KEDIR, SINDEW AND THEIR FRIENDS BUSINESS

PLAN

ON THE PRODUCTION OF NAIL

1
 TABLE OF CONTENTS

TABLE OF CONTENTS.........................................................................................................................................1
1. SUMMARY.........................................................................................................................................................2
2. PRODUCT DESCRIPTIONS ANDAPPLICATIONS.........................................................................................2
3. MARKET STUDY AND PLANTCAPACITY....................................................................................................3
4.1 MARKETSTUDY........................................................................................................................................3
2. ProjectedDemand.............................................................................................................................................5
5 PLANT CAPACITY AND PRODUCTIONPROGRAMM.................................................................................7
5.1 PlantCapacity.....................................................................................................................................................7
5.2 ProductionProgram............................................................................................................................................7
6 RAW MATERIAL ANDINPUTS.......................................................................................................................8
7 TECHNOLOGY ANDENGINEERING..............................................................................................................9
7.1 TECHNOLOGY................................................................................................................................................9
2. EnvironmentalImpact.......................................................................................................................................9
7.2 ENGINEERING...............................................................................................................................................10
8 HUMAN RESOURCE AND TRAINING REQUIREMMENT.........................................................................14
9. FINANCIALANALYSIS.......................................................................................................................................16
A. TOTAL INITIAL INVESTMENTCOST.......................................................................................................17
B. PRODUCTIONCOST....................................................................................................................................18
2. Ratios............................................................................................................................................................. 19
3. Break-evenAnalysis.......................................................................................................................................20
4. Pay-backPeriod..............................................................................................................................................20
5. Internal Rate ofReturn....................................................................................................................................20
6. Net PresentValue............................................................................................................................................21
D. ECONOMIC AND SOCIAL BENEFITS......................................................................................................21
Appendix 7.A.............................................................................................................................................................22
Appendix 7.A.1......................................................................................................................................................20

1
 1. SUMMARY

This profile envisages the establishment of a plant for the production of wire nail with a
capacity of 1,200 tons per annum. Wire nail is used on building construction works for fixing
together wooden structural parts and to build scaffoldings and ladders during the construction
of high rise buildings.

The demand for wire nail is met both from local production and import. The present (2012)
demand for wire nail is estimated at 28,213 tons. The demand for wire nail is projected to
reach 56,746 tons and 114,137 tons by the year 2017 and 2022, respectively.

The principal raw material required is wire which has to be imported.

The total investment cost of the project including working capital is estimated at Birr 11.54
million. From the total investment cost the highest share (Birr 8.18 million or 70.91%)is
accounted by fixed investment cost followed by initial working capital (Birr 2.10 million or
18.21%) and pre operation cost (Birr 1.25 million or 10.88%). From the total investment cost
Birr 4.12 million or 35.77% is required in foreigncurrency.

The project is financially viable with an internal rate of return (IRR) of 27.48% and a net
present value (NPV) of Birr 10.64 million discounted at 10%.

The project can create employment for 24 persons. The establishment of such factory will
have a foreign exchange saving effect to the country by substituting the current imports. The
project will also create forward linkage with the construction and furniture manufacturing sub
sectors and also generates income for the Government in terms of tax revenue and payrolltax.

2. PRODUCT DESCRIPTIONS ANDAPPLICATIONS

2
Roofing and wire nails are being used on building construction works for fixing together
wooden structural parts .Wire nails are also of key advantage to build scaffoldings and
ladders during the construction of high rise buildings. The product has two main categories.
One product being used for roofing purposes and the other for normal structure work
purposes .The main types conceived in this project are Roofing Nails 1 size & Wire Nails 3
sizes

3. MARKET STUDY AND PLANTCAPACITY

4.1 MARKETSTUDY

1. Present Supply AndDemand

The demand for nails in Ethiopia is being met both from local production and import. The
historical data of imports and local production or apparent consumption of nail, during the
period 2002 - 2011 is provided in Table 3.1.

