Introduction

Tourism is the sum of the phenomena and relationship arising from the travel and stay of non-residents, in so far,
they don’t lead permanent residence and are not connected with any earning activity (UNWTO 2011). Tourism
can have different types. Since the 1980s, ecotourism has been considered a critical endeavor by environmentalists,
so that future generations may experience destinations relatively untouched by human intervention. Several
university programs use this description as the working definition of ecotourism. Ecotourism, is a niche market in
the large tourism business, is a form of tourism involving visiting fragile, pristine, and relatively undisturbed
natural areas, intended as a low-impact and often small-scale alternative to standard commercial mass tourism. It
means responsible travel to natural areas conserving the environment and improving the well-being of the local
people (TIES, 2004).Its purpose may be to educate the traveler, to provide funds for ecological conservation, to
directly benefitthe economic development and political empowerment of local communities, or to foster respect for
different cultures and for human rights. Besides, Ecotourism is “Environmentally responsible travel to natural areas,
to enjoy and appreciate nature (and accompanying cultural features, both past and present) that promote
conservation, have a low visitor impact and provide for beneficially active socio-economic involvement of local
peoples” (zmescience.com). The first thing ecotourism implies is a level of awareness from the tourists. The tourists
should be aware the impact both on the local environment and on the local community, and should try, within
reasonable limits, to reduce this impact. As a growing number of eco-tourists plan their holidays around authentic
natural and cultural experiences, they will increasingly seek accommodations, such as eco-lodges, that reflect the
main principles of ecotourism.

The global tourism industry has huge economic importance. It contributes 10% of the world’s
gross domestic product and 6% of exports. One billion people a year travel somewhere in the

world. Africa’s natural and cultural points of interest give the continent tremendous tourism
potential. This shows in the numbers. In 2015, the sector generated USD$ 36 billion in Africa
(7% of all exports in the region), up from USD$ 10 billion in 2000. Travel and tourism also
directly supports 466,000 jobs. It’s expected that by 2030 the number of tourists will reach 134

million annually. But African countries’ tourism industries are often constrained by a lack of
infrastructure development, air connectivity and financing.
Ethiopia, in East Africa, is an example. The country has immense natural, cultural and historical
attractions, but is a largely untapped tourism market. It suffers from a lack of infrastructure and
the negative publicity the country received after the famine in the 1980s and various conflicts. It
needs to make a big effort to market its potential and develop the measures to support the
industry.

Ethiopia’s tourism sector showed a steady increase in the last decade. International tourist
arrivals rose from 64,000 in 1990 to 680,000 in 2013 and are expected to reach 815,000 by 2024.
This 2024 figure would mean a contribution of USD$2 billion to the country’s GDP. Over the
next five years the sector is expected to create over a million jobs, or 3.6% of total employment.

Comfortable loadges play a vital role in attracting tourists. After the fall of the communist
government 32 years ago, Ethiopia started privatising most of the state owned loadges and
tourism establishments. To support this, the government adopted a policy that allows duty-free
imports of loadge furniture, fixtures and equipment. It also provides for favourable loans to
investors for the construction of new rated hotels.

But, while the loadge industry is growing, the number of available loadge rooms is still the
lowest. In terms of room availability, Ethiopia is globally ranked 134 out of 140, compared to
Kenya, Uganda and Tanzania at positions 122, 121 and 118 respectively. Furthermore, there are
few hotels of an international standard, and many are old and unattractive. Infrastructure to
support the hotels is lacking. There are no zoning policies to establish the areas where hotels
should be constructed, or tourist activities to complement them when they are built.

