ADMASUNIVERSITY

SCHOOL OF POST-GRADUATE STUDIES

MASTER OF BUSINESS ADMINISTRATION PROGRAM

Title: Feasibility Study on Day Care Center in the case of Lovely day
care Center

No.Name of Students ID
1. MulugetaChekol--------------------PGMGB/1417/22
2. MuluemebetAklilu------------------PGMGB/1100/22
3. FevenZewdie------------------------ PGMGB/1160/22
4. MamitDerbie-------------------------GMGB/1137/22
5. AbebeHabtamu----------------------PGMGB/1355/22
6. AbebayehuYifru---------------------PGMGB/1048/22
7. RedietTegegn------------------------PGMGB/1389/22
8. Frew Takele-----------------------PGMGB/1371/22
9. RomanTayine------------------------PGMGB/1110/22
10. Mekdes Lantesel …………………………..4649/21

Submitted by:Section 2 Group 3 Students

Submitted to: Amanuel

June , 2023
Addis Ababa, Ethiopia
Table of Contents
SUMMARY....................................................................................................................................................1
PROJECT BACKGROUND AND JUSTIFICATION...................................................................................2
INITIAL INVESTMENT............................................................................................................................3
ORGANIZATION AND STAFFING.........................................................................................................4
BENEFITS OF THE PROJECT..................................................................................................................6
SUPPLY AND DEMAND ANALYSIS.........................................................................................................7
SUPPLY......................................................................................................................................................8
DEMAND....................................................................................................................................................8
FINANCIAL ANALYSIS AND PROJECTION............................................................................................8
PROJECT APPRAISAL CRITERIA..............................................................................................................9
Discounted Pay-Back period.......................................................................................................................9
NPV (Net Present Value).............................................................................................................................9
IRR (Internal rate of return).........................................................................................................................9
BCR (Benefit Cost Ratio)............................................................................................................................9
POSIBLE RISKS OF THE PROJECT..........................................................................................................10
COMPONENTS OF THE PROJECT PLAN................................................................................................10
SUMMARY
NAME OF BUSINESS:- Lovely Day Care Center
LEGAL FORM: - SOLE PROPRIETORSHIP
CONTACT ADDRESS:
CITY : ADDIS ABABA SUB CITY YEKA
T

This feasibility study is a project to open a Child care/Day care center in Yeka Sub sity, Addis
Ababa and to be located around Megenagna and Hayahulet area. Megenagna and Hayahulet are
a potential area for day care service, as there are so many residents and workers in this area,
and it is found that there are only few one who gives a day care service in this area and opening
one will be viable.

The target customers are the middle and upper income parents who will be busy during the day
to take care of their children’s.

The total required startup capital to start the business is birr 1,200,000.00 and it will be full
covered by the promoters or the potential investors private saving. And it is assumed that the
project will start immediately as long as financial and legal formalities are fulfilled and will last
for five years.

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PROJECT BACKGROUND AND JUSTIFICATION

In today’s busy world, most parents have a busy schedule to raise their children’s during the
day’s time by themselves and most of them didn't feel comfortable with the idea of hiring a
nanny. And also with inflation continuing to increase every year, it has become necessary for
more families to rely on two incomes to survive. In turn, this increases the demand for child care
facilities. We do not foresee this trend turning in the near future, and intend to capture a share
of this market.
Child care or day care is the care of a child during the day by a person other than the child's legal
guardians, typically performed by someone outside the child's immediate family. Day care is
typically an ongoing service during specific periods, such as the parents' time at work.

Child care centers provide care for group of children, often placed in class rooms by age. They
typically have many staff members who care for children. A child care center is managed by a
center director or manager who oversees the program and its staffs.
Day care centers differ from Kindergarten in the following points:
1. Day care centers provide mostly the developmental programs while the kindergarten
schools provide the instructive programs
2. The day care centers provided more extended operating hours while the kindergarten
classes are usually based in elementary schools and operating during normal operating
hours.
3. Day care centers employees should have child care experience while the kindergarten
employees should have child managing and good teaching and specific curriculum
knowledge.
4. Day care centers focus on giving cares to children while the kindergarten schools focuses
o the formal learning activities

Accordingly, Child Care is a business that has become necessary in today's fast-paced world.
There are an increasing amount of families who have become dependent on two incomes, which
has created the necessity of the child care industry.

