Investment Office ANRS

Project Profile on the Establishment

of Corn flakes producing 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 Supply and Demand....................................................................................2
3.1.2 Projected Demand....................................................................................................3
3.1.3 Pricing and Distribution...........................................................................................4
3.2 Plant Capacity..................................................................................................................4
3.3 Production Program.........................................................................................................4
4. Raw Materials and Utilities..............................................................................5
4.1 Availability and Source of Raw Materials.......................................................................5
4.2 Annual Requirement and Cost of Raw Materials and Utilities.......................................5
5. Location and Site...............................................................................................6
6. Technology and Engineering............................................................................6
6.1 Production Process...........................................................................................................6
6.2 Machinery and Equipment...............................................................................................7
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......................................................................................................12
9. Economic and Social Benefits and Justification...........................................13
ANNEXES...............................................................................................................15
1. Executive Summary
This project profile deals with corn flakes producing plant in Amhara National Regional State.
The following presents the main findings of the study.

There is ample demand for corn flakes if prices are set at a reasonable point and the envisaged
plant is set to produce 1,000 tons of corn flakes annually. The total investment cost of the
project including working capital is estimated at Birr 47,819,700 Relatedly, The envisaged plant
will creates 35 jobs and Birr 2,738,081 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 19.2% of capacity utilization and it will
payback fully the initial investment less working capital in 2 years. The result further shows that
the calculated IRR of the project is 34.5% and with NPV discounted at 18% of Birr
29,077,098

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

Corn flakes are food made by combining corn with sugar, vitamins and minerals to make them as
nutritious as possible. For producing the fancy flakes specially designed flaker will be used. At
present, corn flakes are popularly known as breakfast food in the world at large and generally
taken with milk. Maize is the major raw material used for the manufacture of corn flakes.

1
3. Market Study, Plant Capacity and Production Program
3.1 Market Study
3.1.1 Present Supply and Demand

Currently, there is only one recently established private company in the country engaged in the
manufacture of corn flakes. The planned annual production capacity of this new company is 288
tons. The ingredients of the product of this company are corn flour, chocolate powder and
chocolate color. Data on actual production of this plant could not be obtained. Moreover, corn
flakes are also imported from abroad. Assuming that the domestic plant produces at its full
capacity, the total effective demand of corn flakes in the country is presented in table 1 below

Table 1: Domestic Production and Import of Cornflakes (in tons)

Domestic Effective
Year Production Import Demand
1997/98 0 29 29
1998/99 0 31 31
1999/00 0 24 24
2000/01 0 69 69
2001/02 0 71 71
2002/03 0 75 75
2003/04 0 72 72
2004/05 0 78 78
2005/06 288 84 372
2006/07 288 112 400
Source: Customs Authority (various years)

The above table reveals that in 2006/07 alone a little less than half of the total demand is met
through import. A report by UNIDO in 2003 pointed out that there is a worthwhile demand of
corn flakes in the capital city, Addis Ababa alone mainly by the international community, but
also to a great extent by the affluent population due to its ease and fast preparation. However, the
fact that the price of imported corn flakes is relatively high, being 50 times the price of maize
utilized to produce it, the demand for the product is likely to increase substantially if production
takes place locally at a reasonable price.

3.1.2 Projected Demand

2
Currently corn flakes is consumed by the international community, and a portion of middle and
upper income groups of the urban population. The effective demand could increase to a greater
extent if the price of the product is reduced together with proper promotional activities.

The 2006 statistical abstract confirm that there are 12.2 million people living in the urban places
of Ethiopia. With average family size of 5, this represents roughly 2.5 million families. If we
conservatively assume that only 2.5 percent of these families are able to demand the product, the
number of families with potential demand will be 62,500 families. With further conservative
assumption of 1 kilogram of cornflakes consumed per a family per week with the reduced price,
the annual demand would be 3000 tons of corn flakes. This demand analysis increases when the
international community and demand of hotels, restaurants and cafes is added in the
computation. Moreover, the advancement of modernization in the urban places is likely to boost
the demand for the product under study. Thus, taking a conservative consideration of 4 percent
growth of urbanization per annum, the future demand of corn flakes with reasonable price is
indicated in the following table.