History of Tourism Development in Ethiopia

Ethiopia has a long history of conservation. The first recorded indigenous conservation-oriented activity took place
during the reign of Emperor Zerea Yacob (1434-1468) (Amare, A. 2015). Later, in the early 19th century the
wildlife conservation was only for large and flagship animals. For example, Emperor Menelik II on 1908 amended
the first regulation, against young elephant hunting by peoples. Then, in 1960’s based on the United Nations
Scientific, Educational and Cultural Organization (UNESCO) suggestion to the country, Ethiopian Wildlife
Conservation Organization (EWCO) was established in 1964 under Ministry of Agriculture. During this time two
protected areas namely; Awash National Park and Simien Mountains National Park were established. The former
EWCO changed its name to Ethiopian Wildlife Conservation Authority (EWCA) and formally re-established since
2008 under Ministry of Culture and Tourism aimed to manage and conserve the protected areas of the country.
The country’s geology, archeological sites and landscape as well as cultural diversity have been contributed
for tourism development and promotion. However, the wildlife tourism solely dependent on protected areas,
primarily national parks and sanctuaries of the country. Promotion of ecotourism assumes that people come to visit
Ethiopia not merely for enjoying themselves, but to gain knowledge and appreciation of the country’s geographical
and natural features, of its peoples and their interaction with their environment, to gain better understanding of the
way developments affects the environment and how problems may be dealt with. Tourism in Ethiopia has always
involved features of ecotourism. People who visit historic route are, of also interested in the physical features of
these areas and in the extent to which they are being protected.
In recent years visitors have increased to other areas of major environmental interest; Simein Mountains, Bale
Mountains, the Rift valley lakes and especially to the Omo valley and other parts of the southwest. Besides,
ecolodge developments begun at areas which are reach in natural resources including protected areas. Eco-lodges in
protected areas of Ethiopia include; Awash falls lodge at Awash national park, simein mountains lodge at simein
mountains national park, Dinsho and Bale mountains lodge at Bale mountains national park, 10,000 flamingos and
Ethio-samell lodges at Abijata shalla lakes national park can be mentioned as major examples

loadge performance

Until recently, Ethiopia did not have enough loadges recognised under international rankings or
ratings – they generously awarded themselves their own stars. This made it hard for visitors to
judge the quality of a loadge. This changed in 2015 when the Ethiopian government, with the
help of World Tourism Organisation, started rating loadges in the country. Though participation
in the grading process is mandatory, the graded loadges still haven’t undergone annual audits to
ensure they’re keeping up with the standard they were awarded.

Ethiopia also only has a few internationally branded and managed loadges like semien loadge.
This is a very low figure bearing in mind that the average number of tourists per year
is nearly 700,000 and these few loadges have a combined total of less than 1,500 rooms. By
comparison, Nairobi in neighbouring Kenya already hosts most of the international hotel brands
– and expects 13 more to open their doors over the next five years.

There are also only three five star hotels in Ethiopia and the majority of the “rated” hotels which
guarantee a certain standard of service are situated in the capital, Addis Ababa. Other hotels,
rated only by online travel agents based on the guests’ comments and with fewer than 100
rooms, are scattered throughout major towns. This is a problem because most of the tourist
attractions are located in the countryside. There is also a scarcity of budget facilities, like youth
hostels, to cater for budget travellers and backpackers.

Another major issue is the hotel structures. After the fall of the communist regime, from 1995,
Ethiopia started privatising. Over 287 enterprises were transferred from the public to the private
sector – out of which 34, or 11.8%, were hotels. The aim was to improve economic efficiency,
stimulate the private sector and mobilise more foreign and domestic investment. However, the
process has been weighed down with problems which include; corruption, loss of jobs and a lack
of ownership and transparency. The state retains control of many of the most valuable assets in
the sector. These are not well maintained, as they are about to be privatised. For example, Addis
Ababa’s Hilton hotel, completed in 1987, now needs urgent refurbishment.

Finally, the hotel industry needs to be supported by tourism infrastructure. It needs physical
facilities like car parks, sewerage and water works, transport projects and roads. These have to be
based on zoning policies, to establish where the hotels should be built. With the exception of
Addis Ababa, there are also hardly any offerings of recreational or entertainment activities like
parks, concerts or cinemas. And there are logistical gaps like the lack of adequate ATM
machines and foreign exchange bureaus outside Addis Ababa. This means visitors need to carry
large amounts of cash in local currency, which is inconvenient and unsafe.

To spur tourism growth and development, Ethiopia must improve the hotel industry and the
infrastructure that supports it. It will take the cooperation of all stakeholders – government, hotel
professionals, hotel owners and hotel trade associations – to achieve a competitive and
sustainable sector.

