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Pre-Feasibility Study

Beauty Clinic

Small and Medium Enterprise Development Authority


Government of Pakistan
www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore Tel 111 111 456, Fax: 6304926-7 Website www.smeda.org.pk Helpdesk@smeda.org.pk
REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 Helpdesk-khi@smeda.org.pk REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 helpdesk-pew@smeda.org.pk REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 helpdesk-qta@smeda.org.pk

8th Floor LDA Plaza Egerton Road, Lahore Tel 111 111 456, Fax: 6370474-7 Website www.smeda.org.pk
helpdesk@smeda.org.pk

March,2008

Pre-Feasibility Study

Beauty Clinic

DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. Therefore, the content of this memorandum should not be relied upon for making any decision, investment or otherwise. The prospective user of this memorandum is encouraged to carry out his/her own due diligence and gather any information he/she considers necessary for making an informed decision. The content of the information memorandum does not bind SMEDA in any legal or other form.

DOCUMENT CONTROL
Document No. Revision Prepared by Approved by Revision Date Issued by PREF-60 2 SMEDA Punjab Provincial chief-Punjab March 2008 Library Officer

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INTRODUCTION ........................................................................................................ 4

1.1 1.2 1.3 1.4


2 3

Project Brief ........................................................................................................4 Opportunity Rationale..........................................................................................4 Proposed Capacity ...............................................................................................4 Total Project Cost ................................................................................................5
Current Industry Structure .........................................................................................5 Marketing .....................................................................................................................5

3.1 3.2
4 5 6

Guidelines for Beauty Clinic Business .................................................................6 Total Market Size and Growth .............................................................................6
Beauty Products Used................................................................................................... 7 Human Resource Requirement .................................................................................... 7 Equipment Details ........................................................................................................ 8

6.1 6.2
7

Equipment List ....................................................................................................8 Alternate Option for Equipment ...........................................................................9


Land and Building ........................................................................................................ 9

7.1 7.2 7.3 7.4 7.5


8

Total Land Requirement ......................................................................................9 Covered Area Requirement ..................................................................................9 Recommended Mode ...........................................................................................9 Suitable Locations..............................................................................................10 Utilities Requirements........................................................................................10
Project Economics ...................................................................................................... 10

8.1 Initial Project Cost .............................................................................................10 8.2 Financing Plan ...................................................................................................10 8.3 Projects Returns................................................................................................11 Estimated Time for Project Completion .........................................................................11
9 10 11 12 Key Success Factors.................................................................................................... 11 Threats for the business ............................................................................................. 12 Regulations ................................................................................................................. 12 Financial Analysis....................................................................................................... 13

12.1 12.2 12.3 12.4


13

Financial Statements ..........................................................................................13 Projected Income Statement...............................................................................14 Projected Cash Flow Statement..........................................................................15 Projected Balance Sheet.....................................................................................16
Key Assumptions ........................................................................................................ 17

13.1 13.2 13.3 13.4 13.5 13.6

Equipments Assumptions...................................................................................17 Operating Assumptions......................................................................................17 Economy Related Assumptions..........................................................................17 Expense Assumptions ........................................................................................17 Financial Assumptions .......................................................................................17 Miscellaneous Assumptions ...............................................................................18

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1
1.1

INTRODUCTION
Project Brief

The proposed project entails setting up a beauty clinic. Being one of the major players in service sector, beauty clinics provide a wide range of services relating to beauty treatment for women and men. These services range from threading, facial and haircut to complex and more professional services like electrolysis, permanent make-up, diet and skin related consultations provided by qualified dieticians and dermatologists (skin specialists). The proposed beauty clinic will provide all these services under one roof. 1.2 Opportunity Rationale