Table 2: Projected Demand for Corn Flakes (in ton)

Year Projected Demand

2007/08 3,120
2008/09 3,245
2009/10 3,375
2010/11 3,510
2011/12 3,650
2012/13 3,796
2013/14 3,948
2014/15 4,106
2015/16 4,270
2016/17 4,441
2017/18 4,618
2018/19 4,803

According to table 2, forecasted demand reaches 3,375 tons by 2009/10 and increases by 42.3%
within 10 years (2018/19)

3.1.3 Pricing and Distribution

3
Market research conducted in various super markets in Addis Ababa revealed the following
average retail price of imported cornflakes.

Table 3: Retail Price of Imported Corn Flakes

Weight (in gram) Price (in Birr)

300
215
350
239
500
328
700
400

In other words the retail price of corn flakes on average is about Birr 597 per kilogram. This is
very expensive judged by any standard. The product is sold through wholesalers and retailers.
Based on the market research result and the capacity of the envisaged plant, the selling price of
corn flakes has been estimated at 59700 Birr/ton (i.e. Birr 597 per kg). In relation to the import
price, the price set for the envisaged plant is substantially lower mainly due to the availability of
maize and sugar locally at reasonable price. The product has got ample shelf life and thus, the
existing retail and wholesale network shall be used by the envisaged plant.

3.2 Plant Capacity

The demand projection obtained in the previous section indicates the presence of ample demand
for the product when prices are relatively reasonable and proper promotion is performed.
Accordingly, given this demand and the planned technology, the envisaged plant is set to
produce 1,000 tons of corn flakes annually.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 2 shifts, where the remaining days will be holidays and for plant and machinery
maintenance. During the first year of operation the plant will operate at 70 percent capacity and
then at 80 percent in the 2nd year and at 90 percent in the 3 rd year. The capacity will grow to 100
percent starting from the 4 th year. This consideration is developed based on the assumption that
market and logistics barriers would take place for the first two to three years of operation.

4
4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The major raw material used for the manufacture of corn flakes is maize (hybrid yellow and
white corns). In Ethiopia, maize is widely produced in all parts of the country where in 2005/06,
alone 33.4 million quintals were produced throughout the country. In the same year Amhara
region produced 35% of the total cereal production in the country which roughly implies that
11.7 million quintals of maize is the share of the region. The varieties grown are mixtures of
white, yellow and purple seeds where it is largely produced by the private farms. The fact that
corn does not constitute one of the staple foods in the Amhara Region points the presence of
ample maize (corn) for the envisaged plant.

Sugar is another raw material used for the manufacture of corn flakes. There are three large-scale
sugar establishments in the country. These establishments have a production capacity 280,000
tons of sugar annually. White sugar, which is used in the manufacture of corn flakes, is mainly
exported to the neighboring countries such as Djibouti, Kenya and Yemen in quantities ranging
between 30,000 to 50,000 tons per annum.

In addition to the existing cane sugar establishments, new sugar projects are currently under
construction. After the completion of these new sugar projects, the annual production of cane
sugar in the country may reach about 1.4 million tons. This exhibits the presence of ample raw
material. Other ingredients including cocoa powder and flavors are imported from abroad.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual requirement of raw materials and utilities at full capacity of production is presented
in table 4 below.

Table 4: Annual Requirement and Cost of Materials and Utilities

Total Cost
Material and Input Quantity L.C. F.C.
Corn 800 ton 11,940,000

5
 Sugar 110 ton 5,253,600

Cocoa Powder 30 ton 3,582,000

Flavors 5 ton 3,880,500

Packing Material 300 rolls 149,250

Total Material Cost 16,716,000 8,955,000

Utility -
Electricity 356,000 kwh 1,168,926 -
Furnace Oil 100,000 lit 4,179,000 -

Water 10,000m3 152,235 -

Total Utility Cost 5,500,161 -

Total Material and Utility 22,216,161 8,955,000

* LC = local cost and FC = foreign cost

The annual total raw material and utility requirement at full capacity of operation is estimated to
be Birr 31,171,161

5. Location and Site

The appropriate locations for the envisaged project are any of the urban centers near major corn
growing areas. This mainly refers to Bahir Dar.