The Simien Mountains are one of Ethiopia's most popular destinations. Sitting just north of
Gondar, it's easily accessible along the northern circuit of Ethiopia. Comprising 220 square
kilometres of peaks, plateaus, vistas and valleys, the park offers stunning viewpoints and some of
the best trekking routes in Africa.
There are two lodges in the Simien Mountains National Park. Limalimo Lodge is one of the
best lodges in the country and makes for a luxurious base to explore the park. Simien
Lodge is more basic, but slightly better located for treks. There are 3 main campsites, and 6
further campsites deeper in the park.

Loadge and Tourism sector in Ethiopia

Ethiopia has vast potential for development of various economic sectors.Although agriculture is
the mainstay of the country’s economy the opportunity to invest in other sectors especially in
Loadge, Tourism and various recreation activities are there.Although Ethiopia is endowed with
many natural and manmade tourist attractions, these resources have not been sufficiently
exploited. The country’s geographical location and the remarkable physical features and
climate have endorsed it with rich and varied natural heritages. Despite considerable demand,
tourism sector remains at relatively low stage of development.The Hotel and recreation service
facilities in Ethiopia have been found at a lower level of development. The number of Hotel
service establishments in the country has remained insignificant to respond to the customer’s
demand. Only few Hotels have the capacity or quality to provide good accommodation and
catering facilities to fulfill tourists need. There are only few loadges in the capital, Addis Ababa,
and other big towns of the region states that organized on international standard to fulfill the
consumer’s needs.
The government of Ethiopia has devised a long term strategy that gives due regard to the
preservation, development and promotion of the country’s tourist attraction. This includes plan
for expansion of tourist facilities and the necessary infrastructure.Indeed in the wider sense the
country has a good potential for the development of high standard loadges, recreation and market
center and there is a growing realization that this sector holds a significant development
perspective, which should be fully exploited in the planned and controlled manner. In adopting a
planned and regulated approach the country is in a position to expand its loadge and tourism
sector in a way that emphasizes environmental conservation and enhances the quality of the
overall tourist experience. This will contribute substantially towards improving the standard of
living and the quality of life of the population.
The past trend shows that most of the high standard loadge and recreation centers are
concentrated in the capital, Addis Ababa and regional capitals. The number of loadges and
recreation service facilities in remote area of the country has remained insignificant to respond to
the customers demand. Only few loadges and recreation centers out of Addis Ababa and regional
capitals have the capacity to provide accommodation for mid or high-class guests.

Loadge is a building, symbol, company or business entity that provides services accommodation,
food and beverage providers and other service facilities where all the services are intended for
the people, whether they are staying overnight at the loadge or those who only use the facilities.

By taking this encouraging as an opportunity the promoter project plan to

establish20 bed room tourist loadge service in north Gondar beyeda
woreda for the benefit of the promoter, the district communityas well as the
country as a whole.

. Statement of the problem

Recent reports and studies describing the trends in the contemporary loadge
accommodation market in Ethiopia periphery emphasize the hard Competition in
prices and services and the reduction of the tourism consumption duringthe last
three years. Hospitality indexes like RevpAr (Revenue per Available Room)
andARR (Average Room Rate) reassure this negative trend for the industry which
makes the existence of middle-size, local and independent hotels more difficult. In
particular,problems and negative trends which make the situation more challenging
for mid-scale loadge as mentioned by the above tourism institutions and
associations are first of all, the dependency by 75% of the loadge market on
business travelers and the business traveler’sprice sensitivity and concern of a
positive value/price relation. In addition, as mentioned by the above tourism
associations there is a decreasing trend in business tourism consumption in
Ethiopia expressedby a reduction of 1.2% in guest-nights in 2012 e.c Compared to
those of 2013e.c. Loadge and tourisms investment is major instrument for
economic, social and political development. Investment in cultural development
and participation in the rapid growth Beyeda woreda especially Ras dejen area
must be appreciable. The expansion of this project create vacancy for hose jobless
and their buy contributed second round growth and transformation plan of our
country, to eliminate poverty.

