1

FEASIBILITY REPORT OF OIL MILL FIRM

By

AMADI, TONY

Dwrighttonero2k3@yahoo.com

&

DAN, UNWANA

danunwana@yahoo.com
 2

EXECUTIVE BRIEF

This feasibility report  is carried  out  to show the feasibility  and viability of 

establishing   a proposed   oil mill firm; Pela Oil Mill   (Nig) enterprise   which 

would be sited  at Ikot   Atasung  in Ikot Ekpene  L.G.A of Akwa Ibom State. 

The   propose   capital   structure   is   one   Million   five   Hundred     thousand 

Naira   (1.500,000)   only.   70%     of   the   fund     would     be   sourced     through 

promoters.   while   the   remaining   30%   would   be   source   through   Uniuyo 

Microfinance   bank   at an interest   rate   of 36%   annually.   The repayment 

period   for both principal and interest would be 5 years.

Base     on   this     projection   for   cost,     the     survey   has     shown   that   the 

proposed   firm would   be gearing at such will provide   a profitable return on 

investment  to  it promoters.
 3

CHAPTER  ONE

PROJECT  BACKGROUND

1.1 INTRODUCTION 

The main activity of palm oil mills  is to process  fresh fruit bunch into 

several products. The main products consist of crude palm oil, palm karnel and 

palm karnel oil. Besides, fertilizer, empty bunch ash (soda) and shells are the 

by­products   of the process.  

For the purpose of this study, we would be more concern with palm oil 

extraction, which  the other would be  considered  as by­products. It is generally 

agreed that the product oil palm (Elacis Guinness) originated in the tropical rain 

forest region of  West  Africa.  The palm bears it fruit in bunches  varying  in 
 4

weight from 10 to 40kg. The fruit contain   palm   oil in a fibrous   matrix,   a 

central nut consisting   of a shall and the karnel  which itself  contains, an oil, 

quite different   to palm oil, resembling  coconut  oil.  Palm oil mills will buy 

fresh fruit  bunch from various  suppliers.  These are  usually conveyed to the 

processing site  in baskets, push  carts and trucks etc, where they are processed.

The feasibility  report  on oil seed  processing  mill “palm oil extraction” 

project  is presented.

1.2   PURPOSE  OF THE STUDY

The study is to determine the economic and commercial viability   of the 

proposed palm oil mill factory, Pela oil mill (Nig.) Enterprise. It is also intended 

that the outcome will guide   planning   and decision making process.

1.3 OBJECTIVE OF THE STUDY

1.     To determine the required   capital outlay.

2. To determine the economic and commercial viability of the project. 

3. To ascertain the feasibility and performance of the project in term of 

return on investment (ROI).

4. To ascertain the economic justification for the proposed palm oil mill.

1.4 BUSINESS DESCRIPTION 
 5

The proposed firm, Pela  Oil Mill (Nig) Enterprise  is an oil mill where 

palm oil will be process for sell, the  firm  shall  also process  palm products for 

the   general   public     for   service     charge.     The   product,   palm   oil   is   rich     in 

carotonids ( pigment  found in plants  and animals) from which  it drive its deep 

red   colour  and the major  component of its  glyeerides is the saturated fatty 

acid   palliative, hence  it is a  viscous  semi  solid. Because   of its  econotric 

importance   as an   high   yielding  source of  edible   and technical   oil, it has 

become     a   major   commodity     required     by   all   household     and   the   hotel 

industries   in   Nigeria.   Africa     and   most   part   of   the   world.     The   product 

categories  shall be package in 20 liters  and drums.

1.5  PAST HISTORY OF PALM OIL INDUSTRY 

International trade in palm oil began at  the turn of the 19 th  century,  while 

that of palm karnel  developed  only after  1832. Palm oil became  the principal 

cargo  for slave ship after abolition of  the industrial revolution in Europe.  As 

people in Europe began to take  sanitation  and hygiene   seriously, demand for 

soap  increased, resulting in the  demand for vegetable  oil  suitable  for soap 

manufacturing  and other technical uses. In the early 1980s, exports  of palm oil 
 6

was from Niger Delta   were   25,000 to   30,000 tonnes     per   annum   and by 

1911, the British  West Africa territories exported   87,000 tonnes.

