chapter 4 - fs financial & economic analysis

7/31/2019 Chapter 4 - Fs Financial & Economic Analysis

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FEASIBILITY STUDY RESULTS

4.1 Financial Profitability of Ilang-ilang Fresh Flowers Production

4.1.1 Ilang-ilang Fresh Flowers Production (Farm Level)

Ilang-ilang production entails plantation establishment, care and maintenance of

the trees and harvesting activities.

Given the recommended cultural management practices for ilang-ilangproduction in Carranglan, the labor cost, material input costs and other cost items

were computed.

Ilang-ilang trees start to bear flowers on the 3rd year from year of planting

(Table 4). Production gradually increases until the 8th year. A 15-year yield

projection was made.

A projected income statement was prepared to evaluate the profitability of

ilang-ilang production at the farm level (on a per tree and per hectare basis).

Tables 16 & 17 present the summary of the projection. The details are shown in

Appendix Tables 1 & 2.

Table 16. Financial Analysis per Tree, Ilang-ilang Fresh Flower Production

1 0 90 (90)2 0 39 (39)

3 150 58 92

4 300 76 224

5 500 104 396

6 750 125 625

7 1,050 165 885

8 1,800 241 1,559

9 1,800 247 1,553

10 1,800 241 1,559

11 1,800 247 1,553

12 1,800 241 1,559

13 1,800 247 1,553

14 1,800 241 1,559

15 1,800 247 1,553

YEARGROSS SALES COST OF PRODUCTION NET INCOME

(P) (P) (P)

FINANCIAL AND ECONOMIC ANALYSIS

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On a per tree basis, a farmer will have an annual net income of P1,559 when theilang-ilang tree is on its 8th year onwards.

As can be seen in the above table, ilang-ilang production is very profitable asshown by the annual net income ranging from P18,348 to as high as P311,828.

During the plantation establishment years (Year 1 & 2), a net loss of

approximately P26,000 is incurred on a per hectare basis.

Table17. Financial Analysis per Hectare, Ilang-ilang Fresh Flower Production

1 0 18,079 (18,079)

2 0 7,822 (7,822)3 30,000 11,652 18,348

4 60,000 15,172 44,828

5 100,000 20,892 79,108

6 150,000 25,072 124,928

7 210,000 32,992 177,008

8 360,000 48,172 311,828

9 360,000 49,492 310,508

10 360,000 48,172 311,828

11 360,000 49,372 310,628

12 360,000 48,172 311,828

13 360,000 49,372 310,628

14 360,000 48,172 311,828

15 360,000 49,372 310,628

NET INCOME

(P)YEAR

GROSS SALES COST OF PRODUCTION

(P) (P)

4.1.2 Financial Internal Rate of Return (FIRR) and Net Present Value (NPV)

Discounted measures of project worth, FIRR and NPV were also computed to

determine the profitability of operation within a 15-year period.

A discount factor of 20% (the current commercial borrowing rate) was used in

computing the NPV. The results are shown in Tables 18 & 19.

Both measures show high profits in ilang-ilang production over a 15-yearperiod.

The very large and positive NPV at 20% discount factor means the earning

capacity of the enterprise is way above the commercial rate of borrowing. The

FIRR result of 109% supports this conclusion.


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Table 18. Net Present Value and Financial Internal Rate of Return per Tree, Ilang-ilang Fresh Flower

Production

1 0 90 (90)

2 0 39 (39)

3 150 58 92

4 300 76 224

5 500 104 396

6 750 125 625

7 1,050 165 885

8 1,800 241 1,559

9 1,800 247 1,553

10 1,800 241 1,559

11 1,800 247 1,553

12 1,800 241 1,55913 1,800 247 1,553

14 1,800 241 1,559

15 1,800 247 1,553

= 2,340

= 109%

NET PRESENT VALUE at 20% d.f. (P)

FINANCIAL INTERNAL RATE OF RETURN (FIRR)

