Investment Office ANRS

Project Profile on theEstablishment

of H.D.p.e woven sacks making
plant

Development Studies
Associates (DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary..................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program....................2
3.1 Market Study.......................................................................................................2
3.1.1 Present Demand and Supply........................................................................2
3.1.2 Projected Demand........................................................................................3
3.1.3 Pricing and Distribution...............................................................................4
3.2 Plant Capacity......................................................................................................4
3.3 Production Program.............................................................................................5
4. Raw Materials and Utilities....................................................................5
4.1 Availability and Source of Raw materials...........................................................5
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................5
5. Location and Site.....................................................................................6
6. Technology and Engineering..................................................................6
6.1 Production Process...............................................................................................6
6.2 Machinery and Equipment...................................................................................7
6.3 Civil Engineering cost.........................................................................................8
7. Human Resource and Training Requirement......................................8
7.1 Human Resource..................................................................................................8
7.2 Training Requirement..........................................................................................9
8. Financial Analysis.................................................................................10
8.1 Underlying Assumption.....................................................................................10
8.2 Investment..........................................................................................................11
8.3 Production Costs................................................................................................11
8.4 Financial evaluation...........................................................................................12
9. Economic and Social Benefit and Justification..................................13
ANNEXES....................................................................................................15
 1. Executive Summary
This project profile deals with establishment of HDPE woven sacks producing plant in Amhara
National Regional State. The following presents the main findings of the study

Demand projection divulges that the domestic demand for woven sacks is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 1 million pieces of HDPE
woven sack annually. The total investment cost of the project including working capital is
estimated at birr 5.72 million and creates 31 job opportunity and 322.56 birr of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 28.8% of capacity utilization and it will
payback fully the initial investment less working capital in 3 years. The result further show that
the calculated IRR of the project is 23.5%; and NPV discounted at 18% of birr 1,101,920.73. The
analysis further shows that the proposed plant is slightly sensitive to an increase in cost of
production.

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

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

2. Product Description and Application

Older packaging methods like paper sacks, jute bags, etc had been used to carry agricultural
produce and industrial products. The inadequacy of these packaging methods to withstand
various atmospheric conditions is highly likely to spoil much of the produce that in turn affects
the farmers, producers and the economy through the non-utilization of the available products. On
the other hand, high density polyethylene (HDPE) woven sack is strong and is suitable for

1
packing and carrying heavy goods. It will not tear or break easily by rough handling and bad
transporting.

Therefore, these sacks are suitable for almost all the products that have used other forms of sacks
(paper sacks, cotton bags, jute bags) for packaging. These sacks are better suited for storage due
to their strength, durability and ability to withstand water and pests.

In Amhara region, the use of HDPE sacks is steadily increasing with increasing agricultural
yields and related industries. Thus, the scope of the industry is increasing as a result.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The market for plastic materials is growing rapidly due to varied and rising use of plastic goods
over recent years, substituting other forms of bags in packing most agricultural and industrial
goods. In Ethiopia there are few firms that manufacture woven sacks made of polyethylene and
polypropylene materials. In producing HDPE, the main raw material is polyethylene and it is
mainly imported as raw material in granular form, which is then converted into liners (tape).

Nonetheless, exact data of local products is not available since official documents aggregate
related types of products in their reporting. That is, the report of CSA regarding to local
production aggregates under “polyethylene products” with no classification to its various types.
Such information cannot provide the actual figure of the woven sacks under investigation. As a
result, this study mainly relies on the import information compiled by Customs Authority. The
import data merges polyethylene and polypropylene sacks as the two types of sacks are very
much related and close substitute to each other. Accordingly, table 1 presents imported sacks
made from polyethylene and polypropylene materials.

2
 Table 1: Import of Sacks

Year Import (in ton)

1998/99 1,166
1999/00 5,350
2000/01 6,521
2001/02 3,196
2002/03 3,157
2003/04 3,138
2004/05 1,277
Average 3,401

The table presented above show that in 2004/05 alone 1,277 tons of polyethylene and
polypropylene sacks had been imported. This figure is substantial when the ton is converted to
pieces of bags. That is, a piece of sack that can carry 100 kg of cereal weighs 100 gm, and hence
the 2004/05 import volume is equivalent to 12.8 million pieces of woven sacks. This by itself is a
good indication for the presence of ample demand for the product.

