Project Management and Planning: Establishment of Chicken Layers Project - ACADEMIA

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    Saturday, 16 September 2017

    Home Chicken Layers Project Project Management and Planning: Establishment of Chicken Layers Project

    Project Management and Planning: Establishment of Chicken Layers Project

    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.

    Our 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;

     Read More: Project Planning and Management (A Case of Kwimba District)

    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;
     FV = PV (1+i)t

    Where,            
    FV = Future Value
                PV = Present Value
                 i = interest rate
                t = time
    Given;
    PV= 15,000,000
    I =10%
    t = 5 years
    FV = 15,000,000(1+0.1)5 
    FV = 15,000,000(1.1 )t
    FV = 15,000,000(1.6105)
    FV = 24,157,650

    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/= Tshs 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).

     Read More: Project Planning and Management (A Case of Kwimba District)


    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) =














    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

    NPVt + PV1 + PV2 + PV3… + PVt - Io
    Before we calculate the NPV we have to calculate the discounted cash flow at the rate of 10%.
    This is given by the formula, 






















    This has summarized in the table below

    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

    From,
                Therefore to calculate the NPVt at the interest rate of 10% is given by:

    NPVt + PV1 + PV2 + PV3… + PVt - Io

    Given,
    Io= 20,000,000
    PV1 = 11,198,721.08
    PV2 = 9,916,800
    PV3 = 11,208,246.51
    PV4 = 7,600,745
    PV5 = 5,539,402.09
    NPVt=11,198,721.08+9,916,800+11,208,246.51+7,600,745+-5,539            ,402.09-20,000,000
    NPVt = 33,845,707.79-20,000,000
    NPVt = 13,845,707.79

    Therefore, the net present Value (NPV) is equal to 13,845,707.79


    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/=
     Df = 1/(1+i)t

    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 NPVt at the interest rate of 50% is given by:
    NPVt + PV1 + PV2 + PV3… + PVt - Io
    Given,
    Io= 20,000,000
    PV1 = 8,212,723.95
    PV2 = 5,332,800.00
    PV3 = 4,420,342.66
    PV4 = 2,197,872.86

    PV5 = -1,174,970.77

     NPVt=8,212,723.95+5,332,800+4,420,342.66+2,174,970.77+-1,17             4,970.77-20,000,000

     NPVt=18,988,768.7-20,000,000
    NPVt=-1,174,970.77
    Therefore, the net present Value (NPV) is equal to -1,174,970.77 which will be used as  NPV2
    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.

    Read More: Project Planning and Management (A Case of Kwimba District)





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