COFFEE ROASTING,

GRINDING AND
INSTANT
PROJECT PROPOSAL

OWNER:- MOHAMMED OMER YUSUF

 AUG, 2025
DIRE DAWA
TABLE OF CONTENTS
CONTENTS PAGES

Executive Summary.........................................................................................................................5

1. INTRODUCTION .....................................................................................................................6

1.1 Background.........................................................................................................................6

1.2 Coffee in
Ethiopia................................................................................................................6

1.3 Profile of the

Promoter.........................................................................................................8

1.4 Purpose of the

document......................................................................................................8

1.5 Product Description and

Application...................................................................................9

1.6 Benefit of the

Project:..........................................................................................................9

1.6.1 Source of Employment............................................................................................9

1.6.2 Source of Government Revenue.............................................................................9

1.6.3 Sources of Social Service......................................................................................10

1.7 Objective of the Project.....................................................................................................10

1.8 The Socio - Economic Significance of the

Project............................................................10

1.9 Location and Premises Required.......................................................................................11

1.9.1 Location.................................................................................................................11

1.9.2 Premises required and land

use..............................................................................11

2. MARKET STUDY, PLANT CAPACITY AND PRICING …………………………...12

 2.1 Market Study....................................................................................................................12

2.1.1 Past Supply and Present Demand.........................................................................12

2.1.2 Demand Projection................................................................................................13

2.1.3 Pricing and Distribution.......................................................................................15

2.2 Plant Capacity and Production Program...........................................................................16

2.2.1 Plant Capacity.......................................................................................................16

2.2.2 Production Program.............................................................................................16

2.3 Market Share.....................................................................................................................16

3. TECHNOLOGY, PRODUCTION PROCESS AND

ENGINEERING .................................17

3.1 Technology........................................................................................................................17

3.1.1 Machinery and

Equipment.....................................................................................17

3.2 Production Process............................................................................................................18

Basic roasting steps in coffee manufacturing are:.............................................................20

The 5 most used grinds in coffee manufacturing are:.......................................................21

The most usual package options are:..................................................................................22

3.3 Materials and Inputs..........................................................................................................22

3.3.1 Raw
Materials........................................................................................................22

3.3.2 Utilities..................................................................................................................23

3.4 Civil Engineering, Building and Civil Works...................................................................24

3.5 Project Implementation Plan/ Action Plan........................................................................25

4. ORGANIZATION, MANAGEMENT AND MANPOWER ...........................................26

4.1 Organization and

Management..........................................................................................26
 4.2 Man
Power.........................................................................................................................26

*NB*. The salary expense for temporary workers at constriction and installations stage will be
allocated under Land, Building & Construction........................................................................27

4.3 Organizational Structure...................................................................................................27

5. FINANCIAL REQUIRMENT AND

ANALYSIS ....................................................................30

5.1 Total Initial Investment Cost.............................................................................................30

5.1.1 Fixed Investment...................................................................................................30

5.1.2 Pre -Service

Expense.............................................................................................32

5.2 Annual Production Cost at Full

Capacity...........................................................................32

5.2.3. Other Operating Expenses............................................................................................34

5.3 Financial Analysis and Statements...................................................................................34

5.3.1 Underlying
Assumption.........................................................................................34

5.3.2 Source of
Fund.......................................................................................................35

5.3.3 Loan Repayment Schedule....................................................................................35

5.3.4 Depreciation Schedule..........................................................................................36

5.3.5 Revenue
Projection................................................................................................36

5.3.6 Balance Sheet.......................................................................................................37

5.3.7 lncome/Loss Statement.........................................................................................37

6. FINANCIAL EVALUATIONS ...........................................................................................38

6.1 Profitability........................................................................................................................38

6.2 Financial Ratios.................................................................................................................38

 6.3 Break-even
Analysis..........................................................................................................39

6.4 Payback Period..................................................................................................................39

6.5 Internal Rate of Return.....................................................................................................39

6.6 Net Present Value..............................................................................................................40

7. IMPACT ON ENVIRONMENT ..............................................................................................40

Executive Summary
1 Project Type COFFEE PROCESSING PLANT FOR EXPORT

2 Project Owners MOHAMMED OMER YUSUF

3 Nationality Ethiopian
4 Project Location Dire Dawa Administration

5 Project Composition Hulled green coffee, roasted ground and packed coffee.
6 Premises Required 3,000 m2
7 Production at full 320 tons of hulled green coffee and 150 tons of roasted ground
capacity and packed coffee.
8 Marketing destination The project will supply 10% of its product for domestic market
and 90% of its product for export to international market.

9 Source and investment The total investment capital is 500,000,000 EB. From the total
Capital 500,000,000 birr 30% or 150,000,000 birr will be covered by
the promoters’ equity and the rest 70% or 350,000,000 will be
covered by financial institutions.
10 Employment The total manpower required for the plant will be 183
Opportunity employees
 Permanent workers 145
• Skilled 27
• Unskilled 118
 Temporary workers 38
11 Benefits of the project Skilled 11 Source of hard currency and government revenue
through taxation, and creates employment opportunity.

12 Raw Materials Clean green coffee, Jute bag, paper bag, corrugated paper box
with carton panel, and gumming paper.

13 Technology Labor intensive machineries and equipment’s are selected for

the envisaged plant. Suppliers of labor intensive technologies
are available in Europe, Asia and Far East.
14 Production process The main processing steps in the manufacture of roasted ground
Coffee are blending, roasting, grinding and packin
1. INTRODUCTION

1.1 Background
Ethiopia is one of the East African countries with the diversified climatic conditions, natural
scenery and resource bases. Currently the country has a total population of about 140 million of
which more than 3 million are found in Dire Dawa.
The government of the country has been excreting its maximum effort to expand investment
opportunities in the country by designing different policies and strategies that will facilitate
investment through attracting both domestic and foreign investors. Likewise, the Dire Dawa
government has been working day and night to make poverty history by making its door open to
investors both (domestic and foreign) to come and invest in the City. Therefore, it is this many
opportunities and cumulative experience which makes the project promoter motivated to
participate in his home country Ethiopia in the manufacturing sector especially on coffee
processing.

Fallowing the nation’s economic growth the manufacturing sector is booming result in bridging
the market demand gap of such products in the country, The Government is highly inviting the
private sector to work on import substitution is highly motivating the private sector to respond to
the government invitation, there by contributing their share to the development process.