Table 3.1

APPARENT CONSUMPTION OF NAIL

Year In Ton
*
Local Import** Total
2002 5,190 6,582 11,772
2003 5,330 3,282 8,612
2004 8,664 4,961 13,625
2005 15,335 4,025 19,360
2006 22,233 4,737 26,970
2007 21,944 2,824 24,768
2008 17,004 5,973 22,977
2009 20,3941 6,206 26,599
2010 21,520 3,935 25,455

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 2011 19,6392 5,551 25,190
Source: ** Ethiopian Revenues & Customs Authority
* CSA, Report on Survey of MLS Manufacturing and Electricity Industries
At can be seen from of Table 3.1 imports of nail were fluctuating between a maximum of
6,582 tons in year 2002 to a minimum of 2,824 tons in 2007 around a mean figure of 4,808
tons. Local production on the other hand, exhibits an increasing trend, registering an average
annual growth rate of 20% over the period under consideration (2002 – 2010).

1
CSA’s local production data for the year 2009 which is 4,661 tons is extremely low as compared the
previous four years hence for 2009 the average of 2006 – 2008 is considered to reflect local production
level
2
Local production data for the year 2011 is not available hence it is assumed that the average production
during the previous three years (2008 – 2010) approximates local production during 2011

4
Total apparent consumption of nail during the period 2002 – 2011 ranged from 8,612 tons in
2003 to 26,970 tones (2006). The mean apparent consumption over the period under
consideration was 20,533 tones. However, it can be clearly seen apparent consumption had
grown significantly especially during the period 2006 -2011 where the mean apparent
consumption is 25,327 tones. During the period under consideration (2002 – 2011) apparent
consumption of nails has registered an average annual growth rate of12%.

For estimating the present demand for nails, it is assumed that the growth rate registered in
the apparent consumption of the product will continue at least in the near future.
Accordingly, by taking the 2011 level of apparent consumption and applying a growth rate
12%, the present (2012) demand for nails is estimated at 28,213 tons.

2. ProjectedDemand

The demand for nail depends mainly on the performance of its end-user (i.e. the construction
sector or more specifically the building construction sector). Therefore, the demand for the
products under consideration is a derived demand, which depends directly on the
performance of its major end – user.

The construction sector of the country has undergone tremendous changes and development
in recent years. The contribution of the construction sector to the GDP during the period 2001
– 2010 have been growing at annual average growth rate of 13 percent which is above the
average annual growth rate of real GDP during the period under consideration (11.4 %),
indicating a rise in the share of the construction sector within the overall economy. Moreover,
during the GTP period (2010 – 2015), the construction sector is expected to grow at annual
average growth rate of20%.

On the other hand among the factors that influence the demand for nail one of the critical
factor is identified to be economic growth leading to growth of the construction sector.
According to the government’s “Growth and Transformation Plan” during the period 2010 –

5
2015 the GDP of the country is expected to grow at a minimum average annual growth rate
of11.2%.

Accordingly, based on the above discussion a growth rate of 15% which is slightly higher
than the expected growth rate of the country’s GDP during the GTP period (2011 – 2015) is
used. Moreover, it is assumed that the highest local production during 2002 – 2011 indicates
the current local production capacity of nail. Based on the above assumption and using the
estimated present demand as a base the projected demand for nail and demand supply gap is
shown in Table3.2.
Table 3.2

PROJECTED DEMAND FOR NAIL ( in tons)

Projected Domestic Unsatisfied

Year Demand Supply Demand
2013 32,445 22,200 10,245
2014 37,312 22,200 15,112
2015 42,908 22,200 20,708
2016 49,345 22,200 27,145
2017 56,746 22,200 34,546
2018 65,258 22,200 43,058
2019 75,047 22,200 52,847
2020 86,304 22,200 64,104
2021 99,250 22,200 77,050
2022 114,137 22,200 91,937
2023 131,258 22,200 109,058
2024 150,947 22,200 128,747
2025 173,588 22,200 151,388

3. Pricing andDistribution

The current retail price of nail is Birr 15kg. Allowing a margin of 25% for distributors and
retailers, the recommended factory gate price for the envisaged factory is Birr 12/kg.

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 Considering the nature of the products and the characteristics of the end users a combination
both direct distribution to end users (for bulk purchasers) and indirect distribution (using
agents) is selected as the most appropriate distributionchannel.

5 PLANT CAPACITY AND PRODUCTIONPROGRAMM

5.1 PlantCapacity

The production capacity of the plant is selected to be 1,200 tons of assorted roofing and wire
nails per annum on a single shiftbasis.