6. Technology and Engineering

6.1 Production Process

The milling process removes the corn kernels from the cobs and turns them into flaking sized
'grits'. Malted barley can be added to enhance the flavor of the Corn Flakes. The corn grits are
cooked in steam pressure cookers, at temperatures exceeding 100C. This cooking process lasts
for an hour and softens the hard grits. During cooking additional water is incorporated in the
form of steam which condenses and the water content in the batch rises to 30-35%. Then the hot
grits are transported from the cookers to large driers via the network of pipes. The grits spend

6
several hours in the hot-air driers in order to reduce their moisture content. The corn grits are
milled using rollers, which squeeze the grits flat.

The flakes are then tumble toasted in huge cylindrical ovens. The air in the ovens is heated by
600C0 gas flames and the flakes are tossed around in a rotating drum. The drum is angled so that
the flakes whirl around and pass through it quite quickly, and stops them spending too long in the
fierce heat. The flakes are then coated with chocolate on demand and also sprayed with flavors,
minerals to make them as nutritious as possible. The Corn flakes are then bagged up with the
help of a bagging machine, which uses rolls of polythene.

The alternative technology is related to the volume of production. That is, for a large quantity of
production (such as 600-800kg/hr) the alternative option is more appropriate. This choice
requires a fully automated system at all steps-in production, packaging and boxing. It is suitable
to the largest volume markets that may require exporting to neighboring countries. Nonetheless,
for a capacity of production envisaged by the plant under study, such choice of technology is not
feasible.

6.2 Machinery and Equipment

The machineries and equipment required for producing corn flakes is detailed in table 5 below.

Table 5: Required Machineries and Equipment

Machinery and Equipment Quantity

Storage (Silo) 2
Mixer 1
Extruder Cooker 1
Coating Machine 1
Storage Bin 1
Packaging Machine 1
Fuel Storage tank 1
Laboratory Equipment 1 set

The total cost of machinery and equipment including freight insurance and bank cost is estimated
to be about Birr 17,910,000

7
The following are some of the machineries suppliers’ address for the envisaged project

Jinan Saibainuo Technology Development Co., Ltd

No.18 Central Street Tianqiao Industrial Garden Jinan China,
Jinan, Shandong, China 250032
Tel: 86-134-6593-5419
Fax: 0086-531-8576-2891

Jinan Shan Extrusion Machinery Co, Ltd

Post Code 250021, China
Tel: +86-531-88269073
Email: foodextruder@gmail.com
Website: http://www.semachinery.net

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 1,200m 2 of which 600m2 is allocated
to the production area and the remaining space is left for stores (350m 2), office buildings and
facilities (250m2).

7. Human Resource and Training Requirement

7.1 Human Resource

The required manpower for the envisaged plant is stated in table 6 below.

8
 Table 6: Human Resource Required and Compensation

Monthly Total Annual

Position No. Required Salary Salary
Manager 1 29,850 358,200
Administrator/Finance Head 1 17,910 214,920
Accountant 1 7,164 85,968
Secretary 1 5,075 60,894
Sales clerk 2 4,776 114,624
supervisor 2 8,955 214,920
Technician 2 5,970 143,280
Operator 10 4,776 573,120
Laborers 4 2,388 114,624
Store keeper 2 4,776 114,624
Driver 1 4,776 57,312
Cleaner 3 2,388 85,968
Messenger 1 2,388 28,656
Guards 4 2,388 114,624
20% Benefit - 456,347
Grand Total 35 - 2,738,081

The envisaged plant therefore, creates 35 jobs and about Birr 2,738 incomes. The professionals
for the envisaged plant shall be recruited from the Amhara region.

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focus on the production technology and machinery
maintenance and trouble shooting. Birr 298,500 will be allocated as training expense.

8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of corn flakes producing plant is based on the data provided in the
preceding sections and the following assumptions.

