4.

Financial Feasibility
Financial analysis is the process of determining the project total capital requirement, total project
sale, revenue & means of financing the project.
4.1 Estimate the total capital requirements
It is the overall capital requirement to start the project. This capital requirement for the enterprise
includes all fixed assets like fixed investment costs and startup costs.
4.1.1. Fixed Investment Cost
The fixed investment cost of the project includes the following items:
4.1.1. Fixed Investment Cost
The fixed investment cost of the project includes the following items
Table 4.1. Fixed Investment Cost Schedule.

Description Amount
Office and storage 5,0000
Machinery Equipment/ drones and other 1,743,270.97
accessories
Auxiliary Equipment 500,000
Truck 2,000,000
Total 4,301,670.97 birr
4.1.2. Pre-Operation cost /Startup cost
It includes all items that are incurred prior to commercial operation of the project. The items included in
this cost category are the following:
Table 4.2. Pre-Operation Expenditure Schedule

Description Amount
Feasibility Study Cost 5000
Survey Fee 10000
Other Project planning costs 5000
Total 20000

4.1.3. Fixed Assets

The fixed assets of the project will be the sum of fixed investment costs and pre operation
expenditures described above.
Table 4.3 Fixed Asset Schedule

Description Amount in birr

Fixed investment cost 4,301,670.97 birr
Pre-operation expenditures 2,0000 birr
Total 4,321,670.97 birr

4.2 Estimate equity and credit needs

4.2.1 Inventory
The only inventory item the project requires to hold in stock is some amount of
chemical/pesticides that will be sold to customers at cost. The total amount of chemical required
as determined in the operation plan of the project is Birr 1,152,000.00, which is just enough for
one month when the project operates at full capacity.
4.2.2 Accounts Receivable and Accounts Payable
The drone based agriculture service facility provides service to customers who pay the prices
determined as per the total weight of pesticides/land sprayed in cash. Therefore there will not be
any accounts receivable entry in the statements of the business. Regarding accounts payable, the
business has to pay salaries and utilities at the end of every month. These cost items can be
covered from the revenue of the business. However, the expenses for the first month are included
in the working capital requirement of the project which has to be provided by the investor. The
account payable amount when the project operates at full capacity will therefore be as follows.
Table 4.4 Accounts Payable Schedule
Description Amount in birr/ month
Wages 46000
Electricity charges 840
Telephone charges 500
Fuel for transportation 20000
Total 67340

4.2.3 Net Working Capital

As mentioned above, the project require working capital to start its operation. However,
sufficient funds which can cover the following cost items must be available until the business is
able to finance from its own revenue. This time is assumed to be the first month of operation.
The working capital requirement of the project is therefore for those items which must be paid
during/or at the end of the first month of operation.
Table 4.5 Net working Capital Schedule
Description Amount in birr
Pesticides cost 1,152,000
Office supplies 5000
Prepaid insurance 30000
Marketing cost 30000
Cash in hand(5% of total other working 63,217
capital)
Payment for salaries 46000
Payment for utilities 1340
Net working capital required 1,327.557
4.2.4 Total Investment Costs
The Total Investment cost of this project will be the sum of fixed assets and net working
capital of the project. This cost item is a summary of all of the above individual cost items and is
also termed as total project cost.
Table 4.6 Total Investment Schedule

Description Amount in birr

Fixed assets 4,301,670.97 birr
Net working capital 1,327.557birr
Total project cost 5,629,227.97birr
4.2.5 Production Costs
Production costs are those types of cost that are incurred by the business once it is in operation.
Production costs are normally dived in to four major categories: Factory Costs (Direct Operating
Costs), Administrative Overheads, Depreciation Costs and Financial Costs. The production costs
of the current project are as follows:
4.2.5.1 Direct Operating Costs
Direct operating costs include material (utilities) and labor costs required for the
operation process of the business. The estimated direct operating costs of the project when it
operates at full capacity are as follows:
Table 4.7 Direct Operating Cost Schedule
Electricity cost 840
Fuel cost 20000
Telephone cost 500
Labor 10000
Total 31340birr
 4.2.5.2 Administrative Overheads
The most important cost items included in administrative overheads are insurance charges, repair and
maintenance costs and office supplies.

Table 4.8 Administrative Overheads Cost Schedule.

