A PROJECT PROPOSAL ON A BROILER POULTRY PROJECT IN AT PLOT 18

KUDYARAWADZA COMMUNAL LANDS SEKE

A PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE

POST GRADUATE DIPLOMA IN PROJECT PLANNING AND MANAGEMENT

ADMORE CHAKADENGA

R979351A

DEPARTMENT OF RURAL AND URBAN PLANNING

FACULTY OF SOCIAL; STUDIES

UNIVERSITY OF ZIMBABWE

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ContentsChapter 1.....................................................................................................................................................6

INTRODUCTION.......................................................................................................................................6

1.1 BACKGROUND................................................................................................................................6

1.2 JUSTIFICATION OF THE PROJECT....................................................................................................6

1.3 GOAL OF THE PROJECT..................................................................................................................7

1.4 PURPOSE/OBJECTIVES...................................................................................................................7

Chapter 2.....................................................................................................................................................8

Project description..................................................................................................................................8

2.1 Overview of the project.................................................................................................................8

2.2 PROJECT LOCATION.......................................................................................................................8

2.3 INSTITUTIONAL AND ENVIRONMENTAL SETTING..........................................................................8

Chapter 3...................................................................................................................................................11

PROJECT DESIGN....................................................................................................................................11

3.1 Project planning...........................................................................................................................11

3.2 The project life.............................................................................................................................13

3.3 Type of feeding............................................................................................................................13

3.4 Fowl runs.....................................................................................................................................14

3.5 Brooder........................................................................................................................................15

3.6 Watering and Feeding..................................................................................................................15

3.7 Vaccination..................................................................................................................................15

3.8 Insect and pest control................................................................................................................15

3.9 Lighting........................................................................................................................................16

3.10 Preventing diseases...................................................................................................................16

3.12 Organizational design................................................................................................................16

3.12.1Procurement unit....................................................................................................................16

3.12.2 Production Unit:.....................................................................................................................16

3.12.3 Marketing Unit........................................................................................................................17

CHAPTER 4.................................................................................................................................................21

PROJECT APPRAISAL..............................................................................................................................21

4.1Capital expenditure......................................................................................................................21

4.2 A T35 truck.......................................................................................................................................21

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4.3 DEPRECIATION.................................................................................................................................21

4.4 Operating Expenses per batch (capitalized).....................................................................................22

4.5 Revenues.........................................................................................................................................23

4.6 Depreciation....................................................................................................................................24

4.7 Project financing..............................................................................................................................24

4.8. MEASURES OF PROJECT WORTH....................................................................................................24

4.8.1 Profit and loss statements........................................................................................................24

Chapter 5...................................................................................................................................................29

CONCLUSION.........................................................................................................................................29

RECOMMENDATIONS............................................................................................................................29

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Dedication

I dedicate this project paper to my daughter Tafadzwa and my son Tapiwa. Children when you

grow up I know you will be able to produce better work

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Acknowledgements

I would like to thank all the people who supported and provided me with all the information

necessary for the completion of this proposal. Special thanks go to the production unit manager

at Crest breeders for providing important technical information that was used to make this

document a possibility. Grace a fellow student who was formerly employed at crest breeders

also helped me very much with the technical detail pertaining to poultry rearing.

Marketing officers at National foods and sales staff at Hubbard were very generous by proving

information on the ordering requirements and the lead time required.

I thank my lecture Mr Muromo for his supervision which made this proposal a possibility

Chapter 1

INTRODUCTIONThis chapter provides background information to setting up a broiler project. It focuses on

project justification, goal and objectives. Broiler project generally are considered to be low

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capital, fast turnover enterprises. Poultry production in Zimbabwe plays a pivotal role in food

security, income generation, export earnings, employment creation and generally in economic

development.

1.1 BACKGROUND In Seke communal lands , farmers concentrate in maize and vegetable production, however

they are not able to get sustainable returns as they have sandy soils which do not result in

maximum output production. Backyard poultry are an important source of income for many rural

households in Africa. Poultry production in most developing countries is based mainly on open

scavenging systems. These scavenging systems have low inputs and result in low output which

is mainly attributed to high mortality of chickens resulting mostly from malnutrition of the

chickens, predation, accidents and proximity to diseases.