3.1.2 Projected Demand

Table 1 show that the import had shown a declining trend and in 2004/05 it stood at 1,277 tons.
At the same time, however, local production as well as import and exports of grain and industrial
goods that make use of these types of sacks is expected to increase substantially in the future.
For example, according to FAO, Ethiopia has produced 83.8 quintals of cereals and it has
exported about 2.3 million quintals of agricultural products (excluding cereals) in
2006/07(EFPRI, 2008). Such performance indicates the presence of growing demand for the
woven sacks. If we assume that in addition to the export volume indicated earlier, 30% of local
production will be handled by woven sacks; annual demand for the sack will be about 27.5
million.

In projecting the future demand for imported woven sacks it is assumed that import amount will
decrease marginally by on average 5% per annum. This small reduction is considered because
the expected growing production and trade in the agricultural and industrial sector will continue

3
to demand more and more of woven sacks that cannot be satisfied by local production alone.
Accordingly, the level of import demand would be projected as shown in table 2 below.

Table2: Projected Demand for Imported Woven Sack

Year Projected Demand (in ton)

2007/08 1,095
2008/09 1,040
2009/10 988
2010/11 939
2011/12 892
2012/13 847
2013/14 805
2014/15 765
2015/16 726
2016/17 690
2017/18 656
2018/19 623

Table 2 points that even though import figure is assumed to continuously drop with time (in the
middle of expected substantial increase in domestic production of goods the make use of woven
sack); the import figure would remain substantial. For instance, by 2018/19 about 6.2 million
pieces of woven sacks will be imported from abroad. Such projected huge dependency for import
points out the presence of attractive opportunity to invest in the sector.

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the plant, the selling price of HDPE
woven sack is set at birr 4 for a size capable of holding 100 kg of grain. Moreover, the available
wholesale network shall be used by the envisaged plant.

3.2 Plant Capacity

Based on the expected demand for woven sack only from import as presented earlier, and the
planned technology, the envisaged plant is set to produce 1,000,000 pieces of HDPE woven
sacks annually with a size capable of holding 100 kg of grain. The total production by the
envisaged plant is about 16% of the import projected to take place by 2018/19 in table 2 above.

4
 3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 70 percent capacity and then it grows to 85
percent in the 2nd year. The capacity will grow to 100% starting from the 3 rd year. This
consideration is developed based on the assumption that there is huge demand for the product
and hence the barriers (market and logistics) would take place for the first two years of
operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw materials

The raw materials required in producing HYDP woven sacks are:

 The polyethylene granules that are made into the tape yarn and then woven into the
sacks
 Colors or dyes for giving the HDPE sacks the required colors
These materials are imported from abroad.

On the other hand the major utility required is electricity as the machinery is run on electric
motors. Water is also required in a few stages of the production process but in small quantities.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 here under

5
 Table 3 Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
HD Polyethylene granules 156 ton 1,404,000
Ink 3 ton 30,360
Total Material Cost 1,434,360
Utility
Electricity 275,000 kwh 151,250
Water 3000m3 7,950
Total Utility Cost 159,200

In view of the table above, the full capacity requirement of material and utility is estimated at
birr 1,593,560

5. Location and Site

The appropriate locations for the envisaged project in view of the availability infrastructure as
well as market for the output are Bahir Dar and Combolcha. This is because; there are a number
of manufacturing firms and trading units in this two towns that make use of woven sacks in their
activities.

6. Technology and Engineering

6.1 Production Process

The process of producing HDPE sacks starts with the making of polyethylene tape (yarn) and
ends in weaving process as detailed hereunder.

