Table of Contents

Executive Summary ........................................................................................................ 3

Introduction ..................................................................................................................... 4
General Background .................................................................................................... 4
2 Project Objectives ........................................................................................................ 5
2.1 General Objective .................................................................................................. 5
2.1.1 Specific objective ........................................................................................... 5
Project description ....................................................................................................... 6
Project Rationale ......................................................................................................... 6
The significance of the project .................................................................................... 7
Project Location .......................................................................................................... 7
3The market Study .......................................................................................................... 8
Market Analysis .......................................................................................................... 8
The Demand-Supply Gap ............................................................................................ 8
Current supply of Mixed use building ........................................................................ 9
Future market or Demand of commercial Building rental .......................................... 9
Target customers ....................................................................................................... 11
Marketing promotion and strategy ............................................................................ 11
Competition ............................................................................................................... 11
The project facilities and Services plan..................................................................... 12
4 Technical Studies ....................................................................................................... 13
4.1 Description of the project Service/ Product mix ................................................. 13
4.1.1 Land Use Plan ............................................................................................... 13
4.2 Construction work and Technology .................................................................... 14
4.2.1 Construction schedule................................................................................... 14
4.2.2 Architectural Design & Layout .................................................................... 15
4.2.3 Structural design ........................................................................................... 15
4.2.4 Reinforced concrete ...................................................................................... 15
4.2.5 Foundation Design ........................................................................................ 16

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 4.2.6 Construction Plan and process ...................................................................... 16
4.3 Utilities ................................................................................................................ 17
5 Engineering and civil works .................................................................................... 188
5.1 Land, Building and Civil Works ....................................................................... 188
5.2 Manpower and training requirement ................... Error! Bookmark not defined.
5.2.1 Manpower requirement................................. Error! Bookmark not defined.
Labor Availability.................................................................................................. 21
Project implementation ............................................................................................. 21
Organizational Structure ........................................................................................... 22
Organization and management .................................................................................. 22
6 Financial analysis ..................................................................................................... 311
6.1 Repair and Maintenance Cost ........................................................................... 322
6.2 Depreciation and Amortization ......................................................................... 322
6.3 Total Revenue ................................................................................................... 322
6.4 Discounted Payback Period ............................................................................... 333
6.5 Cash flow........................................................................................................... 334
6.6 Benefit cost ratio ............................................................................................... 344
6.7 Internal Rate of Return ...................................................................................... 355
6.8 Net present value ............................................................................................... 367
7 Conclusions and Recommendations ........................................................................ 399
Conclusion............................................................................................................... 399
Recommendations ................................................................................................... 400
References ................................................................................................................... 411

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 1. Executive Summary
KEY INFORMATION HIGHLIGHTS

PROJECT OWNER Mr/MIS……………..

PROJECT TITLE MIXED USE BUILDING

LAND REQUIREMENT 574 M2

PROJECT AREA ADAMA ABA GEDA SUB-CITY WOREDA 06

PRODUCTION CAPACITY G+4

PRODUCTS TO BE MANUFACTURED
RENTAL ROOMS
MARKET DOMESTIC AND INTERNATIONAL

COST OF THE PROJECT 16,605,630.5

PROJECT LIFE 5 YEARS

NUMBER OF WORKING DAYS 365 DAYS

FINANCIAL VIABILITY ( AT 10% DISCOUNT RATE )

NPV (NET PRESENT VALUE)

BIRR

IRR (INTERNAL RATE OF RETURN) 20.99 %

PBP ( PAY BACK PERIOD) 3year and 2month
ANALYSIS RESULT
THE PROJECT IS TECHNICALLY FEASIBLE, FINANCIALLY AND COMMERCIALLY VIABLE AS WELL AS SOCIALLY
AND ECONOMICALLY ACCEPTABLE. HENCE, THE PROJECT IS WORTH IMPLEMENTING.

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2 .Introduction

2.1 General Background

The current fast and dynamic economic growth of Ethiopia especially in Adama necessitates equivalent
growth of building and construction sector. The sector should expand rapidly to support the overall
economic development sustainable.

In the building sector of the economy, the multi- purpose in the one becoming rapidly expanding in
Adama since dynamic economic development of urban economy requires the construction of these
buildings in the city to support the growing of business service sectors like supermarkets, Beauty salon,
shops, offices cinemas, Computer Center, Cafeterias, restaurant, assembly hall, apartments and other
activities. In this regard, mixed used building expands in the all parts of the city.

