the rest of the expenses are estimated from Ethiopian investment authority
and some are modified according to the project needs.

Weighted Average Cost of Capital (WACC):

The initial cost of the project is 1,000,000birr as estimated. We decided to fund the
project by 600,000birr as a debt and the rest will be funded by own. As a result, the
weight of debt will be around 60% and the weight of equity will be around
40%.This capital structure is based on our assumptions and needs.

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Our cost of debt as previously mentioned is 7% and the cost of equity is 15%, we
come up with 10.2% weighted average cost of capital.

Operational Cash Flows & Capital budgeting tools:

After the estimation of the yearly sales, it's the time to estimate the operational
cash flows. The estimation was done for 5 years. At year 1, we took the calculated
yearly sales and took 218544 (661500-442956). After this, the sum of the expenses
we have for the first year (Salaries, Rent, Supplies Expense, Supplies Expense,
Miscellaneous expense, Depreciation) were subtracted from the profit margin to
come up with the operating income and then to calculate the net income after
deducting the tax (5%) from the operating income. Of course we have to add back
the depreciation to the net income to get the operational cash flow since
depreciation requires no cash payments.
In the next years, the growth rate that is applied on the yearly sales is the
inflation rate (10%). Before we calculate the remaining operational cash flows, we
had to increase the sales by this rate. Following the same manner we calculated the
cash flows for the coming five years.

2013 2013 2014 2015 2016 2017

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 - 1000,000 218544 240398.4 264438.24 290882.06 319970.27

Getting the cash flows is considered the hardest step because what comes after
this is the analysis of these cash flows to see how feasible the project is using
several tools and methodologies.

Starting with the capital budgeting tools, we can summarize what we calculated
in this table:

NPV= ∑FCF/ (1+r) n -Io

Cash flow PV @10.2% PV

218544 0.9804 214260.38
240398.4 0.82345 197956.062
264438.24 0.747232 197596.71
290882.06 0.6780672 197237.58
319970.27 0.6153074 196880.07

NPV = -1000000+214260.38+197956.062+197596.71+197237.58+196880.07

=3930.8 because NPV results positive then it shows the project is feasible.

Forecasted balance sheet.

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