Approximately 20% of the protein consumed in developing countries originates from poultry.

However poultry production in Zimbabwe has declined drastically as the land as most whites

who were in poultry production have left the country. This has resulted in households finding it

cheaper to import GMO chicken from as far as South Africa a situation that is not sustainable

given the scarcity of foreign currency.

1.2 JUSTIFICATION OF THE PROJECTThe plan is to run an intensive poultry project which will not only benefit the promoters

financially but also will have a great developmental effect in that other plot holders surrounding

will also be encouraged to replicate the concept thereby broaden their income sources. In most

rural households poultry is ranked amongst the primary income earners though rural farmers

have not been able to tap into this lucrative livelihood.

This project is socially desirable in that it will create employment for at least 5 people. The

surrounding communities will also benefit from skills transfer and they might also replicate the

concept a scenario which will result in improved household livelihood security. The use of

poultry manure will also result in increased crop production. Above all it will help provide the

Zimbabwean population with protein which is an important dietary requirement. The project will

help preserve the much needed foreign currency in that it will contribute towards reducing

importation of chicken mainly from South Africa.

The economic meltdown has seen production of chickens by major producers like crest

breeders, Sun crest chickens and Charles Stuart falling significantly. Individual producers are

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also failing to cope with the demand a scenario which have driven the prices to as high as $4

per KG. Zimbabwe has been a major supplier of meat to countries in the region and beyond.

Compared to cattle and pigs, chickens have a shorter production cycle making it a fast and

convenient method for income generation.

1.3 GOAL OF THE PROJECT To provide the Chitungwiza and Harare a reliable source chicken meat

1.4 PURPOSE/OBJECTIVES To generate income for the Chakadenga household.

keep at least 6 batches of 10 000 chicken per annum averaging 1.5 Kg

To provide employment to the unemployed youth within the locality

To encourage other farmers in the area to replicate the idea and generate more income

on their plots.

Chapter 2

Project description

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2.1 Overview of the project

The project is based on the rearing of broilers on a continuous basis with a flock size of 10 000

per batch to be marketed through own transport two shops to be established in Chitungwiza and

Harare city center. The project will run for 10 years after which expansion into layers production

will be considered. The project will have two fowl runs and a single brooder fitted with electricity

for lighting and heating. Chicks will be obtained from Hubbard breeders. An annual output of 60

000 broilers is expected to be marketed. The farmer will embark on the project with the aid of a

loan to be sourced from sourced from the Small Enterprises development corporation 0f USD

150 000.

2.2 PROJECT LOCATION Adline Poultry Project is a venture that planned to be implemented on plot number 45 which

owned by Admore Chakadenga in Seke District near Dema growth point. The plot is electrified a

development which makes make it suitable for poultry in that chickens can feed day and night.

There is also a good gravel road which links the project site to the Dema Harare Highway.

Adjacent to the plot there is a borehole which can be used as reliable water all year round.

Construction of fowl runs can be done at reasonable as most materials can be sourced locally.

The farmer has secured a 99 year lease from the government which can be used as collateral

security for any finances which might be required for the project. The farm is an isolated area

and there is no other poultry facility nearby that may contaminate the project which makes it

easier for dieses control.

2.3 INSTITUTIONAL AND ENVIRONMENTAL SETTINGThe project relies on its environment for raw materials, resources and support (inputs) and the

market for disposal of produced output. The poultry project will therefore be dependent on other

institutions for the successful implementation, which is for professional advice, training,

marketing and inputs. The project is located closer to Harare which minimizes transport costs of

both chicken feed and broilers to the market.

Politicians and community leadersFor the project to be a success there is need for a buy in from politicians and community leaders

especially in Zimbabwe where the laws of investment are not upheld and the government is

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unpredictable mostly on land ownership. Political influences in this project will militate against

risks and uncertainty. Political influence may also help in securing the initial loan which is key to

getting this project started.

Veterinary officers and ARE officers will be very useful in vaccination programs and

provide technical advice as and when required. They are government employees who provide

technical advice for no additional fee. Success of poultry farming depends on proper

management, housing and health so that losses are kept to the minimum.

Community health workers will be use useful when it comes to sighting the fowl runs

and advising on the best ways for solid and liquid waste disposal.