Investment and property development play an important role in any emerging markets or economies.
Property generally comprises residential houses and commercial real estate property (mainly mixed us
building) developed for rental business and sale. The property investment market in Ethiopia remained
under developed for several years. As a consequence, the supply of residential houses and non-
residential real estate that can be used for residence, office space, shopping malls and catering services
in the urban centers of the country is disproportionately low to cope with the growing demand in the
country spinning from the average growth in GDP of 9.8% over the last ten years and population
increase. The relatively good performance of the macro-economy (real growth in GDP, low inflation
rate and growth in investment and export sector) has stimulated unprecedented investment growth in the
property sector over the last five years. The growth of investment in the property market over the last
five years in consistent with the global experience suggesting that investment in the residential and
commercial property is greatly influenced by the performance of the macroeconomic conditions. In
general, a stable macroeconomic condition leads to economic and business growth and develops
investors’ confidence. This certainly spurs large demand in the property market for office space,
shopping malls, catering services, apartment and residential houses. Following growing demand trends,
and with the expectation of high return on their investment capital, large number of land developers
pooled their financial resources and invested in the property market.

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To this effect, the partners of the envisioned Mixed Use Building EBDY who has been living for long
time in this city, planned to construct in Aba Geda Sub-city and undertaken this project study to check
the market, technical and financial feasibility of this project. The promoters are very ambitious and
committed to realize the project. Hence, they expect to get the necessary support from the city
administration to make the project to be operational.

Besides, the government policies and incentives for the private sector investment are very promising that
motivates the promoter to engaged in mixed use building business.

2. Project Objectives

2.1 General Objective

The major goal of this project is to contribute towards the growth of the trade sector in Adama. Its
specific objectives include the following.

2.1.1Specific objective

 To construct and develop modern shops, offices, and restaurant& cafeteria facilities that enable to
provide standard services to customers.
 To undertake trading and other refuted business activities that enable to generate a reasonable to the
invested capital.
 To develop modern business center that would provide full services on city standard.
 To create employment opportunities.
 Contribute towards the beautification of the city through the construction of modern building
infrastructure and facilities.
 To establish economically viable, socially acceptable and environmentally friend mixed use
Apartment.

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2.3 Project description

The long-term goal of the project is become the best choice trade center in the city. The proposed project
will have a total area of 574m2, designed to reader a multipurpose giving business, which will in turn
plays significant role towards solving shortage of business center in Adama.

The historical nature of the city as business unique location in one of the most attractive center in
Ethiopia (80% urban center).The owners plan the project to render banking and insurance, shopping
facility, offices and cafeteria services to create high quality class to satisfy the interest of customers in
the city. Based on environmental and other considerations, the entrepreneur has determined the type and
size of the building which is already determined by the site; conceptual planning and preliminary
analysis have been carried out by analysts. In order to attract its clients to the service, the project will
develop high standard shop & banking rooms and office of best choices and will also save best quality
apartments, restaurant and café.

2.4 Project Rationale

The existing promising investment opportunities, the demands of service needs along with relatively
sound investment support made by the government in such kinds of feasible projects, compelled the
project promoter to initiate the multipurpose oriented business project to be established. Despite the
promising business opportunities of the city, the trend on such kinds of investment found to not enough.
The mismatch between the demand for and supply of such kind of services in easily observed in the city.

Therefore, the existing shortage or absence in the supply of these services, along with its commercial
and administrative access, better location and infrastructure access, escalating trend of urbanization and
business activities, thus it is with such reason that this project is identified and proposed and assumed to
be more profitable.

In general, the country’s privatized and free market economy; good governance creates a favorable
environment for the development of investment for private investors.

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2.5 The significance of the project

The envisaged project deemed to add to the economic development of the city in general in specific with
following ways:

A. Source of Revenue

As public policy of any nation, the government collects different forms of taxes from different business
organizations and individuals. Among the different forms of taxes, business income taxes, payroll
income tax and VAT are collected from undertaking business activities. Therefore, the building will
serve as sources of revenue for the city.

B. Employment opportunity

One of the problems that our country faced is unemployment. Therefore, the current objective of the
government is working on tackling the problem of unemployment and fostering the development
process either through creating self-employment or employment in other organization. Hence, this
project will hire 20 individuals and more than 30 individual during construction.

2.6 Project Location

The license area is located in Adama City Administration, Aba Geda sub-city, Woreda 06, locally
named as" mebrat hayil" . The total area of the project is 574 m2. . It is surrounded by main asphalt road
at west part, south east by resident, south west resident, and mixed use building at North part.

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3 .The market Study

3.1 Market Analysis

There are a number of factors which affects the demand of standardized mixed use building. Of these
factors, the most important to have influence is population growth and the level of income. The currently
expanding service industry in Adama and from every corner of the country the city has been inviting
skilled and unskilled labor forces to the center; in addition, the number of both national and international
offices has been increasing. Above all the increase in the number of population increases for the
provision of different services. Nowadays, most of the private business organizations need their own
small-medium offices in order to give their services and provide their products, and they prefer the place
that found in the center or close to the road.

As clearly indicated in the introductory part of this proposal, Adama is the dynamically growing urban
center of Ethiopia. Though the market demand gap for mixed use building is not clearly understand
there is wider gap for such demand as many merchants, organizations are flouring to the city every day.
From prior business experiences, the demand of mixed use building is very high and hence the demand
and the supply gap is very wide.