5.2 ProductionProgram

The plant will start at 75% of its installed capacity during the first year of operation. During
the second and third year and then after it will operate at 85% and 100%, respectively (see
Table 3.3).
Table3.
3PRODUCTION
PROGRAM

Year 1 Year 2 Year 3

Annual production 900 960 1,200

(Ton)
Capacity % 75 80 100

6 RAW MATERIAL ANDINPUTS

A. RAW AND AUXILIARY MATERIALS

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The production of wire nails require wires to be drawn into desired sizes and desired final
wire nail sizes. In this project, drawn wires are being used as inputs with final specified
dimensions and fixed sizes. Auxiliary materials required are sulphuric acid and saw dust.
Except saw dust all the raw materials have to be imported. The raw material requirements by
type and cost are shown in Table4.1.

Table 4.1

RAW MATERIALS REQUIREMENT AND COST

No Raw Description Annual input Cost ( in 000 Birr )

Materials Unit Qty. F.C L.C Total
1 M.S drawn Dia.0.17- Ton 720 4,320 864.0 5,184.0
wires 6mm
2 M.s Sheet Thickness Ton 480 2,880 576.0 3,456.0
metal 0.6mm
3 Zinc bars Ton 1 9 1.8 10.8
4 Sulphuric acid Concentrated lit. 3,000 24 4.8 28.8
5 Saw dust powdered Ton 1 3.0 3.0
Total 8,682.60

B. UTILITIES

The major utility requirement of the plant is water and electricity. Annual cost of utilities is
Birr 53,100. The quantity and cost of the material is indicated on Table 4.2.

Table 4.2

ANNUAL UTILITY REQUIREMENT AND COST

No. Utility Unit Qty Cost (birr)

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 1 Electricity Kwh 74,000 43,100
2 Water mt. Cube 1,000 10,000
Total 53,100

7 TECHNOLOGY ANDENGINEERING

7.1 TECHNOLOGY

1. ProcessDescription

The wire in the form of coil with diameters of 0.17-6 mm is first cleaned from rust and scale
by mechanical scrapper. The cleaned wire in the form of coil is fed into automatic heading
and pointing machines forming the final nail of desired size. This is collected for the next
processing.

The collected piece is further transferred to tumbling machine for polishing and de-burring of
the finished nail ready for packing.

2. EnvironmentalImpact

The process of manufacturing mainly involves cutting and forming of wires and sheet metal
this does not have any negative impact on the environment. The plant can be considered as
safe to the environment.

7.2 ENGINEERING

3. Machinery andEquipment

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Total cost of machinery and equipment is Birr 5.01 million. The required machines and
equipments with their corresponding costs are indicated in Table 6.1.

Table 6.1

MACHINERY AND EQUIPMENT FOR WIRE NAIL PLANT

Sr. Description Qty. Cost in '000 Birr

No. FC LC TC
1 Washer making machine 1 774.0 154.8 928.8
2 Nail making machine 4 2,138.1 464.4 2,602.5
3 Wire coil stand 4 21.7 4.3 26.1
4 Accessories 4 set 317.3 51.6 368.9
5 Head polisher 1 pc 165.5 40.2 205.7
6 Galvanizing equipment 1 479.9 103.2 583.1
7 Compressor 1 126.5 29.2 155.7
8 Surface grinder 1 104.6 20.9 125.5
9 Weighing scale 1 - 6.5 6.5
10 Hard pallet truck 1 - 9.0 9.0
Total 4,127.7 884.1 5,011.8

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4. Land, Building and CivilWorks

The total land area required is 800 m2 of which the total built-up area of the plant is
estimated to be 400 m2. The cost of building and civil work at the rate of Birr 5,000 per m2
is estimated at Birr 2 million.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 721/2004) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level ofdevelopment.

The legislation has also set the maximum on lease period and the payment of lease prices.
The lease period ranges from 99 years for education, cultural research health, sport,
NGO , religious and residential area to 80 years for industry and 70 years for trade while
the lease payment period ranges from 10 years to 60 years based on the towns grade and
type ofinvestment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also beprovided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.