Donors and Financial institutions Small Enterprises Development

Corporation (SEDCO) – a financial institution where the project proposal will initially be

submitted for funding This institution has favorable interest rates compared to banks. The

proposal will however be presented to all other financial institutions and donors for financial

support should SEDCO not finance.

Other farmers- will benefit from skills transfer and may also replicate the idea. Mr.

Chakadenga will act as a led farmer so other farmers can replicate the idea and earn more

Agrifoods / national foods– will be important for the supply of poultry feed in form of

starter mash, grower mash and finisher as a there phase feeding program is planned for the

project

Fig 1 PARTICIPANT ANALYSIS

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Local Authority

Veterinary Officers

Architects/builders

Agrifoods/ National Foods

Suppliers of feed

Chapter 3

PROJECT DESIGNThis chapter will focus on project design one of the most important components of project

planning. It helps establish programs to be undertaken in the project, gives detail of activities

and also the allocation of responsibilities. It also gives detail of personnel provides information

on personnel and technical inputs.

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Adline poultry project

Project Directors/ Promoters

Village Development Committee

AREX /Officers

Community Health workers

SEDCOPoliticians

Hubbard group suppliers of

chicks

3.1 Project planning The logical framework approach will be used for planning the poultry project. It was seen

necessary to adopt this approach for it provides a clear statement of why a project is

undertaken, also clearly outlines the social, economic and physical environment. It also shows

are project goal, objectives outputs and impacts are logically related. Fig xx shows the logical

framework

Project summary Objectively

verifiable

indicators

Means of

verification

External factors

assumption

Goal

To provide the

Zimbabwean nation with a

sustainable cheap source

chicken meat

More people have

regular access to

chicken meat

Sales reports

Arex reports

The current stable

economic

environment will be

experienced though

out the project life

Objectives

To generate income for

the Chakadenga

households

To market at least 60 000

chicken weighing an

average of 1.5 kg live

weight per annum

To provide employment

To encourage other

farmers in the area to

Amount of profit

generated

Number of

households

reporting access

chicken meat

Number of people

reporting the

poultry project

changed their life

Number of people

employed

Number of farmers

who replicate the

Profit and loss

statements

Sales and

distribution

reports

Weighing

schedules

and reports

Staffing levels

reports

Arex reports

All chickens put on the market are bought

Other farmers in the area will replicate the idea

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replicate the idea and

generate more income on

their plots

same idea

Outputs

Fowl runs constructed

10 000 broilers released

on the per cycles

Manure

Two fowl runs and

a brooder

Number of birds

released

Site planSales reports

Mortality will be 1%

Activities

Construction of fowl runs

Recruitment of workers

Vaccination of chicks

Brooding

Marketing and distribution

Procurement of stock feed

and chicks

Number of fowl

runs constructed

Number of

employees hired

Quantity of feed

acquired

Number of chicks

acquired per week

Number of

vaccination

programmes

administered

Vaccination

Incidences and nature disease

Number of chicks vaccinated

Suppliers of stock do not have times when they can’t supply

3.2 The project life The project is expected to last for 10 years in line with the life of the fowl runs after which major

repair work and replacement of feeding plus dinking troughs is expected to be carried out. At the

end of year ten it is assumed that all assets will be scraped at zero residual value. Over a period

of 10 years (6 batches of 10 000 chickens) 60 000 chickens will be kept per annum. Over the

project life a minimum of 600 000 broilers are going to be raised and sold at a minimum weight

of 1.5kg each. The project has the potential to accommodate more than six batches per annum

but for evaluation purposes 6 batches of 10 000 chickens per annum was selected.

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3.3 Type of feedingFour phase feeding will be applied to ensure maximum output. Feeding with chicken feed

purchased from National Foods or Agri Foods is thought to be a cheaper option for commercial

purposes compared to feeding with concentrates which might result maturity periods of more

than six months.