A. Construction and Finance

Construction period 2 years

9
 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 1% of fixed investment

B. Depreciation

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

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
47,819,700 as detailed in table 7 below.

10
 Table 7: Total initial investment

Items L.C F.C Total

1. Land
3,600 3,600
2. Building and civil works
14,328,000 - 14,328,000
3. Office equipment
298,500 - 298,500
4. Vehicles
3,582,000 - 3,582,000
5. Plant machinery & equipment
2,985,000 14,925,000 17,910,000
Total fixed investment cost
21,214,992 14,925,000 36,139,992
6. Pre production capital expenditure*
1,807,000 - 1,807,000
Total Initial Investment
23,021,992 14,925,000 37,946,992
7. Working capital at full capacity
5,981,624 3,907,634 9,889,263
Total
29,003,615 18,832,634 47,836,255
*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 39.4% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 40,066,800
as detailed in table 8 hereunder.

Table 8: Production Cost

Items Cost
1. Raw materials 25,671,000
2. Utilities 5,500,161
3. Wages and Salaries 2,738,081
4. Spares and Maintenance 361,400
Factory costs 34,270,642
5. Depreciation 3,615,050
6. Financial costs 3,444,212
Total Production Cost 41,329,904

11
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. Relevant ratios such as the
percentage of net profit to total sales, return on equity and return on total investment are 15%,
33% and 31% respectively in the first year and are gradually rising. 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 19.2% 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 2 years time.
IV. Simple Rate of Return

For the envisaged plant this equals to 32.4%.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement attached in the annex, the calculated IRR of the project is 34.5%
and the net present value at 18% discount is Birr 29,077,098

VI. Sensitivity Analysis

The project is attractively profitable even with 10% increase in the cost of production considered
in the analysis. That is, the envisaged plant earns profit starting from the first year and pays back
within 2 years and four months.

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9. Economic and Social Benefits and Justification

The envisaged project possesses wide range of benefits that promote the socio-economic goals
and objectives stated in the strategic plan of the Amhara National Regional State. It boosts inter
sectorial linkage between the agricultural and industrial sector. At the same time, therefore, it
helps diversify the economic activity of the region. The other major benefits are listed as
follows:

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 134,922,000 within the
project life. Such result induces the project promoters to reinvest the profit which, therefore,
increases the investment magnitude in the region. At the same time, the commencement of the
plant stimulates production of corn and increases income of corn farmers, while introducing new
diet to the region.

B. Tax Revenue

With an increase in profit, both tax revenue and the tax base of the region improves.
Accordingly, the region will collect about Birr 49,670,400 from corporate tax payment alone (i.e.
excluding income tax, sales tax and VAT) within the project life used in the analysis. Such result
creates additional fund for the regional government that will be used in expanding social and
other basic services in the regional state.

C. Import Substitution and Foreign Exchange Saving

Based on the current demand and price of imported corn flakes, we learn that in the project life
an estimated amount of US Dollar 9.4 million will be saved as a result of the proposed project.
This will create room for the saved hard currency to be used in other vital and strategic sectors.

13
 D. Employment and Income Generation

The proposed project is expected to create employment opportunity for 35 professionals as well
as support stuffs. Consequently the project creates income of Birr 2,738,081 per year. This would
be one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