In Woreilu, the WOREDA Land Administration and Development Authority is directly

responsible in dealing with matters concerning land. However, regarding the
manufacturing sector, industrial zone preparation is one of the strategic intervention
measures adopted by the WOREDA Administration for the promotion of the sector and
all manufacturing projects are assumed to be located in the developed industrialzones.

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Regarding land allocation of industrial zones if the land requirement of the project is below
5,000 m2, the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the WOREDA Investment Authority.
However, if the land request is above 5,000 m2, the request is evaluated by the City’s
Investment Authority and passed with recommendation to the Land Development and
Administration Authority for decision, while the lease price is the same for bothcases.

Moreover, the woreilu WOREDA Administration has recently adopted a new land lease floor
price for plots in the city. The new prices will be used as a benchmark for plots that are going
to be auctioned by the city government or transferred under the new “Urban Lands Lease
Holding Proclamation.”

The new regulation classified the city into three zones. The first Zone is Central Market
District Zone, which is classified in five levels and the floor land lease price ranges from Birr
1,686 to Birr 894 per m2. The rate for Central Market District Zone will be applicable in most
areas of the city that are considered to be main business areas that entertain high level of
business activities.

The second zone, Transitional Zone, will also have five levels and the floor land lease price
ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are surrounding the
city and are occupied by mainly residential units and industries.

The last and the third zone, Expansion Zone, is classified into four levels and covers areas
that are considered to be in the outskirts of the city, where the city is expected to expand in
the future. The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191
per m2 (see Table5.2).

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 Table 5.2

NEW LAND LEASE FLOOR PRICE FOR PLOTS IN Woreilu Temporal

Floor
Zone Level price/m2

1st 1686

2nd 1535
Central Market
3rd 1323
District
4th 1085

5th 894

1st 1035

2nd 935

3rd 809
Transitional zone

4th 685

5th 555

1st 355

2nd 299
Expansion zone
3rd 217

4th 191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that
all new manufacturing projects will be located in industrial zones located in expansion zones.
Therefore, for the profile a land lease rate of Birr 266 per m 2 which is equivalent to the
average floor price of plots located in expansion zone is adopted.

On the other hand, some of the investment incentives arranged by the Woreilu WOREDA

13
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.

Table 5.3

INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Payment Down
Grace Completion
period Period
Scored point Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The land lease period for
industry is 60 years.

Accordingly, the total land lease cost at a rate of Birr 266 per m 2 is estimated at Birr 212,800
of which 10% or Birr 21,280 will be paid in advance. The remaining Birr 191,520 will be
paid in equal installments with in 28 years i.e. Birr 6,840 annually.

8 HUMAN RESOURCE AND TRAINING REQUIREMMENT

A. HUMAN RESOURCEREQUIREMENT

A total of 24 workers are required to operate the plant of these 15 are technical workers.
Annual cost of labour is estimated at Birr 511,200. The detail requirements with
corresponding salaries are shown on table 6.1.

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 Table 6.1

HUMAN RESOURCE REQUIREMENT AND LABOR COST

Salary (Birr)
Sr. No. Description No.
Monthly Annual
A.ADMINISTRATION
1 Plant Manager 1 5,000 60,000
2 Secretary 1 2,500 30,000
3 Accountant 1 2,500 30,000
4 Salesman/purchaser 1 2,500 30,000
5 Clerk 1 1,500 18,000
6 Cashier 1 2,000 24,000
7 General Service 3 800 28,800
Sub Total 9 220,800
B.PRODUCTION
8 Forman 1 2,500 30,000
9 Machinery Operators 5 2,000 120,000
10 Assistant Operators 2 1,500 36,000
11 Mechanics 2 2,000 48,000
12 Quality controller 1 1,500 18,000
13 Laborers 4 800 38,400
Sub Total 15 - 290,400
Total basic salary 511,200
Employee's Benefit (25% Of Basic Salary) - - 100,080
Total 24 - 611,280

B. TRAININGREQUIREMENT

On the job demonstration of the operation of the machine would be enough for the operation
of the machine for workers with basic technical background. The production technology is

15
independent on the manual skill of the workers. This reduces a repeated cost of training that

would be required to up grade skills. An initial cost of demonstration and training during
commissioning would be enough. This requires an amount of birr 12,000 for 15 workers.