3.2 The Demand-Supply Gap

There has been a significant growth in the number of local and international trades across the country.
This increase is mainly associated with the stimulation of economic activist and partly due to an increase
in the flow of international and local traders in to the Adama. Since Adama is an important commercial
center in addition there is a significant increase in business activates and hence increasing the number of
traders. Even though there is a lack of quantitative estimates that depict the actual demand and also the
annual growth rate commercial facilities are scarce in the city. As a result there is a large gap between
the developed and that of the supply for modern Bank and cafeteria accommodation hence this project
would not face any problem of demand scarcity for it business center and it would provide good service
to customers.

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3.3 Current supply of mixed use building

Commercial building/office sector has shown a dynamic change in the past few years. The reason for
this could be rapid economic growth and a supporting public infrastructural development. Other factors
relevant in the specific case of commercial buildings are the large increases in national and international
businesses, particularly firms in the services sector.

The business of multipurpose buildings in Adama is booming highly due to the recent rapid growth
experienced in Ethiopia.

As a result, a good number of local and international organizational are coming in place. Government
offices which used to operate in limited spaces all over the city are also concentrating on leasing new
and modern buildings. Increasing numbers of international organization which in the past had typically
converted residences into office space are now moving towards renting whole floors or even multiple
floors in modern city-center commercial buildings.

3.4. Future market or Demand of commercial Building rental

The demand for office space is a derived demand because firms rent space as an input to the production
of services or goods they provide to businesses and households in the local or national economy.

Following our survey of office space users in several areas are mainly firms providing banking, offices,
cafeteria and restaurants, supermarkets, computer center service.

Future demand for office space is actually driven from growth in number of offices in the city which in
turn is influenced by the macro-economic growth in the country.

Assuming that demand for office space is directly related to the growth in the economy, the forecast for
office space demand is shown in the following table;

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 Table 1: Office Space Demand Forecast

Source: estimation based on GTP’s forecasted Ethiopian Economic Growth

Office space demand under base Office space demand under high
case economic case economic

Years Growth Growth

2020/2021 9,916,543 11,304,859
2021/2022 11,007,363 12,057,416
2022/2023 12,218,173 12,953,878
2023/2024 13,562,173 13,963,577
20214/2015 15,054,011 14,554,534
2025/2026 16,709,952 14,987,431

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3.5 Target customers

The target customers of this envisaged project include:-

1. Business Community
2. Business organization
3. The government bureau
4. Non-governmental organizations

3.6 Marketing promotion and strategy

In order to penetrate and gain considerable market share, one of the major marketing strategies for the
project is consistently rendering quality service to its tenants. Due emphasis must be placed on
improving quality of service and facilities. The major marketing strategies to promote the project and
gain considerable market share include:

 Advertising through different means focusing on the existing service and facilities
 Promote in association to the key location and nearby business
 Working on sustained promotional work.
 Working on public relations to reach and influence key personas and organization with a
capacity of making decision.
 Keeping the quality of its service/ facilities and consistently improving with changing situations.

 Seasonal discount pricing different others customer centric marketing strategies will be used by
the company.

3.7 Competition

There are different forms of competition that may face the envisaged mixed use building. These are
price and non-price based competition. Moreover, there are different competitors that will compete with
the project either directly or indirectly. But the mixed use building under discussion has diversified
marketing strategies that could enable it Cope up with the different competitors in the market. Moreover
it will frequently conduct competitors research which focuses on, the strength and the weaknesses, the
different competitors’ strategies, the techniques they use in rendering the service, their customer
handling methods, and others. Generally the project has many other projects all over oromia villages
which compete with it.

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3.8 The project facilities and Services plan

In order to provide mixed use business center building services of a high standard, it has been planned to
construct and develop the infrastructure and facilities that would viable to meet the requirements of an
international standard business center. Accordingly, various buildings and facilities will be constructed
phase by phase starting with the most needed ones that are essential to commence the operation of its
business activities. With the completion of construction, the building will provide a combined service
such as shops, offices, restaurant and café service as well as modern business center that primarily serve
its guests and major clients.

Table 2: The plan is that the ground will be partitioned in to different rooms:

Building Description Measure Unit price in Total

Birr
Supermarket, 425
Ground and 1st Pharmacy, M2 425*500*12*2=5,100,000
floor Banking &
Insurance
2nd floor -3rd 250
floor Beauty salon, M2 250*500*12=1,350,000
shop, Computer
Center, Cafeteria
and Restaurant
4th floor Different
2
governmental and M 250 250*500*12=1,350,000
other offices
9,750,000
Total

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Since the project will be engaged in mixed building the main sources of its annual revenue would be
from the rental of building spaces such as shops, offices, and banking, café and restaurant. Therefore,
the sources of revenue have been classified in to one category namely the rental of banking and
supermarket, offices, shops, bedrooms restaurant and café based on these classifications. Based on the
market price of similar mixed use building in the area, the envisioned buildings set the following fair
price (Before VAT) for its service, hence when the building construction fully get operational it is
assumed to generate a yearly income of ETB 6,089,493.6.