The polyethylene Tape Making Process: The polyethylene tapes are manufactured by slitting
films of HDPE which are produced by blown extrusion technique. In this process, the granules of
plastic are fed to the extruder through the hopper. Molten plastics are extruded through circular
die and the tube is inflated by blowing with air to a desired diameter, and pulling it away with a
pair of nip rolls. The extruded polyethylene film is then coded and the bubble is collapsed. The
film thus formed is then slit to desired width. These tapes are stretched in orientation water bath

6
which is at its boiling point. Alternatively orientation can be carried out by using hot plate. The
HDPE tape, after orientation, is stabilized and then wound on bobbins.

The polyethylene Fabric Weaving Process: From bobbins carrying polyethylene yarn, fabric is
made using warping and yarn winding machine. The fabric is then woven on looms and finally
cut to size and stitched to sacks of required dimensions. Whenever required, the sacks are screen-
printed using specially prepared ink. In some cases, laminated sacks are required and as such
before stitching and printing the fabric has to be laminated by extrusion coating of LDPE.
Lamination should be done from outside.

The alternative technology available requires the formation of fabric by slitting one side of the
woven fabric which is in the form of a tube. This fabric is used for packing purposes in the
textile industry and especially for export products. In view of the envisaged plant, such
alternative production technology is not suitable.

6.2 Machinery and Equipment

The machineries and equipment required for producing HDPE woven sacks is detailed in table 4
below.

Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Tape making machine 1
Circular Loom Machine 9
Auto Conversion Line 1
Two colors printing machine 1
Baling Press 1

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about birr 2,792,882

7
Machinery suppliers are numerous and are located in Austria, US, Taiwan, China, India etc. The
machinery that is considered in this profile is supplied by the following firm:

FUNG CHANG INDUSTRIAL CO., LTD.

9, Shih Chi Tau, Kaoping Village
Lungtan Hsian, Taoyuan Hsien, Taiwan
Tel: 886-3-4717824, 4717825, 4717453
Fax: 886-3-4717702, 4580170,
E-mail: fungchan@ms3.hinet.net
Web Site: www.tami.org/fungchang

For Dah Industry Co. Ltd,

Ming Hsiung Ind. Area, Chai Yih Hsien, Taiwan.
Tel: 886-5-2215139, 2215149, and 2204839
Fax: 886-3-2219839
E-mail: fordah@ksts.seed.net.tw

6.3 Civil Engineering cost

The total site area for the envisaged plant is estimated to be 750m 2 where 600m2 is allocated to
the production place and the remaining space is left for stores (100m 2), office buildings and
facilities (50m2)

7. Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 5 below

8
Table 5: Human Resource Requirement

Position No. Required Monthly Salary Total Annual Salary

General Manager 1 4000 48000
Production Manager 1 3000 36000
Accountant 1 1200 14400
Secretary 1 850 10200
Fitter 1 900 10800
Extruder 1 750 9000
Winder Operators 2 600 14400
Weavers 3 600 21600
Cutting Machine Operator 2 650 15600
Printing Supervisor 1 800 9600
Stitcher 1 800 9600
Baling press worker 1 600 7200
Technician 1 1000 12000
Laborers 8 300 28800
Cleaners 2 300 7200
Driver 1 600 7200
Guards 3 300 10800
Benefit (20%) 54480
Total 31 322,560

According to the above table, the envisaged plant creates 31 job opportunity and about birr
322.56 thousand of income. The professionals and support staffs for the envisaged plant shall be
recruited from Amhara region

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. For this birr 75,000 will be allocated as training expense.

8. Financial Analysis
8.1 Underlying Assumption

9
The financial analysis of HDPE woven sack producing plant is based on the data provided in the
preceding chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

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

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

8.2 Investment

10
The total investment cost of the project including working capital is estimated at Birr 5.72
million as shown in table 6 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60% is to be financed by bank loan.

Table 6: Total initial investment

Items L.C F.C Total

Land 2,250 2,250
Building and civil works 1,500,000 1,500,000
Office equipment 50,000 50,000
Vehicles 250,000 250,000
Plant machinery & equipment 0 2,792,882 2,792,882
Total fixed investment cost 1,802,250 2,792,882 4,595,132
Pre production capital
expenditure* 229,757 229,757
Total initial investment 2,032,007 2,792,882 4,824,889
Working capital at full capacity 268,011 625,903 893,914
Total 2,300,018 3,418,785 5,718,802
*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.

