Air conditioning system

Air conditioning (AC), is mostly defined as the process of removing heat and controlling
the humidity of air in an enclosed space to achieve a more comfortable interior environment.
Since it is member of HVAC, heating ventilation and air conditioning, mostly saying AC
includes cooling, heating, controlling humidity, and maybe ventilation.
An air conditioning system is an electrical device that is purposely installed for the removal of
heat and moisture from the interior of an occupied space. It is a process that is commonly used to
achieve a more comfortable environment, basically for human and other animals. Air
conditioning system is also used to cool and dehumidify rooms that contain heat-producing
electronic devices, such as computer server, power amplifiers. It also used in space that contains
delicate products like artwork.
Previously, air conditioning was confined to winter comfort; that is, to heating the home to a
comfortable temperature in the winter by means of open fireplaces or stoves. Later, decided
improvements were made in the heating equipment by the introduction of steam and hot water
heating, but air conditioning was still confined to winter comfort. Less than fifty years ago
human beings were content to be comfortable in winter and terribly uncomfortable during the
sweltering humid heat of summer.
Until recently, modifying the summer heat as well as warming the house in the winter was an
unknown factor in our daily lives.
As air conditioning has developed, the many improvements and advantages, such as removing
dust from the air to create a thoroughly sanitary condition, have widened its scope and use, not
only for human comfort, but also in many manufacturing processes where the use of air
conditioning has become so extensive that it is a “must”.
By cleaning the air, controlling the amount of moisture in the air, and maintaining the air at a
proper temperature, great improvement is shown in the quality of the products and savings are
made possible by the reduction of material spoilage attributed to dust, bacteria or fluctuating
temperatures The scope of air conditioning in industry is enormous. It is well worth it to
specialize in commercial air conditioning, because industrial plants of all kinds require properly
engineered and adjusted air conditioning systems.
Installation of air conditioner
Installation process for a new air conditioner is complicated. When customers ask me what’s
involved in the process, they’re often shocked to learn how much goes into it. The more
worrying fact is that there are many HVAC companies and air conditioner installers who don’t
know all the steps that should be part of a good installation. It’s easy to cut corners so that an a/c
system runs “good enough.” But “good enough” often means losing thousands of dollars in
energy costs over the life of your system, and decreased comfort for you and your family. This is
unacceptable.
Refrigeration system
Refrigeration may be defined as a process of removing heat from a substance and pumping it to
the surroundings. It also includes the process of maintaining and reducing the temperature of a
body below the general temperature of its surroundings. Thus, in a refrigerator heat is prepared
from low temperature to high temperature. Theoretically, the refrigerator is a heat pump which
pumps heat from a cold body and delivers it to a hot body.
Maintenance of fridge or freezer
When maintaining and testing systems, it is important to remember that product losses are just as
likely to be caused by exposure to too low a temperature as by exposure to a high temperature. It
is therefore necessary to check that the secondary system cuts in when the temperature exceeds
the allowable maximum. The operating methodology and/or the control system should be
designed so that the two refrigeration systems run alternately; this ensures that a problem with
either system is quickly identified. The maintenance program should also include checking the
response of the system to temperatures below the allowable minimum. In particular there should
be an independent cut-off mechanism to prevent low temperature excursions. For example, if the
temperature is controlled by a solenoid valve system, the low-temperature safety system should
cut off the power to the compressor.

1 Description of the business

The first step in starting new business venture is to find out suitable business model. As
entrepreneurs looking for different alternative scenarios and analyzing them thoroughly from
social, economic and environmental perspective is very important. Hence, we developed some
business models as alternatives and finally we select our best business model. So, AC and
Refrigerator Maintenance Operating and Training Center has an important role in that it masters
students in maintaining sectors and provides a pre-learnt knowledge for the work environment
that most engineering students participate after graduation. It is assumed that we, the
entrepreneurs of this business idea, are the center operators as well as the teachers of the
maintenance lesson and when necessary, we will be inviting experts so as to train students and
qualify them in a way they would not be questioned when maintaining an equipment comes to be
their task.
Although the project mostly targets on qualifying technology students, making money also
remains to be the main target. As the name of the business implies, money can be made out of
this idea both by us performing maintenance for the city people as well as providing maintenance
training for technology students of the Bahir Dar Institute of Technology. It would very much be
a profitable one in that it does not involve extra expenses to be made for buying new equipment
for the teaching purpose since the training will be given at the maintenance center where the
localities equipment is maintained.
As the saying goes “you can’t have your cake and eat it too” we do not intend to have the idea
and do everything by ourselves for, it is not a smart thing to do. We intent to make a share with
the university and if that does not work, we would have to find investors who are willing to work
with us on this business idea. However, the business idea will be more profitable if it is agreed
with the university because the institute already fulfils the material requirements that the project
idea needs. Not only that the target area that the training will be given is to the students of the
technology institute, for that matter it will be very much convenient that the location of the
project area be inside the institute and also agreeable percent share will be given to the institute
because the institute is not only giving a location but also required inputs.
Due different factor such as limited time - led most of the institute students not to have enough
practical lessons after the corona virus, limited to software - in most part of the country institutes,
most students practice more of the software parts which would not meet the real world that is
awaiting them after graduation. Their software knowledges are wanted in limited sectors leaving
most of graduates jobless. These and so many other factors brought this idea. The idea
concentrates on giving the required qualifying maintenance training for those who are ready to
advance their knowledge with affordable minimum cost possible.
The business idea will affect the local community in a positive manner because the maintenance
center as mentioned earlier provides fixing household equipment of the localities with the lowest
cost possible by an actual engineer (i.e.; with the most certain recovery of their equipment). This
is a major advantage for those who live next by the institute for, it would save them extra
expenses made for transportation of their equipment.
Regarding to the environmental impact, it is believed that the business ides will result in no harm
to the surrounding since the maintenance process does not involve that much of burnings to
exhaust.