14
ANNEXES

15
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0 0 70% 80% 90% 100%

1. Total Inventory - - 10,305,221 11,777,396 13,249,570 14,721,745

Raw Materials in Stock- Total - - 4,011,840 4,584,960 5,158,080 5,731,200

Raw Material-Local - - 1,276,495 1,458,851 1,641,207 1,823,564

Raw Material-Foreign - - 2,735,345 3,126,109 3,516,873 3,907,636

Factory Supplies in Stock - - 28,931 33,064 37,197 41,330

Spare Parts in Stock and Maintenance - - 82,793 94,621 106,449 118,276

Work in Progress - - 723,272 826,597 929,922 1,033,246

Finished Products - - 1,446,545 1,653,194 1,859,843 2,066,492

2. Accounts Receivable - - 4,558,909 5,210,182 5,861,455 6,512,727

3. Cash in Hand - - 629,102 718,974 808,846 898,717

CURRENT ASSETS - - 11,481,392 13,121,591 14,761,790 16,401,989

4. Current Liabilities - - 4,558,909 5,210,182 5,861,455 6,512,727

Accounts Payable - - 4,558,909 5,210,182 5,861,455 6,512,727

TOTAL NET WORKING CAPITAL REQUIREMENTS - - 6,922,483 7,911,409 8,900,336 9,889,262

INCREASE IN NET WORKING CAPITAL
1
 - - 6,922,483 988,926 988,926 988,926

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 14,721,745 14,721,745 14,721,745 14,721,745 14,721,745 14,721,745

Raw Materials in Stock-Total 5,731,200 5,731,200 5,731,200 5,731,200 5,731,200 5,731,200

Raw Material-Local 1,823,564 1,823,564 1,823,564 1,823,564 1,823,564 1,823,564

Raw Material-Foreign 3,907,636 3,907,636 3,907,636 3,907,636 3,907,636 3,907,636

Factory Supplies in Stock 41,330 41,330 41,330 41,330 41,330 41,330

Spare Parts in Stock and Maintenance 118,276 118,276 118,276 118,276 118,276 118,276

Work in Progress 1,033,246 1,033,246 1,033,246 1,033,246 1,033,246 1,033,246

Finished Products 2,066,492 2,066,492 2,066,492 2,066,492 2,066,492 2,066,492

2. Accounts Receivable 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727

3. Cash in Hand 898,717 898,717 898,717 898,717 898,717 898,717

CURRENT ASSETS 16,401,989 16,401,989 16,401,989 16,401,989 16,401,989 16,401,989

4. Current Liabilities 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727

Accounts Payable 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727

TOTAL NET WORKING CAPITAL REQUIREMENTS 9,889,262 9,889,262 9,889,262 9,889,262 9,889,262 9,889,262
INCREASE IN NET WORKING CAPITAL
2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

TOTAL CASH INFLOW 18,973,496 - 28,862,758 - 46,348,909 - 48,411,273 - 54,381,273 - 60,351,273 -

1. Inflow Funds 18,973,496 28,862,758 4,558,909 651,273 651,273 651,273

Total Equity 7,589,398 11,545,103 - - - -

Total Long Term Loan 11,384,097 17,317,655 - - - -

Total Short Term Finances - - 4,558,909 651,273 651,273 651,273

2. Inflow Operation - - 41,790,000 47,760,000 53,730,000 59,700,000

Sales Revenue - - 41,790,000 47,760,000 53,730,000 59,700,000

Annex 2: Cash Flow Statement (in Birr): Continued
Interest on Securities - - - - - -
PRODUCTION
5 6 7 8 9 10
3. Other Income - - - - - -
TOTAL CASH INFLOW 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000
TOTAL CASH OUTFLOW 18,973,496 18,973,496 43,387,687 37,670,122 45,329,060 49,118,403
1. Inflow Funds - - - - - -
4. Increase In Fixed Assets 18,973,496 18,973,496 - - - -
Total Equity - - - - - -
Fixed Investments 18,069,996 18,069,996 - - - -
Total Long Term Loan - - - - - -
Pre-production Expenditures 903,500 903,500 - - - -
Total Short Term Finances - - - - - -
5. Increase in Current Assets - - 11,481,392 1,640,199 1,640,199 1,640,199
2. Inflow Operation 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000
6. Operating Costs - - 24,373,278 27,802,088 31,230,897 34,659,707
Sales Revenue 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000
7. Corporate Tax Paid - - - - 4,804,163 5,738,731
Interest on Securities - - - - - -
8. Interest Paid - - 7,533,017 3,444,210 2,870,175 2,296,140
3. Other Income - - - - - -
9.Loan
TOTALRepayments
CASH OUTFLOW - - - 4,783,625 4,783,625 4,783,625

10.Dividends Paid - - - - - - 3
Surplus(Deficit) - 9,889,262 2,961,222 10,741,151 9,052,213 11,232,870
 47,076,379 46,997,895 46,596,070 41,410,620 41,410,620 41,410,620