Due to vast media exposure over past few years, women, as well as men, have become more conscious about their looks. In Pakistan, beauty care industry has grown over the years and is basically female oriented. However, some big names in this industry have recently opened beauty saloons for men as well. It is easy to open beauty parlours as space and skill requirement is very basic. But a beauty clinic provides more professional services with qualified staff including doctors and experienced support staff and therefore, requires more planning and arrangement. Quite a few beauty clinics have opened in Lahore, Islamabad, Karachi and other relatively larger cities of Pakistan, which are catering to the demand of the people, but still there is a lot of unfulfilled demand as can be judged from excessive rush at the existing beauty clinics. The business is service-oriented and carries large potential for profits due to its unique nature and uncontrolled spending of people, especially on marriages. Unfulfilled demand, constantly changing beauty requirements due to change in fashion, and good profit margins are few of the incentives for new entrants in this business, especially for those who are committed to providing quality service. 1.3 Proposed Capacity

The proposed Beauty Clinic will handle 28 customers per day. This is worked out as follows: Facial Beds Number Working hours per day Effective hours per day Hours utilized by one client Maximum clients entertained per day Capacity per day 3 8 24 3 8 Hair Dressing Chairs 4 8 32 2 16 28 Makeup Chairs 2 8 16 4 4

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1.4

Total Project Cost

Total project cost is 1.726 million rupees approximately. Out of the total project cost, 850,184 rupees would be used for the purchase of fixed asset. The following services would be offered at the proposed Beauty Clinic: Types of Services Body treatment Particulars of Services Diet consultation Application of body scrubs, face masks and body masks Massaging Manicure hands washing & massaging Pedicure feet washing & massaging Nail extension and extrusion Facial Bleaching of body hair Waxing of body hair Makeup (bridal and party) Threading of body hair Skin consultations Hair cut Hair dressing Hair coloring Hair streaking

Beauty treatment

Hair treatment

CURRENT INDUSTRY STRUCTURE

The number of beauty clinics in Pakistan has increased at a fast pace over the last few years. The size of this sector of service industry is still growing. Due to very low amount of investment that is required to start a beauty parlour, the number of such establishments has cropped up in houses all over the country. In Lahore, more professional and large clinics have been set up in commercial areas like M. M. Alam Road, Defence, and Main Boulevard Gulberg. Professional experts are currently operating approximately 15 large beauty clinics in Lahore. Similarly, large Beauty Clinics have also been opened in prime business locations in Karachi and Islamabad.

MARKETING

Proper marketing is essential to attract clients for a newly established beauty clinic. Once a reasonable clientele is achieved, the stress on marketing can be decreased as it is automatically done through recommendations from existing clients to potential clients. It at least takes a year to establish and achieve a reasonable clientele for a new beauty clinic.
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Major marketing effort is done through advertisement. This includes putting up billboards, giving advertisements in fashion magazines and newspapers, publishing photo shoots in magazines, flyers, etc. The distinguished features of the business, for example, modern technology and foreign qualified staff, can be highlighted in the advertisements. In the beginning, discounts on different services can also be provided as well as some complementary services can be offered. In additions to this summer deals and winter packages can also be introduced. An effective marketing campaign plays a key role in the initial and successive success of a beauty clinic. A lot of importance should be given to a proper launching as initial impression on general public will benefit beauty clinic in the long run. For this purpose, the electronic as well as print media should be effectively used. Other marketing tactics should include the use of celebrities in advertisements, free memberships for initial customers without any charge, and regular reminders through phone and letters about the next due date of their treatment. As part of the overall marketing strategy of the proposed beauty clinic, customers will be requested to fill feedback forms. This will act as an effective tool for translating customers requirements into better service. 3.1 Guidelines for Beauty Clinic Business

To enter into Beauty Clinic business, following basic guidelines would be helpful for any newcomer: Hire qualified beauticians and give them regular training and arrange refresher courses for them. Ensure good quality of service at all times, and be consistent. This is the basic key for running a successful beauty clinic. Use very good quality beauty products. Preferably imported and branded. Cater to the needs of the clients individually to have satisfied customers. Preferably, the business should be set up in a commercial area, which should be easily accessible for the clients. The ambience of the clinic has to be according to the taste of targeted customers. Preferably, it has to be homely, as the customers come to beauty clinics for treatment as well as relaxation. The charges for different services should be set keeping in mind the price charged by the competition. 3.2 Total Market Size and Growth

The market size is growing every day and there is a huge potential for the new entrants. The major market players around the country are Depilex and Nabila. In Lahore, the big names also include New Look, Allenora, Samias, Bellisma, Muneeba and Elysium.