Table 1 Estimated average growth rate and feed consumption rates per broiler

Week Age Average weight

Weekly feed

Cumulative Consumption

Feed

1 1-7 days 0.1 0.1 0.12

Pre-starter

2 8-14 days 0.3 0.3 0.37 starter

3 15-21 days 0.6 0.4 0.78 Grower

4 22-28 days 0.9 0.6 1.33 Grower

5 29-35 days 1.1 0.7 2.01 Finisher

6 36-42 days 1.5 0.8 2.82 Finisher

Source Arbor acres broiler Feeding and Management manual

To maturity each broiler is expected to weigh on average 1.5 kg and will consume 2.82kgs of

feed.

The prices of this feed was been observed to be the same for the different types of feed from

National foods

Weeks 1 and 2 will be the brooding phase; during this time chickens will be kept in a brooder

where temperatures are regulated

Fig 2 summarizes the feeding cycle for a single batch of broilers which are expected to put on

the market in six weeks

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Souce: Khula Sizwe website

3.4 Fowl runsTwo fowl runs will be constructed. Each fowl run will accommodate will have the capacity to

accommodate 5000 chickens. On average 10 chickens will be accommodated per m2. In these

fowl runs an average temperature 18 degrees Celsius will be maintained to ensure maximum

results. For good aeration and ventilation the fowl runs will have two a small brick wall 30cm

high and the rest will be mesh wire. The barns will elongate in an east west direction in order to

avoid the direct hot sun. The deep litter system will be used in the housing system. Asbestos

will be used for roofing.

3.5 BrooderOne brooder with a central heating system will be constructed.

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3.6 Watering and FeedingIn the first two weeks it will be ensured that at least 4 liters of water will be provided for 100

chicks. After two weeks water will be changed from jugs to automatic waters ensuring that all

birds have access to adequate clean water. 50 chicken per drinker, 70 chicken per feeding

tough will be maintained on average. 2-2.5 cm space per bird

A least 2cm feeder space will be allowed per bird. The feeding and drinking toughs will be

properly adjusted on litter chickens grow.

In total 200 feeders and 200 drinkers will be required so that an average of 50 chickens per

drinker and per feeder is maintained. The drinkers and feeders will be circular with a

circumference of at least 135cm.

3.7 Vaccination Water vaccines will be used in the project. Vaccination programmes will be administered in

collaboration veterinary officers in the area as follows; castle

1 day old chicks – vaccinated against new

3 days vaccinated against infectious diseases using IDH 120 vaccine 1000 d0ses per thousand

birds.

5 days olds vaccinated against coccidiosis paracox vaccine is administered

Thereafter disease outbreaks will be controlled as there are indicators of dieses outbreaks

3.8 Insect and pest control1.9x2.5 cm mesh wire will be used on poultry houses to keep out wild birds and predatory

animals. Once there is evidence of rats and mice bait stations will be set at the back fowl runs to

minimize lose due to these rodents. Each chicken house after the six weeks period will be

allowed three weeks down time during which fumigation will and thorough cleaning will be done.

During the down time the rearing sheds and brooder will be disinfected with hypo chloride and

pesticides.

3.9 LightingTo ensure that the chicken mature at six weeks and are ready for the market, 24 hour feeding

will be necessary therefore fowl runs will be fitted with florescent lights using the principle of 2.7

warts per square meters.

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3.10 Preventing diseasesWhen entering or leaving the each poultry house. The will be a pool of hypo chloride that visitors

sanities their feet and vehicles when entering or leaving the project. The project will be fenced

using barbed wire to prevent unwanted visitors who may act as agencies for dieses.

Litter will be turned on a daily basis to prevent it from getting caked which result in excessive

moisture a scenario which might result in acute respiratory diseases.

3.12 Organizational design The project organizational will be as follows.

Project promoters are the Chakadenga family who conceived the project idea. The promoters

will be responsible for ensuring that the requisite financial resources required for the project are

mobilized

To promote efficiency and effectiveness the project is three main functions;

3.12.1Procurement unitThis unit will be responsible for ensuring that chicken feed, vaccines, the chicks and all

consumables required for the day to day implementation of the project are procured timely of

the smooth running of the project

3.12.2 Production Unit: headed by the production supervisor. This unit will ensure that the

chickens are maintained and well fed. The production manager will also liaise with the local

veterinary officers to ensure that vaccination programs are administered timely to minimize loss

due to mortality.