The     export   of palm karnels  also began in 1832 and by 1911. British 

West Africa   alone   exported   157,000 tonnes   of which   75%   came   from 

Nigeria.     Nigeria   was       the   largest     exporter     until   1934   when     Malaysia 

surpassed  the country.

1.6  REASON FOR THE CHOICE  OF THE PROJECT

There has been increasing demand for palm oil in Nigeria, given the fact 

that   the   product   is   a   necessary   commodity   for   household   daily 

consumption,   and   is   required   for   commercial   meal   preparation   in   the 

hotels  industries and  the  various   uses  derive  from the by­products, 

hence     large       market.     This   is   couple   with   the   easy   access   of   raw 

material, relative   small amount of capital required to standard extensive 

employment opportunities  available  in this  line  of business.
 7

1.7  CURRENT  INDUSTRY   STRUCTURE 

The extensive development of oil palm industries in Nigeria has been 

motivated   by   its   extremely   high     potential   productivity.   Palm   oil   business 

gives higher yield of return on investment. Also, palm oil produce contributes 

more   than   15%     of   the   non­oil   revenue     of   Nigeria   (   Federal   ministry     of 

statistics  report,  2005).  It is also worthy of  mention  that there  is increasing 

demand  in Nigeria  of this   commodity both direct  consumption  and as  raw 

material for the production  of other  goods.

CHAPTER TWO

MARKET  STRATEGY/ANALYSIS

Swot analysis would be used to determine   the mode  of market strategy 

to adopt.

S ­ Strength 

W ­ Weakness 

O ­ Opportunity 

T ­ Threat

STRENGTHS
 8

The company shall take advantage of the following:

­ Sufficient  capital outlay

­ Availability of raw  material 

­ Managerial  efficiency

­ Unsaturated  market.

WEAKNESSES 

­ Inexperience  in the   industry 

­ Inadequate   skilled workforce 

­ Inadequate  take­off  capital 

OPPORTUNITIES 

­ Easy access to the firm

­ Population  density 

­ Availability of infrastructure  in the community 

­ Minimum competition  within  the proposed   project  location.

THREATS 

­ Competitors 

­ Government polities and regulation 

­ Weather/ climate  condition (Shortage  of raw material during  rainy 

season  
 9

­ Incessant  power  failure 

­ Fluctuation in foreign  exchange  rate/interest  rate.

2.1  ESTIMATED DEMAND   

The demand   for palm oil and its by­products in Nigeria     is very high 

especially in Akwa Ibom and other  Southern States  of the country where the 

supply of these  products  is low.  The by­products are used  for palm karnel oil, 

cake and  soap  making and feed production. 

TABLE  2.1  CURRENT  MARKET   PRICE  OF PALM OIL 

Description  Empty  Other price  With palm oil

N N N 
Drum  3000 3500
20 litres  300 5,500
10 litres  150 2,500
4 litres  100 1300
Bottle  20
Palm fruit bunch 100 200
Palm fruit measured in Ndomo  700

2.2 LIKELY COMPETITORS 

Some of the companies  that  will be competing  with Pela  oil mill  will 

be existing  companies  like
 10

1. Uko oil – Etim Ekpo

2. Pamac oil  ­ Ibesikpo Asutan

3. Okomu oil ­  Edo State.

2.3 PROPOSED  MARKET  PENETRATION

Pela  Oil  Mill (Nig.) Enterprise  will  announce  its  presence  in the  palm 

oil/ mill market  by using  price  and quality, as its  relative  affordable   price 

will make  our product  popular.

2.4 FACTORS THAT  ARE  LIKELY TO AFFECT THE  BUSINESS.

ECONOMIC  FACTORS 

­ Huge  capital outlay  requirement 

­ Cost  of capital fund

­ Size of  income 

­ Existence  of demand  for the product 

POLITICAL FACTORS 

­ Political instability 
 11

­      Government  policies and regulation.

SOCIAL FACTORS 

­ Cost  of living 

­ Standard of living 

­ Kidnapping  and other  social vices

ENVIRONMENTAL  FACTORS 

­ Availability   of raw  materials 

­ Availability of work force 
 12

CHAPTER  THREE

TECHNICAL ANALYSIS

3.1 PROPOSED PLANT ANALYSIS 

Pela Oil Mill (Nig.) enterprises is expected  to produced  4000­4500 litres 

of palm oil, during the dry season which  is the peak period  for palm oil  fruit 

and about  3000­3500 litres of  palm oil during the rainy season, monthly. This 

feasibility   assume production  of 100 number of 20 litres  and 10 number of 

drums of palm  oil every month.