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The clinics, which entered this market in the beginning, have grown considerably since then. A few of these clinics have established their outlets outside Pakistan, particularly in Gulf countries. Due to the absence of any administrative body or association, no statistical data is available to show the exact number of clinics operated by qualified professionals and by unqualified-cum-experienced beauticians.

BEAUTY PRODUCTS USED

Following products would be used in the proposed beauty clinic. The table also mentions the treatments in which these products would be used: For this feasibility report their total expense for the year is assumed to be 10% of the revenue. Beauty Products Foundation, eye shadows, lipsticks, lip pencils and blushers Scrubs Toners Moisturizers Face masks Bleach cream Hot wax Hair colour Used In Makeup bridal and party Manicure/pedicure, facial and body scrubs Facial Manicure/pedicure, facial, masks and massaging Facial and masks Bleaching Waxing Hair coloring and streaking

HUMAN RESOURCE REQUIREMENT


Staff Req d. 1 1 2 3 5 1 1 1 2 17 Salary Per Month 10,000 10,000 18,000 7,000 4,000 5,000 3,500 5,000 2,500 Salary Per Annum 120,000 120,000 432,000 252,000 240,000 60,000 42,000 60,000 60,000 1,386,000

Following staff would be required for the proposed project:

Dermatologist1 Dieticians2 Foreign qualified beautician Local qualified beautician Support staff (trainee beauticians) Receptionist Office girl Guard Sweeper Total
1

This represents an average monthly salary based on projections for the first year, as dermatologists and dieticians work on part-time basis and are given a set percentage of consultation fee, usually 60% for the Consultant and 40% for the Clinic. 2 Same as above. 7 PREF-60/March, 2008/2Rev 2

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6
6.1

EQUIPMENT DETAILS
Equipment List

Following equipment would be required for the proposed beauty clinic. Equipment is chosen keeping in mind the services that would be offered at the clinic. Approximate prices are also given along with the list: Equipment/Machines3 Electric facial unit Steamer for hair Steamer for facial Pedicure machine Back wash for washing hair Warmer for hot wax Magnifying glass Computers Telephones Software Total Furniture& Fixtures Carpeting Back rack Reception & cash counter Display counter Flooring Main door Parlor faade Counter chair Facial beds Hair dryer Hair dressing Make up chair Waiting area chairs Waiting area sofa set Air conditioners
3

Required 1 2 2 1 1 1 1 1 3 1

Cost Per Machine (Rupees) 37,000 6,800 7,000 4,500 22,000 2,500 3,200 25,000 2,500 30,000 Cost Per Unit (Rupees)

Total Cost (Rupees) 37,000 13,600 14,000 4,500 22,000 2,500 3,200 25,000 7,500 30,000 159,300 Total Cost (Rupees) 22,000 74,984 25,000 18,000 136,800 25,000 14,400 7,000 10,500 12,000 64,000 15,000 12,000 30,000 130,000

400 93.73 1 3 760 1 180 2 3 4 4 2 12 1 5

55 800 25,000 6,000 180 25,000 80 3,500 3,500 3,000 16,000 7,500 1,000 30,000 26,000

Mr. Raza, Ali Electronics,E-1186 Muhammadi Bara Shah Alam Market,Lahore. Tel:042-7654153, Cell:0302-4011009&0302-4111404 8

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Television sets False Ceiling Lighting Total 6.2

2 760 1

20,000 45 20000

40,000 34200 20000 690,884

Alternate Option for Equipment

An alternative option for the project is to purchase local equipment, which would cost considerably less then the imported equipment mentioned above. However, quality would be compromised with local equipment. As the nature of the business requires maintaining high quality, it is recommended to use imported equipment.