4. Technical Studies

4.1 Description of the project Service

The envisioned mixed purpose building will provide different rental services to the different customer
groups for different purpose. The building will have ground and four floors. The purpose of the building
explained as follows;

 The ground floor, first floor second floor and third floor designed for different business centers
like banks, supermarket, beauty salon(man and women), Computer center, pharmacy, internet
café, boutiques, different shops and other business activities,

 Fourth floors designed for Offices..

4.1.1 Land Use Plan

The total land required for the envisioned project is estimated to be 574m2. The total area for the
construction of the building will be 500m2, as revealed below.

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 Table 3: land utilization Plan

No Description Land M2

Ground First floor-fourth floor

1 Building (G+4)

1.1

1.2 Ground 500

1.3 First floor-fourth floor 500

Total 500

4.2. Construction work and Technology

4.2.1 Construction schedule

The construction project is proposed to be started on June 2020/2021, and is expected to be finished on
July 2022/2023. As seen in the abbreviated construction schedule above, a majority of the schedule’s
time is made up of five major activities; concrete, building Enclosure, masonry, mechanical and
Electrical install. Concrete activities include processes such as placing foundations and slab on deck.
The Building Enclosure Phase includes erecting the scaffolding that will allow for exterior sheathing
installation and bricklaying.

Mechanical and Electrical install coincide with each other due to the need for coordination between the
two divisions. There are several periods of construction during the schedule in which there are multiple
construction activities occurring at the same time.

The construction site must be organized accordingly as these processes take place. As with any
construction project, the goal of the schedule will to complete all construction activities before the
required Date of completion.

This date of completion is practical based on the time of year in which the building will be completed.
The team allowed a two week contingency for any setbacks. Typically, winter construction tends to

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cause unforeseen delays that negatively impact a construction project. These conditions can and will
almost undoubtedly impact the project schedule by causing unforeseen delays and project inefficiency.

4.2.2 Architectural Design & Layout

Although functional spaces for the project were laid out in significant detail, the rest of the building had
designated spaces but set layouts. It was at the discretion of the project promoter to devise typical
layouts for the non-detailed commercial and office spaces. To make sure that the building’s layouts were
practical, the project owner researched typical architectural layouts for laboratory and executive office
spaces. The walls and partitions throughout the floor will congruent with the structural frame and
column locations.

4.2.3 Structural design

One of principle deliverables of the project is the structural design of the building. The structural bays
were coordinated with the layout of the building adjustments will be made to the bays if specific layouts
are necessary. The frame will be made up of a grid with repeating standard structural bays. Included in
the structural system are bay sizes, shape and size of structural members, floor compositions and curtain
walls. These elements were established to resist gravity ad lateral loads as appropriate.

The gravity load design will completed for two frames; one of structural steel and one of reinforced
concrete. The structural steel frame will chosen for further design based on cost per square foot, local
availability of material and constructability considerations, such as erection and fabrication. The steel
system will then designed for lateral loading with necessary adjustment being made to framing.

4.2.4 Reinforced concrete

The project group prepared hand structural design calculations for a typical bay of a reinforced concrete
frame. In all reinforced concrete bay designs, a superimposed dead load of 8 pounds per square foot will
be assumed for mechanical equipment, floor coverings and ceilings.

Similarly, the design of the typical bay accounted for the use of different commercial space, in which a
live load of 1000 pounds per square was assumed. Loads will be calculated based on the requirements of
the minimum Design loads for Buildings and other Structures.

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4.2.5 Foundation Design

The design of a superstructure may be accurate, have considered all possibilities and still fail because
the substructure is incapable of distributing the applied loads to the supporting soil.

Foundation design takes more into consideration than merely the loading from the columns. While the
main part of the project focused on the structural frame and its alternate designs, a preliminary
foundation plan was designed based upon maximum load carried from the superstructure through the
columns. The foundation design conducted by the project team consisted of the selection of foundation

type, determination of the bearing capacity and the design for typical interior and exterior spread
footings.

4.2.6 Construction Plan and process

The construction process for this project is normally a disjointed three mages development by which the
conceptualized need of the promoter of this project is translated into a functional facility that will meet
their needs in terms of time, cost and quality.

Based on a general program of the project owners the consultant who is going to be hired makes site
studies, develops structural designs, prepares drawings and specifications, determines quantities
involved and estimated the resultants costs. All these activities will be done in the first phase of the
project which is the design stage after the document are produced by the designers have been received,
and the works secured the project is supposed to enter the tendering stage. At this stage contractors study
the project document analyze and subsequently determine the construction methods, built up their unit
rates and submit their bids for the works. The promoter of this project intends to compare the bids and
award the contract for the lowest responsible bidder. This, is of course, presupposes that the favorable
proposal does not exceed the allocated budget.

After the award is made and the contract signed between this project owners and the contractor, the
project constructor is expected to prepare and submits a detailed construction program which includes
material schedule, manpower requirement and cash flow forecast.