3.2   MAXIMUM PRODUCTION LEVEL    

 This may happen in cases where factors  of production  are not enough 

as in rainy season or other unforeseen   circumstances, the production  level is 

not  expected  to be  below  1000­1500 litres  of palm oil.

3.3  PRODUCTION INPUT 

­ Palm fruit  bunches    

­ Deolied  cake  boiler (DOC)
 13

­ Oil mill plant 

­ Storage  tank

­ Plastic  cags 

­ Borehole 

­ Motor  van 

­ Labour 

­ Generating  plant 

­      Empty  drums 

3.4  SOURCES  OF  INPUTS 

Most of the  inputs  are to be  fabricated   right there  in the factory. The 

generating  plant  would  be  bought  form Port  Harcourt, palm fruit  bunches 

will be bought in Ukanafun Local government area in Akwa Ibom State, while 

plastic cags  and drums  will be bought  from Abia in Abia state.

3.5  GEOGRAPHICAL  LOCATION 

 The factory is to be located  at  Ikot  Atasung  in Ikot  Ekpene   Local 

Government  Area  of Akwa Ibom State. The area  has two  seasons,   which are 

the rainy and dry  season. The rainy season  last  for about  8 months,  thus, it  is 

ideal  for oil palm.
 14

3.6    A FLOW  CHART OF PLAM  OIL PROCESSING 

Bunch  Reception

Bunch  Sterilization 

Bunch Threshing  
Empty bunches

Fruit  Digestion

Pulp pressing 
Nut fibre

Oil clarification  

Oil packing   
 15

A diagram showing  the flow of  palm oil processing.

BUNCH  RECEPTION 

Fresh fruit  arrives  from the field  as bunches  or loose fruit. The fresh 

fruit   is normally emptied   into wooden   boxes   suitable for weighing   on a 

scale  so that  quantities of fruit  arriving  at the processing site may be checked. 

The quality standard achieved  depend on the quality of bunches.

BUNCH  STERILIZATION 

  Sterilization   or  cooking  means    the  use  of  high  temperature  net­heat 

treatment  of loose  fruit.  Cooking normally uses hot  water, sterilization uses 

pressurized     stream.   The   cooking     action   serves     several     purpose.   Heat 

treatment   destroys   oil     splitting     enzymes     and   arrests     hydrolysis     and 

autoxidation.
 16

BUNCH THREASHING 

This is     the removal of fruits     from sterilized   or quartered   bunches. 

This can be achieved manually by cutting   the fruit­laden   spikelets from the 

bunch stem  with an axe or machetes and then separating  the fruit   from the 

spikest  by hand,  or a rotating  drum  or  fixed  equipped with rotary  beater 

bars  detaching  the fruit  from the  bunch,  leaving  the spikelets  on the  stem.  

DIGESTION OF FRUIT 

Digestion  is the  process of releasing  the palm oil in the  fruit  through 

the     rupture       or   breaking     down   of   the     oil   bearing     cells.     The   digester 

commonly used   consists of a   steam­ heated   cylindrical   vessel   filted   with 

central  relating shaft  carrying  a number of beaters stirring   aims.  Through 

the action of rotating  beater  arms,  the fruit is  pounded, or  digesting the fruit 

at high temperature,   helps to reduce   the viscosity of oil   destroys the fruit’s 

outer  covering (exocarp), and completes the disruption  of the oil cells already 

began in the sterilization  phase.   

PROCESSING (EXTRACTING  THE PALM OIL)

There   are   two distinct   methods   of extracting oil from the digested 

material.    One  method      uses    mechanical    process  and is called    the ‘dry’ 

method. The  other called the ‘wet’ method uses hot water  to leach  out the oil.

In the “dry” methods the objective  of the  extraction stage is to squeeze 

the oil out of a mixture  of oil, moisture, fibre and nuts by  applying mechanical 

pressure  on the digested mash.   
 17

CLARIFICATION  AND DRYING OF OIL 

 The main point of clarification  is to separate  the oil from its entrained 

impurities.  The fluid   coming  out of the press is a  mixture  of palm oil, water, 

cell debries   fribrous  material  and ‘non­oily solids.