7
7.1

L AND AND B UI L DI NG
Total Land Requirement

Approximately 5,400 square feet covered area is required for the proposed Beauty Clinic. 7.2 Covered Area Requirement

Following is the covered area requirement split into various departments and sections: Sections/Departments Hair Dressing Area Beauty Therapy Area (Facial etc.) Manicure/Pedicure Area Makeup Room Waiting Area Reception Store Office Wash Rooms Total area 7.3 Recommended Mode Area (sq. ft.) Per Section 200 sq. ft. per chair 250 sq. ft. per bed Total Area (sq. ft.) 800 750 600 600 1,100 300 550 400 300 5,400

300 sq. ft. per chair For 12 people

It is recommended to take a 12 marla double storey house on rent to start this project. Starting the clinic in a rented building would significantly reduce the initial capital cost of the project. A building having 2,700 square feet area can be rented for approximately 80,000 rupees per month in any good commercial area of large cities of the county. Comparatively, if land is purchased, and a new building is constructed, it would cost approximately 15 million rupees. This makes a huge difference in project cost.
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Sq, ft. 2,700.0 7.4

Rent Per sq. Ft 29.63

Monthly Rent 80,001

Rent Expense 1st Year 960,012

Suitable Locations

The clusters of beauty clinics exist predominantly in Lahore, Karachi and Islamabad. As most of the clinics are based in these major cities, it is recommended that the project should be located in anyone of these cities. However, the basic criteria for the selection of location within these cities should be the prime business area and easy approach for customers. 7.5 Utilities Requirements

This beauty clinic should have the basic utilities like electricity, telephone, gas, and water.

8
8.1

PROJECT ECONOMICS
Initial Project Cost

Following is the breakup of the initial project cost: Project Cost Capital Cost Equipment Furniture & Fixtures Pre-operating Costs4 Total Capital Cost Working Capital Initial investment in beauty and makeup products (Imported two months consumption) Rent payment (6 months in advance) Total Working Capital Total Project Cost 8.2 Financing Plan Costs (Rs) 159,300 690,884 352,503 1,202,687 43,725 480,006 523,731 1,726,418

Financing Equity financing 50 % Debt financing 50 %

863,209 863,209

These include initial promotion expenses, initial marketing expenses. 10

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8.3

Projects Returns Project Rs.1,725.29 42% 4 Years

Net Present Value (NPV) @ 20% Internal Rate of Return (IRR) Simple Payback Period Estimated Time for Project Completion
1. 2. 3. 4. 5. 6.

15 days for completion of initial formalities, i.e., selection of suitable location and renting of building etc. 1 month for sanction of loan (in case, if financing has to be arranged through bank). 1 month for purchase / import of equipments. 1 month for furnishing and staff appointments. This project can take-off within 1-2 months, as some of the activities will be in progress simultaneously. In case of self financed project, and if the building is also rented, then this setup can be started even within a few weeks time period.

KEY SUCCESS FACTORS

The ever-growing population of marriageable aged girls and boys, and consequent constant growth in demand for the services to be offered by the proposed beauty clinic is the basic rationale for setting up such an enterprise. Although, this proposed project promises a good return on investment and reasonable profit potential, but it requires regular and proper attention from the entrepreneur. To run a professional Beauty Clinic is a full time job and requires continuous hard work and attention. Anyone who is not qualified and is not prepared to put in best possible effort; concentration and hard working should not attempt to enter in this business. A beauty clinic requires about a time period of one year to establish itself properly, which requires very aggressive marketing efforts at the entrepreneur's end. Another important success factor of this business in Pakistan would be consistency of service. If one customer leaves the clinic unsatisfied, the reputation of the place is adversely affected, as marketing is mostly done through word of mouth after the first few months. Following are other key points that can be taken as key success factors: Qualified staff Know-how and knowledge of the services Continuous training of staff Ambience of the place Personalised Customer service
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10 THREATS FOR THE BUSINESS


Finding qualified staff in Pakistan is quite difficult as there are no local colleges giving any degrees or certifications in this field. A high turnover is also observed in qualified and trainee staff, as they tend to leave for establishing their own beauty parlours in their homes. Another important threat to a beauty clinic is breaking the trust of the client. As the clinic is involved in skin treatment and hair treatment etc. the client trusts the beautician to use highest quality products, which can be broken by inferior quality of service or beauty products used.