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4.3 Utilities

A number of utilities world be put in place in order to ensure smooth functioning of the project. These
utilities include:

Table 4: Utilities

No Description Qty. Unit cost Cost (Birr)

Electricity
1 supply, kWh 100,000 1.30*10,000 130,000
Water
2 Supplym3 50,000 10*50,000 500,000

Telephone and
3 Internet
Broadband 20,000

4 Fuel, Oil and

lubricant 2000 25*2000 50,000

Total 1,200,000

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5. Engineering and civil works

5.1 Land, Building and Civil Works

The Mixed use building has a total site area of 574 m2. The building floor area has
covered 74 m2 and the remaining 500 m2 is left for construction. The type of buildings
and its corresponding civil construction cost is given on Table 5.

Table 5: List of Building and Civil Works and Their Costs

No Description Total price

A.SUB-STRACTURE
1 excavation and earth
works 139,785.335
2 Block work 275,767.2

Sub total 1,108,058.5

B.SUPER STRACTURE
1 Concrete work 3,876,679.22
2 Block work 275,767.2
3 Roofing 85,554.00
4 Carpentry and joinery 161,880.00
5 Metal works 410,430.00
6 Finishing 1,555,689.72
7 Painting 137,899.44
8 Electrical installation 3,618,165
9 Sanitary installation 575,511
Subtotal 10,697,575.5
A+B 11.805,634.00
Vat (15%) 1,770,845.11
Grand total 13,576,479.2

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As shown on Table 5, the total cost of building and civil work is estimated at Birr
13,576,479.2 and out of which the proponent has worked more than birr 11.8 million.

5.2 Manpower and training requirement

5.2.1 Manpower requirement

The list of manpower and the annual cost of labor is indicated in Table 6.

Table 6: Manpower Requirement and Annual Labor Cost

Position No Qualification Monthly salary Annual salary in

in Birr Birr

SN

1 General manager 1 BA in management 10,000 120,000

2 Building admin 1 BA in Acct/Mgt 8,000 96,000

3 Secretary 1 10+2 in secretariat 3,000 36,000

science

4 HRM Officer 1 BA in 4,000 48,000

HRM/Management

5 Technical and 1 BSC in building 4,000 48,000

maintenance manager maintenance

6 Finance head 1 BA in Accounting 6,000 72,000

7 IT Technician 1 BSC in computer 5,000 60,000

science/IT

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8 Marketer 1 Diploma in 5,000 60,000
marketing

9 Accountant 1 Diploma in 4,000 48,000

accounting

10 Guards/Security 4 Basic 10,000 120,000

11 General Service head 1 Diploma in 6,000 72,000

Management

12 Purchaser 1 Diploma in 3,500 42,000

purchasing &Sup
Mgt

13 Electrician 1 10+2 in general 2,000 24,000

electricity

14 Plumber 1 10+2 in general 2,000 24,000

mechanic

15 Casher 1 10+1 in bookkeeping 3,000 36,000

16 Cleaner 5 Unskilled 3,000 36,000

17 Maintenance officer 1 10+2 in General 3,000 36,000

mechanic

18 Driver 1 10 completed 2,500 30,000

Total 26 84,000 1,008,000

Benefit (20%) 16,800 201,600

100,800 1,209,600

Grand Total

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5.2.2 Labor Availability

Workers for this type of plant are available throughout the year. No foreseeable problems are
expected as most of the work requires no previous skills.

5.3 Project implementation

The project’s implementation is expected to take 24 months. The major activities include Bank
loan processing construction of the building, cleaning the area around the building, Procurement
of equipment and start rendering services. The time schedule for major activities is presented
below:

Table 7: project Implementation schedule

SN Activities Date

1 Preparation Project Proposal DEC 2020

2 Bank loan processing June-July 2021

3 Site Development July 2021

4 Building and construction work August, 2021-July 2023

5 Preparation for service September, 2023

6 Service execution February, 2024

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5.4 Organizational Structure

5.4.1 Organization and management

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 building. 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 the owners

As clearly shown in the organizational structure, the center organization has one general manager
and three main sections. Under the general manager there are the, Marketing Department,
Maintenance and Building administration department. Under building admin dept there exist two
sections i.e., HRM & finance and general service. Further sub sections are also organized under
technical and maintenance manager. The following section deals with the duties and
responsibilities of each department.

A. The General Manager’s Duties and Responsibilities

 He/she will plan, organize, direct and control the overall activities of the building.

 He/she will devise policies and strategies that will enable the center to be profitable.

 He/she will incorporate modern technological innovation that will facilitate the service
delivery of the building to increase customer’s satisfaction.

 He/she will plan, organize, direct and control the human and non-human resources of the
building so as to achieve the short and long run objectives of the organization.

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B. Building Administration Department

The building Administration Department of the multipurpose building has two main sections
(HRM and Finance and General Service section). It has responsible for undertaking the
following activities;

 Manage the human resources and control employee’s activity

 Well non-human resources of the project, which include; effective handling of the
different resources of the building, and devise strategies of controlling against fraud and
damage.