2 Market Feasibility
2.1 Enterprise description
As a new enterprise, the size of the industry is assumed to be of small scale to have a better
understanding and market demand of the business idea. In fact, the size will mostly be
determined by the capability of the investors, in our case the institute. The more the institute
accepted the idea, the greater the chance that the industry is bigger and the same is true
otherwise.
The nature of the industry is somehow very attractive, yet it is not very well developed. From the
researches made during this feasibility study, unless it is for a few numbers of experts, the
business is not well developed and it is also not known. To name but a few, those who are
participating in this field are Mr. Wondessen, who have reduced our burden of making extra
researches to study the market of Air Conditioning installation and maintenance, he had been the
only AC maintenance operator in Bahir Dar city for some time now.
As starter, the business will not be stable for some time until its establishment is completed in the
near future. Thus, the business would have to go through some changes. The changes will be,
assuming the business is on the market, it will take time until it is known and the benefits of the
firm to the trainees as well as the community is understood. Even also introducing the business
to the customers would be challenging for a time being. The market would have to be introduced
with the community in an attractive way everywhere that it can be advertised. Some discounts
would have to be made to attract customers and create market competition with an existing
business sector with closer similarities with the business at hand. Due such limiting factors, the
business will be going through gradual changes.
In any cases, workloads and other things that comes with it as a result are simplified by easing
the management process. For the ease of the management process, the firm is divided in two
separate sections (i.e.; the maintenance section and the training section) both to be managed by
the business owners.
This business industry will be supported with almost every inputs it needs as a starter, but as it
grows larger, it will not need such supplies. it is even the business owners plan to make the
business franchise free and only of their own. The business, in addition to the training and the
maintaining operations, will grow into becoming an air conditioning and house hold equipment
supplier in the city. This way the industry will grow even bigger and matures to a level of major
and known market in the country.
2.2 Enterprise competitiveness
The industry is not very much known in Bahir Dar city from the studies made earlier, yet it has a
significance effect on a society and targeted students. It is observed that the same techniques
represented as backward is still in use in our country. However, this business is unique in that it
involves technological applications to be implemented on equipment to be maintained creating
greater chances for engineers to have an opportunity in which they can participate on and also
creating greater chances for market competition and becoming first choice in the community.
It is known that businesses do well where there is a competition, in that way business owners
grow faster. It is not common and yet practical in our country, but in foreign countries business
competition is the main ladder for investors to climb higher. The major competitor that are
somehow closer to our business are those whom does the business in separate such as
refrigerator maintenance centers, household equipment maintenance centers, and the likes but
there are not very much of those with business such as training centers as there are in different
regional states of the country, air conditioning planting and maintaining centers which by the
way is not very much known in Ethiopia.
After the erection of this industry, some factors will be a barrier for others to enter the business
as competitors. The factors could be the fact that this industry will already have the name which
is a major factor for a business so much depends on it, engineers will be operating the
maintenance and the training purpose with the lowest cost possible limiting others on economic
basis, the location is where the subject matters located drawing huge line for competitors to enter
the market.
As has already been mentioned earlier, the business is not well established in Bahir Dar city
which creates a greater chance for investors to accept the business and become part of it and also
it provides greater opportunity to have the input suppliers. The other factor that needs
concentration is the competitiveness of the market based on product or service users. The fact
that the maintenance is to be performed cheaper that other same sectors and the location of the
centers is as much as possible at the center of the city, the service will have more users than any
major competitors. The other thing considered is that there is no such thing as training center in
Bahir Dar city and the location here too plays a crucial role since technology students will have a
technical training center where they belong all of these factors making the business the only
market for those who are interested in the field.
2.3 Researches Conducted
The entrepreneurs have been conducting research on how much hotels are using air conditioning.
The results were convincing that most hotels as well as malls are using air conditioning.
However, that is the case, the maintenance and installation were centered to a single expert.
Sky Resort
Sky Resort is one of the biggest and standard hotels in Bahir Dar city. The hotel is well-versed
that it has installed an air conditioning equipment in every room. The entrance has a restaurant
serving not only it’s guests but also for the localities and tourists whom does not reserve the
hotel room. The personnel of the hotel are kind enough they talked politely to the researchers.
The photographs show the set ups of the AC in Sky Resort Hotel. These photographs used to
show how an AC is mounted and most importantly it is used to where the research has been
conducted and how many competitors does the business involve. According to our research,
there are only two technicians experienced with installation of air conditioners and their
maintenance. In addition to that, from our source there is no air conditioning installation and
maintenance training centers and the use of air conditioners is exponentially increasing. In
conclusion, this result gives our business a greater opportunity to become unique in its features.
The price competitiveness can be summarized in such a way that other competitors, since they
would not have the percentage share with the institute because it is already been taken by the
subject business, will not handle the price competition because the lowest cost training will be
reflected on the percentage share.
Time horizon
A time/planning horizon is a fixed point of time in the future at which point certain processes
will be evaluated or assumed to end. It is necessary in an accounting, finance or risk
management regime to assign such a fixed horizon time so that alternatives can be evaluated for
performance over the same period of time. A time horizon is a physical impossibility in the real
world. In economics, a planning horizon is the length of time an individual plans ahead. It's
important in the quest for total value, as opposed to short term pleasure consumption. Time
horizon often referred to as investment time horizon, is the timeframe over which an investor
would stay invested in a scheme. Time horizon is the period after which an investor would pull
out their investment. Generally, investment objectives and strategies decide the investment time
horizon. For instance, saving for an exotic vacation is a short-term horizon, while saving for big-
ticket expenses such as purchasing a house or children's education and marriage is considered a
long-term horizon.