11 REGULATIONS
There are no specific trade regulations applicable on this industry and there is also no regulatory body formed as such to administer the activities of Beauty Clinics. These clinics are assessed normally under the local Income Tax Law.

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12 FINANCIAL ANALYSIS
12.1 Financial Statements The following table summarizes the projected sales of various services that will be rendered in the next ten years based on which the projected income statements have been prepared. Table 12-1 Projected Level of Services Years Facial Manicure/Pedicure Waxing Hair Cut Consultation Bridal Make ups Party Make up 1 238 390 630 450 337 81 143 2 255 714 674 495 361 87 153 3 272 447 721 545 386 93 164 4 292 478 772 599 413 99 175 (Number of Clients Visits) 5 312 511 826 659 442 106 187 6 334 547 884 725 473 114 201 7 357 585 945 797 506 122 215 8 382 626 1,012 877 541 130 230 9 409 670 1,082 965 579 139 246 10 438 717 1,158 1,061 620 149 263

Table 12-2 Projected Sales Value

(Rupees in thousands)

Years 1 2 3 4 5 6 7 8 9 10 Facial 1,000 1,060 1,124 1,191 1,262 1,338 1,419 1,504 1,594 1,689 Manicure/Pedicure 450 477 506 536 568 602 638 677 717 760 Waxing 800 848 899 953 1,010 1,071 1,135 1,203 1,275 1,352 Hair Cut 1,200 1,272 1,348 1,429 1,515 1,606 1,702 1,804 1,913 2,027 Consultation 1,500 1,590 1,685 1,787 1,894 2,007 2,128 2,255 2,391 2,534 Bridal Make ups 14,000 14,840 15,730 16,674 17,675 18,735 19,859 21,051 22,314 23,653 Party Make up 4,000 4,240 4,494 4,764 5,050 5,353 5,674 6,015 6,375 6,758

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12.2 Projected Income Statement


Rs(000) Year - I Sales/Revenue Cost of Sales Gross Profit Operating Expenses: Administrative Expenses Rent Operating Profit Financial Charges L C + Bank Charges Profit before Taxation
Taxation 43%

Year - II 4,326 2,008 2,318 710 1,056 552 91 110 352 151 200 (56) 144

Year - III 4,764 2,138 2,626 698 1,162 767 66 121 579 249 330 144 475

Year - IV 5,418 2,297 3,120 688 1,278 1,155 42 133 979 421 558 475 1,033

Year - V 6,171 2,475 3,697 679 1,406 1,612 18 146 1,448 622 825 1,033 1,858

Year - VI Year - VII Year - VIII 7,048 2,703 4,345 672 1,546 2,127 (0) 161 1,966 845 1,121 1,858 2,979 8,029 2,922 5,107 626 1,701 2,781 (0) 177 2,604 1,120 1,484 2,979 4,463 9,138 3,163 5,975 603 1,871 3,501 (0) 195 3,306 1,422 1,884 4,463 6,347

Year - IX 10,411 3,432 6,980 585 2,058 4,337 (0) 214 4,123 1,773 2,350 6,347 8,697

Year - X 11,874 3,731 8,143 569 2,264 5,310 (0) 236 5,074 2,182 2,892 8,697 11,590

3,669 1,869 1,800 723 960 117 115 100 (98) (42) (56) (56)

Profit after Taxation Acc. Profit b/f Accumulated Profit c/f

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12.3 Projected Cash Flow Statement