Because  of the non­oily  solids, the mixture  is very thick (viscous). Hot 

water  is therefore  added to the press  output  mixture  to thin it. The  dilution 

(addition of  water) provides  a barrier  causing  the heavy solids to fall to the 

bottom of the container while the higher oil droplet   flow  through the watery 

mixture to the  top  when heat is applied to break  the emulsion.

OIL STORAGE 

The dried   oil is simply packed  into a  storage  tanks, used  petroleum 

drums,  plastic   drums, or plastic   cags,   and  store at  ambient  temperature.

3.7 ENVIRONMENT IMPACT 

The   activities     of   the   processing   plant   posses     little   threat     to   the 

environment in terms of pollution.   Except   for the generating   plants, which 

will cause  both noise and air pollution. The  final by­products  of the palm oil 

processing  process   are all used as fuel, fertilizer and  plam karnel etc. Also 

the   factory   shall   provide     job   opportunity     to   the     people     of   its     host 

community. Thereby giving  them  a means of livelihood.      
 18

CHAPTER  FOUR

4.0  PROJECT  COST  ESTIMATE

The   project     cost   estimate     is   put   at,   One   Million   Five     Hundred 

Thousand Naira (1,500,000) only. The fund will be   used for   acquisition of 

assets and  material required for the  firm’s  operation (working  capital). The 

analysis is stated below.

Plants  and machinery  N

345,000
 19

Building  rent  200,000
Fixtures  and fitting  80,000
Motor  van (fairly used  pick up) 400,000
Business levies  10,000
Material consumed: raw  material   70,000
plastic cags   24,000
Drums  15,000
Working     capital   &     other   operating  356,000

expenses  
Capital structure  1,500,000

4.2.5  PERSONNEL 

Department  Number  Qualification   Monthly salary 

N
Manager  1 B.Sc,     in   any   Business  9,000
Administration discipline 
Accountant 1 B.Sc. or HND in Accounting  7,000
Factory 1 B.Sc   or   HND   in   Crops   a  6,000
agric  or any related  field 
Bagging  2 S.S.C.E   with   working  4,444
experience 
Driver  1 Drive  experience  and ability  2,222
to communicate  in English.
Total  6 28,666
 20

4.2.6  MATERIAL PROJECTION/ESTATES 

Items  Unit  price  Monthly  Amount  Annual  Amount 

Qty N Qty N
Oil   palm  100 400 40,000 4,800 480,00
buches 
Empty  300 100 30,000 1,200 360,00
plastic   cags 
(20litres)
Drums 300 10 30,000 1200 360,00
By­ ­ ­ ­ ­ 252,000
products
Total  100,000 1,452.000

4.2.3 MOTOR  VAN

Description  Model Qty Unity price Open   market 

value
N N 
Motor van (fairly used pick  Peugeot 1 400,000 400,000

up)
Total  400,000 400,000
 21

4.2.4: FIXTURES  AND  FITTING 

Description  Model Qty Unity price Open   market 

value
N N 
Plastic chairs  Black  7 1,500 10,500
horse 
Table  Plain  3 3000 9000
wood
Carbinet  1 3000 3000
Wall clock 1 600
Leather  carpet 2,400 2,400
Calculator  Casio 1 1000 1000
Window  blind  1 1000 1000
Fan  3 2500 7,500
Fire  extinguisher  1 5000 5000
Computer & assories 1 40,000 40,000
TOTAL  80,000

4.1  SOURCES   OF FUNDS 

(a) Owner’s  equity (70%) 1,050, 000

(b) Loans (Micro­finance Bank loan 30%) 450,000

4.2 BASIS  OF PROJECT COST  ESTIMATE

The current market  price for fixed asset to be provided by Pela  Oil Mill 

(Nig)     Enterprise     is   obtained   through  a  market    survey  carried   out  by  our 

analysis.
 22

4.2:1  OFFICE  RENT 

A 2 bedroom flat will be rented  for two  years  at the cost of N100,000 

each year  while  a temporal tent  will be constructed  beside  the building which 

will be  use for the oil mill plant.