 Will provide the right material or inventory to the center with right price at the right time.

 Will plan, organize direct and control the financial transaction of the building by using all
the necessary documents.

 Accountant and casher that will collect money from the customers.

 Will develop sound financial control system by developing modern financial control
systems.

 Will prepare the annual financial statements and prepare condensed reports for both the
General Manager and other concerned government body.

 Follow the overall status of the business and provide maintenance and repair services

C. The marketing Department

 Will handle the overall marketing activities of the organization which include planning,
organizing, directing, and controlling.

Will develop the marketing strategies for future multipurpose building development

 Will develop effective customer handling strategies.

 Execute the promotion methods.

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 D. Technical and maintenance manager

 Will handle the overall physical maintenance and related issues

 Will make sure electricity and back up is organized.

 Follow up security issues and educate tenants

 Works in collaboration with general service to make sure tenants are well serve

Partners

General Manager

Building Maintenance Marketing HRM

administration Department Department
Department

Personnel Promotion
Finance
&Property
Officers

IT, Supervisors
Electricity

Figure 1.organizational structure

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5.5 Financial Requirement and Analysis

The financial resource is a prime resource for undertaking any activities. Hence for
implementing this mixed use building a total of 16,605,630.5 ETB is required.
From this 30% (4,981,689.15) birr will be covered by the promoter of the project while the rest
70% (11,623,941.3) will be covered through loan from bank at the prevailing interest rate.

Therefore the said amount of finance is needed for undertaking the following.

5.6 fixed Investment

A. Land, Building & Construction
S.N Description of works Total Cost in birr

1 Building construction 13,576,479.2

2 Site Development 50,000

3 Design and supervision 120,000.00

4 1st Year land lease 422,640

Total 13,872,799.2

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 B. Building Machineries and Equipment’s
SN Description Measure Qty Unit cost in Total cost in
ment Birr Birr.

1 Generator Unit 1 300,000.00 300,000.00

2 Carpentry tool box Set 1 27,000.00 27,000.00

3 Electrician tools box Set 1 18,500.00 18,500.00

4 Pl umber tools kit Set 1 12,300.00 12,300.00

5 Fire extinguisher Unit 12 16,000.00 192,000.00

(Security Equipment)

6 Elevator Unit 1 750,000 750,000

Total 1,123,800 1,299,800

C, Vehicle
SN Description UOM Qty Unit Cost in Total cost in Birr Remark
Fr.

1 Mini-Bus Unit 1 300,000.00 300,000.00 Duty Free

Total 300,000.00

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 D .Office Equipment’s

SN Description Measurement Qty Unit cost in Total cost in

birr Birr

1 Managerial tables Unit 1 12,600.00 12,600.00

2 Managerial chairs Unit 1 19,500.00 19,500.00

3 Office table with chair Unit 7 12,000.00 12,000.00

4 Secretarial table with chairs Unit 1 8,500.00 8,500.00

5 Computer with chairs Unit 1 15,000.00 15,000.00

6 Shelf Unit 3,500.00 3,500.00

7 Filing cabinets Unit 1 1,500.00 1,500.00

8 Guest chairs Unit 1 4900 4900

9 Fax & Telephone machine Unit 1 1,300.00 1,300.00

10 Carpet and Curtain LS 1 23,000.00

Total 101,800.00

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 Working Capital

Operating Expenses

SN List of Items Annual cost in birr Assumptions Used

1 Audit and legal fee 24,000.00 2000 br/per ,month

2 Stationery supplies 6,000.00 500 br/month

3 Promotional Cost 20,000.00 Lump sum annual cost

4 Property Insurance 42,009.00 1% of the building

5 Cleaning Supplies 6,000.00 500 br. Per month

6 Uniforms 6,000.00

7 Water consumption 2,500.00 1250 m3 by 3.15 br

8 Electric consumption 15,000.00 50,000KWH By Br.1.30

9 Fuel 19,000.00 1000 lit per year by Br.19

11 Telephone & fax 10,000.00 1800 per month

12 Repair expense 3,600.00 2% of building cost

13 Miscellaneous costs 20,000.00 1800 per month

Total 256,513.5

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Pre-service Expenses

SN Description Cost in birr

1 Project proposal 100,000.00

2 Licensing fee and others

Total 100,000.00

Summary of Total initial investment cost

SN Description Cost in Birr

1 Land, building & construction 13,872,799

2 Building machines & Equipments 649,900.00

3 Vehicle 150,000.00

4 Office Equipment 50,900.00

5 Total fixed investment cost 14,723,599.00

6 Salary expense 1,209,600.00

7 Operation Expense 256,513.5

8 Pre service Expense 50,000.00

9 Total Working capital 365,918.00

10 Sub total 1,882,031.5

11 Contingency (10%) 188,203.2

Total initial investment capital 16,605,630.5

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 Year 1 Year 2 Year 3 Year 4 Year 5

