Feasibility Analysis

The scope of the financial feasibility analysis for the commercial production of indigo paste covers all processes, from the cultivation of *Indigofera* leaves to the treatment of these leaves to produce indigo paste. In this analysis, the cost assessment covers only the operational costs, both fixed costs and variable costs, without any investment costs. Paste-making activities are carried out on a household scale so that it does not require infrastructure facilities that are categorized as investment costs, such as building houses or making soaking tubs.

The wages in the cost assessment is based on the local community wage standard, IDR 65,000 per labor day. This daily wages rate does not differ between woman and man, and type of work. The nature of *Indigofera* development on Timor Island is a home industry, and the labor was unpaid as they are family members. Wage value is used for analysis purposes only.

Income assessment is carried out by measuring the productivity of *Indigofera* per ha, then processed into a paste by calculating the yield based on research results of (Agustarini et al. 2021). The analysis of the price of the final product was based on an investigation of the selling price for indigo paste ins the marketplace (Shopee n.d.).

A number of different criteria are commonly used to assess business feasibility, including the following: Net Present Value (NPV), Internal Rate of Return (IRR), Net Benefit Cost Ratio (Net B/C Ratio), and Pay Back Period (PBP) (Nurmalina et al. 2018).

• Net Present Value (NPV)

$$\text{NPV} = \sum\_{\mathbf{t}=0}^{n} \frac{\text{Bt} - \text{Ct}}{(\mathbf{1} + \mathbf{i})^{\text{t}}} \tag{1}$$

Notes:

NPV = Net Present Value (IDR)

Bt and Ct are the benefits and cost, t is the year in a series ranging from 1 to n, and i is the discount rate.

• Internal Rate of Return (IRR)

$$\text{IRR} = \mathbf{i}\_1 + \frac{\text{NPV}\_1}{\text{NPV}\_1 - \text{NPV}\_2} \times (\mathbf{i}\_1 - \mathbf{i}\_2) \tag{2}$$

Notes:

IRR = Internal Rate of Return i1 = interest rate that results in a positive NPV i2 = interest rate that results in a negative NPV NPV1 = positive NPV NPV2= negative NPV

• Net Benefit Cost Ratio (Net B/C Ratio)

$$\text{Net}\frac{\text{B}}{\text{C}} = \frac{\sum\_{t=1}^{n} \frac{\text{Bt} - \text{Ct}}{(1+i)^{t}}}{\sum\_{t=1}^{n} \frac{\text{Bt} - \text{Ct}}{(1+i)^{t}}}, \frac{\text{Bt} - \text{Ct} > 0}{\text{Bt} - \text{Ct} < 0\text{s}}\tag{3}$$

Notes:

Net B/C = Net Benefit Cost Ratio

Bt and Ct are the benefits and cost, t is the year in a series ranging from 1 to n, and i is the discount rate.

Pay Back Period refers to the period or time (years) that it takes for the investment to yield a positive return, indicated when the NPV value becomes positive. A business may be deemed financially feasible if NPV > 1, BCR > 1, and the IRR analytic interest rate and PBP are in the business cycle (Tiwa 2016).