4. 2:2  PLANT/ MACHINATES

Description  Model Qty Unity price Open 

market 

N value

N 
DOC’   Boilder/Storage  Fabricated  1 90,000 90,000

tank
Borehole  Constructed   1 60,000 60,000
Oil mill plant Fabricated  1 120,000 120,000
Generating plant  Leaster   1 75,000 75,000
Total  345,000 345,000

CHAPTER FIVE

5.0 FINANCIAL ANALYSIS

5.1 PELA OIL MILL (NIG) ENTERPRISE STAFF YEARLY REMUNERATION
Staff Number Year 1 Year 2 Year 3 Year 4 Year 5
Manager 1 108,000 113,400 119,070 125,023.5 131,274.7
Accountant 1 84,000 88,200 92,610 97,240.5 102,102.5
 23
Factory director 1 72,000 75,600 79,380 83,349 87,516.5
Bagging 2 53,238 55,994.4 58,794.12 61,733.83 64,820.5
personnel
Driver 1 26,664 27,997.2 29,397.06 30,866.9 32,410.2
Total 6 344,000 631,191.6 379,521.9 398,213.7 418,124.4

5.2 Project assumptions

a) Project life (years) 5
b) Debt 30%
c) Equity (through promoters) 70%
d) Interest rate on debt 36% annually
Motor vehicle 400,000 420,000 441,000 463,050 24
486,202.5
825,000 866,250 909,562.5 955,040.6 987,792.6
Deferred charges 25,000 26,250 27,562.5 28,940.6 30,387.6
preliminary expense
Total Net Fixed 850,000 892,500 937,125 983,981.5 1.018,180.2
Aset
(B) CURRENT
ASSETS:
Stock 35,000 36,750 38,587.5 40,516.9 42,542.7
Trade debtors (see 985,200 1,086,183 1,086,183 1,140,492.5 1,19757.1
appendix A)
Cash in bank 7389,000 7,758,450 8,146,372.5 9,654,8586 8,530,184.5
Cash in hand 501,800 526,890 55,234.5 580,896.2 6,09,941
Total current 8,911,000 9,356,550 9,824,377.5 11416,764.2 10,380,1185.3
Assets
(C) CURRENT
LIABILITIES
Trade Creditors 780,000 796,393 823,612 864,792.6 908,032.2
Taxation 149,620 157,101 164,956.6 173,204.4 181,864.6
(D) working Capital 7,981,380 8403,057 8,835,808.9 10,378,767.2 9,290,288.5
(B-C)
Total net asset 8,831,380 9,295,557 9,772,933.9 11,362,748.2 10,308,468.7
Financed by:
Capital
Equity (70%) 1050,000 1,102,500 1,157,625, 1,215,506.3 1,276,258.5
Long term debt 450,000 472,500 496,125 520,931.3 1,276,259.5
(30%)
PROFIT &LOSS 7,331,380 7,720,557.4 8,119,183.9 10,094,301.4 8,977,231.3
ACCOUNT
8,831,380 9,295,557.4 9,772,933.9 11,362,748 10,308,468.7
Operating expenses: 25
Plant & machinery 345,000 362,250 380,362.5 399,380.6 404.3490.6
Fixtures & fitting 80,000 84,000 88,200 92,610 97,240.5
Motor vehicle 400,000 420,000 441.000 463,050 486,2020.5
Operating expenses:
Salaries 344,000 361,191.6 379.251.9 398,213.7 418,124.4
Electricity 208,800 219,240 230,202 241,712.1 253,797.7
Insurance 20,000 21,000 22,050 23,152.5 24,310.1
Debt repayment 90,000 90,000 90,000 90,000 90,000
Interest charge 162,000 162,000 162,000 162,000 162,000
Serving 40,000 42,000 44,100 46,305 48,620.3
maintenance
Medical welfare 60,000 63,000 666,150 49,457.9 51,930.8
Rent 200,000 210,000 220,500 231,525 243,101.3
Levies 10,000 10,500 11,025 11,576.3 12,155.1
Carriage outward 6700 7035 7386.6 7.755.9 8,143.7
Depreciation (10%) 34,500 36,225 38,036.3 39,938.1 41,925
TOTAL OUTFLOW 2,001,000 2,088.4416 2.180,2643 2,256,677.1 2,341,392
(A-B) balance c/d 9351,000 9,841,1584 10,345,815.7 10,3520,90.2 10,897,291.9