1.2. Coffee in Ethiopia

Ethiopia is endowed with a good production environment for growing coffee with a combination
of appropriate altitude, temperature, rainfall, soil type and PH. Ethiopia is the center of origin for
Coffee Arabica. The country possesses a diverse genetic base for this Arabica coffee with
considerable heterogeneity. Ethiopia produces a range of distinctive Arabica coffees and has
considerable potential to sell a large number of specialty coffees (Nure, 2008). Little of the
lower-value Robusta coffee is produced in Ethiopia, being better suited for production in lower
altitude equatorial climates. Coffee production in Ethiopia is almost exclusively situated in the
two regions of Oromia and the Southern Nations, Nationalities, and People Regions (SNNPR) in
the south and west of the country.
Smallholder farmers produce 95 percent of Ethiopia’s coffee (Tefera and Tefera, 2013). It is
produced un- der several types of production systems, including forest, semi-forest, garden, and
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plantation coffee (Tulu, 2008). Forest coffee is grown in the wild under natural forest cover and
is gathered by farmers from trees with minor tree maintenance. Semi-forest coffee is also grown
in forest conditions, but there is some limited maintenance by farmers, mostly annual weeding.
This type of coffee has clearly delineated boundaries of ownership, although the trees usually are
located away from agricultural plots. Garden coffee is defined as coffee from trees planted by
farmers in the vicinity of their residences. It is often intercropped with other crops or trees.
Plantation coffee is grown on large commercial farms, private as well as state farms. Modern
production practices – such as irrigation, modern input use, mulching, stumping, and pruning are
often applied in this case. While reliable recent statistics are lacking, it is estimated that these
different production systems make up about 10, 35, 50, and 5 per- cent, respectively, of total
coffee production in the country (Kufa, 2012).
The overall value of exports grew at an average compounded annual rate of 21 percent, while
coffee exports grew at 16 percent. This slightly slower growth rate of coffee exports compared to
overall exports implies that the share of coffee exports in total exports has decreased over time.
While coffee made up almost 35 percent of the value of total export in 2002/03, this came down
to 24 percent for the period 2012/13, which suggests that export commodities have diversified in
recent years.
There have been significant domestic policy reforms in the last decade that affected the structure
and performance of the coffee export sector. First, from December 2008 onwards it became
mandatory for private traders to sell their coffee through the Ethiopian Commodity Exchange
(ECX), a new modern commodity exchange. ECX trades standard coffee contracts, based on a
warehouse receipt system, with standard parameters for coffee grades, transaction size, payment,
and delivery. The first level quality control is decentralized and undertaken in nine liquoring and
inspection units in major production areas. The establishment of the ECX has led to important
changes in the structure of the coffee value chain (Gabre-Madhin, 2012).
Second, the government intervened in the coffee market on several occasions in an effort to
reduce hoarding by exporters. In April 2009, six large traders were banned from exporting coffee
because of their pre - sumed excessive hoarding. The government revoked their licenses, closed
down their warehouses, seized their coffee stocks, and sold them on their behalf (Alemu, 2009).
A policy was further implemented in May 2011 that limited the amount of coffee an exporter can
store. An exporter, for example, selling and buying coffee on the ECX will have his or her right

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to trade on the commodity exchange revoked if found to be storing more than 500metric tons of
coffee without a shipment contract with an importer (Tefera and Tefera, 2013). Failing to adhere
to these regulations has led to the banning of coffee exporters, as seen in 2011 and 2013 (Araya,
2011; Ye- wondwossen, 2014).
Third, there have been a number of changes regarding export taxes on coffee over time. Core
changes include the removal of entry barriers (Proclamation No. 70/1993); the consolidation of
all taxes and duties levied on coffee export into a single tax family (Proclamation No. 99/1998),
which consolidated all taxes on coffee export to 6.5 percent; and, following the 2002
international coffee crisis, the waiving of all export taxes on coffee exports.
Finally, an Ethiopian Fine Coffee Trademark Licensing Institute was set up in February 2005
with the purpose of setting up a system to secure legal ownership in international markets of
specialty coffee names (especially Sidamo, Harar, and Yirgacheffe) (Agrer, 2004). There was
initial resistance against this initiative, but they were ultimately settled. The goal of this effort
was to add brand value to Ethiopian coffee. Signatories entered into a brand management
strategy with the government with the purpose of achieving better farm-gate and export prices
for coffee (Arslan and Reicher, 2010).

1.3 Profile of the Promoter

The promoter of the project Mr. Mohammed Omer Yusuf is a business company engaged in
coffee export for long period. The promoter does have ample experience in this regard which can
make it to penetrate the market in the shortest possible time. It also accumulated diversified-
skills in the area and adopted working with many people. Thus, these experiences primarily
motivated this company to develop the inception of this project idea.

1.4 Purpose of the document

The document/study covers various aspects of project concept development, start-up, production,
marketing, and finance and business management. The document also provides sect oral
information, brief on Government policies and international scenario, which have some bearing
on the project itself. This particular feasibility is regarding the establishment of coffee processing
plant.

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1.5 Product Description and Application
Coffee is a common name for any of a genus of trees of the madder family, and for their seeds
(beans) and for the beverage brewed from them. The Arabicas and Rubastas are the two major
types of commercial coffee. Chemicals extracted from expertly processed and roasted coffee by
hot water classified as non volatile are caffeine, trigonelline, chlorogenic acid, phenolic acids,
amino acids, aldehydes, ketones, esters, amines, and mercaptanes. Undoubtedly the
popularity of this beverage is, at least to some extent, related to their stimulant effects. Average
caffeine contents per cup of brewed coffee is 110 mg. Caffeine is a mild psychostimulant that has
been called the most widely used psychoactive substance on earth.
Several varieties of processed green coffee usually are blended and roasted together to produce
the tastes, aromas and flavors popular with consumers. Ground coffee is consumed by hotels,
bars and cafeterias.

1.6. Benefit of the Project:

The envisaged project deemed to contribute to the economic development of the country in the
following ways:

1.6.1 Source of Employment

One of the problems, that our country facing is unemployment. Therefore, the objectives of our
government are working on tackling the problem of unemployment either through creating self
employment or through employment in other organizations. Hence, the envisaged manufacturing
plant deemed to contribute somewhat to solve the problem of unemployment. Upon completion,
the project assumed to generate employment opportunities for about 183 individuals on
permanent and temporary basis.