Figure 1: The back of

Sky Resort Hotel
showing the AC in each
room (A photograph
taken with permission
of the hotel manager)
Figure 2: The front of Sky Resort Hotel showing AC set ups in each room (A photograph taken with
permission of the hotel manager)

To ease the plan projections of the time horizon, a table is used presenting the time that will take
to reach the intended plans in an approach year form.
Table 1: Time horizon of the business (The future plan of the business)

Years Intended plans

The first year To establish a small-scale firm with acceptable little profit.
Advertise the newly formed sector in the institute as well as the
community.
Between the second and Have the establishment known and number one choice in the
third year city.
The fourth year Stabilize the firm and have it stand on its own.
Create a second-generation service center that is AC,
refrigerator, and other house hold equipment supply center in
the city.
Between the six and To establish a subsidiary of the firm in other regional states and
seventh year studied areas where the business can be profitable.
Between the tenth and Create a manufacturing industry which will produce AC,
the fifteenth year refrigerator, and other household equipment and become the
manufacturer as well as the supplier.
In twenty years Produce standard and branded products and become certified in
an international level.

2.4 Market potential

The product of the business will be sold not into commodity obviously but into a differentiated
service market. From the little researches made, the training market is in a great demand
especially by the institute students. As most of the students claim, after some years especially
after the corona, the education curriculum is more of concerned on the theoretical parts thereof
students are not that competitive in the sector.
It is a natural phenomenon that the greater a demand for something is the greater the chance that
supply emerges higher. The same is true with this business, it is assumed that it will be
prominent and very much likely to rise higher as it has a very great demand by the institute
students and by the community.
From the fundamental stages to be focused by entrepreneur for a new technology-based firms,
the stability of a firm is maintained by introducing a second-generation product. Therefore, it is
discussed in the above paragraph that the business is not to remain with just the maintaining and
training market but to grow it into a supply center and it is in a long-term plan that it will grow
into a manufacturing industry in which case the country would have an additional functioning
industry, job opportunities will grow, so does the economy.
From previous experience it is estimated that in other regional states of the country such as
Adama/Nazareth city, the business has a very grown market but it functions as only a training
center. It was investigated that many will come to from their localities to Nazareth to complete
the four month long certified training. This is evident that the market is in a greater demand and
also in a great usage in cities like Nazareth.
One other consideration in market potential is the market analysis in which a study would be
conducted based on the rate of increase of the use of the technology in the past few years. Air
conditioning basically is being introduced in houses owned by rich people while it is increasingly
in use and will be used in offices and more often in government buildings. On the other hand, the
use of refrigerator is at most common in every house hold.
2.5 Sales projection
The sales are performing the maintaining operation to the community and also teaching those
students who are willing to take the training program. It is estimated that there will be a
significant amount of usage in the sector. Unless, of course the education program is changed in
which case a lot will change, the practicality among students of higher educations will remain a
huge demand in the country and there will be new students to come every year now and then
resulting in a non-stop training demand in students giving a great chance for the business to
grow. And also, it is estimated that the usage of air conditioning (usually in a buildings) and
refrigerator (often in houses, bars and restaurants) in Bahir Dar city is at an increasing rate
and the maintaining as well as installing of such equipment at lower cost will have a greater sale
potential.
Whether or not the business is feasible, it was made highly on the following assumptions:
The business is to be supported by either Bahir Dar institute of technology or interested
investors with agreement on percent share and another alternative is to have the firm
established by the business owners.
The location is in or close to the institute so that students will not have to travel so far to
participate in the training program,
A great number of students will apply on the training program,
The business will grow as long as there are new students every year now and then,
The usage of ac and refrigerators in the community will grow every year, (i.e.; the
technology will have more users in the near future)
 If the business ever faces a capital inefficiency, there will be loans available from
government or banks.
These assumptions have an underlying accuracy which will require a study to be made on them,
but it is estimated that since the assumptions depend on one another, will have a greater chance
of success. If the above assumptions were to go as planned, the project sales will have higher
market potential.
2.6 Access to market outlets
The potential buyers are both the community people and the students of the Bahir Dar institute
that which may not be limited only on the students it can further serve the localities whom are
interested in the sector. There will be no distribution of the product as it is limited to services
mentioned above but when the business is grown, it may involve distribution of products.