5.6 PELA OIL MILL (NIG) ENTERPRISE PROJECTED BALANCE SHEET FOR
FIVE YEARS (2012-2015)
Items Year 1 Year 2 Year 3 Year 4 Year 5
2012 2013 2014 2015 2016
(A) Fixed
Assets
Plant & 345,000 362,250 380,362.5 399,380.6 404,349.6
machinery
Fixture & 180,000 84,000 88,200 92,610 97,240.5
fitting
Insurance 20,000 21,000 22,050 23,152.50 24,310.1
Debt 90,000 90,000 90,000 90,000 90,000
repayment
Interest 162,000 162,000 162,000 162,000 162,000
change
Serving 40,000 42,000 44,100 46,305 48,620.3
Medical 60,000 63,000 66,150 69,457.5 72,930.4
welfare cost
Rent 200,00 21,000 220,500 231,525 243,101.3
Levies 10,000 10,500 11,025 11,576.3 12,155.1
Carriage 6,700 7,035 7,386.6 7,755.9 8,143.7
outward
Depreciation 34,500 36,225 38,036.3 39,938.1 41,935
(D) Total 1,176,900 1,222,1916 1,270,70.5 1,321,636.1 1,375,118
E: (C-B) 7,481,000 7,877,658. 8,284,140. 10,094,310.4 9,159,095.9
 26
profit before 4 5
tax
Taxation 149,620 157.101 164,956.6 173,204.4 181,864.6
rate (2%)
Profit After 7,331,380 7,720,5574 8,119,183. 10,094,310.4 81977,231.3
Tax 9

5.5 PELA OIL MILL (NIG) ENTERPRISE PROJECTED CASH FLOW FOR FIVE
YEARS (2012-2016)
Items Year 1 Year 2 Year 3 Year 4 2015 Year 5 2016
2012 2013 2014
(A) CASH INFLOW
Capital
Equity (70%) 1,050,000 1,102,500 1,157,625 1,215,506.3 1,276,259
Borrowing (30%) 450,000 472,500 496,125 520,931.3 546,977.9
Sales 9,852,000 10354,600 10,872,330 10,872,330 11,415,946.5
TOTAL INFLOW 11,352,000 11,929,600 12,526,080 12,608,767.3 13,239,183.9
(B) CASH OUT
FLOW

5.4 PELA OIL MILL (NIG) ENTERPRISE PROJECTED TRADING PROFIT AND
LOSS ACCOUNT FOR FIVE YEARS (2012-2015)
Items Year 1 Year 2 Year 3 Year 4 Year 5
2012 2013 2014 2015 2016
N N N N N
TURN OVER:
Sales 20 litters palm 6,000,000 6,300,000 6,615,000 6,945.750 7,293,037.5
oil
Sales of 230 litres 3,600,000 3,790,000 3,979,500 4,,178,475 4,387,398.8
(Drum) palm oil
Sales of by products 252,000 264.6000 277.830 291.721.5 306,307.6
(A) Total sales 9,852, 10,354, 10,872, 11,415, 11,986,7439
(seeappendixB) 000 600 330 946.5
(see appendixB)
Less: Cost of sales
Opening stock
Purchase 1,200,000 1,260,000 1,323,000 1,389,150 1,458,607.5
Add: carriage inward 30,000 31,500 33,075 34,728.8 36,464.2
1,230.000 1,291,500 1,356,075 1,423,878. 1495,0727
8
Less: closing stock 35,000 36,750 38,587.5 40,516.9 42542.7
(B) Total 1,195,000 1,254,750 1,317,385. 1,383,361. 10,534,213.9
 27
5 9
(C) (A-B) Gross profit
Less: operating
Expenses
Salaries 344,000 361,191.6 379,251.9 398,213.7 418,124.4
Electricity 208,800 219,240 230,202 241,712.1 253,797.1
 28

