A Feasibility Study of Establishing a Ready To Drink Calamansi-Cucumber Juice Blend Processing Plant in San Pedro, Laguna

Date

2010

Degree

Bachelor of Science in Agribusiness Management

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Normito R. Zapata Jr.

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Abstract

This study deals with establishing a calamansi-cucumber processing plant in San Pedro, Laguna. This study can help potential investors know the profitability of establishing this kind of business. It can help them decide whether they should venture into this kind of business. It will also guide potential entrepreneur on how to start this business. It will include the marketing, organizational, production, and financial aspect of the business.

The study aims to investigate the investment viability and possibility of establishing a fruit juice processing plant for the investment decision-making of a potential entrepreneur. Specifically it aims to present the manufacturing of calamansi- cucumber juice blend and its planned area of production; to determine the market, production, organizational, and financial viability of operating the business in San Pedro, Laguna; and to recommend specific courses of action based on the findings of the study.

To determine the profitability of the business financial tools like net present value, internal rate of return and payback period were used. Scheduling was also used so that the processing will match the seasonality of the raw materials. The product will be positioned using the health benefits that can be derived from it. The identified target markets are the health-conscious and older generation. It will be distributed in various groceries and supermarkets in San Pedro, Laguna. It can also reach other parts of the country since some of the supermarkets have branches outside San Pedro. The proposed brand name for the product is C-fresh and it will be packed using colored PET bottles. The proposed wholesale price for the product is P16 per bottle. Competitive pricing strategy was used to determine the whole-sale price of the product. The product will be promoted through posters and teasers which will be given to different supermarkets and grocery who will carry the product.

The sole proprietorship form of organization will be used by the business since it will only operate on a small-scale basis and since it will only produce one type of product. This type or business organization is the easiest to establish and does not require much paper work compared to partnership and corporation. There will only be six employees and one part-time accountant in the company. The owner will be the general manager. He will be responsible for all the business decisions in the company. There would also be a technical supervisor, who will supervise the production of the calamansi- cucumber juice blend. He will also assist the manager in the recruitment of laborers. A part-time accountant will be hired to prepare the financial statements of the firm. He will report to the general manager on a weekly basis. He must also make sure that the company is running efficiently and all the debts and taxes are being paid. Four laborers and a driver will also be hired. The laborers will be involved in the production process, they are the ones to sort, wash the fruit and package the final product while the driver will deliver it to the different supermarkets and groceries.

The total initial investment for the proposed project amounts to P 3,643,774.05. 82 percent of which of this amount will be loaned from Luzon Development Bank and the remaining 18 percent will come from the equity of the owner. The loan from Luzon Development Bank is payable for 5 years at 12 percent interest. The firm will have to pay a quarterly amortization of P 150,000 for five years. Income statements as well as cash flow statements were prepared to evaluate the financial viability of the fruit juice processing plant. Financially, the juice processing plant was proved to be feasible. In addition, a sensitivity analysis was conducted to determine the effects of various levels of cash flows on IRR, NPV and payback period.

The result of the sensitivity analysis showed that sales revenue is a crucial factor that may affect the net income of the project. Factors that can cause a decrease in sales revenue includes: consumption and expenditure patterns of households and competition. Other problems that might affect the viability of the investment are the seasonality and availability of raw materials and late payment of customers. Even though raw materials like calamansi is available all year round, its price is very unstable. The price of calamansi can fluctuate up to P 65 kilogram during lean months. These fluctuations can greatly affect the cost of production of the business. There might also be customers that will pay late. They might just keep on extending their credit terms for their benefit. This will decrease the working capital of the firm and increase the level of bad debts which is detrimental to the company.

Since sales is the most crucial factor in this business, the entrepreneur must formulate strategies that can counteract possible causes of low sales like venturing in another market if the people in San Pedro becomes price sensitive. The firm may also give purchase discounts to the groceries and supermarket which frequently buys the product or they may give freebies to catch the consumer’s attention to increase sales. For the seasonality of raw materials the company could diversify into other fruit juice flavors that are in season. This will reduce the cost of production since the raw materials that will be used will be priced low. They could also find a contract grower to minimize the problem of raw material seasonality.

Overall, the project is feasible and worth investing. Its feasibility was proven by the capital budgeting techniques computed such as NPV, IRR, and payback. The proposed business has earned a positive NPV and an IRR which is higher than the required rate of rate. The business will have a value of at least P 4,078,063.20 and an IRR equivalent to 42 percent. The initial investment for the project will also be recovered after three years. The most crucial factor that affects the viability of the business is sales.

Language

English

LC Subject

Fruit drinks, Fruit juices, Business enterprises

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993 2010 M17 A53

Notes

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Document Type

Thesis

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