Investment Office ANRS

PROJECT PROFILE ON THE ESTABLISHMENT

OF PARTICLE BOARD PRODUCING PLANT
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 Demand Projection.................................................................................................. 4
3.1.3 Pricing and Distribution.......................................................................................... 5
3.2 Plant capacity .................................................................................................................. 6
3.3 Production Programmer .................................................................................................. 6
4. Raw Materials and Utilities ..............................................................................6
4.1 Availability and Source of Raw Materials...................................................................... 6
4.2 Annual Requirement and Cost of Raw Materials and Utilities....................................... 6
5. Location and Site ...............................................................................................7
6. Technology and Engineering ............................................................................7
6.1 Production Process.......................................................................................................... 7
6.2 Machinery and Equipment.............................................................................................. 8
6.3 Civil Engineering Cost.................................................................................................... 9
7. Human Resource and Training Requirement ................................................9
7.1 Human Resource............................................................................................................. 9
7.2 Training Requirement ................................................................................................... 10
8. Financial Analysis............................................................................................11
8.1 Underlying Assumption ................................................................................................ 11
8.2 Investment..................................................................................................................... 12
8.3 Production Costs ........................................................................................................... 12
8.4 Financial Evaluation ..................................................................................................... 13
9. Economic and Social Benefit and Justification.............................................14
ANNEXES...............................................................................................................16
 1. Executive Summary
This project profile is conducted to investigate the viability of establishing particle board
producing plant in Amhara National Regional State. The following presents the main findings of
the study.

Particle board is made from eucalyptus tree, wood chips, saw dust etc and bonded by resins. It is
made in standard sizes. The main users of particle board are the building industry and the
furniture industry.

Demand projection pointed out that the annual domestic demand for particle board increases
with urbanization and modernization. Accordingly, due to the presence of high demand for the
product, the envisaged plant is set to produce 20,000 tons of particle board annually. The total
investment cost of the project including working capital is estimated at Birr 14 million.
Relatedly, the envisaged plant creates 48 jobs and Birr 604,800 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 27.7% of capacity utilization and it will
payback fully the initial investment less working capital in 3 years. The result further shows that
the calculated IRR of the project is 24.3% with NPV of Birr 3,293,915.88.
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

Particle boards are substitute of solid and ply wood. Due to the growing deforestation, the natural
wood is becoming more and more scarce. This calls for development of an alternative material
such as Particle Board. It is made from eucalyptus tree, wood chips, saw dust etc and bonded by
resins. Particle Boards are made in standard sizes with thicknesses of 12, 16 and 18mm. The

1
Boards are having better properties such as high density, high surface hardness, abrasion
resistance, high durability etc. Particle Boards may also be covered with veneers or sunmica for
special purposes.

The main users of particle board are the building industry and the furniture industry. Particle
boards are used as cheaper substitute of wood in the manufacture of various furniture items like
(i) cupboards, shutters & wardrobes (ii), door and window panels, (iii) shelves, cabinets, table
tops and show cases, (iv) various covering of large surfaces such as partitions and side basic
floors. It is also used as sealing tiles. Due to this, it has got very good scope for marketing. Most
of the above items are used in bulk by furniture industry.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

As stated earlier the major end users of particle board are the building construction sector. Thus
the demand for particle board is related to the expansion and growth of the building construction
sector. A study conducted by PACO/WASS in 1995 revealed that the yearly requirement of new
residential building units is estimated to be 22,000 for Addis Ababa and 121,000 for other urban
towns. In other words, the study shows that an annual demand for dwelling units in the urban
Ethiopia amounts to 144,100 units. If we conservatively assume that one-fourth of this
requirement will be realized, the annual effective demand for residential buildings amounts to
36,025 units. Moreover, according to the latest Statistical Abstracts of the Central Statistical
Agency (2006), from 2002/03 up to 2004/05, 2242 building permits for up to 15 storey buildings
had been given in Addis Ababa only. Assuming that the construction will be completed within
specified period; it represents an addition to the housing demand in the country. Furthermore, it
should be noted that as the proportion of middle and high income groups of the urban people
increases, the demand is expected to increase as well.

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Particle boards have also other application in furniture industries such as Cupboards, wardrobe,
table tops, shelves and cabinets. Therefore, it is assumed that the furniture industries consume
about 30 percent of the particle board production for producing the above stated goods.

Currently there are two particle board factories in Addis Ababa which have been operating since
1970. They use Eucalyptus globules as the main raw material. They are also integrated with saw
milling and pre-fabricated housing. In Amhara region there is no particle board producing plant.
However, a recent study revealed that there are about 424 micro wood based enterprises in the
region (DSA/SCI, March 2007). This shows the presence of ample demand in the region for
processed woods and the presence of raw material as saw dust is one component of the
production process.