Objectives of the project

The main objective of the project is aimed at to maximize the return on
invested capital in the form of profit for the promoter.And also to fulfill the
loadge gap around the semien national park loadges. In this respect the
project is aimed to promote the following objectives:-
To maximize the return on invested capital through modern Hotel services
To raise the significance and importance of the sector and thereby raising
its contribution to the national economic development
To give quality and standard loadge service
Effectively use local inputs and strengthening the linkage between
agriculture and other sectors of the economy
To provide gainful employment to a large segment of the population of the
project area and augment earning capacity at the grassroots level,
Increase government revenue through the different forms of taxes, which
in turn used to facilitate social and economic development. In general, the
project is believed to have significant social and economic benefits that
accrue to the society, the region and the country.

Scope of the project

The scope of the loadge industry can refer to the different job roles that are
available within the loadge industry as there is not one niche route that can be
followed. A person can become a receptionist and is responsible for checking
in/out guests as well as being the central point of the loadge that is needed to co-
ordinate all other departments. There is also the finance team that makes sure all
stock is order on time and crucially within budget. They are there to make sure that
the loadge is turning over a profit each month and they do this by monitoring all of
the department’s .

Ambition of creating the loadge project

According to the preliminary market research, the demand for loadge service
is very high and yet the supply is limited leaving a huge service gap to the
customer. Unfortunately there is no saturated standard loadge in the area.
Although few less than two loadge have already working in the area, but still
huge gap is there in between demand and supply in the parking area.

The service (loadge) is widely accepted in Beyeda woreda, Government

employees, Private employees, Tourists, local customers, and to some extent
even in rich house-holds. So there is good scope for establishing the units for
establishing and maintain 20 bed room standard /international and tourist
loadge service in semien mountain national park area as well as in the
country. Due to this, it has become imperative to build and maintain 20 bed
room loadge standard hotels service for the mankind in prevailing conditions.
Project description and Justification
International standard tourist loadge is high class loadg where services like bedroom, catering,
meeting rooms,multipurpose assembly hall, and massage. A loadge is an establishment that
provides paid lodging on a short-term basis. Facilities provided may range from a modest-quality
mattress in a small room to large suites with bigger, higher-quality beds, a dresser, a refrigerator
and other kitchen facilities, upholstered chairs, a flat screen television and en-suite bathrooms.
Small, lower-priced loadge may offer only the most basic guest services and facilities. Larger,
higher-priced loadge may provide additional guest facilities such as a swimming pool, business
center (with computers, printers and other office equipment), childcare, conference. loadge
rooms are usually numbered to allow guests to identify their room. Some boutique, high-end
loadge have custom decorated rooms. Some loadge offer meals as part of a room and board
arrangement. In the United Kingdom, a loadge is required by law to serve food and drinks to all
guests within certain stated hours. In Japan, capsule loadges provide a tiny room suitable only for
sleeping and shared bathroom facilities.

The International Ecotourism Society (TIES) defines eco-lodges as including three main
components: conservation of neighboring lands, benefits to local communities, and interpretation
to both local populations and guests. Ecolodges are an exciting and potentially extremely viable
strategy for achieving all the tenants of ecotourism, and more specifically community based eco-
tourism. The authors of the Eco-Lodge Footprint and Justification for Biodiversity Conservation
study mapped the locations of nature-based lodges in 60 countries (chosen based on their high
concentration of nature-based lodges) 84 percent are in biodiversity hotspot areas, as defined by
Conservation International (www.biodiversityhotspots.org). The high number of eco-lodges and
nature-based lodges located in or near protected areas, or areas of high biodiversity value,
demonstrates the need for lodges to maintain sound environmental standards and practices. As
the study, at www.ifc.org/ebfp this types of lodges should have ecological, socio cultural and
economic sustainability in all the three phases of eco-lodge development and operations: The
pre-development phase, which includes an overall assessment of the project proposal and the
obtaining of appropriate permission and development support from local communities and
regulatory agencies; The construction phase, which includes the actual development of the lodge
and surrounding area; and the operations phase, which includes the ongoing, daily operations of
the business and programs of running an eco-lodge, from tracking energy efficiency, to local
community benefits and interpretation.
Sustainability
The concept of sustainability continues to expand in scope. In 2000, the Earth Charter broadened
the definition of sustainability to include the idea of a global society “founded on respect for
nature, universal human rights, economic justice, and a culture of peace.” To achieve these lofty
goals, humans will have to re-examine their policies on: Environmental protection, Social
responsibility and Economic practice (Sustainability Degrees.com). Sustainability is understood
from the proper use of natural resources and conservative strategies to transfer the resources for
the coming generation. In this context, destinations who use alternative energy sources for
service delivery and offers activities that doesn’t need to consume the natural resources can be
judged as sustainable destinations. Whereas, those who are purely dependent on the natural
resources and doesn’t concern on the conservation of the resources while making their
major aim profit maximization cannot be taken as sustainability. Arising from the complexity of
the situation, the present study is accompanied by aiming to assess Eco-lodges and tourist
infrastructure development in and around Abijata Shalla lakes national park, Central rift valley of
Ethiopia;from the perspective of evaluating their sustainability.