The foreign component of the project accounts for 59.8% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 2.76 million as detailed in
table 7 below.

11
 Table 7: Production Cost

Items Cost
1. Raw materials 1,434,360
2. Utilities 159,200
3. Wages and Salaries 322,560
4. Spares and Maintenance 45,951
Factory costs 1,962,071
5. Depreciation 455,240
6. Financial costs 343,128
Total Production Cost 2,760,439

8.4 Financial evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 1%, 1% and 17% in
the first year and rises substantially in the subsequent periods. Furthermore, the income
statement and other profitability indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 28.8% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in 3 years.

12
 IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 20.1%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
23.5% and the net present value at 18 % discount is Birr 1,101,920.73

VI. Sensitivity Analysis

The envisaged plant is to some extent sensitive to an increase in cost of production. That is, the
plant incurs loss of birr 95,861 in the first year of operation when 10 % cost increment takes
place in the sector. The envisaged plant enjoys profit beginning from the second year. This result
is accompanied with payback period of 3 years and 4 months.

9. Economic and Social Benefit and Justification

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

A. Profit Generation

The project is found to be financially viable and earns a profit of birr 9.2 million within the
project life. Such result induces the project promoters to reinvest the profit which, therefore,
increases the investment magnitude in the region.
B. Tax Revenue

In the project life under consideration, the region will collect about birr 3.57 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

13
 C. Import Substitution and Foreign Exchange Saving

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

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 31professionals as well as support
stuffs. Consequently the project creates income of birr 322.56 thousands per year. This would be
one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

14
ANNEXES

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

Capacity Utilization (%) 0 0 70% 85% 100% 100%

1. Total Inventory 0.00 0.00 1027082.52 1247171.64 1467260.75 1467260.75

Raw Materials in Stock- Total 0.00 0.00 438131.78 532017.16 625902.55 625902.55

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 0.00 0.00 438131.78 532017.16 625902.55 625902.55

Factory Supplies in Stock 0.00 0.00 1845.95 2241.51 2637.07 2637.07

Spare Parts in Stock and Maintenance 0.00 0.00 10527.03 12782.82 15038.61 15038.61

Work in Progress 0.00 0.00 46148.66 56037.66 65926.66 65926.66

Finished Products 0.00 0.00 92297.32 112075.32 131853.32 131853.32

2. Accounts Receivable 0.00 0.00 305454.55 370909.09 436363.64 436363.64

3. Cash in Hand 0.00 0.00 36788.95 44672.29 52555.64 52555.64

CURRENT ASSETS 0.00 0.00 931194.23 1130735.85 1330277.48 1330277.48

4. Current Liabilities 0.00 0.00 305454.55 370909.09 436363.64 436363.64

Accounts Payable 0.00 0.00 305454.55 370909.09 436363.64 436363.64

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 625739.69 759826.76 893913.84 893913.84

INCREASE IN NET WORKING CAPITAL 0.00 0.00 625739.69 134087.08 134087.08 0.00

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

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

1. Total Inventory 1467260.75 1467260.75 1467260.75 1467260.75 1467260.75 1467260.75

Raw Materials in Stock-Total 625902.55 625902.55 625902.55 625902.55 625902.55 625902.55

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 625902.55 625902.55 625902.55 625902.55 625902.55 625902.55

Factory Supplies in Stock 2637.07 2637.07 2637.07 2637.07 2637.07 2637.07

Spare Parts in Stock and Maintenance 15038.61 15038.61 15038.61 15038.61 15038.61 15038.61