3 Technical feasibility
3.1 Determine facility needs
A detailed technical study was conducted before finalizing the project. There are several lands
that are not used for infrastructure inside Bahir Dar institute of technology, we were seen and
selected acceptable area inside it. For maintaining fridge and freezer the working area is needed,
but not for air conditioning installation this is because it works from house to house when the
customer tells us for installation to make comfortable artificial weather condition. Location of
business area has the best role for construction of business, Location of the plant is determined
on the proximity of raw materials, availability of infrastructure, availability of skilled man power
and distance to potential market outlet.
In view of this, there are a lot of students that are needed to train out of regular education and
there is some expert lecturer that is worked together with us and gives some experiences, this
business can be produce supply shop job opportunities so it must be need sufficient area in order
to prepare this business idea.
Maintenance equipment are also needed to make this business, which is used to maintain
refrigerator and install AC system and also used to train students, spare parts are also required
when defective objects are needed to change.
If one is entering the HVAC and refrigerator maintenance business industry, he/she/they will
want to make sure you are equipped with the proper tools for success, which range from the
basic essentials to those that are nice to have, but not necessarily mandatory. Whether you’re on
a service call or doing routine maintenance, you need to make sure you have reliable and durable
tools available to you at a moment’s notice in order to help get the job done quickly and
efficiently. This will give you the confidence that your refrigerator and AC will run smoothly
and efficiently once again. Thus, use of proper tools means there will no cause of damage during
the repair process.
3.2 Suitability of production technology
Technology is systematic collection of knowledge, skills, methods processes and end products or
services. It has important has important effects on business operation, no matter on the size of
your enterprise, technology has both tangible and intangible benefits that help you make money
and produce the results your customer’s demand. Technological infrastructure affects the culture,
efficiency and relationship of business, in this business the technologies are used to simplify our
tasks, provided technologies that involved in this business are software used for installation AC
system and refrigeration cycle
Adequate internet service is required for this business to be technologically advanced we can
also get this offer from the campus, also when we look at the relationship of this business to
technology, the machines we provide maintenance are modern and artificial(man-made) air
conditioning to produce comfortable condition for human being and refrigeration to provide cold
space, it has a strong connection with technology.
3.3 Availability and suitability of site
This business will work in BIT campus or near to the campus so accessibility of raw material is
sufficient. We can find any spare parts as we need because BIT is at the center of the city. And
also, accessibility of transport is not a problem for students and nearby peoples. Also, in this city
there are many chief machinists they working on different electronics maintenance shops so it’s
easy to find help from these peoples and work with them together.
After permit BIT, production inputs like electricity, and water are easily accesses from the
campus.

3.4 Raw materials

In this ac and refrigerator maintenance operation and training program, it is attempted to us
different raw materials that are used to train students and maintain the equipment of the
community. Some, but not all of the spare parts are summarized as follow:
➢ Evaporator ➢ Refrigerant
➢ Compressor ➢ Evaporator coil
➢ Condenser ➢ Duct
➢ Expansion valve ➢ Air handler
➢ Air filter

These Spare parts &accessories are needed for every section of machinery in order to avoid
malfunction and breakdown. Because of this business idea is apply on the urban area, materials
are easily available in any electronics stores. And also, we access one input supplier store from
the city that can supply any spare parts used for the maintenance.
3.5 Other inputs
In this business the training program and maintenance works are achieved by the business
owners. in addition to that well performing experts will have to be included to train students
according to the agreement. Therefore, wage rate of these machinist should consider based on
their skill level. We need air conditioning and refrigerator chief machinists as required with wage
of Birr 12,000 per month for each.

4 Financial feasibility
4.1 Estimate the total capital requirements
The establishment of the firm requires a number of inputs such as human resources, facilities
involving land allocation, maintenance materials, spares and inventories, furniture, rent houses
fulfilling the required land size, and other inputs based on the increasing requirements of the
firm.
Human Resources – the human resource involves personnel that need to be enrolled to keep
the business running. Whether or not the business is agreed to be established within the
institute, that is where ever the firm is established, it requires experts both on air conditioners
as well as refrigerator, security, clearer.
Table 2: Human resource description

Human resources Number of personnel Salary/per month

(In Birr)
Managers 3 ---
Experts 2 12000
Accountant 1 6000
Store keeper 1 5500
Security 1 4000
Clearer 1 4000
Total cost 31500