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The Lovely day care project will give a day care service for residence and workers around the
area of Hyahulet and Megenagna. The service will be rendered with a rented villa around this
area. The facility will originally require a 300 m 2 house in a quiet, residential neighborhood. The
yard will be fully fenced in, to ensure no one can either come in or walk away. The compound
will be furnished with safe, entertaining toys, as well as a sandbox.

The house will be used for rainy-day activities and the serving and preparation of meals. The
house will also contain toys, games, and books for the entertainment of the children.

The project could attract customers through advertising the day care service mainly by printed
information like distributing brochures, posters and also planned to communicate potential
customers in person and explain about the service.
The project is to be established in a sole proprietorship form of business as this type of business
requires low startup cost and the business does not require any additional investment from any
partner or other shareholders in a limited company and also in order to avoid double taxation.

INITIAL INVESTMENT

The initial capital to start up the project is depicted in Table 1. The project is not capital
intensive, it only demands the purchase of Furniture’s and Equipments required for the project
and some working capital to start up the project. To start with the project the Investors are
expected to outflow an initial investment cost of 1,200,000.00 as indicated in table 1
Furniture and Equipments Table : 1
No. Description Quantity unit price Total price
1 Nap Time Bedding including matres 100 5,000.00 500,000.00
2 Meal Chair 100 500.00 50,000.00
3 Meal Table 50 1,000.00 50,000.00
4 TV 4 35,000.00 140,000.00
5 Carpet 20 2,000.00 40,000.00
6 First Aid supplies 2 5,000.00 10,000.00
7 Kids poster and stickers with 1 15,000.00 15,000.00
different sizes

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 8 Entertaining toys 1 20,000.00 20,000.00
Total Investment 825,000.00

Working capital Table: 2

Amount
No Description Required

1 One year rent expense 360,000.00

2 License and registration 10,000.00

3 Brochures 5,000.00

Total 375,000.00

Total Investment Cost 1,200,000.00

The project planned to raise the full amount of required capital birr 1,200,000.00 from potential
investors personal savings. At the beginning, no external financing is required to start the
business, but in the future the project may have an expansion plan and in order to do so,
external financing from banks or micro finances will be approached.

ORGANIZATION AND STAFFING

With regard to organization and staffing, the Lovely project will create job opportunity for 16
employees and the required qualification and experience will be as indicated in Table 3.
However, the main challenges in recruiting employees for the day care center are getting trained
people and getting employee who have a sense of family. In addition the monthly and annual
salary and administrative expenses are indicated in Table 4 and Table 5 respectively.

Table: 3
No. Position Number of staffs Task and Qualification
required responsibilities
1 General 1 Supervise over all At least diploma
4
 manager activities of the day
care
2 Nannies 10 Taking care of At least 10th graduate
children’s and experience of two
years
3 Cleaner 2 Cleaning
4 Guard 1 At least 4th grade
5 Nurse 2 Diploma in nursing
and two years
experience

Staff cost Table: 4

Position No Salary Total Total annual
Monthly staff cost
General 1 10,000.0 10,000.0 120,000.0
manager 0 0 0
Nurse 2 8,000.0 16,000.0 192,000.0
0 0 0
Nanies 10 7,000.0 70,000.0 840,000.0
0 0 0
Cleaners 2 2,000.0 4,000.0 48,000.0
0 0 0
Guard 1 2,000.0 2,000.0 24,000.0
0 0 0
Total 1,224,000.0
102,000.00 0
Benefit 8% 146,880.0
pension and 0
4% benefit 12,240.00
Total
114,240.00 1,370,880.00

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Monthly and annual administrative expense Table: 5
Monthly Annual
No Description Expense Expense

1 Wage and salary 114,240.00 1,370,880.00

2 Rent Expense 30,000.00 360,000.00

3 Telephone Expense 1,000.00 12,000.00

4 Electricity 500.00 6,000.00

5 Water 150.00 1,800.00

6 Cleaning Material 1,500.00 18,000.00

6 other miscellaneous 500.00 6,000.00

Total
Expense 147,890.00 1,774,680.00

BENEFITS OF THE PROJECT

The project will give parents relief with regard to their children and they can work their job
peacefully. On the other hand the project will benefit the potential investors in creating profit
and wealth. The materials required to treat the babies differ depending on their age group. The
project assumed that the number of babies enrolled and the fees charged will vary depending on
the baby’s age group. The proportion of babies to be enrolled in the project from 4 to 6 month ,
From 6 month to 1 year, From 1 year to 2 years and from 2 year to three years are 10%, 20%,
30% and 40% respectively.
The main purpose of most projects is to maximize the investor’s wealth, to pay relevant
government taxes and to benefit the society as a whole. This Lovely day care project will benefit

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the residents around Hayahulet and Megenagna area and also the potential Investors will
maximize their wealth. Table 6 below shows the sales forecast of the project.