1.6.2 Source of Government Revenue

To redistribute income, the government collects different forms of taxes from different business
undertakings and individuals as income tax. Among the different forms of taxes, business income
tax is collection from undertaking business activities. Therefore, the project will serve as sources
of revenue for the regional state.

10
1.6.3 Sources of Social Service
In addition to serving as a source of employment and income for the region, the project is also
serves as a source of mental satisfaction for the different users, it deemed to minimize the
demand for construction materials and other bundles of services in the area. Furthermore, it
serves as the pilot experience and ground for other investor to enter in to such kinds of industrial
development.

1.7. Objective of the Project

The envisioned project will create job and employment opportunities, which elevate the living
situation of the larger population in Ethiopia. With its new business investment directions in
Ethiopia it has envisioned exporting large scale coffee to world market on time that assures the
highest quality and fresh beans that the company can provide. Thus the project will make
available top quality and specialty brands that can have prominent market shares in that it can
grow to its ultimate ambition through developing its own brands of packaging and labeling its
own brand.

1.8 The Socio - Economic Significance of the Project

The envisaged project deemed to contribute to the Socio - economic development of the nation in
general and regional in specific with following ways:

The establishment of such factory will have a foreign exchange saving and earning effect to the
country by substituting the current imports and exporting its products to the international market.
The project will also create backward linkage with the agricultural sector and forward linkage
with the hotel and tourism sector and generates income for the Government in terms of tax
revenue and payroll tax.

Generally, the direct benefits of coffee processing would include creation of employment
opportunities for the youths, income generation on the part of enterprises through value addition
for domestic consumption coupled with potential increase in export activity for made-in-The
Ethiopia products to international markets. The indirect benefits of the factory are expected to
contribute to poverty reduction and sustainable environmental management.

11
1.9. Location and Premises Required

1.9.1 Location
The envisioned project is located in Dire Dawa Administration Woreda 2 Industry.
The main justifications behind the selection of this location are:
1. Strategically located to the central and largest market of the nation.
2. Relatively advanced development in infrastructure (Power, Water, Telephone internet, road
etc.
3. Availability of huge skilled labor force

1.9.2 Premises required and land use

For the proposed set up of green coffee processing plant, 3,000 square meters is required. This
land' requirement includes space for the installation of plant and machinery, management
office and store for finished product and parking.
No Descriptions Required area in M2
1 Production hall 1500
1.1 Workshop 1000
1.2 Inspection room 200
2 Warehouse 1000
2.2 Raw materials and inputs 750
2.3 Finished products 750

3 Office and Showroom 500

3.1 Office 200
3.2 Showroom 200
3.3 Worker Canteens 200
4 Walk way and loading unloading area 500
5 Green area 300
Total 3,000

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2. MARKET STUDY, PLANT CAPACITY AND PRICING

2.1. Market Study

2.1.1. Past Supply and Present Demand

A coffee bean (green coffee) has very high domestic and export demand. Coffee consumption in
Ethiopian society is not only used for personal satisfaction but also includes some traditional
ceremonies and group enjoyments with family members and neighbors. Supply of roasted coffee
has been both from local and imports of different origins. There is also some amount of export.
Domestic Production of Roasted Coffee (Tons)
Year Production
2001/02 300
2002/03 115
2003/04 259
2004/05 563
2005/06 16,317
2006/07 1,544
2007//08 2,767
2008//09 1,984
2009/10 1,708
Source: - CSA, Large and Medium Scale Manufacturing and Electricity Industries Survey,
Various Issues.

As can be seen from above table domestic production of roasted coffee, which was 300 tons at
the beginning of the period (2001/02) has grown to 1,708 tons at the close of the period
(2009/10). It can also be observed that exports amounted in the hundredth’s (309 tons on
average) in 2001/02- 2004/05 interval while starting 2005/06 it amounted in thousands (2000
tons on average after excluding the outlier value of 2005/06). There were also fluctuations within
these intervals. So, it will be more appropriate to take the average of last three years in estimating
the year 2012 production level. Accordingly, the year 2012 domestic production of roasted coffee
is estimated at 2,153 tons.

Import and Export of Roasted Coffee (Tons)

Year Import Export

13
 2001 3 0.5
2002 5 19.0
2003 4.3 -
2004 1 1.5
2005 16 1.5
2006 13 1.0
2007 96 48.0
2008 61 2.0
2009 44 3.0
2010 66 6.0
2011 23 7.0
Source: - Ethiopian Revenue and Customs Authority.
It can be seen from above table that import and export have been small in amount as compared
to domestic production. The pattern with imports and exports has shown more or less similar
situations to that of domestic production. In estimating the 2012 import and export levels the
average of last three years has been taken. Accordingly, import and export of roasted coffee for
2012 has been estimated at 44 tons and 5 tons, respectively. Thus, adding domestic production
and that of import, the present effective demand of roasted coffee for 2012 is estimated at 2,197
tons.

2.1.2. Demand Projection

The below table gives an overview of some of the characteristics of coffee export transactions
and of exporters over the period 2006 to 2013. The average coffee export transaction over this
period involved 37 metric tons with a value of 133,000 USD. The average price was 173 US
cents per pound (lb). The large standard deviations indicate sig- nificant variations in quantity,
value, and price between transactions. 51 percent of the export transactions were destined for
Europe, 14 percent for North America, 12 percent for Saudi Arabia, and 10 percent for Japan.
Sudan accounted for 4 percent of all the export transactions over that period.