Suited Location – this includes the required spaces needed for the maintenance room
(separate rooms for both the air conditioning and refrigeration maintenance), spare parts
store, two office rooms and security room.
Table 3: Location requirements

Room Sections Minimum area Operations performed in the

2 rooms
of room (𝑚 )
1 AC maintenance room 8x5 Both maintenance and training
2 Refrigeration maintenance 8x5
room
 3 Store 5x5
4 Office 4x4 Registration and RAC receive
5 Security room 3x2 To pass the night for the
security

In general, a facility that can fulfill the above requirements is to be rented by an amount Birr
20,000.
Maintenance Accessories - the most commonly used maintenance materials by professional
and licensed technicians when repairing refrigerators and AC are listed in the following table.
Table 4: Maintenance accessory requirements

Name of Tools Quantity Unit price (in Birr)

Screw Driver (+ and – (Flat)) Package 1800
Pliers, Nose Pliers, Cutter Pliers
Screw wrench 2 Packages 5500
Pinch pliers
File Tool
Chisel and Hammer 4 Packages 5000
Drill machine
L Key Set 2 Package 2500
Swaging tool set
Flaring Tool Set Package 800
Digital Clamp Multi Meter (Ampere and volt meter) 4 Standard 500
Gauge manifold with Line (low- and high-Pressure Gauge) 2 Standard 2500
Vacuum Pump (or old refrigerator Compressor) Standard 50000
AC Service Machine (Water Pressure Machine) Standard 30000
Mini Gas Welding Plant Standard 20000
Level 2 Standard 500
Total cost 146600
 Figure 3: Maintenance tools examples

Spare Parts - the quality of material that used in the maintenance process is the primary
criteria that taken in to consideration, because the use of less quality materials results in the
machines failure earlier than its required work time causing extra costs. Therefore, more
qualified materials should be used from the selected electronics store.
Table 5: Spare parts

Materials Quality Price (in Birr)

Evaporator Standard 750
Compressor Standard 750
Condenser Standard 500
Expansion valve Standard 630
Air filter Standard 460
Refrigerant (Freon) Standard 2500
Refrigerant (Ammonia) Standard 2500
 Refrigerant (Li - Br) Standard 5000
Evaporator coil Standard 4650
Duct Standard 650
Air handler Standard 25000
Total cost 43390

Furniture – the seats, tables, office furniture, spares inventory and so on are included in this
section. A small set of these furniture with the lowest possible cost are required in the firm
since standards are to be fulfilled however small firm it is.
Table 6: Office and firm set up furniture

Furniture Type Quantity Unit Price (in Total price (in Birr)
Birr)
Seats Office seat 2 800 1600
Customer seat 15 470 7050
Tables Office table 2 2500 5000
Maintenance room table 9 1500 13500
Computer 1 10000 10000
Shelf 3 sides 10000 30000
White board 2 500 1000
Total cost 68150

Utility Needs
this section involves the requirements related to electricity, water, telephone, Wi-Fi networks and
the like that the firm needs to include in order to run the business and somehow attract
customers.
Table 7: Utilities

Utility Cost (in Birr)

Electricity 8000
Water 600
Wi-Fi network 1500
Telephone 200
Total cost 10300
It must be noted that the above requirements might change depending on the input parameters of
the firm. For instance, the quantity of seat needed to be fulfilled in the firm might increase or
decrease depending on timely requirements.
With all that being said, the consideration of the source of the capital is crucial. The source has
been in deep discussion among the business owners. As discussed above, the source of the
capital could be through the sharing companies in which case the firm will fulfill all required
inputs. On the other hand, there is a chance the business would not have sharing organizations,
this will lead the business owners to establish the firm on their own which is not desired because
fulfilling the required inputs completely will take the business owners much greater time
increasing the time horizon.
Determine replacement capital requirements and timing for facilities and equipment.
The business owners have grouped the sources of working capital needs or requirements into
three. These groups involve alternative ways through which the capital needs with business
shares or business owners are handle.
The first and most desirable alternative is to make a sharing agreement with the technology
institute of Bahir Dar university. This way, the business owners would have to only share their
income with the institute according to their agreement. That is, the need for rent house would not
be considered for the business would run inside the institute in a space provided by the
university.
The second alternative is to have the firm established near the institute, where the business will
have greater market, by sharing the business with interested investors. In this case, additional
input capital would have to be added that will be used for renting a business area.
The last, but as such important alternative is to establish the business by the entrepreneur’s
forming alliance with each other. This is done by contributing the same amount of money as well
as effort from the entrepreneurs. This also can be done by taking loans from government.
Rent expense
The rent expense is the money that the business owners would have to spent on facility/working
environment to run the business. This is the case that would happen if the first alternative is not
accepted. That is, if the institute does not accept the business or agreements cannot be reached
with the business owners, the second or the third alternative will be considered. The rent is
assumed to be birr 20000 and the business area close to the institute.
Estimate start-up capital needs until revenues are realized at full capacity.
Estimate contingency capital needs (construction delays, technology malfunction, market
access delays, etc.
It might need a consideration for expense corresponding with advertisements, transportations of
equipment, before startups of the capital. The advertisement includes paper fliers, through AMN
(Amhara Media Network), and any media networks that run through the city. Whereas, the
transportation expense includes the expenditure involved in transporting maintenance accessories
and spares delivery.
4.2 Budget expected costs and returns of various alternatives
Now, the total capital needs can be summarized in the following table.
Table 8: Total amount of cost descriptions