Monthly and annual revenue plan Table: 6

Numbe Annual
No Description r Monthly fee Monthly income Income

1 Babies From 4 to 6 month 10 2,500.00 25,000.00 300,000.00

Babies From 6 month to 1
2 year 20 2,000.00 40,000.00 480,000.00

3 Babies From 1 year to 2 years 30 1,700.00 51,000.00 612,000.00

babies from 2 year to three
4 years 40 1,500.00 60,000.00 720,000.00
Total
Income 176,000.00 2,112,000.00

Monthly and annual profit schedule Table: 7

Description Amount

Monthly Income 176,000.00

Monthly Expenense 147,890.00

Monthly Profit 28,110.00

Annual Profit 337,320.00

Profit Tax 35% 110,112.00

Net Profit After Tax 227,208.00

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SUPPLY AND DEMAND ANALYSIS

As mentioned earlier, the location of the business will be around Megenagna, targeting
customers from Megenagna up to Hayahulet. The area is selected after assessing that there are
so many residents especially in condominium buildings and workers, employed in different
government and non government organization. During our assessment we found that there are
only few individuals or companies is engaged in giving a day care service in this area and it is also
understood that most parents are in desperate need of a day care service.
In addition the number of population in Addis Ababa and especially around the project area is
steadily increasing. Hence in the future there may additional demand for a Day care center in the
future.

Children’s from three month up to three years of age will be accepted and will be kept in
different rooms based on their age. The Services will be safe and secure, providing the parents
with an excellent place where their children can be taken care of. Hours of operation are from
1.30 A.M. to 12.30 P.M local time, Monday through Friday.

SUPPLY

As indicated above in Hayahulet and Meganagna area, and as per our mini survey, there are only
fewe Day care centers currently operating around the area. In the surrounding Gerji area there
are a lot of day care centers operating, however, it is very congested and far to take the babies
from hayahulet and Megenagna area to that place. And hence opening a Day care center in
hayahulet and Megenagna is a viable business to potential investors. In addition those day care
centers operating in the area focused on the low income household groups.

DEMAND

Based on the survey we made the demand for a child care center around the captioned area is
8
significant. The demand for the child care center ranges from four months to three years. As the
project has a limitation of initial investment capital and area, it can only accommodate 100
babies with different age group. The area is the mostly populated area with offices, businesses
and residents; therefore, the project may not have any market problem. Population growth in
Hayahulet and Meagenagna areas also steadily increasing in a similar way as to other areas in
Addis Ababa.

FINANCIAL ANALYSIS AND PROJECTION

Financial analysis and projection used to evaluate the viability of a certain project and to decide
whether to accept or reject the project. In order to evaluate the future cash flows of the Lovely
Day care center, we use discounted cash flows to do financial analysis on discounted payback
period, net present value and internal rate of return. While BCR (benefit cost ratio) is calculated
using the undiscounted cash flows.

PROJECT APPRAISAL CRITERIA

The following project appraisal criteria’s are calculated and the appropriate recommendations
are given based on the results found.
Discounted Pay-Back period
Discounted payback period used to calculate the time required to reimburse the investment
made on a certain project. In this Day care project the discounted payback period is calculated
using the discounted cash flows of the project. Discounted payback period is calculated by
summing up the cash inflows of the project until it reached the initial investment cost and in this
case the time required is the main focus.

Therefore, according to the calculation of the discounted payback period of the Lovely day care
center, the result will show to recover the initial investment cost of 1,200,000.00, it will require
four years and three months. Which means the investors could recover their initial cost seven
months ahead of the project life.

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NPV (Net Present Value)

Net present value compares the discounted future cash flows of a certain project against the
investment cost. As calculated in the excel sheet attached, The discounted cash flows of the
Lovely day care center is Birr 1,278,708.19 and the initial investment cost is 1,200,000.00 and
hence the day care center project is viable as it has a positive NPV value of 78,708.19. The cost
of capital used to discount the future cash flows is 10% and it is an assumption.

IRR (Internal rate of return)

Internal rate of return shows the opportunity cost of the projects or it compares the return
found in the project against the returns found if the money is kept in saving or other
investments. As calculated in the attached excel sheet the IRR of the Lovely Day care center is
2%, which is much lower than the required rate of return of 10%. Therefore, according to the IRR
evaluation the Day care center is not a viable project.