Work in Progress 65926.66 65926.66 65926.66 65926.66 65926.66 65926.66

Finished Products 131853.32 131853.32 131853.32 131853.32 131853.32 131853.32

2. Accounts Receivable 436363.64 436363.64 436363.64 436363.64 436363.64 436363.64

3. Cash in Hand 52555.64 52555.64 52555.64 52555.64 52555.64 52555.64

CURRENT ASSETS 1330277.48 1330277.48 1330277.48 1330277.48 1330277.48 1330277.48

4. Current Liabilities 436363.64 436363.64 436363.64 436363.64 436363.64 436363.64

Accounts Payable 436363.64 436363.64 436363.64 436363.64 436363.64 436363.64

TOTAL NET WORKING CAPITAL REQUIRMENTS 893913.84 893913.84 893913.84 893913.84 893913.84 893913.84

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 2412444.30 3306358.14 3105454.55 3465454.55 4065454.55 4000000.00
1. Inflow Funds 2412444.30 3306358.14 305454.55 65454.55 65454.55 0.00
Total Equity 964977.72 1322543.26 0.00 0.00 0.00 0.00
Total Long Term Loan 1447466.58 1983814.88 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 305454.55 65454.55 65454.55 0.00
2. Inflow Operation 0.00 0.00 2800000.00 3400000.00 4000000.00 4000000.00
Sales Revenue 0.00 0.00 2800000.00 3400000.00 4000000.00 4000000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 2412444.30 2412444.30 3245026.75 2879444.85 3466158.94 3218579.37
4. Increase In Fixed Assets 2412444.30 2412444.30 0.00 0.00 0.00 0.00
Fixed Investments 2297566.00 2297566.00 0.00 0.00 0.00 0.00
Pre-production
Expenditures 114878.30 114878.30 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 931194.23 199541.62 199541.62 0.00
6. Operating Costs 0.00 0.00 1405225.25 1696269.21 1987313.18 1987313.18
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 364295.75 384883.44
8. Interest Paid 0.00 0.00 908607.27 411753.78 343128.15 274502.52
9.Loan Repayments 0.00 0.00 0.00 571880.24 571880.24 571880.24
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 893913.84 -139572.21 586009.69 599295.61 781420.63
Cumulative Cash Balance 0.00 893913.84 754341.63 1340351.33 1939646.93 2721067.56

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00
Sales Revenue 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 3170541.43 3151288.89 3103250.95 2483332.76 2483332.76 2483332.76
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production
Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 1987313.18 1987313.18 1987313.18 1987313.18 1987313.18 1987313.18
7. Corporate Tax Paid 405471.12 454844.21 475431.90 496019.59 496019.59 496019.59
8. Interest Paid 205876.89 137251.26 68625.63 0.00 0.00 0.00
9. Loan Repayments 571880.24 571880.24 571880.24 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 829458.57 848711.11 896749.05 1516667.24 1516667.24 1516667.24
Cumulative Cash Balance 3550526.13 4399237.24 5295986.29 6812653.52 8329320.76 9845987.99

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

4
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 2800000.00 3400000.00 4000000.00 4000000.00

1. Inflow Operation 0.00 0.00 2800000.00 3400000.00 4000000.00 4000000.00

Sales Revenue 0.00 0.00 2800000.00 3400000.00 4000000.00 4000000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 2412444.30 2412444.30 2030964.93 1830356.29 2121400.25 2372196.61

3. Increase in Fixed Assets 2412444.30 2412444.30 0.00 0.00 0.00 0.00

Fixed Investments 2297566.00 2297566.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 114878.30 114878.30 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 625739.69 134087.08 134087.08 0.00

5. Operating Costs 0.00 0.00 1405225.25 1696269.21 1987313.18 1987313.18

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 364295.75 384883.44

NET CASH FLOW -2412444.30 -2412444.30 769035.07 1569643.71 1878599.75 1627803.39

CUMMULATIVE NET CASH FLOW -2412444.30 -4824888.60 -4055853.53 -2486209.82 -607610.08 1020193.31

Net Present Value (at 18%) -2412444.30 -2044444.32 552309.01 955333.62 968960.85 711527.86

Cumulative Net present Value -2412444.30 -4456888.62 -3904579.61 -2949245.99 -1980285.14 -1268757.28

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

PRODUCTION
5
 5 6 7 8 9 10
TOTAL CASH INFLOW 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00

1. Inflow Operation 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00

Sales Revenue 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 2392784.30 2442157.39 2462745.08 2483332.76 2483332.76 2483332.76