Transactions were aggregated by coffee exporter for every year to give an idea of the scale of
operations of the exporters. An average exporter over that period exported 1,266 metric tons of
coffee per year for a value of 4.5 million USD. Again, we see large variability in scale of
operations across exporters.
Ethiopia’s coffee exports – descriptive statistics
14
 Description Unit Mean Median Standard
deviation

Transaction data (07/2006 - 06/2013)

Quantity Metric tons 37.8 19.2 36.1

Price US cents /l b 173.2 159 66.8
Value 1000 USD 132.7 91.5 131.4
Destination markets :

Europe % of transactions 51.2

Japan % of transactions 9.6

North-America % of transactions 13.9

Saudi Arabia % of transactions 12

Sudan % of transactions 4.1

Other % of transactions 9.1

Exporters annually (01/2007 -12/2012)

Quantity exported by Metric tons 1,265.70 340.5 2,610.10

active exporters per year

Value of exports by active 1000 USD 4,516.30 1,062.50 8,966.20

exporters per year

Demand for roasted coffee has two sources; domestic component and export. The domestic
demand (D) is obtained by the formula: D= PD + I-E where PD is domestic production, I is
import and E export thus for year 2012 it is 2,192 tons. The domestic demand for roasted coffee
depends on level of income and population growth rates. Moreover, the product’s superior
convenience will have a positive effect on the level of demand. Since the product is high valued
type, major consumers are expected to be urban dwellers and those prosperous among the rural
society; however, it has been assumed for this purpose that the urban residents will be major
target consumers of the product. According to CSA (2011) the urban population is growing at
more than 4% per annum. The country’s economy is growing at 11%, the population and income
effects are also similar. With such understanding 4% is used to project demand growth. Domestic
production is expected to remain at year 2012 level (2,153 tons). Export is forecasted to grow by
15
its average growth rate of the last four years i.e., 55%. The demand projection for roasted coffee
is depicted in Table below.

Demand Projection for Roasted Coffee (Tons)

Year Domestic Export Total Domestic Total Unsatisfied
Demand Demand Production Demand

2013 2,280 8 2,288 2,153 135

2014 2,371 12 2,383 2,153 230

2015 2,466 19 2,485 2,153 332

2016 2,564 29 2,593 2,153 441

2017 2,667 45 2,712 2,153 559

2018 2,774 70 2,844 2,153 691

2019 2,885 108 2,993 2,153 840

2020 3,000 167 3,167 2,153 1,014

2021 3,120 159 3,279 2,153 1,126

2022 3,245 246 3,491 2,153 1,338

2.1.3. Pricing and Distribution

The market price for export quality roasted coffee on average is Birr 190 /kg. Hence, allowing a
20% margin for distributors and retailers, selling price for the project is proposed to be Birr
158/kg for roasted ground and packed coffee and Birr 145/kg for green coffee. As to its
distribution, it can be realized through wholesale networks and retail outlets such as
supermarkets and shops.

2.2. Plant Capacity and Production Program

2.2.1. Plant Capacity

Based on the outcome of the market study and considering the minimum economic scale of
production, the envisaged plant will have a capacity of 320 tons of hulled green coffee, 150 tons

16
of roasted, ground and packed coffee per annum. This capacity will be attained by working a
double shift of 16 hours per day and 300 working days per year.

2.2.2. Production Program

With an assumption that enough time during the initial stage will be required for market
penetration and technical skill development, the envisaged plant will start production at 80% of
its rated capacity, which will grow to 90% in the second year. Full capacity will be reached in
the third year and onwards. Details of the annual production program are shown in table below.

Annual Production Program

Sr. No. Description Unit of Production Year
Measure 1st 2nd 3rd & Onwards
1 Roasted, ground ton 120 135 150
and packed coffee

2 Hulled green coffee ton 256 288 320

Capacity % 80 90 100
utilization rate

2.3. Market Share

The project will supply 10% of its product for domestic market and 90% of its product for export
to international market.

3. TECHNOLOGY, PRODUCTION PROCESS AND ENGINEERING

3.1 Technology

The machinery and equipments required to coffee processing are conventional and
available in different technological levels, in general. Selection among alternatives was made
based on the competitive advantages it provides to the stakeholder in the context of Ethiopia.
The major criterions taken in to consideration are: resource utilization (especially labor), job
opportunity, operability, and maintainability. Therefore; the labor intensive machineries and
equipments are selected for the envisaged plant. Suppliers of labor intensive technologies are
available in Europe, Asia and Far East.

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3.1.1. Machinery and Equipment

The plant machinery and equipment required for the envisaged plant comprises coffee roaster,
mixer, grinder, automatic packing machine, screw and goose type conveyor. List of machinery
and equipment to be acquired for the project and the estimated costs are given in Table below.
List of Machinery and Equipment and Estimated Cost(Sets)
Sr. Description Required Unit Total
No. Qty.
1 Coffee roaster 4 Cost(000)900,000 Cost(000)3,600,000
2 Coffee mixer 4 600,000 2,400,000
3 Coffee grinder 12 500,000 6,000,000
4 Automatic packing 8 250,000 2,000,000
machine
5 Screw conveyor 2 300,000 600,000
6 Goose type conveyor 2 250,000 500,000
Total 5,100,000
3.2 Production Process

The main processing steps in the manufacture of roasted ground coffee are blending, roasting,
grinding and packing. Green coffee is cleaned of string, lint, dust, hulls and other foreign
matter. The post – cleaning operations of the production process are stated briefly hereunder.

Coffee education also explores the procedure of making the final consumable product. Coffee
manufacturing is the second scale of coffee production. It is the next step that follows coffee
harvesting. It involves different stages. It starts from roasting coffee beans and ends up with
packing. Coffee manufacturing is a very competitive business. Many investments in technology
are more than necessary.

The biggest coffee manufacturing countries are not in the map of the coffee producing countries.
They import raw beans and then they proceed with their methods to produce different types of
coffee. Among the largest coffee manufacturing countries are USA, Germany, France, Italy and
Switzerland.

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  Roasting: Coffee from different varieties or sources is usually blended before or after
roasting in order to achieve good taste coffee as well as low cost production.

Roasting by hot combustion gases in roasting cylinders requires 8-15 minutes. The bean charge
absorbs heat at a uniform rate and most moisture is removed during the first two-thirds of this
period. As the temperature of the coffee increases rapidly during the last few minutes, the beans
swell and unfold with a noticeable cracking sound, like that of popping corn, indicating a
reaction change from endothermic to exothermic. This stage is known as development of the
roast. The final bean temperature, 200-220ºc, is determined by the blend, variety, and flavor
development desire. A water or air quench terminates the roasting reaction. Most, but not all, of
any added water is then evaporated.

The bean temperature, correlated to the color of ground coffee measured by a photometric
reflectance instrument, determines the quench end point of a roast. At the final bean
temperature, the firing shuts down automatically, followed by water spraying for a timed period
and finally, discharge of the coffee.

Air must be circulated through the beans to remove excess heat before the finished and
quenched roasted coffee is conveyed to storage bins. Residual foreign matter such as stones and
tramp iron, which may have passed through the initial green coffee cleaning operation, must be
removed before grinding. This is accomplished by an air lift adjusted to such a high velocity that
the roasted coffee beans are carried over into bins above the grinders, and heavier impurities left
behind. The coffee beans flow by gravity to mills where they are ground to the desired particle
size.