5.3 PELA OIL MILL (NIG) ENTERPRISE LOAN AND INTEREST RATE
REPAMENT PLAN
Details Year 1 Year 2 Year 3 Year 4 Year 5
2012 2013 2014 2015 2016
N N N N N
Principal 450,000 1,008,000 756,000 504,000 252,000
Annual interest X 5 810,000
years (36% x 5) 1,260,000
Less: 90,000 90,000 90,000 90,000 90,000
Repayment principle
yearly interest yearly 162,000 162,000 162,000 162,000 162,000
Yearly repayment 252,000 252,000 252,000 252,000 252,000
Years End Balance 1,008,000 756,000 504,000 252,000 0
 29

e) Depreciation N34,500

Debt repayment year 5

f) Firms product price would be N5.00 less than current market for price drum

palm oil which 20 litres of palm oil would be N5.000 each.

g) Reture from sales of by products N252,000

h) Assure an annual carriage in ward of N30,000

i) Carriage outward for first N6700

j) Insurance N20, 000

k) Medical welfare cost N60, 000

I) Electricity/diesel cost N236,

000

m) Variables will increase by 5% annually

n) Closing stocks is N35, 000

o) It is assume that 30% trade creditor is on purchase; it is N780, 000 in the first

year. The amount is scheduled to be N796,393, N823,612, N864,792.6 and

N908,032.2 in year 2,3,3, and 5 respectively.

p) Preliminary expenses N25,000

q) Cash in bank is assume to increase by 5% from N7,389,000, in year 1,2, and

3, except year 4, and 5 which is put at N9,654,858.6 and N8,530,184.5

respectively.

CHAPTER SIX

6.0 Ratio analysi

1)     Liquidity Ratio; Current ratio 

= Current Asssets = 8,911,000
Current Liabilities  780,000
 30

=11.4:1

2) Quick ratio  = Current Asset – Stock =  8,911,000­35,00

       Current Liabilities    780,000
3) Gross Profit Margin
Gross profit margin  =  Gross Profit
        Sales

=  8,657,000
    9852,000
=    0.88  =  88%

4) Debtors Turnover

= Sales
_______________
  Trade Debtors

= 9,852,000 =  10 times
985,200 

5) Creditors Turnover

Sales
_____________
Trade Creditors
=
= 9852,000
_________ =  12.6 times
780,000

6) Net Profit Margin
 31

= Net Profit
_______
=    Sales 

= 7,331,380 = 0.74 =   74%

9,852,,000

7) Debtors Collection period (Activity ratio)

= Trade debtors
    Sales

= 985,200 x 360 36days

9852,000   1

8) Creditor collection period (Activity Ratio)

= Trade Creditors x 360
      Sales

= 780,000 x 360 = 28.8 days

9852,000   1

9) Fixed Assets Turnover (Activity ratio)

=      Sales
Net fixed Asset

= 9,852,000
850,000 =    11.5 times

10) Total Assets Turnover (Activity Ratio)
 32

=      Sales
Total Assets

= 9,852,000
9,761,000 = 1. Times

11) Return on Asset (ROA) (Profitability Ratio)

= Net profit After Tax 7,331,380 =  0.75

    Total Asset 9,861,000 =   75%

12) Gearing Ratio

= Current debt 780,000  =  0.52  =  52%
   Net worth 1500,000

13) Sovlevency Ratio

Debt Equity = Total debt
Shareholders Equity

= 450,000
1,050,000
= 0.43  x  100
= 43%

6.1 SUMMARY OF RATION
 33

TYPE OF  ASSUMED  FIRM EVALUATION 

RATIO INDUSTRY  REMARK

RATIO
1 Current Ratio 2:5 11.4:1 Good
1 Acid Test Ratio 1.4 8.9:1 Good
3 Gross Profit  41% 88% Good

Margin
4 Debt  (Account  15 times 10  times Good

Receivable)
5 Creditor  10 times 12.6 Good

(Account 

Payable
6 Net Profit  11% 74% Good

Margin
7 Average  25days 36days Not good

Debtor 
8 Creditor 30days 28.8days Not good
9 Fixed Asset  3 times 11.5 Good

Turnover
10 Total Asset  1.0 times 1 time Good

Turnover
11 Return on  12% 75% Good

Asset
12 Gearing 30% 52% Good
13 Debt/Equity 50% 43% Good
 34

CHAPTER SEVEN

7.0  PROJECT EVALUATION
 35

The purpose of evaluating project is to determine their profitability. 