II. FINANCIALANALYSIS

The financial analysis of the wire nail project is based on the data presented in the previous
chapters and the following assumptions:-

Constructionperiod 1year

Sourceoffinance 30 % equity & 70loan

Taxholidays 3years

Bankinterest 10%

Discountcashflow 10%

Accountsreceivable 30days

Rawmateriallocal 30days

Rawmaterialimported 120 days

Workin progress 1 day

Finishedproducts 30 days

Cashin hand 5 days

Accountspayable 30 days

Repairandmaintenance 5% of machinerycost

A. TOTAL INITIAL INVESTMENTCOST

The total investment cost of the project including working capital is estimated at Birr 11.54

16
million (See Table 7.1). . From the total investment cost the highest share (Birr 8.18 million
or 70.91%) is accounted by fixed investment cost followed by initial working capital (Birr
2.10 million or 18.21%) and pre operation cost (Birr 1.25 million or 10.88%). From the total
investment cost Birr 4.12 million or 35.77% is required in foreign currency.

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Local Foreign Total %

No Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 21.28 21.28 0.18
1.2 Building and civil work 2,000.00 2,000.00 17.33
1.3 Machinery and equipment 884.10 4,127.70 5,011.80 43.43
1.4 Vehicles 900.00 900.00 7.80
1.5 Office furniture and equipment 250.00 250.00 2.17
Sub total 4,055.38 4,127.70 8,183.08 70.91
2 Pre operating cost *
2.1 Pre operating cost 500.35 500.35 4.34
2.2 Interest during construction 754.91 754.91 6.54
Sub total 1,255.26 1,255.26 10.88
3 Working capital ** 2,101.04 2,101.04 18.21
Grand Total 7,411.68 4,127.70 11,539.38 100
* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest
during construction.

** The total working capital required at full capacity operation is Birr 3.02 million.
However, only the initial working capital of Birr 2.10 million during the first year of
production is assumed to be funded through external sources. During the remaining years
the working capital requirement will be financed by funds to be generated internally (for
detail working capital requirement see Appendix 7.A.1)

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B. PRODUCTIONCOST

The annual production cost at full operation capacity is estimated at Birr 12.36 million (see
Table 7.2). The cost of raw material account for 70.24% of the production cost. The other
major components of the production cost are financial cost, depreciation, labor, and cost of
marketing and distribution which account for 11.22%, 5.88%, 4.13% and 4.04% respectively.
The remaining 4.49% is the share of utility, repair and maintenance, labour overhead and
administration cost. For detail production cost see Appendix7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (year three)

Items Cost
%
(000 Birr)
Raw Material and Inputs
8,683 70.24
Utilities
53 0.43
Maintenance and repair
150 1.21
Labour direct
511 4.13
Labour overheads
100 0.81
Administration Costs
250 2.02
Land lease cost
0 0.00
Cost of marketing and distribution
500 4.04
Total Operating Costs
10,247 82.90
Depreciation
1,387 11.22
Cost of Finance
727 5.88
Total Production Cost
12,361 100.00

C. FINANCIALEVALUATION

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1. Profitability

Based on the projected profit and loss statement, the project will generate a profit throughout
its operation life. Annual net profit after tax will grow from Birr 1.50 million to Birr 2.83
million during the life of the project. Moreover, at the end of the project life the accumulated
net cash flow amounts to Birr 24.60 million. For profit and loss statement and cash flow
projection see Appendix 7.A.3 and 7.A.4 respectively.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other relevant
data, the most important ratios such as return on sales which is computed by dividing net
income by revenue, return on assets (operating income divided by assets), return on equity
(net profit divided by equity) and return on total investment (net profit plus interest divided
by total investment) has been carried out over the period of the project life and all the results
are found to be satisfactory.

3. Break-evenAnalysis

The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point for capacity utilization and sales value estimated by using income statement projection
are computed as followed.

Break Even Sales Value = Fixed Cost + Financial Cost = Birr 6,048,000

Variable Margin ratio (%)

19
Break Even Capacity utilization = Breakeven Sales Value X 100 = 40.56%

Sales revenue

4. Pay-backPeriod

The pay- back period, also called pay – off period is defined as the period required for
recovering the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the project’s
initial investment will be fully recovered within 4 years.