4. Increase In Fixed Assets - - - - - -

Annex
Fixed Investments 3: DISCOUNTED
- CASH
- FLOW-TOTAL
- CAPITAL
- INVESTED
- -
Pre-production
- CONSTRUCTION
- - - PRODUCTION
- -
Expenditures
Year 1 Year 2 1 2 3 4
5. Increase in Current Assets - - - - - -
TOTAL CASH INFLOW - - 41,790,000 47,760,000 53,730,000 59,700,000
6. Operating Costs 34,659,707 34,659,707 34,659,707 34,659,707 34,659,707 34,659,707
1. Inflow Operation - - 41,790,000 47,760,000 53,730,000 59,700,000
7. Corporate Tax Paid 5,910,941 6,406,492 6,578,702 6,750,913 6,750,913 6,750,913
Sales Revenue - - 41,790,000 47,760,000 53,730,000 59,700,000
8. Interest Paid 1,722,105 1,148,070 574,035 - - -
Interest on Securities - - - - - -
9. Loan Repayments 4,783,625 4,783,625 4,783,625 - - -
2. Other Income - - - - - -
10.Dividends Paid - - - - - -
TOTAL CASH OUTFLOW 18,973,496 18,973,496 31,295,761 28,791,014 37,023,987 41,387,364
Surplus(Deficit) 12,623,621 12,702,105 13,103,930 18,289,380 18,289,380 18,289,380
3. Increase in Fixed Assets 18,973,496 18,973,496 - - - -
Cumulative Cash Balance 56,500,338 69,202,444 82,306,374 100,595,754 118,885,134 137,174,513
Fixed Investments 18,069,996 18,069,996 - - - -

Pre-production Expenditures 903,500 903,500 - - - -

4. Increase in Net Working Capital - - 6,922,483 988,926 988,926 988,926

5. Operating Costs - - 24,373,278 27,802,088 31,230,897 34,659,707

6. Corporate Tax Paid - - - - 4,804,163 5,738,731

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

NET CASH FLOW (18,973,496) PRODUCTION

(18,973,496) 10,494,239 18,968,986 16,706,013 18,312,636
5 6 7 8 9 10
TOTAL CASH INFLOW
CUMMULATIVE NET CASH FLOW (18,973,496) (37,946,992) (27,452,753) (8,483,766) 8,222,247 26,534,882
4
Net Present Value (at 18%) (18,973,496) (16,079,234) 7,536,799 11,545,111 8,616,776 8,004,622

Cumulative Net present Value (18,973,496) (35,052,730) (27,515,930) (15,970,820) (7,354,044) 650,578
 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000

1. Inflow Operation 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000

Sales Revenue 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000

Interest on Securities - - - - - -

2. Other Income - - - - - -

TOTAL CASH OUTFLOW 40,570,649 41,066,199 41,238,410 41,410,620 41,410,620 41,410,620

3. Increase in Fixed Assets - - - - - -

Fixed Investments - - - - - -

Pre-production Expenditures - - - - - -

4. Increase in Net Working Capital - - - - - -

5. Operating Costs 34,659,707 34,659,707 34,659,707 34,659,707 34,659,707 34,659,707

6. Corporate Tax Paid 5,910,941 6,406,492 6,578,702 6,750,913 6,750,913 6,750,913

NET CASH FLOW 19,129,351 18,633,801 18,461,590 18,289,380 18,289,380 18,289,380

CUMMULATIVE NET CASH FLOW 45,664,234 64,298,035 82,759,625 101,049,005 119,338,385 137,627,765

Net Present Value (at 18%) 7,086,115 5,849,617 4,911,488 4,123,452 3,494,451 2,961,399

Cumulative Net present Value 7,736,693 13,586,309 18,497,797 22,621,249 26,115,699 29,077,098
Net Present Value (at 18%) 29,077,098
Internal Rate of Return 34.50%