YEARCASH CASH NET

INFLOW OUTFLOW CASHFLOW

Table 19. Net Present Value and Financial Internal Rate of Return per Hectare, Ilang-ilang Fresh Flowe

Production

1 0 18,079 (18,079)

2 0 7,822 (7,822)

3 30,000 11,652 18,348

4 60,000 15,172 44,828

5 100,000 20,892 79,108

6 150,000 25,072 124,928

7 210,000 32,992 177,008

8 360,000 48,172 311,828

9 360,000 49,492 310,508

10 360,000 48,172 311,828

11 360,000 49,372 310,628

12 360,000 48,172 311,82813 360,000 49,372 310,628

14 360,000 48,172 311,828

15 360,000 49,372 310,628

= 468,090

= 109%



NET

CASHFLOWYEAR

CASH CASH

INFLOW OUTFLOW


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4.1.3 Sensitivity Analysis

A sensitivity analysis was done to determine the ability of the enterprise to

withstand risks from decreases in the yield and price of output, unforeseenincreases in the cost of production, and a combination of these variables.

On a per tree basis, the results are shown in Tables 20 23.

In Table 20, it can be seen that the proposed project can withstand as much as

80% reduction in yield per tree of ilang-ilang flowers assuming that the cost of

production does not increase.

Table 20. Sensitivity Analysis (% Decrease in Yield), Ilang-ilang Fresh Flower Production Per Tree

1 0 90 (90)

2 0 39 (39)

3 30 58 (28)

4 60 76 (16)

5 100 104 (4)

6 150 125 25

7 210 165 45

8 360 241 119

9 360 247 113

10 360 241 119

11 360 247 11312 360 241 119

13 360 247 113

14 360 241 119

15 360 247 113

= 17

= 22%

SENSITIVITY ANALYSIS

Reduction in yield 80%

Decrease in price of output/unit 0%

Cost overran 0%

NET

CASHFLOWYEAR

CASH CASH

INFLOW OUTFLOW




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The same conclusion is reached if the price per kilogram of fresh flowers isreduced. It can withstand 80% reduction in the price of fresh flowers. This is

shown in Table 21.

Table 21. Sensitivity Analysis (% Decrease inPrice/Kg Yield), Ilang-ilang Fresh Flower Production Per Tree

1 0 90 (90)

2 0 39 (39)

3 30 58 (28)

4 60 76 (16)

5 100 104 (4)

6 150 125 25

7 210 165 45

8 360 241 119

9 360 247 113

10 360 241 119

11 360 247 113

12 360 241 119

13 360 247 113

14 360 241 119

15 360 247 113

= 17

= 22%




Cost overran 0%

NET

CASHFLOWYEAR

CASH CASH

INFLOW OUTFLOW



In Table 22, changes in NPV and FIRR were evaluated assuming cost overrun

(i.e. increase in the cost of production).

Results show that the proposed project on a per tree basis can withstand an

increase in the cost of production (cost overrun) of as high as 370%.

Based on the above changes the proposed project can withstand various

combinations of these above-stated risks.


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Table 22. Sensitivity Analysis (% Cost Overrun), Ilang-ilang Fresh Flower Production Per Tree

1 0 425 (425)

2 0 184 (184)

3 150 274 (124)

4 300 357 (57)

5 500 491 9

6 750 589 161

7 1,050 775 275

8 1,800 1,132 668

9 1,800 1,163 637

10 1,800 1,132 668

11 1,800 1,160 640

12 1,800 1,132 668

13 1,800 1,160 640

14 1,800 1,132 66815 1,800 1,160 640

= 255

= 25%




Cost overran 370%

NET

CASHFLOWYEAR

CASH CASH

INFLOW OUTFLOW



On a per hectare basis, the results of the sensitivity analysis are discussed and

shown in Tables 23 & 24 below.

The ability to withstand decreases in yield is shown in Table 23.

