Investment Office ANRS

Project Profile on the Establishment

of Electrical Dividers and Other
Accessories Making Plant

Development Studies
Associates (DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary..................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program....................2
3.1 Market Study.......................................................................................................2
3.1.1 Present Demand and Supply........................................................................2
3.1.2 Projected Demand........................................................................................3
3.1.3 Pricing and Distribution...............................................................................3
3.2 Plant Capacity......................................................................................................3
3.3 Production Program.............................................................................................4
4. Raw Materials and Utilities....................................................................4
4.1 Availability and Source of Raw Materials...........................................................4
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................5
5 Location and Site.....................................................................................5
6 Technology and Engineering..................................................................6
6.1 Production Process...............................................................................................6
6.2 Machinery and Equipment...................................................................................6
6.3 Civil Engineering Cost........................................................................................8
7 Human Resource and Training Requirement......................................8
7.1 Human Resource..................................................................................................8
7.2 Training Requirement..........................................................................................9
8 Financial Analysis...................................................................................9
8.1 Underlying Assumption.......................................................................................9
8.2 Investment..........................................................................................................10
8.3 Production Costs................................................................................................11
8.4 Financial evaluation...........................................................................................11
9 Economic and Social Benefit and Justification..................................12
ANNEXES....................................................................................................14
 1. Executive Summary
This project profile deals with the establishment of Electrical Dividers and other Accessories
making plant in Amhara National Regional State. The following presents the main findings of the
study

Demand projection divulges that the domestic demand for the proposed products is substantial
and is increasing with time. Accordingly, the planned plant is set to produce 400 thousand pieces
annually. The total investment cost of the project including working capital is estimated at Birr
2.47 million and creates 32 job opportunity and Birr 405.36 thousand of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 18.1% of capacity utilization and it will
payback fully the initial investment less working capital in 1 year and 10 months time. The
result further show that the calculated IRR of the project is 40.1% and the net present value at 18
% discount is Birr 1,977,195.87

In addition to this, the proposed project possesses wide range of economic and social benefits
such as increasing the level of investment, tax revenue, employment creation and import
substitution

Generally’ the project is technically feasible, financially and commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Product Description and Application

Electrical dividers and other accessories such as switches and plugs are essential for the proper
and economic utilization of electric energy in the provision of light, heat and power for homes,
factories, offices, hospitals, shops, transport facilities, etc. Basically the products are made of
electric conductive and non-conductive materials. The items serve mainly in building
construction sector and business premises for supply and control of electric power.

1
 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

Currently there are no units that produce electrical dividers and other accessories in the country
so that the whole domestic demand is met through import from abroad. Nonetheless, since the
import data documented by the Customs Authority aggregates these electrical parts with other
related apparatus, exact effective demand could not be established. Therefore, to estimate the
present demand of these items a proxy approach is used.

The market for electric dividers and other accessories such as switches and plugs primarily
consists of households, offices and other commercial buildings. As the Housing and Population
Census conducted in June 2007 has not yet publicized, there is no exact and recent figure that
details the number and condition of residential houses in the urban part of the country. But,
according to CSA, Annual Abstract (2008), the number of people living in the urban areas has
reached 13.2 million. Therefore, taking average family size of 5 people, we observe that there are
2.64 million families or houses in the urban part of the country. On the other hand, according to
CSA, Report on Census of Economic Establishments (2005), there are 232,179 manufacturing
firms, 291,591 wholesale and retail businesses and 71,213 hotels and restaurants throughout the
country. In general there are 3,234,983 establishments that potentially demand the electrical
dividers and other accessories stated earlier.

If we fairly assume that 20 percent of the establishment purchases two electrical accessories per
year due to replacement and expansion reasons, the annual requirement would reach to about
1,293,993 units. This conservative figure suggests the presence of ample demand that needs to be
met through local production.

2
 3.1.2 Projected Demand
The future demand for electrical divider and other accessories is expected to rise due to an
expansion that will take place in the construction sector and the business activity in the country.
For example a study conducted by PACO/WASS in 1995 revealed that the yearly requirement of
new residential building units is estimated to be 22,000 for Addis Ababa and 121,000 for other
urban towns of the country. In other words, the study shows that an annual demand for dwelling
units in the urban Ethiopia amounts to 144,100 units. If we conservatively assume that one-
fourth of this requirement will be realized, the future annual effective demand for residential
buildings alone amounts to 36,025 units. Similarly, the country is experiencing a construction
boom in business complexes, hotels and restaurants that positively and massively contribute to
the demand for various electrical accessories. Therefore, with proper marketing and customer
oriented production, it is possible to attract a sizable amount of the future demand for the
product.