5
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 70% 80% 90% 100% 100%

1. Total Income 41,790,000 47,760,000 53,730,000 59,700,000 59,700,000

Sales Revenue 41,790,000 47,760,000 53,730,000 59,700,000 59,700,000

Other Income - - - - -

2. Less Variable Cost 23,235,006 26,554,293 29,873,580 33,192,866 33,192,866

VARIABLE MARGIN 18,554,994 21,205,707 23,856,420 26,507,134 26,507,134

(In % of Total Income) 44.4 44.4 44.4 44.4 44.4

3. Less Fixed Costs 4,753,321 4,862,844 4,972,368 5,081,891 5,081,891

OPERATIONAL MARGIN 13,801,672 16,342,862 18,884,053 21,425,243 21,425,243

(In % of Total Income) 33.03 34.22 35.15 35.89 35.89

4. Less Cost of Finance 7,533,017 3,444,210 2,870,175 2,296,140 1,722,105

5. GROSS PROFIT 6,268,656 12,898,652 16,013,877 19,129,103 19,703,138

6. Income (Corporate) Tax - - 4,804,163 5,738,731 5,910,941

7. NET PROFIT 6,268,656 12,898,652 11,209,714 13,390,372 13,792,196

RATIOS (%)

6
 Gross Profit/Sales 15% 27% 30% 32% 33%
Net Profit After Tax/Sales 15% 27% 21% 22% 23%
Return on Investment 31% 36% 30% 33% 32%
Return on Equity 33% 67% 59% 70% 72%

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

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

1. Total Income 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000

Sales Revenue 59,700,000 59,700,000 59,700,000 59,700,000 59,700,000

7
 Other Income - - - - -

2. Less Variable Cost 33,192,866 33,192,866 33,192,866 33,192,866 33,192,866

VARIABLE MARGIN 26,507,134 26,507,134 26,507,134 26,507,134 26,507,134

(In % of Total Income) 44.4 44.4 44.4 44.4 44.4

3. Less Fixed Costs 4,004,091 4,004,091 4,004,091 4,004,091 4,004,091

OPERATIONAL MARGIN 22,503,043 22,503,043 22,503,043 22,503,043 22,503,043

(In % of Total Income) 37.69 37.69 37.69 37.69 37.69

4. Less Cost of Finance 1,148,070 574,035 - - -

5. GROSS PROFIT 21,354,973 21,929,008 22,503,043 22,503,043 22,503,043

6. Income (Corporate) Tax 6,406,492 6,578,702 6,750,913 6,750,913 6,750,913

7. NET PROFIT 14,948,481 15,350,305 15,752,130 15,752,130 15,752,130

RATIOS (%)
Gross Profit/Sales 36% 37% 38% 38% 38%
Net Profit After Tax/Sales 25% 26% 26% 26% 26%
Return on Investment 34% 33% 33% 33% 33%
Return on Equity 78% 80% 82% 82% 82%

Annex 5: Projected Balance Sheet (in Birr)

CONSTRUCTION PRODUCTION

8
 Year 1 Year 2 1 2 3 4

TOTAL ASSETS 18,973,496 47,836,253 58,663,818 67,430,118 74,507,479 83,765,499

1. Total Current Assets - 9,889,262 24,331,877 36,713,226 47,405,638 60,278,707

Inventory on Materials and Supplies - - 4,123,564 4,712,645 5,301,726 5,890,806

Work in Progress - - 723,272 826,597 929,922 1,033,246

Finished Products in Stock - - 1,446,545 1,653,194 1,859,843 2,066,492

Accounts Receivable - - 4,558,909 5,210,182 5,861,455 6,512,727

Cash in Hand - - 629,102 718,974 808,846 898,717

Cash Surplus, Finance Available - 9,889,262 12,850,484 23,591,635 32,643,847 43,876,718

Securities - - - - - -

2. Total Fixed Assets, Net of Depreciation 18,973,496 37,946,992 34,331,942 30,716,892 27,101,842 23,486,792

Fixed Investment - 18,069,996 36,139,992 36,139,992 36,139,992 36,139,992

Construction in Progress 18,069,996 18,069,996 - - - -

Pre-Production Expenditure 903,500 1,807,000 1,807,000 1,807,000 1,807,000 1,807,000