3.12.3 Marketing Unit – this will be a ne man unit manned by a qualified marketing officer and

experienced officer to ensure that all output is sold at competitive price

The will project have the following organizational chart

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Work break down structureActivity Code Preceeding

ActivitySucceeding Activity Duration

Clearing A _ BC 1 WeekFencing B A D 1 Week

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Promoters

Project manager

Procurement

Unit 1 person

Production

Unit

Marketing and sales 1 person

General hands

4 people

Obtaining a site plan

CA D 1 Week

Construction of fowl runs

DC DFGH 8 Weeks

Construction of brooder

EC I 7 Weeks

Recruitment F C I 2 WeeksOrdering of feed G C IK 1 WeekOrdering of chicks

HDFGH J 1 Week

Brooding (Pre starter mash)

II L 1 Week

Brooding (Starter mash)

JDFGH J 1 Week

Vaccination K J M 1 WeekGrowers L N N 2 WeeksFinishing M J M 2 WeeksMarketing N M _ 2 weeks  

From critical path analysis the critical path of the pre implementation and implementation of the

first phase was found to be 26 weeks long.

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Gant Chart For The Poultry Project Up To First Year Of Production P

R O J E C T L o u n c h

1 2 3 4 5 6 7 8 Clearing Fencing Obtaining a site plan Construction of fowl runs Construction of brooder Recruitment Ordering of feed Ordering of chicks Brooding (Pre starter mash) Brooding (Starter mash) Vaccination Growers Finishing Catching Slaughtering Marketing

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Pre launch phase 17 weeks

8 weeks cycle for 10 000 chickens

The 8 weeks cycles will be repeated at least 6 times per annum. Though out the project life

there will be at least 60 cycles of 10000 chickens per batch.

National foods have indicated they require an order to be made 6 weeks before delivery of

feed. They indicated that cash should be paid on delivery.

Hubbard group suppliers of chicks have also indicated that they will need an order to be made

5 weeks before delivery. So an order will be placed in the fifth week before commencement of

the 8 weeks cycle

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CHAPTER 4

PROJECT APPRAISALThis chapter analyses the poultry project to establish project viability. Since the project will be

financed largely by a loan from SEDCO there is need to ensure that the project is viable and will

be able pay back the loan. Project appraisal is crucial so that resources are allocated to a

project that will yield a profit Profitability of a business is established by comparing revenues to

costs. Discounted techniques such as the NPV, IRR, and BCR will be used to assess the

project worth. The income statement will also be used to measure the profitability of the project.

4.1Capital expenditureConstruction of two by 500m2 rearing sheds and a brooder $5000

Fencing- around the stand to ensure isolation Barbed wire, poles and installation this

will be contracted to Selwire PVT Limited

$600

Cost of equipment for 10.000 birds including automatic watering system. $4000

T35 truck (includes import duty ) from Mazda South Africa 20,000

4.2 A T35 truck A T35 truck will be used for transportation of chicken to the abattoir and to the market. It will

also be used for the transportation of feed from national foods to the plot in instances where

less than 18 tones are purchased. At the end of year 10 the truck will also need replacement.

South Africa was chosen for the truck to minimize the lead time.

4.3 DEPRECIATIONDepreciation is the reduction in the value of an asset due to usage, passage of time, wear and

tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust, decay or other

such factors. There are various methods that are used for depreciating assets which include the

straight-line method, sum of digits, reducing balance method and machine hour method. For the

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purposes of this project depreciation shall be charged using the straight line method over 10

years and no scrap value shall be salvaged at the end of the project.

Therefore depreciation shall be charged at 10% per annum with a zero scrap value at the end of

the project as follows

Table 2 Annual depreciation charge schedule

ASSET COST ANNUAL DEPRECIATION 10%

T35 truck 20 000 2000

Feeders, Drinkers 4000 400

Shed & Brooder 10 000 1000

Fencing 1000 100

Total Depreciation 3500 per annum

4.4 Operating Expenses per batch (capitalized)Cost of feed per batch $15542

Initial Cost of chickens capitalized (50 dollars per 100) for 10 000 $5000

Cost of electricity and overheads per bird $0.05 per bird $500

Cost of water vaccines per batch $500

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Table 3 calculation of total cost of feed cost per batch of 10 000 chicken