promoter profile
Merchandizing different goods especially loadge and tourism is the professional
entrepreneurship of owner .the promoter has diverse qualities business, economic
social and cultural development activities going in Beyeda woreda. He has
determined to invest his enterpriser talents, financialcapital and his communication
skills combined together for the establishment of feasible project in the woreda of
Beyeda.
 Project location
The proposed project of loadge will planned to be located in north
Gondar zone beyeda woreda. Beyeda woreda has the largest
mountain in Ethiopia ras dejen mountain.

Market Study, Plant Capacity and Production Program

Market Study

Present Demand and Supply

The Amhara Region encompasses the major tourist attraction centers of the
country. The major ones are RasDejen near beyeda woreda. These tourist attraction
sites are registered under UNESCO as world heritage centers. A number of
domestic and foreign tourists visit these sites every day. Rasdejen is one of the
most centers of attraction for both domestic and local tourists which is visited
almost every day throughout the year. Of course, there are more tourists during in
the all season.At any rate, thousands of tourists visit the fall every year. But there
are no facilities at the site where tourists gather to watch/see.But unfortunately
there are no facilities to provide these services. If there were loadges and
restaurants, many tourists could have made overnight. Not even an umbrella in
other places, in other countries, all sorts of tricks are made to make tourists stay
longer and spend more. They leave soon because there is nothing to make them
stay longer eventhough they are attracted by the natural beauty. The sooner they
leave the less they spend.

2Projected Demand
Tourism industry is one of the potential sectors of the country to generate foreign
currency. Its contribution towards export and GDP growth is increasing. For
example in 1996 tourism has contributed 19% and 1.2% to the country's export and
GDP growth, respectively.As indicated in table 1 bellow, the number of tourists
arriving in Ethiopia and receipts from international inbound tourism is increasing
from year to year.

Tourists arrived in Ethiopia and corresponding

Receipts (1991-1997)

Year Arrivals Receipts (in "000" Birr}

1991 114,000 252,000

1992 135,954 577,800

1993 148,438 542,000

1994 156,327 676,000

1995 179,910 778,000

1996 184,878 991,200

1997 227,298 1 177,816

Source: Ministry of Culture and Tourism, tourism Statistics

1995-1997 The numbers of domestic and foreign tourists who visit the rasdashen
mauntain vary depending on the season of the year. During the rainy season, there
are the less tourists visiting. In the dry season the so does the number of tourists.
But the number of tourists who had visited the fall during the last three to four
years indicates that there is sufficient demand for the services of a small loadge
and restaurant. Like many other tourist sites, the market for this loadge and
restaurant could be seasonal, but it can be profitable by working during the
“tourist season”. The loadge and the restaurant do not have to be very sophisticated
and expensively built. All they need is to be extremely clean and comfortable with
reasonable prices and efficient services. The food must be simple but carefully and
cleanly prepared and cooked. These are what “ferenjis” want in 3rdworld
countries.Besidesserving tourists, the loadge and restaurant at beyeda woreda could
be a good recreational center .On the other hand, as GDP and per capita income of
the population increase local people will try to spend their leisure time with their
families in such a resort, just like "ferenjis” do. This respect it is of paramount
importance to establish neat, clean and medium modern and traditional loadge and
restaurant at the beyeda woreda that could accommodate foreign and local tourists
so as to enjoy the beauty of the rasdashen mountain.
Table 4.2internationalstandardloadges in north Gondar

s/ Name of loadge in north Gondar Number of bed room

n
1 Semien loadge 70
2 Limalimo loadge 30
Pricing and Distribution
Pricing of a loadge services could be classified into three main categories i.e. food,
beverage and bed rent. In this regard the daily average price by category of service
is given in table bellow. Type of food to be prepared at this site is more of
"ferenji" culture.