Expense type Amount of expense

Human resource (Salary) 31,500
Rent 20,000
Maintenance accessories Materials 146,600
Spare parts consumed 43,390
Furniture 68,150
Utility 10,300
Advertisement 10,000
Transportation 5,000
Total cost 334,940

Economic Feasibility Calculations

This is where the study that whether the business will generate profit/becomes economical or not
will be determined. This includes the benefits – both tangible (increased sale, cost reduction,
efficient use of time) and intangible (higher quality of services/products, better costumer relation,
increased flexibility of operation).
Hereafter, that we have gathered the total cost/seed capital needed to start the business, we can
analyze the economic feasibility by using numerical analysis. The costs discussed above can be
seen as a fixed cost and variable cost making up the seed capital that is the over capital
requirement of the project per month. In marketing, it is necessary to know how cost divide
between variable and fixed cost. This distinction is crucial in forecasting the earnings generated
by various changes in unit sales and thus the financial impact of proposed marketing campaigns.
These costs affect each other and are both extremely important to entrepreneurs.
The fixed costs (FC), also known as indirect cost or overhead cost, are paid regardless of how
much a business produces; therefore, it does not depend on outputs. Fixed cost is one that
generally paid over a given period; usually a month, or year. Business must always pay their
fixed cost regardless of how well they are doing. These costs are considered an entry barrier for
new entrepreneurs. However, fixed costs are not permanently fixed; they will change over time,
but are fixed, by contractual obligation, in relation to the quantity of production/service provided
for the relevant period. For instance, it involves new buildings. Rent, contracted salaries, and
insurance.
On the contrast, is a variable cost (VC) which vary depending on how much a business produces.
It is based on volume of output rather than time. It can only occur once there is a good or service
being produced. Examples of variable cost include materials consumed, product supplies,
commissions, utilities, and transaction fees. fixed costs have an effect on the nature of certain
variable costs.
In economics, there is a fixed cost for factory in the short run, and the fixed cost is immutable.
But in the long run, there are only variable costs, because they are all factors of production.
The fundamental accounting equation
The fundamental accounting equations are used in the analysis of economic feasibility which in
turn are used in the analysis of the break-even point.

𝑷𝒓𝒐𝒇𝒊𝒕 = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆𝒔 − 𝑻𝑪

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑆𝑃 ∗ 𝑢𝑛𝑖𝑡𝑠 𝑠𝑜𝑙𝑑; 𝑤ℎ𝑒𝑟𝑒 𝑆𝑃 = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒

𝑇𝐶 = 𝐹𝐶 + 𝑉𝐶

Nothing that it assumed that units manufactured equal units sold.

𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 = 𝑭𝑪/(𝑺𝑷 − 𝑽𝑪)

Fixed cost can be computed as follows:

𝐹𝐶 = 𝑅𝑒𝑛𝑡 + 𝐴𝑑𝑣𝑒𝑟𝑡𝑖𝑠𝑒𝑚𝑒𝑛𝑡 + 𝑆𝑎𝑙𝑎𝑟𝑦 + 𝑈𝑡𝑖𝑙𝑖𝑡𝑦 + 𝑡𝑟𝑎𝑛𝑠𝑝𝑜𝑟𝑡𝑎𝑡𝑖𝑜𝑛

𝐹𝐶 = 20,000 + 10,000 + 31,500 + 10,300 + 5,000

𝐹𝐶 = 𝐵𝑖𝑟𝑟 76,800
Variable cost can be calculated the same way as the fixed cost as follows:

𝑉𝐶 = 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑑 + 𝑈𝑡𝑖𝑙𝑖𝑡𝑦 + 𝐹𝑢𝑟𝑛𝑖𝑡𝑢𝑟𝑒

𝑉𝐶 = 146,600 + 43,390 + 68,100

𝑉𝐶 = 𝐵𝑖𝑟𝑟 258,090

The total cost is the summation of both the variable cost and the fixed cost.in addition to that
there must be a 15% considerations. This can be summarized as follows:

𝑇𝑂𝑇𝐴𝐿 𝐶𝑂𝑆𝑇 = 𝐹𝐶 + 𝑉𝐶

𝑇𝑂𝑇𝐴𝐿 𝐶𝑂𝑆𝑇 = 76,800 + 258,090

𝑇𝑂𝑇𝐴𝐿 𝐶𝑂𝑆𝑇 = 334,890 + 50,233.50 where 50,233.5 𝑖𝑠 15% 𝑜𝑓 𝑡ℎ𝑒 𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
 𝑇𝑂𝑇𝐴𝐿 𝐶𝑂𝑆𝑇 = 𝐵𝑖𝑟𝑟 385,124 ≈ 𝐵𝑖𝑟𝑟 385,200