5. Internal Rate ofReturn

The internal rate of return (IRR) is the annualized effective compounded return rate that can
be earned on the invested capital, i.e., the yield on the investment. Put another way, the
internal rate of return for an investment is the discount rate that makes the net present value
of the investment's income stream total to zero. It is an indicator of the efficiency or quality
of an investment. A project is a good investment proposition if its IRR is greater than the rate
of return that could be earned by alternate investments or putting the money in a bank
account. Accordingly, the IRR of this project is computed to be 27.48% indicating the
viability of the project.

6. Net PresentValue

Net present value (NPV) is defined as the total present (discounted) value of a time series of
cash flows. NPV aggregates cash flows that occur during different periods of time during the
life of a project in to a common measuring unit i.e. present value. It is a standard method for
using the time value of money to appraise long-term projects. NPV is an indicator of how

20
much value an investment or project adds to the capital invested. In principal a project is
accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 10% discount rate is found to be Birr
10.64 million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 24 persons. The project will generate Birr 7.06
million in terms of tax revenue. The establishment of such factory will have a foreign
exchange saving effect to the country by substituting the current imports. The project will
also create forward linkage with the construction and furniture manufacturing sub sectors and
also generate other income for the Government.

21
 Appendix 7.A

FINANCIAL ANALYSES SUPPORTING TABLES

22
 Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Total inventory 1,519.53 1,953.68 2,170.75 2,170.75 2,170.75 2,170.75 2,170.75 2,170.75 2,170.75 2,170.75

Accounts receivable 610.24 772.69 853.92 853.92 854.49 854.49 854.49 854.49 854.49 854.49

Cash-in-hand 9.83 12.64 14.04 14.04 14.14 14.14 14.14 14.14 14.14 14.14

CURRENT ASSETS 2,139.60 2,739.00 3,038.71 3,038.71 3,039.37 3,039.37 3,039.37 3,039.37 3,039.37 3,039.37

Accounts payable 38.56 49.58 55.08 55.08 55.08 55.08 55.08 55.08 55.08 55.08

CURRENT
LIABILITIES 38.56 49.58 55.08 55.08 55.08 55.08 55.08 55.08 55.08 55.08
TOTAL WORKING
CAPITAL 2,101.04 2,689.43 2,983.63 2,983.63 2,984.29 2,984.29 2,984.29 2,984.29 2,984.29 2,984.29

20
 Appendix
7.A.2PRODUCTION COST (
in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Raw Material and Inputs 6,078 7,815 8,683 8,683 8,683 8,683 8,683 8,683 8,683 8,683

Utilities 37 48 53 53 53 53 53 53 53 53

Maintenance and repair 105 135 150 150 150 150 150 150 150 150

Labour direct 358 460 511 511 511 511 511 511 511 511

Labour overheads 70 90 100 100 100 100 100 100 100 100

Administration Costs 175 225 250 250 250 250 250 250 250 250

Land lease cost 0 0 0 0 7 7 7 7 7 7

Cost of marketing
and distribution 500 500 500 500 500 500 500 500 500 500

Total Operating Costs 7,323 9,272 10,247 10,247 10,254 10,254 10,254 10,254 10,254 10,254

Depreciation 1,387 1,387 1,387 1,387 1,387 105 105 105 105 105

Cost of Finance 0 830 727 623 519 415 311 208 104 0

Total Production Cost 8,710 11,490 12,361 12,257 12,160 10,774 10,670 10,566 10,463 10,359

21
 Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)

Year Year Year Year Year Year Year Year Year Year
Item 2 3 4 5 6 7 8 9 10 11

Sales revenue 10,080 12,960 14,400 14,400 14,400 14,400 14,400 14,400 14,400 14,400
Less variable costs 6,823 8,772 9,747 9,747 9,747 9,747 9,747 9,747 9,747 9,747

VARIABLE MARGIN 3,257 4,188 4,653 4,653 4,653 4,653 4,653 4,653 4,653 4,653
in % of sales revenue 32.31 32.31 32.31 32.31 32.31 32.31 32.31 32.31 32.31 32.31
Less fixed costs 1,887 1,887 1,887 1,887 1,894 612 612 612 612 612