Table 2 Average price of service by category

Type of Service Unit Price in dollar

Food 60 / meal / person

Beverage 40/bottle(excluding whisky

Bed night 100/night/ person

Plant Capacity
Working days are assumed to be 365day/year for bed, food and beverage and
200day/ year. The attainable capacity and revenue of the proposed loadge for each
category of service is estimated as follows
Table 3 Capacity and Revenue of the loadge by category Of Service
in 365 Days

Annual

Type of Service Quantity/day Price Revenue In dollar

Food 50 persons 20 200,000

Beverage 10 200,000
100 Bottles
Bed night 20 beds 50 200,000
Total - 600,000

Production Program

The service program of the proposed loadge and restaurant is assumed to

start at 55% in the first year and increases by 5% until 100% is reached in
the tenth year.

Raw Materials and Utilities

8.1 Availability and Source of Raw materials
Required raw materials for loadge and restaurant service include food items,
beverages (hot and cold), room clothing, detergents and the likes. All raw materials
are available in the domestic market.

Raw Materials and Utilities

Annual Requirement and Cost of Raw Materials and Utilities

The cost of annual requirement of raw materials of the project is estimated as
percentage of the respective service revenue as indicated in table bellow.
 Type of service Amount per day Average cost/birr Annual cost/birr
Food 40 80 640,000
Beverage 80 50 800,000
Total 120 130 1,440,000

Location and Site

The location of the proposed project is at Beyeda woreda. the investor will apply
for selected site by considering the service providing so as our woreda we need
such business location which is favorable for the international purpose .the are
desired to accompany this project is around 3000M2.

Technology and Engineering

10.1 Production Process
Falls include studying the market, securing land, constructing buildings,
equipping and furnishing the buildings and starting the operations The main
processes of establishing modern loadge and restaurants at Beyeda woreda of the
businesses.

10.2 Machinery and Equipment

Machinery and equipment required for a modern loadge and restaurant could
broadly be classified into four categories. These are;

•Bed room furniture,(includes beds, mattress, blankets, bed sheets, tables, chairs,
cap boards, etc)

Loadge furniture and equipments (tables ,chairs, glasses etc)

Restaurant furniture and equipments( tables, chairs, refrigerator, glasses, etc)

Kitchen utensils ( forks, spoons, trays, dish, deep freezer, etc)
Estimated cost of such furniture and fixture for a modern loadge and
restaurant is estimated in table 5 bellow.

table 5 Estimated cost of furniture and fixture of the project

Cost center Quantity Birr

Bed room For 10 beds 20,000

loadge For 10 tables 5,000

Restaurant For 10 tables 8,000

loadge 40 chairs 10,000

Restaurant 40 chairs 10,000

Kitchen Sets 10,000

Total
63,000

Office Furniture 113,080

Total 176,080

Civil Engineering Cost

A Loadge and Restaurant at Beyeda woreda will require about 3000m2 of land, of
which 1000m2 is for the construction of self contends bed rooms and 2000 m2 for
loadge and restaurant. Assuming that theloadge and restaurant will be made from
tradition materials, Land lease will be Birr 200 /m sq. The plant will require
additional Birr 500,000 for land preparation and park decoration, which totals to
about Birr 2,000,000 birr to the total building area .

Human Resource and Training Requirement

12.1 Human Resource
The project will require about 14 employees as indicated in table below with
annual salary of Bir 3460800.

Table.Human Resources Requirement

Position No of Monthly Salary / Annual Salary

employees person
Manager 1 3000 36000
Book Keeper 1 1500 18000
Cashier 1 1000 12000
Receptionist 1 1200 14,400
Waiter 1 1000 12000
Kook 2 2*1500 36,000
Assistant cook 1 1500 18,000
Cleaner 2 800 19,200
Guard 2 800 19,200
Total 13 30680 184,000
Benefits (20%) 36,000
Total 220,960
Training Requirement

For loadge and Restaurant services trained manpower is available in the market. .