Results show that the proposed project can withstand a decrease of 90% inthe projected yield per hectare. This means that even if the yield is just 10% of the

estimated yield per hectare, assuming that other factors do not change, the FIRR of

fresh flowers production per hectare is still above the borrowing rate of 20%.

The resulting NPV is also positive indicating the same results as that of the

computed FIRR.

In Table 24 changes in NPV and FIRR were evaluated assuming an increase in

cost of production.

Result shows that the proposed project can withstand even if cost of

production increased by 390%.


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Table 23. Sensitivity Analysis (% Decrease in Yield), Ilang-ilang Fresh Flower Production Per Hectare

1 0 18,079 (18,079)

2 0 7,822 (7,822)

3 3,000 8,682 (5,682)

4 6,000 9,232 (3,232)

5 10,000 10,992 (992)

6 15,000 10,222 4,778

7 21,000 12,202 8,798

8 36,000 12,532 23,468

9 36,000 13,852 22,148

10 36,000 12,532 23,468

11 36,000 13,732 22,268

12 36,000 12,532 23,468

13 36,000 13,732 22,268

14 36,000 12,532 23,468

15 36,000 13,732 22,268

= 2,835= 22%



Decrease in price of output 0%

Cost overran 0%

YEARCASH CASH

NET PRESENT VALUE at 20% d.f. (P)FINANCIAL INTERNAL RATE OF RETURN (FIRR)

NET


Table 24. Sensitivity Analysis (% Cost Overrun), Ilang-ilang Fresh Flower Production Per Hectare

1 0 90,396 (90,396)

2 0 39,112 (39,112)

3 30,000 58,262 (28,262)

4 60,000 75,862 (15,862)

5 100,000 104,462 (4,462)

6 150,000 125,362 24,639

7 210,000 164,962 45,039

8 360,000 240,862 119,139

9 360,000 247,462 112,539

10 360,000 240,862 119,139

11 360,000 246,862 113,139

12 360,000 240,862 119,139

13 360,000 246,862 113,139

14 360,000 240,862 119,139

15 360,000 246,862 113,139

= 17,079

= 22%SENSITIVITY ANALYSIS



Cost overran 400%

YEARCASH CASH



NET


4.2 Financial Profitability of Ilang-ilang Essential Oil Production


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The new cooperative member of ALYANSA will directly manage the production and

marketing of essential oil production. The profitability of operation is shown in Table

25.

4.2.1 Net Income

Essential oil production starts on the 3rd year after the ALYANSA membershave established ilang-ilang plantation. This is the year the ilang-ilang trees start to

bear flowers.

Net income from operation gradually increases from the 3rd year onwards.

Table 25. Financial Analysis, Essential Oil Production

1 0 0 0

2 0 0 0

3 291,600 260,587 31,013

4 583,200 322,414 260,786

5 972,000 351,516 620,484

6 1,458,000 487,894 970,106

7 2,041,200 651,548 1,389,652

8 3,499,200 1,060,682 2,438,518

9 3,499,200 1,060,682 2,438,518

10 3,499,200 1,060,682 2,438,518

11 3,499,200 1,060,682 2,438,518

12 3,499,200 1,060,682 2,438,518

13 3,499,200 1,060,682 2,438,518

14 3,499,200 1,060,682 2,438,518

15 3,499,200 1,060,682 2,438,518

NET INCOME

(P) (P) (P)YEAR

GROSS SALES TOTAL EXPENSES

The oil extraction operation is highly dependent on the ability of the members of

produce ilang-ilang fresh flowers which is the basic input of the operation.


Using the current commercial rate of borrowing (20%) as the discount factor,

the net cash flow was discounted to determine the net present value of the

enterprise.


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In addition, FIRR was computed to determine the earning capacity of the saidenterprise. Table 26 shows the FIRR and NPV of essential oil production.

An NPV of approximately P3.419M was computed using 20% discount factor. The FIRR computed is 89%.