OPERATIONAL MARGIN 1,370 2,300 2,766 2,766 2,759 4,041 4,041 4,041 4,041 4,041
in % of sales revenue 13.59 17.75 19.21 19.21 19.16 28.06 28.06 28.06 28.06 28.06
Financial costs 830 727 623 519 415 311 208 104 0
GROSS PROFIT 1,370 1,470 2,039 2,143 2,240 3,626 3,730 3,834 3,937 4,041
in % of sales revenue 13.59 11.34 14.16 14.88 15.55 25.18 25.90 26.62 27.34 28.06
Income (corporate) tax 0 0 0 643 672 1,088 1,119 1,150 1,181 1,212
NET PROFIT 1,370 1,470 2,039 1,500 1,568 2,538 2,611 2,683 2,756 2,829
in % of sales revenue 13.59 11.34 14.16 10.42 10.89 17.63 18.13 18.64 19.14 19.64

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 Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in
000 Birr)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 8,683 12,975 12,971 14,406 14,400 14,400 14,400 14,400 14,400 14,400 14,400 4,960
Inflow funds 8,683 2,895 11 6 0 0 0 0 0 0 0 0
Inflow operation 0 10,080 12,960 14,400 14,400 14,400 14,400 14,400 14,400 14,400 14,400 0
Other income 0 0 0 0 0 0 0 0 0 0 0 4,960
TOTAL CASH
OUTFLOW 8,683 10,217 11,740 12,311 12,551 12,483 12,795 12,722 12,650 12,577 11,466 0
Increase in fixed assets 8,683 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 2,140 599 300 0 1 0 0 0 0 0 0
Operating costs 0 6,823 8,772 9,747 9,747 9,754 9,754 9,754 9,754 9,754 9,754 0
Marketing and
Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Incometax 0 0 0 0 643 672 1,088 1,119 1,150 1,181 1,212 0
Financial costs 0 755 830 727 623 519 415 311 208 104 0 0
Loan repayment 0 0 1,038 1,038 1,038 1,038 1,038 1,038 1,038 1,038 0 0
SURPLUS (DEFICIT) 0 2,757 1,231 2,094 1,849 1,917 1,605 1,678 1,750 1,823 2,934 4,960
CUMULATIVE CASH
BALANCE 0 2,757 3,988 6,082 7,932 9,848 11,453 13,131 14,882 16,705 19,639 24,599

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 Appendix
7.A.5DISCOUNTED CASH FLOW
( in 000 Birr)

Year Year Year Year Year

Item Year 1 2 Year 3 4 Year 5 6 Year 7 8 Year 9 10 Year 11 Scrap
TOTAL CASH INFLOW 0 10,080 12,960 14,400 14,400 14,400 14,400 14,400 14,400 14,400 14,400 4,960

Inflow operation 0 10,080 12,960 14,400 14,400 14,400 14,400 14,400 14,400 14,400 14,400 0

Other income 0 0 0 0 0 0 0 0 0 0 0 4,960

TOTAL CASH OUTFLOW 10,784 7,911 9,566 10,247 10,890 10,926 11,342 11,373 11,404 11,435 11,466 0

Increase in fixed assets 8,683 0 0 0 0 0 0 0 0 0 0 0

Increase in net working capital 2,101 588 294 0 1 0 0 0 0 0 0 0

Operating costs 0 6,823 8,772 9,747 9,747 9,754 9,754 9,754 9,754 9,754 9,754 0

Marketing and Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0

Income (corporate) tax 0 0 0 643 672 1,088 1,119 1,150 1,181 1,212 0

NET CASH FLOW -10,784 2,169 3,394 4,153 3,510 3,474 3,058 3,027 2,996 2,965 2,934 4,960

CUMULATIVE NET CASH FLOW -10,784 -8,616 -5,222 -1,069 2,440 5,914 8,973 12,000 14,996 17,961 20,895 25,855

Net present value -10,784 1,972 2,805 3,120 2,397 2,157 1,726 1,553 1,398 1,257 1,131 1,912

Cumulative net present value -10,784 -8,813 -6,008 -2,888 -491 1,666 3,392 4,946 6,344 7,601 8,732 10,645

NETPRESENTVALUE 10,645 INTERNAL RATEOFRETURN 27.48% NORMALPAYBACK 4years

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