Financial Analysis
13.1 Underlying Assumption
The financial analysis of Getaneh tzazu loadge is based on the data provided in the
preceding chapters and the following assumptions.

A.Construction and Finance

Construction period 1year

Source of finance 100% equity

Tax holidays 1years

Discount for cash flow 12%

Value of land Based on lease rate of ANRS

Spare Parts, Repair & Maintenance 3% of fixed investment

B.Depreciation

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

Working Capital (Minimum Days of Coverage)

Raw Material-Local 30 days

Raw Material-Foreign 120 days

Factory Supplies in Stock 30 days

Spare Parts in Stock and Maintenance 30 days

Work in Progress 10 days

Accounts Receivable 15 days

Cash in Hand 30 days

Accounts Payable

Working capital
N/o Item Annum cost/birr
1 Raw material 1,440,000
2 Utility 10,000
3 Employ salary 220,960
4 Employ benefit 36,960
5 Travel expense 10,000
6 Telephone expense 6,000
7 Total 1,723,920

Fixed cost

N/o Item Annum cost/birr

1 Machinery and equipment 100,000
2 Building and constraction 1,000,000
3 Office andFurnitures 176,080

4 Total 1,276,080

Project Capital and financing

Project Capital
The total investment capital of the project is estimated at birr 10,000,000
of which birr 7,502,240 is for fixed investment items while the remaining
balance of birr 2,497,760 will be initial working capital. The detail of
investment capital of the project is given below

. Project capital and source of income

S/n Item Capital/birr

1 Fixed capital 1,723,920
2 Working capital 1,276,080
Total 3,000,000

Financing
The total investment capital of the project is to be financed from the
promoter’s equity and bank loan. Out of the total capital birr 3,000,000
(30%) is contributed by the promoter, ABERA TIZAZU LOADGE while the
remaining balance of birr 7,000,000 (70%) is to be financed by local
banks. The bank loan will be repaid based on the following terms and
conditions:
Loan amount = birr 7,000,000
Installment period/ term = 10 years
Interest on loan (including service charge) = 12%

Year Principal Interest Year ending

Repayment Repayment balance
0 - - 7,000,000
1 700,000 840,000 6,300,000
2 700,000 756,000 5,600,000
3 700,000 672,000 4,900,000
4 700,000 588,000 4,200,000
5 700,000 504,000 3,500,000
6 700,000 336,000 2,800,000
7 700,000 252,000 2,100,000
8 700,000 168,000 1,400,000
9 700,000 84,000 700,000
10 700,000 0 0
Total 7,000,000 4,200,000

Depreciation of fixed investment items

The straight-line method has been used to depreciate/amortize all fixed
items of the project. The depreciation rate applied for all fixed assets is given
below:

S/n Item Cost/birr Annual depreciation

% Amount/birr
1 Machinery and equipment 600,000 10 60,000
2 Building and constraction 6,492,240 10 649,224
3 Office andFurnitures 410,000 10 41,000
Total 7,502,240 - 750,224

Table 7.12 Summary of project Annual production costs

S Cost item Year1 Year2 Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year
/ 10
n
1 Raw 2,080,00 2,184, 2,293, 2,407, 2,528, 2,654, 2,787, 2,926, 3,073, 3,226,
0
material 000 200 860 253 665 398 767 105 760
2 Utility 50,000 52500 55125 57881 60775 63813 67003 70353 73870 77563
3 Salary 262,0 275,1 288,9 303,3 318,4 334,4 351,1 368,6 387,1 406,4
80 84 43 90 78 01 21 77 10 56
4 Employ 43680 45864 48157 50564 53092 55746 58533 61459 64531 67757
benefit
5 Travel 50000 52500 55125 57881 60775 63813 67003 70353 73870 77563
expense
6 Telephone 12000 12600 13230 13891 14585 15314 16079 16882 17726 18612
expense
Total 2,497, 2,622, 2,753, 2,891, 3,035, 3,187, 3,347, 3,514, 3,690, 3,874,
760 648 780 467 958 752 137 491 212 711
Note: Production costs are assumed to increase by 5% annually.