Both of the positive NPV and FIRR are higher than the commercial borrowing

rate of 20%. This suggests that essential oil extraction given the technical

assumptions proposed is highly profitable.

Changes in the assumed quantity of essential oil produced, prices of essential

oil and increases in the cost of production have been altered to find out the extent of

flexibility of essential oil production given the above variable factors. Theprofitability of the essential oil production and marketing was tested.

The results are shown in Tables 27 - 29.

It can be seen in Tables 27 & 28 that the proposed essential oil production canwithstand a yield reduction of up to 80% or a 69% reduction in price of output.

It means that even if the price per liter of essential oil is only P2,000, theoperation is still profitable given the 20% borrowing rate. At this rate,


Table 26. Net Present Value and Financial Internal Rate of Return, Essential Oil Production

1 0 0 0

2 0 430,000 (430,000)3

291,600 260,587 31,0134

583,200 322,414 260,7865

972,000 351,516 620,4846

1,458,000 487,894 970,1067

2,041,200 651,548 1,389,6528

3,499,200 1,060,682 2,438,5189

3,499,200 1,060,682 2,438,518

10 3,499,200 1,060,682 2,438,518

11 3,499,200 1,060,682 2,438,518

12 3,499,200 1,060,682 2,438,518

13 3,499,200 1,060,682 2,438,518

14 3,499,200 1,060,682 2,438,518

15 3,499,200 1,060,682 2,438,518=3,418,536

=89%



NET

INFLOW OUTFLOW CASHFLOWYEAR

CASH CASH

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Table 27. Sensitivity Analysis (% Decrease in Yield), Essential Oil Production

1 0 0 0

2 0 430,000 (430,000)

3 72,000 211,464 (139,464)

4 144,000 231,328 (87,328)

5 240,000 204,480 35,520

6 360,000 270,920 89,080

7 504,000 350,648 153,352

8 864,000 549,968 314,032

9 864,000 549,968 314,032

10 864,000 549,968 314,032

11 864,000 549,968 314,032

12 864,000 549,968 314,032

13 864,000 549,968 314,032

14 864,000 549,968 314,032

15 864,000 549,968 314,032

= 1,762= 20%




Cost overran 0%

NET



YEARCASH CASH

Table 28. Sensitivity Analysis (% Decrease in Price/Liter Yield), Essential Oil Production

1 0 0 0

2 0 430,000 (430,000)

3 111,600 250,920 (139,320)

4 223,200 310,240 (87,040)

5 372,000 336,000 36,000

6 558,000 468,200 89,800

7 781,200 626,840 154,360

8 1,339,200 1,023,440 315,760

9 1,339,200 1,023,440 315,760

10 1,339,200 1,023,440 315,760

11 1,339,200 1,023,440 315,760

12 1,339,200 1,023,440 315,760

13 1,339,200 1,023,440 315,760

14 1,339,200 1,023,440 315,760

15 1,339,200 1,023,440 315,760

= 4,550

= 20%SENSITIVITY ANALYSIS



Cost overran 0%

NET




YEARCASH CASH


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Table 29. Sensitivity Analysis (% Cost Overrrun), Essential Oil Production

1 0 0 0

2 0 430,000 (430,000)

3 360,000 658,404 (298,404)

4 720,000 931,888 (211,888)

5 1,200,000 1,243,200 (43,200)

6 1,800,000 1,732,340 67,660

7 2,520,000 2,319,308 200,692

8 4,320,000 3,786,728 533,272

9 4,320,000 3,786,728 533,272

10 4,320,000 3,786,728 533,272

11 4,320,000 3,786,728 533,272

12 4,320,000 3,786,728 533,272

13 4,320,000 3,786,728 533,272

14 4,320,000 3,786,728 533,27215 4,320,000 3,786,728 533,272

= 58,896

= 22%




Cost overran 270%

NET




YEARCASH CASH

competition of organic based ilang ilang essential oil with synthetic oil will

pose competition to synthetic oil.