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price is
set to be

 Birr 2 for a three side divider (wireless)

 Birr 12 for a three side divider (with 3 meters wire and plug)
 Birr 4 for normal switches

In distributing the product the envisaged plant shall make use of the available retail and
wholesale network.

3.2 Plant Capacity

In consideration of the expected demand for the electrical accessories as presented earlier, and
the planned technology, the envisaged plant is set to produce 400,000 pieces annually. Of this the
production of wireless divider will be 50,000 while it is 100,000 for switches. The rest 250,000
will be allocated for the three side divider (with 3 meters wire and plug). All items shall have a
capacity of 10A and 250V.

3
 3.3 Production Program
The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 60 percent capacity and then it grows to 75
percent in the 2nd year and 90 percent in the 3rd year. The capacity will grow to 100 percent
starting from the 4rd year. This consideration is developed based on the assumption that there is
ample demand for the product and market as well as logistics barriers would be eliminated
gradually within the first three years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials
Basically the manufacturing of electrical divider and other accessories requires plastic (Bakelite),
metal/brass parts, screws and nuts. All these raw materials are imported from abroad. The
following is a brief description of these raw materials.

Bakelite: This is a type of plastic that can easily be heated and molded into different products and
offers wide range of color options.

Brass/Metal Parts: All electric goods use metal parts. Metal parts are normally made of brass
because of its elasticity and electric conductivity.

Pins and Pipes: Metallic pins and pipes are also used for external electricity connection
Screws & Nuts: Majority of the electric fittings are composed of more than one individual part.
Screws and nuts are used for assembling and joining different parts of a product.

Springs: Springs are other important materials used in the assembly of electric switches

4
 4.2 Annual Requirement and Cost of Raw Materials
and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 1 here under

Table 1: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Bakelite 20 ton 300,000
Brass 15 ton 180,000
Round Pins 600,000 pcs 60,000
Pipes 1,800,000 pcs 450,000
Screw, Nuts and Springs 3.5 ton 75,000
Electric wire 750,000 mt 400,000
Total Material Cost 400,000 1,065,000
Utility
Electricity 125,000 kwh 68750
Water 3000 m3 7950
Total Utility Cost 76700

Thus, the full capacity of material and utility requirement is estimated to be Birr 1,541,700 per
annum.

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of input,
infrastructure as well as market for the output are major industrial towns of the region mainly
Bahir Dar and Combolcha.

5
6 Technology and Engineering

6.1 Production Process

The manufacturing process is made up of the plastic molting stage, machining stage, the
galvanizing and assembly stage. In the first stage manually operated hydraulic presses are used
to mold heated plastic material into different components of electric fittings. The press has
arrangements of two burners, one placed below the mould and other on top. Once the plastic is
poured into the mould, burners are switched on and the press is locked manually. Each product
takes specific amount of time to take the desired shape and strength. Once the plastic product
takes its final shape, the press is lifted and the finished product is taken out. In the machining
stage, the metal parts are prepared by punching, lathing, and spring machines for further
processing in the galvanizing stage, from where the semi-finished products pass to the assembly
stage. In the assembly stage, the semi-finished products are put together to become finished
electric dividers and other accessories.

The alternative production process requires the use of injection molding in the manufacturing
process where molten plastic is injected into the mold which later is opened after cooling
process. Nonetheless, pressure molding is widely used now-a-days owing to the simple
operation of the system and relatively lower cost

6.2 Machinery and Equipment

The machineries and equipment required for producing electrical divider and other accessories is
detailed in table 2 below

6
Table 2: Machinery and Equipment

Machinery and Equipment Quantity

Molding Presses 6
Automatic Eccentric Press 1
Bending Presses 5
Drill Machine 2
Molding, Cutting & Bending Dies 60
Lathe Machine 2
Trimming Machine 2
Drill Machine 1
Milling Machine 1
Grinder 1

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 500,000.

The following are some of the machineries suppliers’ address for the envisaged project

A K Corp Ltd
105 Park Street, Kolkata,
West Bengal, India
Tel: 033-22175821

Associated Machinery Corporation Ltd

Bulandshahr Road Industrial Area,
Ghaziabad, Uttar Pradesh, India
Tel: 0120-2700773
Fax: 0120-2700209

7
 6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 550m 2 where 250m2 is allocated to
the production place and the remaining space is left for stores (200m 2), office buildings and
facilities (100m2).