Less Accumulated Depreciation - - 3,615,050 7,230,100 10,845,150 14,460,200

3. Accumulated Losses Brought Forward - - - - - -

4. Loss in Current Year - - - - - -

TOTAL LIABILITIES 18,973,496 47,836,253 58,663,818 67,430,118 74,507,479 83,765,499

5. Total Current Liabilities
9
 - - 4,558,909 5,210,182 5,861,455 6,512,727

Accounts Payable - - 4,558,909 5,210,182 5,861,455 6,512,727

Bank Overdraft - - - - - -

6. Total Long-term Debt 11,384,097 28,701,752 28,701,752 23,918,127 19,134,501 14,350,876

Loan A 11,384,097 28,701,752 28,701,752 23,918,127 19,134,501 14,350,876

Loan B - - - - - -

7. Total Equity Capital 7,589,398 19,134,501 19,134,501 19,134,501 19,134,501 19,134,501

Ordinary Capital 7,589,398 19,134,501 19,134,501 19,134,501 19,134,501 19,134,501

Preference Capital - - - - - -

Subsidies - - - - - -

8. Reserves, Retained Profits Brought Forward - - - 6,268,656 19,167,308 30,377,022

9.Net Profit After Tax - - 6,268,656 12,898,652 11,209,714 13,390,372

Dividends Payable - - - - - -

[
Retained Profits - - 6,268,656 12,898,652 11,209,714 13,390,372

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

PRODUCTION
5 6 7 8 9 10

TOTAL ASSETS 92,774,070 102,938,925 113,505,605 129,257,735 145,009,865 160,761,995

1. Total Current Assets
10
 72,902,328 85,604,433 98,708,363 116,997,743 135,287,123 153,576,503

Inventory on Materials and Supplies 5,890,806 5,890,806 5,890,806 5,890,806 5,890,806 5,890,806

Work in Progress 1,033,246 1,033,246 1,033,246 1,033,246 1,033,246 1,033,246

Finished Products in Stock 2,066,492 2,066,492 2,066,492 2,066,492 2,066,492 2,066,492

Accounts Receivable 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727

Cash in Hand 898,717 898,717 898,717 898,717 898,717 898,717

Cash Surplus, Finance Available 56,500,338 69,202,444 82,306,374 100,595,754 118,885,134 137,174,513

Securities - - - - - -

2. Total Fixed Assets, Net of Depreciation 19,871,742 17,334,492 14,797,242 12,259,992 9,722,742 7,185,492

Fixed Investment 36,139,992 36,139,992 36,139,992 36,139,992 36,139,992 36,139,992

Construction in Progress - - - - - -

Pre-Production Expenditure 1,807,000 1,807,000 1,807,000 1,807,000 1,807,000 1,807,000

Less Accumulated Depreciation 18,075,250 20,612,500 23,149,750 25,687,000 28,224,250 30,761,500

3. Accumulated Losses Brought Forward - - - - - -

4. Loss in Current Year - - - - - -

TOTAL LIABILITIES 92,774,070 102,938,925 113,505,605 129,257,735 145,009,865 160,761,995

5. Total Current Liabilities 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727

Accounts Payable 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727 6,512,727

Bank Overdraft - - - - - -

6. Total Long-term Debt 9,567,251 4,783,625 - - - -

Loan A
11
 9,567,251 4,783,625 - - - -

Loan B - - - - - -

7. Total Equity Capital 19,134,501 19,134,501 19,134,501 19,134,501 19,134,501 19,134,501

Ordinary Capital 19,134,501 19,134,501 19,134,501 19,134,501 19,134,501 19,134,501

Preference Capital - - - - - -

Subsidies - - - - - -

8. Reserves, Retained Profits Brought Forward 43,767,394 57,559,590 72,508,071 87,858,376 103,610,506 119,362,636

9. Net Profit After Tax 13,792,196 14,948,481 15,350,305 15,752,130 15,752,130 15,752,130

Dividends Payable - - - - - -

Retained Profits 13,792,196 14,948,481 15,350,305 15,752,130 15,752,130 15,752,130

12