Week Age

Feed Required per Bird kg

Type of feed

Total feed required per batch kgs

Total cost of feed per batch US $

1 1-7 days 0.122469Pre-starter 1225 673.58115

2 8-14 days 0.25401 starter 2540 1397.0572

3 15-21 days 0.403695 Grower 4037 2220.323054 22-28 days 0.557916 Grower 5579 3068.53635

0.961611 9616 5288.8594 0

5 29-35 days 0.671313 Finisher 6713 3692.22266 36-42 days 0.816462 Finisher 8165 4490.541

1.487775 14,878 8182.7636Total for 10,000 chickens 2.825866 28,259

15,542

Each bird requires a total of 2.825 kg of feed to grow to maturity. The price of all the four types

of feed require was found to be US$0.55 per kg

4.5 Revenues Revenue will be realized from sales, the price of chicken on the market is USD$3.5 per kg. On

average the birds will weigh 1.5 kg at maturity though there are chances that some might even

weight kg. To be prudent the average will be used in the calculation of revenue

1.5 kg x $3.5 x 10000= 52 500 per batch is expected to be realized

Offal Gizzards and livers- 20 birds produce a kg 10 000/20 x $1.50 per kg= $750

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4.6 DepreciationWear and tear of the brooder and the shade shall be provided at a rate of 10% per annum on a

straight line basis. At the end of year 10 it is anticipated that major repair work will need to be

done on the rearing shed and the brooders.

It is also anticipated that the feeders, drinkers and automatic watering system will need

replacement.

4.7 Project financingThe current rate for long term loans is 24% per annum. The promoters also have disposed a

house which have raised US$115 000. The promoters will seek a loan of 50 000 USD from the

infrastructure development bank.

4.8. MEASURES OF PROJECT WORTH Discounted and undiscounted measures of project worth will be used to evaluate the project

4.8.1 Profit and loss statementsA project is desirable if it is able to generate a profit from operation.

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Projected income statements for the project for the project Years 1 2 3 4 5 6 7 8 9 10 Chicken sales 315000 315000 315000 315000 315000 315000 315000 315000 315000 315000Offal sales 4500 4500 4500 4500 4500 4500 4500 4500 4500 4500Total revenue 319500 319500 319500 319500 319500 319500 319500 319500 319500 319500 Operation costsChicken feed 14.878 metric tones per batch 92712 92712 92712 92712 92712 92712 92712 92712 92712 92712Cost of Chicks 30000 30000 30000 30000 30000 30000 30000 30000 30000 30000Electricity 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200Overheads 18888 18888 18888 18888 18888 18888 18888 18888 18888 18888Fuels and oils 3600 3600 3600 3600 3600 3600 3600 3600 3600 3600Interest repayment on loan 27750 9750 0 0 0 0 0 0 0 0Slaughter services 15000 15000 15000 15000 15000 15000 15000 15000 15000 15000Depreciation- See Schedule 3500 3500 3500 3500 3500 3500 3500 3500 3500 3500Total costs 192650 171150 161400 161400 161400 161400 161400 161400 161400 161400 Net profit 126,850.00 148,350.00 158,100.00 158,100.00 158,100.00 158,100.00 158,100.00 158,100.00 158,100.00 158,100.00

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Discount factor

Since the loan that the promoters hope to acquire has an interest rate of 24%, this shall be used

as a discount rate to determine the viability of the project.

Table 4 discounting project costs and benefits at 24% and computation of NPV

Costs BenefitsDiscount factor

24%Discounted

Costs Discounted benefitsPresent

valueYear 0 35000 0 1 35000 0 -35000Year 1 264150 319500 0.8065 213036.975 257676.75 44639.775Year 2 246150 319500 0.6504 160095.96 207802.8 47706.84Year 3 161400 319500 0.5245 84654.3 167577.75 82923.45Year 4 161400 319500 0.423 68272.2 135148.5 66876.3Year 5 161400 319500 0.3411 55053.54 108981.45 53927.91Year 6 161400 319500 0.2751 44401.14 87894.45 43493.31Year 7 161600 319500 0.2218 35842.88 70865.1 35022.22Year 8 161600 319500 0.1789 28910.24 57158.55 28248.31Year 9 161600 319500 0.1443 23318.88 46103.85 22784.97Year 10 161600 319500 0.1164 18810.24 37189.8 18379.56