7 Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 3 below

Table 3: Human Resource Requirement

Monthly Total Annual

Position No. Required Salary Salary
Manager 1 4000 48000
Chief Technician 1 2500 30000
Accountant 1 1200 14400
Secretary 1 850 10200
Sales Clerk 2 800 19200
Store Keeper 2 800 19200
Electrician 1 1000 12000
Supervisor 2 1500 36000
Operators 10 800 96000
Laborers 5 400 24000
Cleaners 2 400 9600
Guards 4 400 19200
Benefit (20%) 67560
Total 32 405360

The envisaged plant creates 32 job opportunity and about Birr 405.36 thousand of income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

8
 7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. Birr 25,000 will be allocated as training expense.

8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of electrical divider and other accessories manufacturing plant is based on
the data provided in the preceding chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

Building 5%
Machinery and equipment 10%
Office furniture 10%
Vehicles 20%
Pre-production (amortization) 20%

9
 C. Working Capital (Minimum Days of Coverage)
Raw Material-Local 30
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 2.47
million as shown in table 4 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60% is to be financed by bank loan.

Table 4: Total initial investment

Items L.C F.C Total

Land
1,650 1,650
Building and civil works
1,100,000 1,100,000
Office equipment
50,000 50,000
Vehicles
0 0
Plant machinery & equipment
0 500,000 500,000
Total fixed investment cost
1,151,650 500,000 1,651,650
Pre production capital
expenditure* 82,583 82,583
Total initial investment
1,234,233 500,000 1,734,233
Working capital at full capacity
277,657 464,727 742,384
Total 1,511,889 964,727 2,476,616
*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.
The foreign component of the project accounts for 39% of the total investment cost.

10
 8.3 Production Costs
The total production cost at full capacity operation is estimated at Birr 2.27 million as detailed in
table 5 below.
Table 5: Production Cost

Items Cost
1. Raw materials 1,465,000
2. Utilities 76,700
3. Wages and Salaries 405,360
4. Spares and Maintenance 49,550
Factory costs 1,996,610
5. Depreciation 126,517
6. Financial costs 148,597
Total Production Cost 2,271,723

8.4 Financial evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 19%, 40% and 36% in
the first year and are gradually rising. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 18.1% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in 1 year and
10 months of operation.
IV. Simple Rate of Return

11
For the envisaged plant the simple rate of return equals to 40.3%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
40.1% and the net present value at 18 % discount is Birr 1,977,195.87

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector. This result is accompanied with payback period of 2 years.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of other benefits which it promotes the socio-
economic goals and objectives stated in the strategic plan of the Amhara National Regional State.
It also plays positive role in diversifying the economic activity by enhancing the industrial sector
of the region. The other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 8.63 million
within the project life. Such result induces the project promoters to reinvest the profit which,
therefore, increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 3.17 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

12
 C. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of US Dollar
3.23 will be saved as a result of the proposed project. This will create room for the saved hard
currency to be allocated on other vital and strategic sectors

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 32 professionals as well as support
stuffs. Consequently the project creates income of Birr 405.36 thousands per year. This would be
one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

13
ANNEXES

14
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0.00 0.00 60% 75% 90% 100%

1. Total Inventory 0.00 0.00 718895.47 898619.34 1078343.21 1198159.12

Raw Materials in Stock- Total 0.00 0.00 305018.18 381272.73 457527.27 508363.64

Raw Material-Local 0.00 0.00 26181.82 32727.27 39272.73 43636.36

Raw Material-Foreign 0.00 0.00 278836.36 348545.45 418254.55 464727.27

Factory Supplies in Stock 0.00 0.00 1389.68 1737.10 2084.52 2316.14

Spare Parts in Stock and Maintenance 0.00 0.00 3243.24 4054.05 4864.86 5405.40

Work in Progress 0.00 0.00 34742.06 43427.58 52113.09 57903.44

Finished Products 0.00 0.00 69484.12 86855.15 104226.19 115806.87

2. Accounts Receivable 0.00 0.00 229090.91 286363.64 343636.36 381818.18

3. Cash in Hand 0.00 0.00 31553.02 39441.27 47329.53 52588.36

CURRENT ASSETS 0.00 0.00 674521.22 843151.52 1011781.83 1124202.03

4. Current Liabilities 0.00 0.00 229090.91 286363.64 343636.36 381818.18

Accounts Payable 0.00 0.00 229090.91 286363.64 343636.36 381818.18

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 445430.31 556787.88 668145.46 742383.85