Insurance charges 30000
Repair and Maintenance 50,000
Office supplies 5000
Total 85000

4.2.5.3 Financial Costs

The project is assumed to be financed from debt contribution. We are hoping the banks may be
interested in the business and may give some amount of loans.so after we have started our
business operations we have to start paying this bank our debt with interest.
Also as a contingency we have to get insurance ,so we also have to consider the amount of
money to be paid to the insurance company.
4.2.5.4 Depreciation Costs
The total project cost has to be depreciated or amortized as per applicable laws. The depreciation
costs of the project are determined as per the following assumption:
 Drones and accessories will be depreciated over a 5-year period
 Auxiliary Equipment’s are depreciated over a 5-year period
 Truck is depreciated over a 10-year period
4.3 Means of financing our project
The principal capitals required for the project are:
 Working capital.
 Asset finance
To meet these different types of capital requirements we decided to use the debt financing.

1. Debt financing
It is a method of obtaining finance which involves an interest on the amount of money
borrowed.it also requires some kind of asset as collateral. Debt financing requires paying back
the amount of money borrowed with its interest. In Ethiopia generally bank debt has an interest
rate of 12% per annum. Therefore, we have to pay back the debt at the end of the first year.

5,709,227+0.12*5,709,227=6,,394,334.24birr

But, it is good to borrow this debt from Ethiopian development bank to pay back at a 5-years
term and paying 20% of the borrowed money and interest of loan at the end of each year. That
means:
0.20*5,709,227+0.12*(0.20 x 5,709,227)=1,278,866.848 birr per each year
4.4 Pricing Strategy
Mostely he service is going to be marketed to the farmers whose financial capacity &
purchasing power is limited. The price to be charged must therefore be affordable. The price may
initially be set at a level which covers operating costs plus some kmargin for the business man. A
field survey was conducted to learn as to how much it cost when giving the service manually .
The charge varies depending on the number of customers and many other factors.
From our study the farmers pay 1200-600 birr /hectar depending on the type of plants they are
getting on. But in our case we are planning to give the service with 500 birr per hectar with
minimizing waste and increased accuracy.
4.5 Profit Analysis
Table 4.9 total cost vs total sale

Total cost of the business for first year 5,629,227.97birr

Total sale of the business for first year 19,200,000 birr

Profit = Total sale – Total cost

= Birr 19,200,000 - Birr 5,629,227
=Birr 13,570,773
Thus the total profit per year is Birr 13,570,773

4.6 Breakeven analysis

Breakeven point occurs when the cost of producing commodity is equal to the total revenue of
the commodity. The level of operation utilized percentage of material capacity is computed when
relatively simple model of revenue & costs are equated. To analyze or estimate profit or loss, it is
often necessary to determine the quantity of service at which revenue & costs will be equal. As
unit price is increased the revenue curve becomes steeper. Costs which are linear or nonlinear are
composed of two components.
These are:
1. Fixed cost which contains:-
o Machine cost
o Building cost.
o Insurance cost.
o Overhead cost
o Materials & etc.

2. Variable cost which includes:-

o Labor costs.
o Indirect labor.
o Advertising & etc.
Fixed cost always exists even when no production is incurred. Variable cost increased as
production rate is increase. It is usually possible to decrease the variable cost through better
production design & manufacturing efficiency.
The total cost needed to produce the service is the sum of the variable cost & the fixed cost of the
service.
 Know let as analysis the break-even point quantity
o Fixed cost=4,301,670.97 birr
o Variable cost=35 birr/unit service
o Total sale per = 19,200,000 birr
o Price =500 birr
Fc
B . E . P=
P−Vc
4,301,607.97
¿ =9250 unit of service
500−35
Thus the break even point quantity Q= 9250 Tr
Tc
Cost(birr)

Vc

Fc

9250 hectare Quantity

Graph 4.1. Break-even analysis of our business

From the graph we have seen the break-even quantity is 9250 hectares So after we sold this
quantity of our service we will be profitable.
4.7. Returns under various conditions
The price and sales volume of enterprises product may vary due to many reasons throughout the
year. Some of these reasons are:-
 Awareness of the people about our product is not that much developed.
 Reduction supply in electricity and water.
 Cost variation of the input raw materials (pesticides ).
Based on this variation we classified this one: The best season in to two.
1. Season one: when all conditions gone good and relatively stable, the enterprise able to be
wash 9250 units of service
2. Season two: In worst case when, electricity, pesticides and other inputs are limited. we use
other alternatives of sources .