BCR (Benefit Cost Ratio)

The cost benefit ratio of projects measures the total benefits divided by the initial investment
cost. And a result of one and above shows the project is viable. As per the calculation found the
Lovely Day care center has a BCR value of 1.41 and it shows the day care project is viable if
implemented.

POSIBLE RISKS OF THE PROJECT

Babies are not strong enough to cop up situations and hence strong follow up and care should
be taken. Children also easily attacked by diseases. Therefore, the Lovely day care project has
the following challenges:
1. The babies may be easily exposed to contagious diseases
2. The day care center may face stiff competition in the future
3. There may be a possible risk of staff turnover in the future
4. The day care may have a challenge of getting the parents trust
5. The Price set by the day care center may not be affordable by the parents

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 6. Sanitation is the main and the challenging task of the day care center as they manage
babies.
7. Food contamination and other contaminations may be a challenge to the day care center
8. Fulfilling the environmental criteria is also one of the challenges

COMPONENTS OF THE PROJECT PLAN

As long as the potential investor has adequate capital and commitment to full fill the legal
formalities, this day care project does not need any project plan. All activities can be done at the
same time and immediately.

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 Annex: Financial Analysis:

Cash Inflow:
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Unit Income
Babies From 4 to 6 month 10 10 10 10 10
Babies From 6 month to 1 year 20 20 20 20 20
Babies From 1 year to 2 years 30 30 30 30 30
babies from 2 year to three years 40 40 40 40 40

Unit Prices Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Babies From 4 to 6 month 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00
Babies From 6 month to 1 year 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00
Babies From 1 year to 2 years 1,700.00 1,700.00 1,700.00 1,700.00 1,700.00
babies from 2 year to three years 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00

Sales Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Babies From 4 to 6 month 300,000.00 300,000.00 300,000.00 300,000.00 300,000.00

Babies From 6 month to 1 year 480,000.00 480,000.00 480,000.00 480,000.00 480,000.00
Babies From 1 year to 2 years 612,000.00 612,000.00 612,000.00 612,000.00 612,000.00
babies from 2 year to three years 720,000.00 720,000.00 720,000.00 720,000.00 720,000.00
Total Sales 2,112,000.00 2,112,000.00 2,112,000.00 2,112,000.00 2,112,000.00

Total Cash Inflows: - 2,112,000.00 2,112,000.00 2,112,000.00 2,112,000.00 2,112,000.00

Cash Outflows:
Personnel Plan Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

General manager (1) 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00

Nurse (2) 192,000.00 192,000.00 192,000.00 192,000.00 192,000.00
Nanies (10) 840,000.00 840,000.00 840,000.00 840,000.00 840,000.00
Cleaners (2) 48,000.00 48,000.00 48,000.00 48,000.00 48,000.00
Guard (1) 24,000.00 24,000.00 24,000.00 24,000.00 24,000.00
Total 1,224,000.00 1,224,000.00 1,224,000.00 1,224,000.00 1,224,000.00
Benefit -8% pension and 4% benefit
146,880.00 146,880.00 146,880.00 146,880.00 146,880.00
Total salary and Benefit 1,370,880.00 1,370,880.00 1,370,880.00 1,370,880.00 1,370,880.00

Other General Expenses

Rent Expense 360,000.00 360,000.00 360,000.00 360,000.00 360,000.00
Telephone Expense 12,000.00 12,000.00 12,000.00 12,000.00 12,000.00
Electricity 6,000.00 6,000.00 6,000.00 6,000.00 6,000.00
Water 1,800.00 1,800.00 1,800.00 1,800.00 1,800.00
Cleaning Material 18,000.00 18,000.00 18,000.00 18,000.00 18,000.00
other miselaneous 6,000.00 6,000.00 6,000.00 6,000.00 6,000.00
Total general expense 403,800.00 403,800.00 403,800.00 403,800.00 403,800.00

Initial Investment 1,200,000.00 0 0 0 0 0

Total Cash Out flows 1,200,000.00 1,774,680.00 1,774,680.00 1,774,680.00 1,774,680.00 1,774,680.00

Net cash flow (1,200,000.00) 337,320.00 337,320.00 337,320.00 337,320.00 337,320.00

General Assumptions:

Current Interest Rate(Discounting

Factor) 10.00% 10.00% 10.00% 10.00% 10.00%

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