19
In coffee manufacturing, the roasting takes a little time to finish. It is essential in achieving the
“identity” of any coffee brand. The coffee beans do not acquire any flavor. Roasting will turn
them from light green to brown. They will release an intense aroma. Roasting will force the
hidden oils to come out.

The roasting recipe is a great secret formula in coffee manufacturing. It is passed from father to
son. The person attending the procedure must be of high responsibility qualities. Different
varieties of coffee (Arabica/Robusta) require and different roasting routine. This fact makes an
experience roaster a very important person in this business.

Roasting time depends on machinery and technology. The process will take approximately up to
20 minutes.

Basic roasting steps in coffee manufacturing are:

 The temperature begins from 100 degrees Celsius (211 Fahrenheit). It will change the coffee
beans to yellow. The smell will be like toast.
 It increases to 180 degrees Celsius (356 Fahrenheit). The coffee beans turn to light brown
color. They double in size. The first crack is clearly heard at this point.

20
 From this point, further increase of temperature will depend on the flavor recipe followed. It
sometimes might rise up to 300 degrees Celsius (572 Fahrenheit).

 Grinding: Roasted coffee beans are ground to improve the extraction efficiency in the
preparation of the beverage. Particle size distributions ranging from about 1100µm average
(very coarse) to about 500µm average (very fine) are tailored by the manufacturer to the
various kinds of coffee makers used in households, hotels, restaurants and institutions. Coffee
is ground in mills that use multiple steel cutting rolls to produce the most desirable uniform
particle size distribution. After passing through cracking rolls, the broken beans are fed
between two or more rolls, one of which is cut or scored longitudinally, the other,
circumferentially. The paired rolls operate at differential speeds to cut, rather than crush, the
coffee particles. A second pair of more finely scored rolls, installed below the main grinding
rolls and running at higher speeds, is used for finer grinds.

After the flavor uncovering, coffee beans go to the grinding process. Coffee grinding is a critical
step in coffee manufacturing. The proper procedure will lead to improvement of coffee taste. The
aroma is naturally preserved. Every type of coffee is ground in a different way.

The 5 most used grinds in coffee manufacturing are:

 COARSE – Particles of coffee look like sea salt (i.e. French press coffee).
 MEDIUM – Like sand in a beach (i.e. Filter coffee).

 FINE – Like table salt (i.e. Coffee in moka pot).

 EXTRA FINE – Like castor sugar (i.e. Espresso from steam machine).

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  TURKISH – Like fine powder (i.e. Turkish style coffee).

Usually there is a procedure of selecting same sizes of beans. This will avoid problems in the
final texture of the coffee. The grinding should be done in small quantities.

 Packaging: - After roasting and grinding, the coffee is conveyed, usually

by gravity, to weighing and filling machines that achieve the proper fill by
tapping or vibrating. The ground coffee is vacuum packed in flexible paper bag
and placed in a paperboard carton that helps shape the bag into a hard brick form
during the vacuum process. The carton also protects the package from physical
damage during handling and transportation. This type of package provides a
barrier to moisture and oxygen.

Coffee packaging must follow the soonest possible the phases grinding. Keeping the ground
coffee fresh on shelves is a serious factor for a successful coffee manufacturing business.

The main enemy of fresh ground coffee is oxygen. The correct package must take into
consideration this factor seriously. Coffee staling will be subject not only to oxygen contact but
also on moisture and sunlight.

The most usual package options are:

 BULK COFFEE – In cans or foil type bags ranging in different weight options (i.e. 250
gr/0.5 lb. – 1 kg/2 lbs.).

22
 PILLOW PACK COFFEE – Ground pre-measured coffee in foil type bags. Each bag brews 1
pot of coffee.

 FILTER PACK COFFEE – Ground pre-measured coffee with a filter paper.

 SINGLE SERVE – Ground coffee sealed in a small filter paper which makes 1 cup of coffee
(i.e. Coffee pods, Keuring K-Cups, Tassimo).

3.3. Materials and Inputs

3.3.1. Raw Materials

The principal raw material required for the envisaged plant is clean green coffee. The green
coffee beans, upon roasting process, lose weight due to evaporation of water. The extreme
limits of the weight loss termed as “a loss in the fire” are between 14 and 23% of the initial
weight of coffee beans. Elimination of the silver skin of coffee beans which amounts from
0.2% to 0.4% and the release of certain volatile elements occurs during roasting.
Taking the above mentioned weight loss into account, the annual requirement for green coffee at
100 per cent capacity utilization rate is estimated to be 100 tons + (0.22 x 100 tons) = 122 tons
and unroasted but hulled green coffee 100 tone sum up 222 tons of green coffee are required. To
attain the optimum price and taste for the ground coffee, different types of coffee from different
areas will be mixed.

The major auxiliary materials required for the production of roasted, ground and packed coffee
comprise packing materials of various types. The packing materials to be used by the
envisaged plant are paper bag, corrugated paper box with carton panel, and gumming paper.

The proposed package sizes of printed paper bag for packing of roasted and ground coffee are
500 gm, 1,000 gm and 1,500 gm which are planned to constitute 30%, 60% and 10% of the
total roasted and ground coffee, respectively.

The annual requirement of the envisaged plant for raw and auxiliary materials at full capacity
operation and the corresponding cost estimates are given in Table.
Annual Raw and Auxiliary Materials Requirement and Cost

23
 Sr. Description Unit of Required Unit Price,
No. Measure Qty Birr/Unit Total
1 Clean green coffee Ton 222 115,000 25,530,000
2 Paper bag, for 500 gm Pc 61,800 1.75 108,150
Package
3 Paper bag, for 1,000 gm Pc 61,800 2.20 135,960
Package
4 Paper bag, for 1,500 gm Pc 6,867 2.62
Package 17,991.54
5 Corrugated paper box, for 500 gm Pc 3,090 4.35 13,441.50
package
6 Corrugated paper box, for 1,000 Pc 4,120 6.67
gm package 27,480.40
7 Corrugated paper box, Pc 687 6.70
for1, 500 gm package 4,602.90
8 Gumming paper Roll lump sum

Total 25,837,626
.
3.3.2. Utilities
Electric power and water are the only power and utilities required for the envisaged plant. The
annual requirement for power and utilities at full capacity production of the plant and the total
estimated costs are shown in Table below.