In terms of cost overran (or increases in the cost of production), the proposedproject can with stand a 270% increase in cost. (Table 29).

4.3 Profitability of Sampaguita Fresh Flower Home Garden

An area of 30 m2 with 25 sampaguita shrubs is proposed per household ofprimary cooperative or association member of ALYANSA in areas along the

national highway.

The technical assumptions in sampaguita production (Table 6) shows an

average flower production of 15 liters/shrub/year except on the first year where

only 5 liters/shrub/year is assumed.

In addition, these households are expected to sell their sampaguita flowers to

their primary cooperative or association which in turn strings these flowers into

garlands and distribute them to the market.


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4.3.1 Net Income

In as much that sampaguita seedlings start to bear flowers on the 6 th month after

planting and that production gradually increases until the 2nd year, the net incomefrom operation also gradually increases.

The computed net income per household is shown in Table 30.

As shown in the table below, an annual net income of approximately P6,000

can be realized by the household for their 25 shrubs of sampaguita.


Using the current commercial rate of borrowing (20%) as the discount factor,

the net cash flow was discounted to determine the net present value of theenterprise.

In addition, FIRR was computed to determine the earning capacity of the saidenterprise. Table 31 shows the FIRR and NPV of sampaguita flower production.

A positive NPV (at 20% d.f.) of P17,585 was computed.


Table 30. Financial Analysis, Sampaguita Fresh Flower Production, Household Level.

13,750 8,949 (5,199)

211,250 5,607 5,643

311,250 5,532 5,718

411,250 5,532 5,718

511,250 5,532 5,718

611,250 5,532 5,718

711,250 5,532 5,718

811,250 5,532 5,718

911,250 5,532 5,718

10 11,250 5,532 5,718

11 11,250 5,532 5,718

12 11,250 5,532 5,718

13 11,250 5,532 5,718

14 11,250 5,532 5,718

15 11,250 5,532 5,718

YEAR

GROSS SALES COST OF PRODUCTION NET INCOME

(P) (P) (P)

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An FIRR of 109% was computed.

Both discounted measures indicate that sampaguita production on a homegarden scale is very profitable no matter how small the size is.

Table 31. Net Present Value and Financial Internal Rate of Return, Sampaguita Fresh Flower Production.

1 3,750 8,949 (5,199)

2 11,250 5,607 5,643

3 11,250 5,532 5,718

4 11,250 5,532 5,718

5 11,250 5,532 5,718

6 11,250 5,532 5,718

7 11,250 5,532 5,718

8 11,250 5,532 5,718

9 11,250 5,532 5,718

10 11,250 5,532 5,718

11 11,250 5,532 5,718

12 11,250 5,532 5,718

13 11,250 5,532 5,718

14 11,250 5,532 5,718

15 11,250 5,532 5,718

= 17,585

= 109%



YEARCASH CASH NET



The sampaguita home garden was also subjected to sensitivity test to determine

the extent of flexibility of operation given the variability of yield, selling price ofsampaguita fresh flowers and the cost of production.

Yield reduction and output price reduction are sources of variation insampaguita production. Results of the tests show that:

The sampaguita home garden operation can withstand 37% yield reduction.

This means sampaguita home gardens will still be profitable even if the yieldper shrub per year is decreased (Table 32) or the price per unit of fresh

sampaguita flowers is reduced (Table 33).


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Table 32. Sensitivity Analysis (Decrease in Yield), Sampaguita Fresh Flower Production

1 2,325 8,949 (6,624)

2 6,975 5,607 1,368

3 6,975 5,532 1,443

4 6,975 5,532 1,443

5 6,975 5,532 1,443

6 6,975 5,532 1,443

7 6,975 5,532 1,443

8 6,975 5,532 1,443

9 6,975 5,532 1,443

10 6,975 5,532 1,443

11 6,975 5,532 1,443

12 6,975 5,532 1,443

13 6,975 5,532 1,443

14 6,975 5,532 1,443

15 6,975 5,532 1,443

= (27)

= 20%



Decrease in output price/unit 0%

Cost overran 0%

NET PRESENT VALUE at 20%d.f. (P)


YEARCASH CASH NET


Table 33. Sensitivity Analysis )% Decrease in the Price/unit of Output) Fresh Flower Production,

Household Level.