Description

Sales Revenue 9,750,000 9,750,000 12,450,000 15,390,000 16,500,000

Less: 3,271,496 3,482,625 3,627,149 3,968,633 4,357,914

Operating cost
Income before 6,478,504 6,267,375 9,872,851 11,421,367 12,142,086
Depreciation
and interest

Less: interest 215,873.2 215,873.2 215,874 215,875 215,876

Income before 6,262,630.2 6,051,501.8 9,656,977 11,205,492 11,926,210

Depreciation
Less: 321,285.5 321,285.58 321,285.584 321,285.6 321,285.7
Depreciation
Profit /Loss 5,941,344.7 5,730,216.22 9,335,691.4 10,884,206.4 11,604,924.3
Before Tax
Less: Tax 1,782,403.41 1,719,064.84 2,800,707.42 3,265,261.92 3,481,477.29
(30%)
Net Profit 4,158,941.3 4,011,151.38 6,534,983.98 7,618,944.5 8,123,447.01

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6 .Financial analysis

The financial analysis of this mixed use project is based on the data presented in the previous
chapters and the following assumptions: -

Finishing period 2 years

Source of finance 30 % equity
Debt finance 70 % loan

Bank interest 15%

Discount cash flow 10%

Accounts receivable 30 days

Raw material (perishable) 3 days

Raw Material (nonperishable) 30 days

Cash in hand 5 days

Accounts payable 30 days

Repair and maintenance 5% of equipment cost

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6.1 Repair and Maintenance Cost

 The annual repair and maintenance cost of the plant is estimated based on the following
rates.

Table 8: Repair and Maintenance Cost

Item Rate
Machinery and equipment 5 % of the total cost or Book value
Building and civil works 2% of the total cost or Book value
Utilities 5% of the total cost or Book value

6.2 Depreciation and Amortization

The following depreciation rates are applied to depreciate the assets of the project:

 Buildings and associated civil works and Machinery and Equipment’s and utilities are 20%
depreciation rate.

6.3 Total Revenue

Based on the projected profit and loss statement, the project will generate a profit throughout
its operation life. Annual net profit after tax increases from Birr 4,158,941.3at the beginning of
the project to Birr 8,123,447.01 during the last year of operation year. The detail is presented in
Annex.

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6.4 Discounted Payback Period

Amount paid Balance at the

back “profit end of year

Two Year (16,605,630.5)

(construction period)

`Year 1 4,158,941.3 (12,446,689.2)

Year 2 4,011,151.38 (8,435,537.82)
Year 3 6,534,983.98 (1,900,553.84)
Year 4 7,618,944.5 5,718,390.6
Year 5 8,123,447.01

The payback period, also called pay–off period is defined as the period required recovering the
original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial
investment will be fully recovered within 3 year 2 months. A project, which has an initial
cash outlay of Birr 16,605,630.5 and a variable annual cash inflow has a payable period
of 5 years

The table below shows payback period determination using cash flow of a hypothetical
project.

The payback period is between year 3and years 4

If 7,618,944.5 = 12 month

(1,900,553.84) =x then find the value of x =2.99

It indicated that the original investment costs would be recovered after a little less than 3.
299 years, without including the construction period.

A single project proposal may be accepted if the payback period is smaller than or
equal to an acceptable time period (a firms Maximum desired payback period.

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6.5 Cash flow

The projected cash flow of the envisaged project shows that the project would generate
positive net cash flows throughout the operation years. Cumulative cash flow generated by the
project towards the end of the first operation year will amount to Birr 4,696,100.59. At the end
of the project life, this amount will rise to Birr 8,660,608.71.

 Cash flow = cash in flow (net sales revenue) – cash outflow (operating cost + income
tax)

6.6 Benefit cost ratio

The BCR is defined as the ratio of the sum of the project’s discounted benefits to the sum of its
discounted investment and operating costs.

When BCR > 1, accept the project

When BCR < 1, reject the project

When BCR = 1, be indifferent

(1
B n
t
t
r)
BCR  t 0

(1
C n
t
t
r) t 0

NBCR = BCR – 1

NBCR = 1.34 – 1 = 0.34

 The two benefits – cost ratio measures give the same signals because the difference
between them is simply unity.
 Since benefit – cost ratio measures net present value per Birr of outlay, it can
discriminate better between large and small investments.

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  The Decision rule for BCR
 A project is accepted b/c its BCR is greater than 1 (i.e. if its discounted benefits
exceed its discounted costs).
 BCR is 1.34 and positive this indicates this project would return 1.34 birr in benefits for
each birr spent.

6.7 Internal Rate of Return

The internal rate of return (IRR) is an indicator of the efficiency or quality of an investment. A
project is a good investment proposition if its IRR is greater than the rate of return that could be
earned by alternate investments or putting the money in a bank account. Accordingly, the IRR of
the project after tax is computed to be 14.1% indicating the viability of the project.