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

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

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

5. Operating Costs 1987313.18 1987313.18 1987313.18 1987313.18 1987313.18 1987313.18

6. Corporate Tax Paid 405471.12 454844.21 475431.90 496019.59 496019.59 496019.59

NET CASH FLOW 1607215.70 1557842.61 1537254.92 1516667.24 1516667.24 1516667.24

CUMMULATIVE NET CASH FLOW 2627409.01 4185251.62 5722506.54 7239173.78 8755841.01 10272508.25

Net Present Value (at 18%) 595363.38 489045.79 408968.48 341941.84 289781.22 245577.30

Cumulative Net present Value -673393.89 -184348.10 224620.38 566562.21 856343.43 1101920.73

Net Present Value (at 18%) 1,101,920.73

Internal Rate of Return 23.5%

Annex 4: NET INCOME STATEMENT ( in Birr)

PRODUCTION

6
 1 2 3 4 5
Capacity Utilization (%) 70% 85% 100% 100% 100%

1. Total Income 2800000.00 3400000.00 4000000.00 4000000.00 4000000.00

Sales Revenue 2800000.00 3400000.00 4000000.00 4000000.00 4000000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1267888.38 1539578.74 1811269.11 1811269.11 1811269.11
VARIABLE MARGIN 1532111.62 1860421.26 2188730.89 2188730.89 2188730.89
(In % of Total Income) 54.72 54.72 54.72 54.72 54.72
3. Less Fixed Costs 592576.39 611929.99 631283.59 631283.59 631283.59
OPERATIONAL MARGIN 939535.23 1248491.27 1557447.30 1557447.30 1557447.30
(In % of Total Income) 33.55 36.72 38.94 38.94 38.94
4. Less Cost of Finance 908607.27 411753.78 343128.15 274502.52 205876.89
5. GROSS PROFIT 30927.96 836737.49 1214319.16 1282944.78 1351570.41
6. Income (Corporate) Tax 0.00 0.00 364295.75 384883.44 405471.12
7. NET PROFIT 30927.96 836737.49 850023.41 898061.35 946099.29
RATIOS (%)
Gross Profit/Sales 1% 25% 30% 32% 34%
Net Profit After Tax/Sales 1% 25% 21% 22% 24%
Return on Investment 17% 22% 21% 21% 20%
Return on Equity 1% 37% 37% 39% 41%

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

PRODUCTION

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

1. Total Income 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00

Sales Revenue 4000000.00 4000000.00 4000000.00 4000000.00 4000000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1811269.11 1811269.11 1811269.11 1811269.11 1811269.11
VARIABLE MARGIN 2188730.89 2188730.89 2188730.89 2188730.89 2188730.89
(In % of Total Income) 54.72 54.72 54.72 54.72 54.72
3. Less Fixed Costs 535332.27 535332.27 535332.27 535332.27 535332.27
OPERATIONAL MARGIN 1653398.62 1653398.62 1653398.62 1653398.62 1653398.62
(In % of Total Income) 41.33 41.33 41.33 41.33 41.33
4. Less Cost of Finance 137251.26 68625.63 0.00 0.00 0.00
5. GROSS PROFIT 1516147.36 1584772.99 1653398.62 1653398.62 1653398.62
6. Income (Corporate) Tax 454844.21 475431.90 496019.59 496019.59 496019.59
7. NET PROFIT 1061303.15 1109341.09 1157379.04 1157379.04 1157379.04
RATIOS (%)
Gross Profit/Sales 38% 40% 41% 41% 41%
Net Profit After Tax/Sales 27% 28% 29% 29% 29%
Return on Investment 21% 21% 20% 20% 20%
Return on Equity 46% 48% 51% 51% 51%

Annex 5: Projected Balance Sheet (in Birr)