Feasibility   project   evaluation   is   an   exercise   that   ensures   using   the 

present to predict the future.

7.1  METHOD OF PROJECT EVALUATION

1)  Pay back period (PBP)

2) Accounting rate of return (ARR)

3) Discounted cash flow (DCF)

a) Net present value (NPV)

b)  Internal rate of return (IRR)

4) Profitability analysis

7.2 PAY BACK PERIOD (PBP)

The pay back period is an investment appraisal technique enables 

an investor to determine the number of year it will take 

recoup (recover) the initial capital outlay.
 36

PELA OIL MILL (NG) ENTERPRISE

YEAR CASH FLOW

0 1,500,000

1 9,351,000

2 9.841,158.4

3 10,345,815.7

4 10,352,090.2

5 10,897,291.9

N9,351,000 – N1,500,000 = N7,851,000

The sum of first year less the initial investment

7,851,000 x 12=10 months.
9,351,000

This   signifies   that   the   project   will   take   10  months   to   recover   its 

initial capital outlay. The shorter the recovery time the more favourable it 

is to the firm. 10 months is absolutely okey.

ACCOUNTING RATE OF RETURN
 37

THE FORMULAR  =  Annual profit X 100

    Annual investment

      1
ARR = 7,331,380
1,500,000 = 4.89

7.4  DISCOUNTED CASH FLOW (DCF)

Net present value

The NPV concept is closely related to time value of money. The 

NPV is the value obtained by discounting future cash flow from a capital 

investment of project chosen interest rate or discounted rate of cost of 

capital and then subtracting the initial cost of the project.

YEAR CASH FLOW  DISCOUNTED FACTOR  PRESENT VALUE

N 36% N

0 1500,000 1,500,000

1 9,351,000 0.74 6,919,740

2 9,841,158.4 0.34 5,314,225.54

 38

3 10,345,815 0.39 4,034,867.85

4 10,352,090.2 0.29 3,002.106.16

5 10,897,291.9 0.21 2,342,200.36

21,613,139.91

NPV = 21,613, 139.91 – 1,500,000 = 20,113,139.91

CONCLUSION

Based on the total analysis of marketing, technical, financial and 

economic feasibility and viability, it is obvious that the proposed project 

is not only feasible, but also viable.

RECOMMENDATION

We recommend that the project be adopted for funding and 

execution.
 39

APPENDIX

SCHEDULE A

TRADE DEBTOR ANALYSIS

YEARS DETAIL PRICE UNITS AMOUNT

N
Year    1 20 litres palm oil 5000 197 985,000
Year   2 5% increase in year  1  1,034,460

amount
Year  3 5% increase in year  2  10,86,183

amount
Year  4 5% increase in year 3  1,140,492.5

amount
Year 5 5% increase in year 4  1,197,517.1

amount
 40

APPENDIC

SCHEDULE B

SALES ANALYSIS

YEARS DESCRIPTION UNITS  QTY  AMOUNT N

PRICE SOLD

N
Year 1  20 litres palm oil 5000 1,200 6,00,000

(2011)
Drum palm oil 30,000 120 3,600,000
By product ­ ­ 252,000
TOTAL 9,852,000

Year 2  Assumed increase of 5%  Same unit 

(2012)  on amount of previous  price

(2013( year

20 Litres Palm Oil Drum  1,260 6,300,000

Palm Oil By product 126.3 3,790,000

264,600
TOTAL 10,354,600

Year 3 Assumed increase of 5%  Same

on amount of previous  Unit

year Price
20 Litres Palm Oil Drum  1,323 6,615,000

Palm Oil  132.7 3,979,500

By product ­ 277,830
TOTAL 10,872,330
 41

Year 4 Assumed increase  Same

(2014) Of 5% on amount Unit

(2015) Of previous year Price

20 Litres Palm Oil 1,389.2 6,945,750

Drum Palm Oil 139.3 4,178,475

By product ­ 291,721.5
TOTAL 11,415,946.5

Year 5 Assumed increase  Same

(2015) Of 5% on amount  Unit

(2016) Of previous year Price

20 Litres Palm Oil  1,458.6 7,293,037.5

Drum Palm Oil 146.2 4,387,398.8

By product ­ 306,307.6
TOTAL 11,986,743.9