Projected profit/loss
statement

Table 7.14 Project Profit/loss statement

Descr Project year
iption 1 2 3 4 5 6 7 8 9 10
Revenu 54,000,0 56,700, 59,535, 62,511, 65,637, 68,919 72,365 75,983, 79,782, 83,771
00
e 000 000 750 337 203 163 421 592 721
Producti 2,497, 2,622, 2,753, 2,891, 3,035, 3,187, 3,347, 3,514, 3,690, 3,874,
760
on cost 648 780 467 958 752 137 491 212 711
Gross 51,50 54,07 56,78 59,62 62,60 65,73 69,018 72,468 76,092, 79,89
income 2240 7352 1,220 0,283 1,379 1,451 026 930 380 7010
Interest 84000 756,000 672,000 588,000 504,000 336,000 252,000 168,000 84,000 0
0
Depreciati 75022 75022 75022 75022 75022 75022 75022 75022 75022 75022
on 4 4 4 4 4 4 4 4 4 4
Profit 49,91 52,57 55,35 58,28 61,34 64,64 68,01 71,55 75,93 79,14
before 2016 1128 8996 2059 7155 5,227 5,802 0,706 3156 6786
tax
Income 17,46 18,39 19,37 20,39 21,47 22,62 23,80 25,04 26,57 27,70
tax(35%) 9205 9894 5648 8720 1,504 5829 5530 2747 6,604 1375
Net 32,44 34,17 35,98 37,88 39,87 42,01 44,21 46,50 49,35 51,44
profit 2811 1234 3348 3339 5651 9398 0272 7959 6552 5411
Note: Sales revenue is assumed to increase by 5% annuall
 Projected cash flow statement

Table Project cash flow Statement

des Project year
crip 0 1 2 3 4 5 6 7 8 9 10
tion
Equit 3,00 - - - - - - - - - -
y 0,00
0
Loan
7,00
0,00
0
reven 54,000, 56,70 59,53 62,51 65,63 68,91 72,36 75,98 79,78 83,77
000 0,000
5,000 1,750 7,337 9203 5163 3,421 2,592 1721
ue
Depr 7502 7502 7502 7502 7502 7502 7502 7502 7502 7502
eciati 24 24 24 24 24 24 24 24 24 24
on
Total 10,00 54,7 57,4 60,2 63,2 66,3 69,6 73,1 76,7 80,5 84,5
inflo 0,000 502 50,2 85,2 61,9 87,5 69,4 15,3 33,6 32,8 21,9
w 24 24 24 74 61 27 87 45 16 45
Cash
outfl
ow

7,50 - - - - - - - - - -
Fixed
2,24
cost
0
Worki 2,497 2,497 2,62 2,753 2,891 3,035 3,187 3,347 3,514 3,690 3,874
g ,711
,760 ,760 2,64 ,780 ,467 ,958 ,752 ,137 ,491 ,212
capit
8
al
Loan 700, 700, 700,0 700, 700,0 700,0 700,0 700, 700,0 700,
repay 000
000 000 00 000 00 00 00 000 00
ment
Total 10,00 3,19 3,32 3,453 3,59 3735, 3,887 4,047 4,21 4,390 4,57
out 4,71
 flow 0,000 7,76 2,64 ,780 1467 958 752 ,137 4,49 ,212 1
0 8 1
Net - 51,55 54,12 56,83 59,6 62,65 65,78 69,06 72,5 84,92 89,0
Inflow
2,464 7,576 9665
1,444 7050 1,603 1,675 8,250 1915 3,028
6
7 4

Balance sheet

Description Cost/birr
Production cost 2,497,760
Fixed cost 7,502,240
Liability 7,000,000
Equity 3,000,000
Total liability and equity 10,000,000

Break-even Analysis

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 of the project including cost of finance when it starts
to operate at full
capacity ( year 4) is estimated by using income statement projection.
BE = FixedCost = 7,502,240
Sales – Variable C 54,750,224-2497,760

=7,502,240

5,2252,464
=14.35%

Payback Period (PBP)

The payback period is the amount of time required for a firm to recover its
initial investment in a project, as calculate from cash inflow The investment
cost and income statement projection are used to project.
the pay-back period

PBP = initial investment cost

Net profit +depreciation

= 10,000,000

32,442,811+750224

= 0.3

The payback period =0.3year is less than the maximum acceptable payback
period (10) therefore accept the project.