To complete the economic calculation analysis, we would have to go through the overall revenue
that will be generated from the business within a month. It must be noted that the following data
are assumptions taken as much small as possible.
From The Training Center
Table 9: Total income from the training center

Training type Registered Fees per month Total per month

(In Birr) (In Birr)
Refrigerator maintenance 20 449 8,980
Air Conditioner maintenance 15 599 8,985
Air Conditioner installation 10 999 9,990
Total 45 2,047 27,955

From The Maintenance and Installation Center

Table 10: Total income from the maintaining and installing center

Operation Type Services performed Money generated per

month (in Birr)
Maintenance On Refrigerator 6
On Air Conditioner 4 Depends on the type of
Installation 3 the service
Total 12

The profit margin and expected net profit

𝑷𝒓𝒐𝒇𝒊𝒕 = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆𝒔 − 𝑻𝑪

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑆𝑃 ∗ 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠; 𝑤ℎ𝑒𝑟𝑒 𝑈𝑆𝑃 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑢𝑛𝑖𝑡 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑝𝑟𝑖𝑐𝑒

Herein, the service in the above equation indicates the expected average number of services
reached to both the trainees and the localities which is assumed to be 57 services per month is to
be provided.

𝑈𝑆𝑃 = 𝑉𝐶/𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠 + 𝑉𝐶/𝑠𝑒𝑟𝑣𝑖𝑐𝑒 30% + 𝑡𝑎𝑥

 𝑈𝑆𝑃 = 258,090/57 + (0.3 ∗ 4527.89) + 15%

𝑈𝑆𝑃 = 5886.26 ≈ 𝐵𝑖𝑟𝑟 6000

The cost noted as USP is ETB 6000, which is the average unit service price collected from each
service units and also the unit variable cost is 𝑈𝑉𝐶 = 𝐵𝑖𝑟𝑟 4527.89 ≈ 𝐵𝑖𝑟𝑟 4550.

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝑆𝑃 ∗ 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 6000 ∗ 57

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 = 𝐵𝑖𝑟𝑟 342,000 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ

𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥 = 𝑡𝑎𝑥 ∗ 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥 = 15% ∗ 342,000

𝐼𝑛𝑐𝑜𝑚𝑒 𝑇𝑎𝑥 = 𝐵𝑖𝑟𝑟 51,300 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ

𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡, 𝐺𝑃 = 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 – 𝑡𝑎𝑥

𝐺𝑃 = 342,000 – 51,300

𝐺𝑃 = 𝐵𝑖𝑟𝑟 290,700 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 = 𝐺𝑃 – 𝑇𝐶
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 = 𝐺𝑃 – 𝑇𝐶
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 = 290,700 – 385,200
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 = 𝐵𝑖𝑟𝑟 94,500 𝑝𝑒𝑟 𝑚𝑜𝑛𝑡ℎ 𝑙𝑜𝑠𝑠
The net profit of the first month is calculated to be loss as there will be loss in the first month of
the starting of the business. This loss can be surmounted or overcome when a break-even point
has been attained. The break-even point is computed below, but the net profit can be calculated
per year so that one can understand that the business will start to make profit in a year.
Break Even Point
The point at which a business operation no longer loses money and can begin to make a profit. It
may be in terms of units needed to be sold to cover costs or time- how long will it take (in years)
to payback the accrued costs. In this case, the break-even point is to be calculated in terms of
service that needs to be done to cover up the overall expenses of the fixed cost calculated above.
The break-even point can be calculated in terms of:
▪ Volume of production at break-even point
▪ Sales revenue at break-even point
 ▪ Factory Capacity; and
▪ Sales Price
The Break-Even Point
𝑇𝐹𝐶
𝐵𝐸𝑃 =
𝑈𝑆𝑃 − 𝑈𝑉𝐶
76,800
𝐵𝐸𝑃 =
6000 − 4550
𝐵𝐸𝑃 = 52.97 ≈ 53 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠

The break-even point can be expressed graphically as shown in figure below. It is the point at
which the revenue and the total costs make an intersection, and above which indicates a profit
whereas below represents loss.
An alternative to calculate the break-even point is shown below;

𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 – 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 – 𝐹𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡 = 𝑝𝑟𝑜𝑓𝑖𝑡

(6000 ∗ 𝑄) – (4550 ∗ 𝑄) – 76,800 = 0

𝑄 = 53 𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠
The above equation is applicable since it indicates that a profit is null which makes sense
because at a break-even point, it is assumed that an establishment would not make any profit nor
does it involve any loss.
From the above computational result, it can be concluded that the business has to offer at least 53
services per month (especially maintaining and installation service) to break-even. the
maintenance and the installation services are considered special because greater amount of
income is generated from those sectors.
 Production Cost (Birr) BEP = 124 services