INCREASE IN NET WORKING CAPITAL 0.00 0.00 445430.31 111357.58 111357.58 74238.38

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 1198159.12 1198159.12 1198159.12 1198159.12 1198159.12 1198159.12

Raw Materials in Stock-Total 508363.64 508363.64 508363.64 508363.64 508363.64 508363.64

Raw Material-Local 43636.36 43636.36 43636.36 43636.36 43636.36 43636.36

Raw Material-Foreign 464727.27 464727.27 464727.27 464727.27 464727.27 464727.27

Factory Supplies in Stock 2316.14 2316.14 2316.14 2316.14 2316.14 2316.14

Spare Parts in Stock and Maintenance 5405.40 5405.40 5405.40 5405.40 5405.40 5405.40

Work in Progress 57903.44 57903.44 57903.44 57903.44 57903.44 57903.44

Finished Products 115806.87 115806.87 115806.87 115806.87 115806.87 115806.87

2. Accounts Receivable 381818.18 381818.18 381818.18 381818.18 381818.18 381818.18

3. Cash in Hand 52588.36 52588.36 52588.36 52588.36 52588.36 52588.36

CURRENT ASSETS 1124202.03 1124202.03 1124202.03 1124202.03 1124202.03 1124202.03

4. Current Liabilities 381818.18 381818.18 381818.18 381818.18 381818.18 381818.18

Accounts Payable 381818.18 381818.18 381818.18 381818.18 381818.18 381818.18

TOTAL NET WORKING CAPITAL REQUIRMENTS 742383.85 742383.85 742383.85 742383.85 742383.85 742383.85

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 867116.25 1609500.10 2329090.91 2682272.73 3207272.73 3538181.82
1. Inflow Funds 867116.25 1609500.10 229090.91 57272.73 57272.73 38181.82
Total Equity 346846.50 643800.04 0.00 0.00 0.00 0.00
Total Long Term Loan 520269.75 965700.06 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 229090.91 57272.73 57272.73 38181.82
2. Inflow Operation 0.00 0.00 2100000.00 2625000.00 3150000.00 3500000.00
Sales Revenue 0.00 0.00 2100000.00 2625000.00 3150000.00 3500000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 867116.25 867116.25 2256378.64 2088127.01 2679488.54 2845255.25
4. Increase In Fixed Assets 867116.25 867116.25 0.00 0.00 0.00 0.00
Fixed Investments 825825.00 825825.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 41291.25 41291.25 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 674521.22 168630.30 168630.30 112420.20
6. Operating Costs 0.00 0.00 1198275.01 1493518.70 1788762.38 1985591.51
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 325837.24 380704.32
8. Interest Paid 0.00 0.00 383582.42 178316.38 148596.98 118877.58
9.Loan Repayments 0.00 0.00 0.00 247661.63 247661.63 247661.63
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 742383.85 72712.27 594145.72 527784.18 692926.56
Cumulative Cash Balance 0.00 742383.85 815096.12 1409241.83 1937026.02 2629952.58

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00
Sales Revenue 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 2712031.47 2696182.85 2675379.27 2406914.06 2406914.06 2406914.06
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 1985591.51 1985591.51 1985591.51 1985591.51 1985591.51 1985591.51
7. Corporate Tax Paid 389620.14 403490.91 412406.73 421322.55 421322.55 421322.55
8. Interest Paid 89158.19 59438.79 29719.40 0.00 0.00 0.00
9. Loan Repayments 247661.63 247661.63 247661.63 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 787968.53 803817.15 824620.73 1093085.94 1093085.94 1093085.94
Cumulative Cash Balance 3417921.11 4221738.26 5046358.99 6139444.93 7232530.88 8325616.82

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 2100000.00 2625000.00 3150000.00 3500000.00

1. Inflow Operation 0.00 0.00 2100000.00 2625000.00 3150000.00 3500000.00

Sales Revenue 0.00 0.00 2100000.00 2625000.00 3150000.00 3500000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 867116.25 867116.25 1643705.31 1604876.27 2225957.20 2440534.22