1 2,363 8,949 (6,587)2 7,088 5,607 1,481

3 7,088 5,532 1,556

4 7,088 5,532 1,556

5 7,088 5,532 1,556

6 7,088 5,532 1,556

7 7,088 5,532 1,556

8 7,088 5,532 1,556

9 7,088 5,532 1,556

10 7,088 5,532 1,556

11 7,088 5,532 1,556

12 7,088 5,532 1,556

13 7,088 5,532 1,556

14 7,088 5,532 1,556

15 7,088 5,532 1,556

= 436= 22%




Cost overran 0%


YEARCASH CASH NET



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In terms of its ability to withstand increases in the cost of production, thesampaguita home garden can withstand approximately 60% increase in the cost

of production (Table 34).

Table 34. Sensitivity Analysis (% Cost Overrun)), Sampaguita Fresh Flower Production

1 3,750 14,319 (10,569)

2 11,250 8,971 2,279

3 11,250 8,851 2,399

4 11,250 8,851 2,399

5 11,250 8,851 2,399

6 11,250 8,851 2,399

7 11,250 8,851 2,3998 11,250 8,851 2,399

9 11,250 8,851 2,399

10 11,250 8,851 2,399

11 11,250 8,851 2,399

12 11,250 8,851 2,399

13 11,250 8,851 2,399

14 11,250 8,851 2,399

15 11,250 8,851 2,399

= 327

= 21%



Decrease in output price/unit 0%Cost overran 60%



YEARCASH CASH NET


Combining decreases in yield/output, price decrease and cost overrun, theproposed sampaguita home garden can withstand a combination of 15% yield

decrease and output price decrease, and 16% increase in the cost of production

(Table 35).


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Table 35. Sensitivity Analysis (Combined Effect), Sampaguita Fresh Flower Production

1 2,709 10,381 (7,672)

2 8,128 6,504 1,624

3 8,128 6,417 1,711

4 8,128 6,417 1,711

5 8,128 6,417 1,711

6 8,128 6,417 1,711

7 8,128 6,417 1,711

8 8,128 6,417 1,711

9 8,128 6,417 1,711

10 8,128 6,417 1,711

11 8,128 6,417 1,711

12 8,128 6,417 1,71113 8,128 6,417 1,711

14 8,128 6,417 1,711

15 8,128 6,417 1,711

= 121

= 20%




Cost overran 16%



YEARCASH CASH NET


4.4 Profitability of Sampaguita Garlands

On the primary cooperative/association level, the profitability of garlands

making and marketing was also evaluated.

4.4.1 Net Income

On the basis of the technical assumption in garlands making and marketing, thenet income on the association level was computed. The result is shown in Table 36.

Results show a very high net income for the primary cooperative orassociation if they engage in garlands making and marketing, an attractiveopportunity for members to engage in garlands making.


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This high net income, however, is dependent on the success ofsampaguita home gardening being operated by household members, being the

providers of sampaguita blooms (flowers).

Table 36. Net Present Value and Financial Internal Rate of Return, Garlands Production

0 23,958 (23,958)

1 416,667 287,500 129,167

2 1,250,000 862,500 387,500

3 1,250,000 862,500 387,500

4 1,250,000 862,500 387,500

5 1,250,000 862,500 387,500

6 1,250,000 862,500 387,500

7 1,250,000 862,500 387,500

8 1,250,000 862,500 387,5009 1,250,000 862,500 387,500

10 1,250,000 862,500 387,500

11 1,250,000 862,500 387,500

12 1,250,000 862,500 387,500

13 1,250,000 862,500 387,500

14 1,250,000 862,500 387,500

15 1,250,000 862,500 387,500

= 1,596,468

= 678%



NET


CASH CASH


Using the current commercial rate of borrowing (20%) as the discount factor,the net cash flow was discounted to determine the net present value of garlands

production and marketing.