Services Provided

Variable Cost REVENUE Fixed Cost COST

Figure 4: Graphical representation of the break-even point

4.3 Equity and credit needs

To meet these capital requirements there are the following options of financing or source of
funds.
Equity financing
Credit/Debt financing
The business to be financed by equity and credit financing system in the ratio of 1 to 3, which
means
25 % equity and 75 % credit.
Equity financing
The project capital requirement of about 25 % of the seed capital full filled by equity finance that
is about:
25 % x 385,200 = 87189.98 birr
Debt finance
A method of obtaining finance which involves an interest on the amount of money borrowed. It
requires pay back the amount of money borrowed with its interest rate of 12%. The project
capital
requirement of about 75 % of the seed capital full filled by debt finance that is about:
75 % x 385,200 = 261569.96 birr
Estimate the returns under various production, price and sales levels. This may involve
identifying “best case", "typical", and "worst case" scenarios or more sophisticated
analysis like a Monte Carlo simulation.
Assess the reliability of the underlying assumptions of the financial analysis (prices,
production, efficiencies, market access, market penetration, etc.)
Create a benchmark against industry averages and/or competitors (cost, margin, profits,
ROI, etc.).
Identify limitations or constraints of the economic analysis.
Constraints of the economic analysis
The major limitation of the economic analysis, besides the lack of resources, is that the business
is highly dependent on the assumptions made earlier.
Determine project expected cash flow during the start-up period.
Net cash flow is the difference between a company’s cash inflows and outflows within a given
time period. After paying for all operating costs and debt payments, a company has a positive
cash flow when it has excess cash. If a company is paying more for expenses than it earns, it has
a negative cash flow.
Cash is spent buying things to keep running the businesses. E.g., buying fixed assets
Cash is spent making things to sell. E.g., buying raw materials, payment for workers
Cash is spent on covering business expenses. E.g., rent, interest, utility, etc.
Drawings by the owner of the business: E.g., pay school fees, feed your family, maintain
your lifestyle, etc.
Cash is spent paying taxes

Identify project an expected income statement, balance sheet, etc. When reaching full
operation.

5 Managerial feasibility
5.1 Business structure
To but, generalize the idea, it is repeatedly mentioned in the previous chapters that as a starter
there are three alternatives, we have put to start the establishment of the industry. One of the
alternatives is to have it completely owned by the entrepreneurs in which case the effect of all
expenses handled by the owners of the business idea results in a small-scale firm. The second
and third alternatives are to share the business either with Bahir Dar institute of technology or
with investors interested in the business idea, respectively. Which both saves the entrepreneurs
from extra expenses and a bigger scale firm will be established. Therefore, the legal structure of
the firm is determined by one of the three alternatives. However, depending on the agreement to
be made between the sharing organizations (if there is any), majority of the rights including
changes in the business to a limited extent are given to the business original owners. The primary
choice that the entrepreneurs put forward is to have an alliance or potential joint partners who
can share the required initial capital and take the shares as agreed.
Although, skilled managers play a crucial role regarding business management, the business
would not involve managers and it is planned that the entrepreneurs are the managers since they
will be committing all their time in their business. The need for managers will be fulfilled once
the establishment has grown to a supply center in which case more jobs will be created in the
community. In addition to that, as a starter, business consultants and service providers such as
legal, industry experts will not be involved in the firm for, the business is of a small-scale.
Nevertheless, an accountant is required to analyze and reduce the load on financing.

Board of Directors

Maintenace Operation and Marketing Manager

Installation Manager

Finance Manager

Registration And
Spare Parts And
Ordering Office
Material Keeping Office

Figure 5: Organizational structure

5.2 Business founders

The business owners are eager for success. The fact that they are of the same stream having
different character gives them a greater chance in achieving in their fields. It is the business
owners aim at achieving and completing the project no matter what it takes. Among the three
best entrepreneurs whom came up with this business idea, one with greater understanding and
managerial experience will be selected to lead the project. However, this will be selected through
time and until then the entrepreneurs would have to share the three spots available for each one
of them.
Since it is a small-scale business, of course that is the case for time being, there will be no
reward system for the founders of the business. The founders of the business are a non-graduate
student of the technology institute but with greater vision. The only drawback that can limit the
business owners is that they have not organized other successful businesses, yet.
The founding members have agreed to distribute the tasks as follows:
I. Dagim Girma – Maintenance operation manager
II. Daniel Shilega – Installation manager
III. Thomas Alemayehu – Training manager
The above task division are somehow put to cop up with the formulation, but the founders are
collectively the board directors and they manage the finance.

6 Study conclusion
The study conclusions contain the information you will use for deciding whether to proceed
with creating the business.
Although there are a lot of expertise in the technology sector, almost none are attempting to
make changes and see different perspectives. Ethiopia has a lot of untouched resources both in
human resources and material resources. This study was conducted in Bahir Dar city where the
business has not grown well and is controlled by monopoly business owners in the city. The
business mostly aimed at producing skilled personnel by training them very well in the sector
and form a greater competition in the business so that the sector will not be hold and controlled
by monopolies. It also aimed at generating money by maintaining the damaged refrigerator as
well as air conditioner of the local communities and also installing air conditioners for hotels.
Based on the above analysis, there are not that much works (in this case services) to do to break-
even with the costs made establish the business. The subject business assumed to have been
feasible.