3. Increase in Fixed Assets 867116.25 867116.25 0.00 0.00 0.00 0.00

Fixed Investments 825825.00 825825.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 41291.25 41291.25 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 445430.31 111357.58 111357.58 74238.38

5. Operating Costs 0.00 0.00 1198275.01 1493518.70 1788762.38 1985591.51

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 325837.24 380704.32

NET CASH FLOW -867116.25 -867116.25 456294.69 1020123.73 924042.80 1059465.78

CUMMULATIVE NET CASH FLOW -867116.25 -1734232.50 -1277937.81 -257814.09 666228.71 1725694.50

Net Present Value (at 18%) -867116.25 -734844.28 327703.74 620878.79 476611.00 463102.26

Cumulative Net present Value -867116.25 -1601960.53 -1274256.79 -653378.00 -176767.00 286335.26

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00

1. Inflow Operation 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00

Sales Revenue 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 2375211.65 2389082.42 2397998.24 2406914.06 2406914.06 2406914.06

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 1985591.51 1985591.51 1985591.51 1985591.51 1985591.51 1985591.51

6. Corporate Tax Paid 389620.14 403490.91 412406.73 421322.55 421322.55 421322.55

NET CASH FLOW 1124788.35 1110917.58 1102001.76 1093085.94 1093085.94 1093085.94

CUMMULATIVE NET CASH FLOW 2850482.85 3961400.43 5063402.19 6156488.13 7249574.07 8342660.02

Net Present Value (at 18%) 416657.08 348744.84 293174.53 246442.86 208849.88 176991.43

Cumulative Net present Value 702992.34 1051737.18 1344911.70 1591354.56 1800204.45 1977195.87

Net Present Value (at 18%) 1,977,195.87

Internal Rate of Return 40.1%

Annex 4: NET INCOME STATEMENT ( in Birr)

6
 PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 60% 75% 90% 100% 100%

1. Total Income 2100000.00 2625000.00 3150000.00 3500000.00 3500000.00

Sales Revenue 2100000.00 2625000.00 3150000.00 3500000.00 3500000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1083688.36 1354610.45 1625532.53 1806147.26 1806147.26
VARIABLE MARGIN 1016311.64 1270389.56 1524467.47 1693852.74 1693852.74
(In % of Total Income) 48.40 48.40 48.40 48.40 48.40
3. Less Fixed Costs 241103.15 265424.75 289746.35 305960.75 305960.75
OPERATIONAL MARGIN 775208.49 1004964.81 1234721.12 1387891.99 1387891.99
(In % of Total Income) 37 38 39 40 40
4. Less Cost of Finance 383582.42 178316.38 148596.98 118877.58 89158.19
5. GROSS PROFIT 391626.08 826648.43 1086124.14 1269014.41 1298733.80
6. Income (Corporate) Tax 0.00 0.00 325837.24 380704.32 389620.14
7. NET PROFIT 391626.08 826648.43 760286.89 888310.08 909113.66
RATIOS (%)
Gross Profit/Sales 19% 31% 34% 36% 37%
Net Profit After Tax/Sales 19% 31% 24% 25% 26%
Return on Investment 36% 44% 38% 41% 40%
Return on Equity 40% 83% 77% 90% 92%

Annex 4: NET INCOME STATEMENT (in Birr):Continued

PRODUCTION

7
 6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00

Sales Revenue 3500000.00 3500000.00 3500000.00 3500000.00 3500000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1806147.26 1806147.26 1806147.26 1806147.26 1806147.26
VARIABLE MARGIN 1693852.74 1693852.74 1693852.74 1693852.74 1693852.74
(In % of Total Income) 48 48 48 48 48
3. Less Fixed Costs 289444.25 289444.25 289444.25 289444.25 289444.25
OPERATIONAL MARGIN 1404408.49 1404408.49 1404408.49 1404408.49 1404408.49
(In % of Total Income) 40 40 40 40 40
4. Less Cost of Finance 59438.79 29719.40 0.00 0.00 0.00
5. GROSS PROFIT 1344969.70 1374689.09 1404408.49 1404408.49 1404408.49
6. Income (Corporate) Tax 403490.91 412406.73 421322.55 421322.55 421322.55
7. NET PROFIT 941478.79 962282.37 983085.94 983085.94 983085.94
RATIOS (%)
Gross Profit/Sales 38% 39% 40% 40% 40%
Net Profit After Tax/Sales 27% 27% 28% 28% 28%
Return on Investment 40% 40% 40% 40% 40%
Return on Equity 95% 97% 99% 99% 99%