8
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 2412444.30 5718802.44 6055184.95 6385496.74 6729094.45 7055275.56
1. Total Current Assets 0.00 893913.84 1685535.87 2471087.18 3269924.41 4051345.04
Inventory on Materials and Supplies 0.00 0.00 450504.76 547041.49 643578.23 643578.23
Work in Progress 0.00 0.00 46148.66 56037.66 65926.66 65926.66
Finished Products in Stock 0.00 0.00 92297.32 112075.32 131853.32 131853.32
Accounts Receivable 0.00 0.00 305454.55 370909.09 436363.64 436363.64
Cash in Hand 0.00 0.00 36788.95 44672.29 52555.64 52555.64
Cash Surplus, Finance Available 0.00 893913.84 754341.63 1340351.33 1939646.93 2721067.56
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 2412444.30 4824888.60 4369649.08 3914409.56 3459170.04 3003930.52
Fixed Investment 0.00 2297566.00 4595132.00 4595132.00 4595132.00 4595132.00
Construction in Progress 2297566.00 2297566.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 114878.30 229756.60 229756.60 229756.60 229756.60 229756.60
Less Accumulated Depreciation 0.00 0.00 455239.52 910479.04 1365718.56 1820958.08
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 2412444.30 5718802.44 6055184.95 6385496.74 6729094.45 7055275.56
5. Total Current Liabilities 0.00 0.00 305454.55 370909.09 436363.64 436363.64
Accounts Payable 0.00 0.00 305454.55 370909.09 436363.64 436363.64
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1447466.58 3431281.46 3431281.46 2859401.22 2287520.98 1715640.73
Loan A 1447466.58 3431281.46 3431281.46 2859401.22 2287520.98 1715640.73
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 964977.72 2287520.98 2287520.98 2287520.98 2287520.98 2287520.98
Ordinary Capital 964977.72 2287520.98 2287520.98 2287520.98 2287520.98 2287520.98
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 30927.96 867665.45 1717688.86
9.Net Profit After Tax 0.00 0.00 30927.96 836737.49 850023.41 898061.35
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 30927.96 836737.49 850023.41 898061.35
Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
9
 5 6 7 8 9 10
TOTAL ASSETS 7429494.60 7918917.51 8456378.36 9613757.40 10771136.43 11928515.47
1. Total Current Assets 4880803.60 5729514.71 6626263.76 8142931.00 9659598.23 11176265.47
Inventory on Materials and Supplies 643578.23 643578.23 643578.23 643578.23 643578.23 643578.23
Work in Progress 65926.66 65926.66 65926.66 65926.66 65926.66 65926.66
Finished Products in Stock 131853.32 131853.32 131853.32 131853.32 131853.32 131853.32
Accounts Receivable 436363.64 436363.64 436363.64 436363.64 436363.64 436363.64
Cash in Hand 52555.64 52555.64 52555.64 52555.64 52555.64 52555.64
Cash Surplus, Finance Available 3550526.13 4399237.24 5295986.29 6812653.52 8329320.76 9845987.99
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 2548691.00 2189402.80 1830114.60 1470826.40 1111538.20 752250.00
Fixed Investment 4595132.00 4595132.00 4595132.00 4595132.00 4595132.00 4595132.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 229756.60 229756.60 229756.60 229756.60 229756.60 229756.60
Less Accumulated Depreciation 2276197.60 2635485.80 2994774.00 3354062.20 3713350.40 4072638.60
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 7429494.60 7918917.51 8456378.36 9613757.40 10771136.43 11928515.47
5. Total Current Liabilities 436363.64 436363.64 436363.64 436363.64 436363.64 436363.64
Accounts Payable 436363.64 436363.64 436363.64 436363.64 436363.64 436363.64
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1143760.49 571880.24 0.00 0.00 0.00 0.00
Loan A 1143760.49 571880.24 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 2287520.98 2287520.98 2287520.98 2287520.98 2287520.98 2287520.98
Ordinary Capital 2287520.98 2287520.98 2287520.98 2287520.98 2287520.98 2287520.98
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 2615750.21 3561849.50 4623152.66 5732493.75 6889872.79 8047251.82
9. Net Profit After Tax 946099.29 1061303.15 1109341.09 1157379.04 1157379.04 1157379.04
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 946099.29 1061303.15 1109341.09 1157379.04 1157379.04 1157379.04

10