Total 767,396.36

1,176,399.00

409,002.65

4.8.2 BENEFIT COST RATIO (BCR)

BCR is the ratio of the total present value of benefits during the service life of the project to the

total present value of the costs .A project is accepted for investment if BCR is greater than or

equal to 1 and rejected otherwise

Discounted project benefits: discounted project costs

767,396.36 / 1,176,399.00= 1.53 which means the project is viable since the benefit cost ratio is

greater than 1

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4.8.3 NET PRESENT VALUE (NPV)

The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield.  

Formula:

Where

Ct= cash flows at time t

Co= initial investment

r= discount rate

NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative.

A project is desirable if it has a positive NPV.

From table 4 above the net present value was found to be US$409,002.65 which is positive.

This means that the project is viable.

4.8.4 INTERNAL RATE OF RETURN (IRR)

Internal Rate of Return (IRR) is the discount rate that generates a zero net present value for a series of future cash flows. This essentially means that IRR is the rate of return that makes the sum of present value of future cash flows and the final market value of a project (or an investment) equal its current market value. Internal Rate of Return provides a simple ‘hurdle rate’, whereby any project should be avoided if the cost of capital exceeds this rate.

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Table 5 discounting project cash flows at 250% per annum (yields a negative NPV)

Costs BenefitsDiscount factor

250%Discounted

CostsDiscounted

benefitsPresent

valueYear 0 35000 0 1 35000 0 -35000Year 1 264150 319500 0.28571 75470.2965 91284.345 15814.0485Year 2 246150 319500 0.0816 20085.84 26071.2 5985.36Year 3 161400 319500 0.0233 3760.62 7444.35 3683.73Year 4 161400 319500 0.0067 1081.38 2140.65 1059.27Year 5 161400 319500 0.0019 306.66 607.05 300.39Year 6 161400 319500 0.0005 80.7 159.75 79.05Year 7 161600 319500 0.0002 32.32 63.9 31.58Year 8 161600 319500 0.0000 7.1104 14.058 6.9476Year 9 161600 319500 0.0000 0.17776 0.35145 0.17369Year 10 161600 319500 0.0000 0.01616 0.03195 0.01579Total 135,825.12 127,785.69 (8,039.43)

IRR= a+ {(b-a) x [A / (A-B)]}

a= rate giving a positive NPV= 24%

b= rate giving a negative NPV= 250%

A= Positive NPV=409,002.65

B= Negative NPV= (8,039.43)

Therefore IRR= 24 + {(250-24)x[409,002.65/(409,002.65-(8,039.43))} = 245%

The IRR for the project is 245% which is greater than the current rate of interest obtainable at

SEDCO of 24% per annum. This means that even if a loan from SEDCO cannot be secured

loans from other banks which have interest rates below 245% can be sought and the project will

still be viable. This project will not be viable at rates greater than 245% per annum.

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Chapter 5

CONCLUSION 1 The project has the capacity to accommodate up to 9 batches of 10 000 chicken per annum.

However for budgetary purposes 6 batches of 10 000 chickens be used so that the profitability

of low capacity utilization is seen.

2 Since depreciation is charged on a straight line basis and no residual value is expected to on

at the end of year 10, no cash flows are going to result from disposal of assets at the end of

year 10

3. Discounted measures of project worth

Benefit cost ratio The benefit cost ratio was found to be 1.53 which is greater than unitary; it is

therefore which means that the project is worth undertaking

Internal rate of return The IRR for the project is 245% which is greater than the current rate of

interest obtainable at SEDCO of 24% per annum. This means that even if a loan from SEDCO

cannot be secured loans from other banks which have interest rates below 245% can be sought

and the project will still be viable. This project will not be viable at rates greater than 245%

per annum.

Net present value The net present value for the project at 24 % is positive which means that the project is viable.

RECOMMENDATIONS The discounted measures of project worth show that the project is worth venturing into at a scale of 6 batches of 10 000 chickens

It is therefore recommended that the project be implemented as the measures of project worth indicate that the project is viable. Even if the interest rates are to rise to 240% per annum the project will still yield a pro

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