Annex 5: Projected Balance Sheet (in Birr)

CONSTRUCTION PRODUCTION

8
 Year 1 Year 2 1 2 3 4
TOTAL ASSETS 867116.25 2476616.35 3097333.33 3733592.85 4303490.84 4982321.11
1. Total Current Assets 0.00 742383.85 1489617.33 2252393.35 2948807.84 3754154.61
Inventory on Materials and Supplies 0.00 0.00 309651.10 387063.88 464476.66 516085.17
Work in Progress 0.00 0.00 34742.06 43427.58 52113.09 57903.44
Finished Products in Stock 0.00 0.00 69484.12 86855.15 104226.19 115806.87
Accounts Receivable 0.00 0.00 229090.91 286363.64 343636.36 381818.18
Cash in Hand 0.00 0.00 31553.02 39441.27 47329.53 52588.36
Cash Surplus, Finance Available 0.00 742383.85 815096.12 1409241.83 1937026.02 2629952.58
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 867116.25 1734232.50 1607716.00 1481199.50 1354683.00 1228166.50
Fixed Investment 0.00 825825.00 1651650.00 1651650.00 1651650.00 1651650.00
Construction in Progress 825825.00 825825.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 41291.25 82582.50 82582.50 82582.50 82582.50 82582.50
Less Accumulated Depreciation 0.00 0.00 126516.50 253033.00 379549.50 506066.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 867116.25 2476616.35 3097333.33 3733592.85 4303490.84 4982321.11
5. Total Current Liabilities 0.00 0.00 229090.91 286363.64 343636.36 381818.18
Accounts Payable 0.00 0.00 229090.91 286363.64 343636.36 381818.18
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 520269.75 1485969.81 1485969.81 1238308.17 990646.54 742984.90
Loan A 520269.75 1485969.81 1485969.81 1238308.17 990646.54 742984.90
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 346846.50 990646.54 990646.54 990646.54 990646.54 990646.54
Ordinary Capital 346846.50 990646.54 990646.54 990646.54 990646.54 990646.54
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 391626.08 1218274.51 1978561.40
9.Net Profit After Tax 0.00 0.00 391626.08 826648.43 760286.89 888310.08
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 391626.08 826648.43 760286.89 888310.08

Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION

9
 5 6 7 8 9 10
TOTAL ASSETS 5643773.14 6337590.29 7052211.02 8035296.96 9018382.91 10001468.85
1. Total Current Assets 4542123.14 5345940.29 6170561.02 7263646.96 8356732.91 9449818.85
Inventory on Materials and Supplies 516085.17 516085.17 516085.17 516085.17 516085.17 516085.17
Work in Progress 57903.44 57903.44 57903.44 57903.44 57903.44 57903.44
Finished Products in Stock 115806.87 115806.87 115806.87 115806.87 115806.87 115806.87
Accounts Receivable 381818.18 381818.18 381818.18 381818.18 381818.18 381818.18
Cash in Hand 52588.36 52588.36 52588.36 52588.36 52588.36 52588.36
Cash Surplus, Finance Available 3417921.11 4221738.26 5046358.99 6139444.93 7232530.88 8325616.82
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 1101650.00 991650.00 881650.00 771650.00 661650.00 551650.00
Fixed Investment 1651650.00 1651650.00 1651650.00 1651650.00 1651650.00 1651650.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 82582.50 82582.50 82582.50 82582.50 82582.50 82582.50
Less Accumulated Depreciation 632582.50 742582.50 852582.50 962582.50 1072582.50 1182582.50
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 5643773.14 6337590.29 7052211.02 8035296.96 9018382.91 10001468.85
5. Total Current Liabilities 381818.18 381818.18 381818.18 381818.18 381818.18 381818.18
Accounts Payable 381818.18 381818.18 381818.18 381818.18 381818.18 381818.18
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 495323.27 247661.63 0.00 0.00 0.00 0.00
Loan A 495323.27 247661.63 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 990646.54 990646.54 990646.54 990646.54 990646.54 990646.54
Ordinary Capital 990646.54 990646.54 990646.54 990646.54 990646.54 990646.54
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 2866871.48 3775985.15 4717463.93 5679746.30 6662832.24 7645918.19
9. Net Profit After Tax 909113.66 941478.79 962282.37 983085.94 983085.94 983085.94
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 909113.66 941478.79 962282.37 983085.94 983085.94 983085.94

10