(000) Year 1 Profit before Financial Charges & Taxation Amortization Depreciation Working Capital Change Cash from other Sources Owners Bank Finance Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

117 36
16

552 31
14

767 26
13

1,155 22
12

1,612 19
10

2,127 16
9

2,781 14
8

3,501 12
8

4,337 10
7

5,310 8
6

168 57

597 (7)

806 (1)

1,189 (5)

1,641 (7)

2,153 (6)

2,803 (10)

3,520 (13)

4,354 (15)

5,325 (19)

863 863 1,726 1,952 159 240 287 100 42 744 1,207 1,207

590 263 110 151 524 66 1,207 1,273

805 239 121 249 609 195 1,273 1,468

1,183 215 133 421 769 414 1,468 1,882

1,634 191 146 622 960 675 1,882 2,557

2,147 0 161 845 1,007 1,140 2,557 3,697

2,792 0 177 1,120 1,297 1,496 3,697 5,193

3,507

4,338 -

5,306 0 236 2,182 2,418 2,888 9,435 12,323

Total Sources Applications: Fixed Assets Preliminary Expenses Re -Payment of Loan L C Charges Tax

0 195 1,422 1,616 1,891 5,193 7,084

0 214 1,773 1,987 2,351 7,084 9,435

Cash Increase/(Decrease)

Opening Balance Closing Balance

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12.4 Projected Balance Sheet


Rs(000) Year - X 56 47 396 12,323 12,822

Year - I Tangible Fixed Assets Preliminary Expenses Current Assets: Accounts Receivable Cash in Hand / Bank 143 204 122 1,207 1,677 Owners Equity: Capital Accumulated Profit Long Term Loan Current Liabilities: Current Portion Accounts Payable

Year - II 129 173 144 1,273 1,720

Year - III 116 147 159 1,468 1,891

Year - IV 105 125 181 1,882 2,293

Year - V 94 106 206 2,557 2,964

Year - VI 85 91 235 3,697 4,107

Year - VII 76 77 268 5,193 5,614

Year - VIII 69 65 305 7,084 7,522

Year - IX 62 56 347 9,435 9,899

863 (56) 691

863 144 518

863 475 345

863 1,033 173

863 1,858 (0)

863 2,979 (0)

863 4,463 (0)

863 6,347 (0)

863 8,697 (0)

863 11,590 (0)

179 1,677

194 1,720

208 1,891

224 2,293

242 2,964

266 4,107

288 5,614

312 7,522

339 9,899

369 12,822

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13 KEY ASSUMPTIONS
The principal assumptions made in preparation of the business plan are set out below: 13.1 Equipments Assumptions Equipments Facial Beds Hair Dressing Chairs Make Up Chairs Capacity Clients per day (In Numbers) 13.2 Operating Assumptions Hours Operational per day (effective hours after taking into account the slack hours) Days operational per month Days operational per year 13.3 Economy Related Assumptions Annual Growth rates: - Sale Price of Services - Beauty Product Costs - Salaries & Wages - Electricity Cost - Maintenance Cost - Marketing Expenses (Decreasing Rate) - Rentals 13.4 Expense Assumptions Cost of beauty products consumption per month operating at 100 % capacity Terms with Consultants (Consultants : Clinic) Service hours required: - Facial & related services - Hair Cuts & related services - Make Ups & related services 13.5 Financial Assumptions Project Life
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3 4 2 28

8 25 312

6% 10 % 5% 5% 1% 5% 10 %

10% of the revenue 60 : 40 3 hours 2 hours 4 hours

10 Years

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Debt Equity Ratio Interest rate on Long Term Loan Long Term Debt Tenure Net Present Value Rate (Weighted Average Cost of Capital) Income Tax Rate 13.6 Miscellaneous Assumptions Inventory Level Maintained Letter of Credit Settlements for import of Beauty Products Repayment of Long Term Loan Deprecation Rate Depreciation Method

50:50 16 % 5 years 20 % 43 %

2 months 30 days Year End 10 % per annum Straight Line

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