Annual Utilities Requirement and Estimated Cost

Sr. Description Unit of Required Unit
No. Measure Qty Price,
F.C. L.C. Total
1 Electric power kWh 12,000 Birr/Unit 69,340 69,340
0.5778
2 Water m3 150 10.00 15,000 15,000

Total 70,840 70,840

24
3.4. Civil Engineering, Building and Civil Works

As indicated in part 1, the total requirement for the project is estimated to be 10,000m 2. The
buildings are planned to accommodate production houses, storage, office, and other utility
requirements. The floor of the building will be G+0 for production line, product and raw
materials store, G+1 for office and other services.

In general the buildings must be capable of being kept clean and provision should be made for
keeping the sewerages drained out properly and room temperature is attained to keep healthy
environment. In most environments, equipment should be totally enclosed in a light structure:
where the climate is suitable. A concrete floor, which can be swept, is usual. Besides, the
loading and offloading areas together with incoming and outgoing roads are proposed to be
paved to ensure a clean environment around the project site. The site will be encircled by a chain
linked fence fastened to concrete posts. Professional engineers design the project construction
and construction will be done under close supervision and collaboration of the engineers.

3.5 Project Implementation Plan/ Action Plan

The project’s implementation is expected to take 1 year. The major activities include Bank loan
processing, construction of the building. Cleaning the area around the building, procurement of
equipments and start rendering services. The time schedule for the above mentioned major
activities is presented below:
Table-Project-Implementation-Schedule
SN Activities Date
1 Land requisition May 2021
2 Land Approval August 2021
3 Bank loan processing January 2022

4 Site Development September 2021

5 Building and construction work September2021 - October 2022
6 Purchasing of Machines and Equipments September - October 2022

7 Machinery Installation November 2022

8 Production execution January 2023

25
4. ORGANIZATION, MANAGEMENT AND MANPOWER
4.1 Organization and Management
The organization structure should be in a way that the company able to achieve its objectives as
well as the satisfaction of standard requirement.
4.2 Man Power
The total manpower required for the plant will be 183 employees
 Permanent workers 45  Temporary workers 138
• Skilled 27 1. Skilled 11
• Unskilled 18 2. Unskilled 127
The total number of manpower, Manpower list, qualification and salary are listed in the table below.
Sr.No Description Req.no Monthly Annual Salary
Salary (Birr)
(Birr)
A Permanent workers at execution

1 General Manager 1 8000 96,000.00

2 Secretary 1 4000 48,000.00
3 Quality Controller 1 6000 72,000.00
4 Finance and Administrative Head 1 6500 78,000.00
5 Commercial Head 1 6500 78,000.00
6 Production and Technical Head 1 7000 84,000.00
7 Personnel and General Service 1 6500 78,000.00
8 Accountant 1 5000 60,000.00
9 Cashier 1 5000 60,000.00
10 Sales Clerk 1 5000 60,000.00
11 Transit Worker 1 5000 60,000.00
12 Production Supervisor 1 6000 72,000.00
13 Machine Operator 2 6000 144,000.00
14 Electrician 1 5000 60,000.00
15 Mechanic 1 5000 60,000.00
16 Production workers 18 3000 540,000.00
17 Store Keeper 4 5000 240,000.00
18 Purchaser 2 5000 120,000.00
19 Maintenance Section Head 1 5000 60,000.00
20 Guard 4 2000 19,200.00
Total 45 2,089,200.00

26
 Employees’ Benefit (20% of Salary) 417,840.00

Grand Total 2,955,600.00

B Temporary workers at constriction

and installations stage
21 Construction Manager 1 20,000 240,000
22 Civil engineer 1 15,000 180,000
Architecture 1 15,000 180,000

Sewerage engineer 1 15,000 180,000

Electrical engineer 1 15,000 180,000

Supplies consultant 1 15,000 180,000

lawyer 1 15,000 180,000

Industrial engineers 4 15,000 180,000

laborers 127 3000 4,572,000

Total 138 6,072,000

*NB*. The salary expense for temporary workers at constriction and installations stage will
be allocated under Land, Building & Construction.

4.3. Organizational Structure

The organizational structure of the project is designed by including all the necessary personnel
under the right division. At the top of the organizational structure, there will be manager with the
responsibility of supervising the overall activity of the plant. Depending up on the nature of the
center and the amount of work to be performs; there exist auxiliary units under the general
manager.
Employees under each unit will be supervised by the department head that is accountable for the
general manager. General Manager is appointed by board of Director.

Owner

General Manager

27
 Manufacturing Admin. & Marketing &
Fig: Organizational Sales Dept.
Dept. Finance Dept.
Structure
Hence the following section deals with the duties and responsibilities of some departments.

1. Manager
A. She/he will plan, organize, direct and control the overall activities of the factory
B. She/he will devise policies and strategies that will enable the factory to be profitable.
C. She/he will incorporate modern technological innovation that will facilitate the service
delivery of the project center and increase customer’s satisfaction.
D. She/he will plan, organize, direct and control the human and non-human resources of the
plant so as to achieve the short and long run objectives of the organization.

2. The Manufacturing Department

It is the core department of the project that has two main sections (mold and Production and
quality control) and has the following responsibilities.

1. Designs and prepared prototypes for Plastic based products on the plant standard and
customer preferences.
2. Use modern manufacture, processing technologies that will enhance the quality of Plastic
based products.
3. Produce quality product that will enable the center competent both in the domestic and
international market.
4. Use appropriate technology to manage its products.
5. Produce those products from a recycled plastic materials
6. Control on the quality of raw materials, inputs, quality of the product and also the overall
production process.
7. Produce products in least cost so that the profitability of the center is guaranteed.

28
8. Moreover control over the quality of the final products.
3. Administration and Finance Department
a. Will plan, organize direct and control the financial transaction of the plant by using the
entire necessary document.
b. Will develop sound financial control system by developing modern financial control
systems.
1. Will prepare the annual financial statements and prepare condensed reports for the general
manager, owner and other concerned government body.