To illustrate the calculation of internal rate of return, consider the cash flows of the
following hypothetical project

YEAR 0 1 2 3 4 5

4,158,941. 4,011,151.3 6,534,983.98 7,618,944.5 8,123,447.0

cash 16,605,630.5
3 8 1
flow (target value)

 The IRR is the value of r, which satisfies the said condition Let us, begin with,
say, r = 10 percent. The right – hand side of the above equation becomes:

∑
( )

35 | P a g e
 ( ) ( ) ( ) ( )

( )
22,253,550.1………..Q1

 Since this value is higher than the target value of 100,000, we have to try still a higher
value of r. Now let us try r = 20 percent. This makes the right – hand side equal to:

( ) ( ) ( ) ( ) ( )
……..Q2
 This value is still higher than our target value, 16,605,630.5 so we increase the value of r
from 20 percent to 21 percent

( ) ( ) ( ) ( ) ( )
……..Q3

Now this value is less than , we conclude that the value of r lies between
20 percent and 21 percent.

 For most of the purposes this information is sufficient. However, if a single value is
required, we have to resort to interpolation
 For that purpose we can use the following procedures

X = 20.99 % Thus, the IRR would be 20.99

The IRR is identified, the decision rule is:

The project is accepted because the IRR is greater than the interest rate in the market. That is, all
projects with an IRR greater than some target rate of return should be accepted.

The target rate is usually the same rate used as the discount rate employed in the
computation of the projects net present value.

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6.8 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 of time during the
life of a project into a common measuring unit i.e. present value. It is a standard method for
using the time value of money to asses’ long-term projects. NPV is an indicator of how much
value an investment or project adds to the capital invested. In principle a project is accepted if
the NPV is non-negative. Accordingly, the net present value of the project at 10% discount rate
is found to be Birr 5,647,919.6 which is acceptable.

∑
( )

( )
( ) ( ) ( ) ( )

( ) ( )

The decision rule is that the project is accepted because the NPV of the project is positive and
greater than zero.

37 | P a g e
 6.9 The feasibility study

 The IRR is positive and greater than the interest of fund in the market.
The payback period in the financial study is somewhere between the second and third
year.

 The IRR ratio is equal to 20.99% which is higher than the interest rate present in the
market.

 The NPV is positive, which implies the feasibility of the project.

The project is acceptable and feasible

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7 .Conclusions and Recommendations

Conclusion

The objective of this proposed feasibility study is primarily to facilitate the entrepreneur with the
investment information and provide an overview about project. The proposed feasibility may
form the basis of an important investment decision and in order to serve this objective, the
document covers various aspects of Concept Development, Start-up, Production, Marketing,
Finance and Business Management.

The feasibility is based on the information obtained from various agricultural sources as well as
discussions with businessmen. For financial model, since the forecast/projections relate to the
future periods, actual results are likely to differ because of the events and circumstances that
don’t occur frequently as expected.

Whilst due care and attention has been taken in performing the exercise, no liability can be
inferred for any in-accuracy or omissions reported from the results thereof. It is essential that our
report be read in its entirety with financial model in order to fully comprehend the impact of key
assumptions on the range of values determined.

The project is accessible and has the necessary infrastructure such as road, telephone, water and
electric power. The proposed project clearly identifies all the necessary equipment, inputs,
Management of the company and the required man power. The highest authority in the project
will be vested in the hand of the owner. He will control the overall activities of the proposed
project. Demand projection divulges that there is high demand for feed production in the country.
Accordingly, the planned project is set to provide quality products in the area.

The proposed project possesses wide range of economic and social benefits such as increasing
the level of investment, tax revenue and employment creation for both women and youths. It will
have also environmental concerns to protect it by planting trees around its working area and by
utilizing environmental friendly raw materials. Generally, the project is technically feasible,
financially and commercially viable as well as socially and economically acceptable. Hence the
project is worth implementing.

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Recommendations

Financial sensitivity analysis shows that the project is highly sensitive to decrease in sales
revenue but relatively less sensitive to increase in raw material and investment costs. Therefore,
it is recommended that the company should give a great attention for the possible reasons for
sales reduction. In this case, different mechanisms should be selected and implemented to
increase sales. In addition to this, the company should decrease its cost that lowers profitability.
The project must utilize modern promotional styles to capture the planned market share. To do
so, it has to design effective strategy to achieve this plan.

Although, due care and diligence has been taken to compile this document, the contained
information may vary due to any change in any of the concerned factors, and the actual results
may differ substantially from the presented information. In this case, any delaying to implement
the project creates some problem on its profitability as there is always change like change in
price of services and goods, cost of raw materials, customers preference and purchasing power
etc.….So, it is recommended that investors should implement the project as soon as possible
before any change occurred.

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References

Chandra, P; 2006.Projects Planning, Analysis, Selection, Financing, Implementation, and

Review, six edition. Tata McGraw-Hill publishing company Limited, New Delhi.

Eyob Deraro (2013) Project Proposal for the construction of Mixed use Building.

Wikipedia: The Free Encyclopedia. Retrieved December 10, 2006 from the World Wide Web
www.wikipedia.org.

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