In addition, FIRR was computed to determine the earning capacity of the said

enterprise. Table 36 above shows the FIRR and NPV of sampaguita garlands

production and marketing.

A very high positive NPV (at 20% d.f.) was computed.

A very high FIRR was computed.

Both discounted measures indicate that, if the cooperative or association will

engage in garlands production and marketing, a modest profit awaits themconsidering the potential market for garlands in nearby provinces.


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The proposed sampaguita garlands production and marketing on the cooperative

or association level was subjected to sensitivity test to determine how flexible theoperation can be given the variability of market, selling price of sampaguita

garlands and the cost of production and marketing of garlands.

Yield reduction and output price reduction are sources of variation. Result ofthe test shows that:

The sampaguita garlands production and marketing can withstand 30% decreasein price per unit of sampaguita garlands (Table 37) or 30% yield reduction or

price reduction (Table 38).

This means that the cooperative still has positive net profit even if the price ofgarlands is reduced by 30% or its level of operation is just 70% of the planned

scale.

Table 37. Sensitivity Analysis (% Decrease in Price/unit of Output), Barangay Association/Cooperative

Level.

0 23,958 (23,958)

1 291,667 287,500 4,167

2 875,000 862,500 12,500

3 875,000 862,500 12,5004 875,000 862,500 12,500

5 875,000 862,500 12,500

6 875,000 862,500 12,500

7 875,000 862,500 12,500

8 875,000 862,500 12,500

9 875,000 862,500 12,500

10 875,000 862,500 12,500

11 875,000 862,500 12,500

12 875,000 862,500 12,500

13 875,000 862,500 12,500

14 875,000 862,500 12,500

15 875,000 862,500 12,500

= 51,499

= 42%




Cost overran 0%



NET


CASH CASH


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Table 38. Sensitivity Analysis (% Decrease in Output), Barangay Association/Cooperative Level.

0 23,958 (23,958)

1 291,667 287,500 4,167

2 875,000 862,500 12,500

3 875,000 862,500 12,500

4 875,000 862,500 12,500

5 875,000 862,500 12,500

6 875,000 862,500 12,500

7 875,000 862,500 12,500

8 875,000 862,500 12,500

9 875,000 862,500 12,500

10 875,000 862,500 12,500

11 875,000 862,500 12,500

12 875,000 862,500 12,500

13 875,000 862,500 12,500

14 875,000 862,500 12,500

15 875,000 862,500 12,500

= 51,499

= 42%




Cost overran 0%



NET


CASH CASH

In terms of the ability of the cooperative to cope up with increases in the cost ofgarland production and marketing, the result of the sensitivity test showed that:

Even if the cost of production and marketing of sampaguita garlandsincreased by 44%, the operation of the cooperative or association is still

profitable given a zero change in the commercial borrowing rate of 20%,in the

price and level of production of garlands (Table 39).


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Table 39. Sensitivity Analysis (% Cost Overrun), Barangay Association/Cooperative Level.

0 23,958 (23,958)

1 416,667 414,000 2,667

2 1,250,000 1,242,000 8,000

3 1,250,000 1,242,000 8,000

4 1,250,000 1,242,000 8,000

5 1,250,000 1,242,000 8,000

6 1,250,000 1,242,000 8,000

7 1,250,000 1,242,000 8,000

8 1,250,000 1,242,000 8,000

9 1,250,000 1,242,000 8,000

10 1,250,000 1,242,000 8,000

11 1,250,000 1,242,000 8,000

12 1,250,000 1,242,000 8,000

13 1,250,000 1,242,000 8,000

14 1,250,000 1,242,000 8,000

15 1,250,000 1,242,000 8,000

= 32,959

= 27%




Cost overran 44%



NET


CASH CASH

The ability of the proposed enterprise to cope up with the combined effect ofdecreases in output, in output price, and in increases in the cost of production and

marketing was also computed. The result is shown in Table 40.