2. Will control the human and non-human resources of the plant, which include: effective
handling of the different inventories of the machineries, equipment’s, raw materials,
finished products, and devise strategies of controlling against fraud and damage.
3. Manage and execute the company national and international procurement procedure
4. Administer and control the company logistic resource
5. Effectively administer the company procurement process domestically as well as
internationally.
6. Manage the public relation of the company/factory with external parties stake holders.
7. Provide and manage general supportive service to the plant.
4. Commercial Department
i. Will handle the overall marketing activities of the organization which include
planning, organizing, directing, and controlling.
ii. Provide cost estimates in preparation for securing. iii. Gather information
on new product design, profile iv. Approval of new products profile & brand
plan analyzes market research v. Plan and execute sales.
vi. Will develop effective customer handling strategies vii. Will design and
implement effective advertisement and promotion schemes viii. Will develop the
marketing strategies for future project center’s development.
ix. Conduct both foreign and domestic market research for expanding the sales of the
company.

29
5. FINANCIAL REQUIRMENT AND ANALYSIS

5.1. Total Initial Investment Cost

The total amount of initial investment capital required to establish the envisaged factory is
estimated to be Br. 50,000,000 and from this total investment cost 30% will be covered by the
promoter while the rest will be financed by bank.
Table-20. Total Initial Investment Capital
SN Description Cost in birr
1 Land, Building & Construction 214,350,000

2 Machines & Equipment’s 105,100,000

3 Vehicles 52,192,100
4 Office Equipment 329,000
Total Fixed Investment Cost 371,971,100

5 Pre service Expense 92,000

6 Initial Working capital 24,981,300

7 Salary Expense 2,955,600

Sub Total 28,028,900

Total Initial Investment Capital 500,000,000

5.1.1. Fixed Investment

A. Land, Building & Construction
SN Description Total cost in Br.
1 Workshop 8,900,000
2 Warehouse 4,3000.00
3 Finished product stores 607,000
4 Office Building 500,000
5 Waste Accumulation area 200,000
6 Green Area, Parking and Buffer Zone 150,000
7 Fence and others 1,000,000
8 Site Development 450,000
9 Design and Supervision 1,000,000
10 Land lease Initial Fee 1,500,000
Total 214,350,000

30
B. Machinery and Equipment
Required Unit Total Cost(000)
Description
Sr. No. Qty. Cost(000)
1 Coffee roaster 4 900,000 3,600,000

2 Coffee mixer 4 600,000 2,400,000

3 Coffee grinder 12 500,000 6,000,000

Automatic packing
4 8 250,000 2,000,000
machine

5 Screw conveyor 2 300,000 600,000

6 Goose type conveyor 2 250,000 500,000

Total 1105,100,000
C. Vehicles
SN Description Qty Unit Price Total Price
1 Isuzu Truck 1 1,143,010 1,143,010
2 Pick Up 1 1,049,090 1,049,090
Total 2 52,192,100
D. Office Equipment
SN Description Qty Unit cost In Br. Total cost in Br.
1 Managerial chair with tables 6 10,000 60,000
2 Secretarial chairs with table 1 3000 3000
3 Office Chairs with tables 10 10,000 100,000
4 Computer with printer 4 15,000 60,000
5 Shelf 2 3000 6,000
7 Telephone machine set 3 2000 6,000
8 Filing Cabinets 2 2000 4,000
9 Assembly chair and table 50,000
10 Decoration(Carpet & Curtain) 40,000
Total 329,000
5.1.2. Pre -Service Expense
SN Description Cost in br.
1 Project proposal 10,000
31
 2 Environmental impact Assessment 20,000
3 Staff Capacity Building 60,000
4 Licensing fee and others 2000
Total 92,000

5.2. Annual Production Cost at Full Capacity

5.2.1. Raw Materials and Inputs
Sr. Description Unit of Required Unit Price,
No. Measure Qty Birr/Unit Total
1 Clean green coffee ton 220 115,000 23,530,000.00
2 Paper bag, for 500 gm pc 61,800 1.75 108,150.00

3 Package pc 61,800 2.20 135,960.00

Paper bag, for 1,000 gm
Package
4 Paper bag, for 1,500 gm pc 6,867 2.62 17,991.54

5 Package pc 3,090 4.35 13,441.50

Corrugated paper box, for 500
gm package
6 Corrugated paper box, for pc 4,120 6.67 27,480.40

7 1,000 gm package pc 687 6.70 4,602.90

Corrugated paper box,
8 for1, 500 gm package roll lump sum
Gumming paper
Total 24,981,300
5.2.2. Salary Expense

Sr.No Description Req.no Monthly Salary Annual Salary

(Birr) (Birr)
A Permanent workers at execution

1 General Manager 1 8000 96,000.00

2 Secretary 1 4000 48,000.00
3 Quality Controller 1 6000 72,000.00
4 Finance and Administrative Head 1 6500 78,000.00

32
 5 Commercial Head 1 6500 78,000.00
6 Production and Technical Head 1 7000 84,000.00
7 Personnel and General Service 1 6500 78,000.00
8 Accountant 1 5000 60,000.00
9 Cashier 1 5000 60,000.00
10 Sales Clerk 1 5000 60,000.00

33
 11 Transit Worker 1 5000 60,000.00

12 Production Supervisor 1 6000 72,000.00

13 Machine Operator 2 6000 144,000.00

14 Electrician 1 5000 60,000.00

15 Mechanic 1 5000 60,000.00

16 Production workers 18 3000 540,000.00

17 Store Keeper 4 5000 240,000.00

18 Purchaser 2 5000 120,000.00

19 Maintenance Section Head 1 5000 60,000.00

20 Guard 4 2000 19,200.00

Total 45 2,089,200.00

Employees’ Benefit (20% of Salary) 417,840.00

Grand Total 2,955,600.00

B Temporary workers at constriction

and installations stage
21 Construction Manager 1 20,000 240,000

22 Civil engineer 1 15,000 180,000

Architecture 1 15,000 180,000

Sewerage engineer 1 15,000 180,000

Electrical engineer 1 15,000 180,000

Supplies consultant 1 15,000 180,000

lawyer 1 15,000 180,000

Industrial engineers 4 15,000 180,000

laborers 127 3000 4,572,000

Total 138 6,072,000

5.2.3. Other Operating Expenses

SN Description Annual Cost in Br. Assumption Used

34
 1 Property Insurance 2526950 5% of the fixed cost
2 Audit & legal fee 18,000.00 1500per month
3 Uniforms 13,300.00 70*190br
4 Advertisement & Promotion 400,000.00 % of Sales
5 Telephone, fax and postal 10,800.00 900 per month
6 Cleaning goods supplies . 12,000.00 1000 per month
7 Maintenance & Repair 600,000.00 Estimated Lump sum
8 Stationery and other office supplies 8,400.00 700 per month
9 Electricity 50,250.00 0.45*150,000W per year
10 Water 40,000.00 2*2000 m3 per year
11 Fuel 62,000.00 6500 lit*20 per year
12 Oil and lubricant 6,200.00 10% of fuel cost
13 Miscellaneous Expense 60,000.00 5000 br month
3,807,900.00
5.3. Financial Analysis and Statements

5.3.1. Underlying Assumption

The financial analysis of the envisioned factory is based on the data provided in the preceding
sections and the following assumptions.
A. Construction and Finance
Construction period 2years
Source of finance 30% equity and 70% loan
Tax holidays 2 years
Bank interest rate 10 yeaars
Utilities and operation expense increase 5% per annum after 3rd yr
Wages and Salary increase increase 5 % per annum after 3rd yr

B. Depreciation
Method Straight Line
Building 5%
Machinery and equipment 10%
Office Equipments 10%

35
Vehicles 20%
5.3.2. Source of Fund
SN Description % share Amount(in birr)
1 Owners Share 30 15,000,000
2 Bank loan 70 35,000,000
Total 100 50,000,000
5.3.3. Loan Repayment Schedule
Year Principal payment Interest (10%) Total Annual Remaining
payment Balance
0 - - 0 35,000,000
1 3,500,000 3,500,000 7,000,000 31,500,000
2 3,500,000 3,100,000 6,700,000 28,000,000
3 3,500,000 2,800,000 6,300,000 24,500,000
4 3,500,000 2,400,000 5,900,000 21,000,000
5 3,500,000 2,100,000 5,600,000 17,500,000
6 3,500,000 1,750,000 5,250,000 14,000,000
7 3,500,000 1,400,000 4,900,000 10,500,000
8 3,500,000 1,050,000 4,550,000 7,000,000
9 3,500,000 700,000 4,200,000 3,500,000
10 3,500,000 350,000 3,850,000 0
5.3.4. Depreciation Schedule
SN Description Original Value Depreciation Depreciation
In Birr rate in % Per year
1 Land, Building & Construction 214,350,000 5 717,500
2 Machines & Equipments 105,100,000 10 510,000
3 Vehicles 52,192,100 10 219,2100
4 Office Equipment 329,000 10 32,900
Total 371,971,100 3,452,500
5.3.5. Revenue Projection
Based on the assumption of plant capacity, production program and pricing as indicated in part 2 of this
paper, the revenue of the project at full capacity" projected in the table below.
Description Year 1 Year 2 Year 3-10

36
 Un
P(0,0 Un Un TP
00 TP(0
,000 Qt P(0,000 TP(0,0 P(0,000 (,000bir
birr)
Qty birr) y birr) 00birr) Qty birr) )
Roasted, ground
and packed 1896 13
coffee
120 158 0 5 158 21330 150 158 23,700
hulled green 3712 28
coffee 256 145 0 8 145 41760 320 145 46,400
total 70,100

37
5.3.6. Balance Sheet
Asset
Current Asset Value in Br.
Cash 15,000,000
Initial inventory of raw materials and inputs -
Total Current Asset
Fixed Asset -,
Land, Building & Construction 214,350,000
Machines & Equipments 105,100,000
Vehicles 52,192,100
Office Equipment 329,000
Total fixed Asset 371,971,100
liability
Account payable 35,000,000
Owners Equity Capital 15,000,000
Total liability & Owners' Equity 50,000,000
5.3.7. lncome/Loss Statement
Revenue Year 1 Year 2 Year 3-10

Sales Revenue 44,660,000 64960000 82012000

Purchase of Raw Material 17985000 26160000 32700000

Gross profit 26675000 38800000 38800000

Expenses

Salary Expense 2,955,600 3,251,160 5,112,237

Other Operating Expenses 2094345 3046320 3,807,900

Pre-operating Expense 92,000 0 0

Deprecation Building 1,440,000 2,880,000 1 1,440,000

Deprecation Machineries 1,401,000 2,802,000 1 1,401,000
Deprecation Vehicles 275,655 551,310 2 275,655
Deprecation office Equip 65,800 131,600 5 65,800
Interest Expense 4,340,000 3,906,000 15,624,000

Lease payment 253,000 253,000 253,000

38
Total Expense 12,917,400 16,821,390 1 12,917,400
Profit Before Tax 13,757,600 21,978,610 2 25,882,600
Tax(35% ) 4,815,160 7,692,514 9 9,058,910
Net Profit 8,942,440 14,286,096 16,823,690
6. FINANCIAL EVALUATIONS

6.1 Profitability
Based on the projected profit and loss statement the project will generate a profit beginning
from the first year of operation and increase on wards throughout its operation life. Annual net
profit after tax will grow from Birr 10.856 million to Birr 16.15 million during the life of the
project. Moreover, at the end of the project life the accumulated cash flow amounts to Birr
154.45 million.

6.2 Financial Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yard stick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness
of the firm or a project. Some of these ratios calculated for the first year of the project life are:
Return on sales = Net income/Revenue
= 10,855,794/90,798,360
= 0.12 (12%)
Return on equity = Net profit/Equity
= 10,855,794/14,401,400
= 0.75 (75%)
Return on investment = Net profit/Total Investment

= 10,855,794/48,004,668

= 0.23 (23%)

These financial ratios for all years of the operation life of the project are found to be
satisfactory and hence indicate that it is profitable and viable.

6.3 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
39
 point of the project including cost of finance when it starts to operate at full capacity (year 3) is
estimated by using income statement projection.
BEP = Fixed Cost/ (Average Unit selling price – Average Variable cost per unit product)
= 6,523,870 (71.22 - 55.54) = 6,523,870/15.68
= 616, 055 pieces (BEP in production volume)
= Birr 29,629,939.00 (BEP in Sales volume)
= 27.74% (BEP in percentage)
6.4 Payback Period
The payback period is defined as the period required to recover 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 3 years.

6.5 Internal Rate of Return

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 ea.rned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 28.71 % indicating the viability of the
project.

6.6 Net Present Value

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 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 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 8.5% discount rate is
found to be Birr 52.75 million which is acceptable.

7. IMPACT ON ENVIRONMENT
The project is purely environment friendly.

40