As shown in Table 40, the proposed enterprise can withstand a combination of

changes in 11% decrease in output or in output price and 14% increase in the

cost of production and marketing of sampaguita garlands.


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4.5 Economic and Environmental Impact Evaluation of Ilang-ilang andSampaguita Production

An economic and environmental impact evaluation was made to determine thedesirability of the proposed project to the society.

On the economic impact, this could be in terms of the impact to employmentgeneration, livelihood opportunities, and household income.

Environmental impact is limited to provision of quality air, soil conservation

impact and on carbon sequestration impact of the proposed project.

There will be positive net benefits to the whole society if the proposed project

will be implemented at the current social rate of return of 15%. This is lower thanthe private rate of return of 20%. This can be deduced (without actually computing

the net benefits) from the positive benefits generated at 20% private rate of return, a


Table 40. Sensitivity Analysis (Combined Effect), Barangay Association/Cooperative Level.

023,958 (23,958)

1330,042 327,750 2,292

2990,125 983,250 6,875

3990,125 983,250 6,875

4990,125 983,250 6,875

5990,125 983,250 6,875

6990,125 983,250 6,875

7990,125 983,250 6,875

8990,125 983,250 6,875

9990,125 983,250 6,875

10 990,125 983,250 6,875

11 990,125 983,250 6,875

12 990,125 983,250 6,87513 990,125 983,250 6,875

14 990,125 983,250 6,875

15 990,125 983,250 6,875=

28,324=

24%




Cost overran 14%



NET


CASH CASH

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return higher than the social rate of return (15%). The proposed enterprise can haveboth positive forward and backward effects.

In as much as the financial analysis in both the farm level and association level(new cooperative member of ALYANSA and primary cooperative/association)

show positive net benefits using commercial borrowing rate of 20% as the discount

factor, it can be deduced that;

First, ilang-ilang production offers an alternative land use in the whole

municipality of Carranglan and therefore additional employment opportunity to

the community. This employment opportunity is biased in favor of the farmer-members whose land areas are rolling.

Second, the ilang-ilang plantation offers a new business opportunity to

ALYANSA or a cooperative member, which has high potential to become afederation of cooperatives in the municipality of Carranglan.

This new business opportunity will create direct employment opportunities

to the members of ALYANSA as well as others residents of Carranglan.

Third, the essential oil production can encourage the ALYANSA or otherentrepreneurs to engage in the production of ilang-ilang scented soap, cologne,

perfumes, and others.

Again, this creates additional employment opportunities to the Carranglan

Community

The sampaguita home garden will have the following positive benefits to the

Carranglan people:

Considering the nature of the proposed project as small scale in nature andwill be located in the backyard, women members of the househol as well as the

children will be the direct beneficiaries.

It offers additional employment opportunity as well as additional household

income.

It will utilize household labor during the spare time of the members of the

household.


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Additional benefits will include the development of good values amongchildren like industriousness, sense of responsibility towards the family and

entrepreneurship.

On the primary cooperative/association level:

Garlands production and marketing offers a new business venture which

can provide new sources of revenue to the coffer of the organization.

Can contribute to the empowerment of the organization.

On environmental Impact:

Both the ilang-ilang and sampaguita production project have

no negative environmental effect. Rather, the two projects are environment-friendly.

There will be improvement in the vegetative cover of the area.Therefore contributes to soil conservation program of the government.

Can contribute to the world-wide campaign on carbon sequestration.

Help reduce air pollution by providing scented air not only to

Carranglan but also to passers by.

Compatible with the community-based forest management program

(CBFM). Given the financial benefits it will generate, the land owners willsustain the trees for its flowers not for its wood.


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chapter 4 - fs financial & economic analysis

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