The domestic production and import of particle board for the last 10 is shown in table 1 below

Table 1: Domestic Production and Import of Particle Board: in Cub M (M3)

Source:
Year Domestic Import Total
CSA and
1997/98 (1990 FY) 8,308 15,375
23,683
1998/99 (1991 FY) 9,298 20,240
29,538
1999/00 (1992 FY) 7,200 20,606
27,806
2000/01 (1993 FY) 10,289 34,257
44,546
2001/02 (1994 FY) 747 42,740
43,487
2002/03 (1995 FY) 2,231 39,634
41,865
2003/04 (1996 FY) 7950 32,193
40,143
2004/05 (1997 FY) 1300
34,583 35,883
2005/06 (1998 FY) 2079
50,734 52,813
2006/07 (1999 FY) 2204
57595 59,799
AVERAGE 5161
34796 39,956

Customs Authority, (various years)

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It is important to note that the import figure of particle board is stated in kilogram while the
standard measurement is in cubic meter. Inspection conducted by the consultant team divulges
that one cubic meter particle board weighs on average 80 kilograms. Hence, the import data of
particle board is translated from kilogram into cubic meter using a conversion rate of one cubic
meter particle board is on average equivalent to 80 kg.

As shown in table 1 above, the average domestic production for the ten years under review had
been 5,161m3. The effective current demand for particle board in 2006/07 on the other hand, had
been 59,799m3. In other words domestic production covers less than 10 percent of the total
demand, pointing the huge dependency on imported products.

3.1.2 Demand Projection

The future demand for particle board is related to housing construction and the furniture industry
whose future growth is related to the growth rate of the economy and urbanization. The rate of
urbanization in the country is currently above 5 percent and the economy is growing on average
at about 10%. In view of this real performance, a conservative assumption that demand for
particle board will grow by 3 percent is considered in projecting the future demand. Accordingly,
the projected demand for particle board is given in table 2 below.

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 Table 2: Projected demand for particle board (m3)

Year Projected Demand

2007/08
61593
2008/09
63441
2009/10
65344
2010/11
67304
2011/12
69323
2012/13
71403
2013/14
73545
2014/15
75751
2015/16
78024
2016/17
80365
2017/18
82776
2018/19
85259

As shown in table 2 above the demand for particle board reaches 65.3 thousand cubic meter in
2009/10 and further increases by 30.5% within 10 years (2018/19). This indicates the presence of
huge demand in the future and hence affirms the importance of establishing a plant that
manufactures particle board.

3.1.3 Pricing and Distribution

Currently the rtai1 price for particle board ranges from Birr 220 up to 340 for standard sizes
(2.2cmX1.5cm). The product is currently distributed through retail networks. The envisaged
plant should use the same channel of distribution as no major is problem observed in the current
network. The whole sale price for the envisaged plant is set to be Birr 160 for 12mm, Birr 215
for 16mm and Birr 260 for 18mm particle board.

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 3.2 Plant capacity

The annual production capacity of the proposed plant is estimated to be 20,000m3 of particle
board. This constitutes less than one-third of the projected demand stated in table 2 above. In
view of the market analysis conducted, the product mix for the plant under consideration is set at
5,000m3 for 12mm thick boards, 8,000 m3 for 16mm thick boards and 7,000 m3 for 18mm thick
boards. The production capacity is based on two shifts a day and 275 working days a year. The
production program does not include Sundays, national and public holidays.

3.3 Production Programmer

The production programme is designed in such a way that the plant will initially produce at 70
percent of its rated capacity in the first year of its operation. During the second year of operation,
the plant will produce at 80 percent, and 90 percent in the third year. The envisaged plant will
produce at 100 percent of its rated capacity beginning from the fourth year. Capacity build-up is
set up considering the time required for training of operators, machine training, logistics and
market barriers.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The basic raw materials in the production of particle board are eucalyptus tree, waste woods,
wood chips, saw dust, phenol Formaldehyde/Urea, Formaldehyde resins, veneers and sunmica
coverings. Eucalyptus tree is adequately available in the region. Moreover, wood chips and saw
dusts can be acquired from saw mills operating in the region, adjacent regions and the country at
large. On the other hand Phenol Formaldehyde/Urea, Formaldehyde resins, Veneers and
Sunmica coverings are imported from abroad.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual requirements of raw materials and utilities for the production of 10,000 m3 of particle
boards and the corresponding costs are indicated in Table 3 below

6
 Table 3: Raw Materials and Utilities

Materials and Utilities Quantity Total Cost

Materials L.C F.C
Eucalyptus tree, Waste Woods, Wood chips 35 ton 350,000
Saw Dust 5 tone 30,000
Phenol Formaldehyde/Urea, Formaldehyde 320,000
Resins 4 tone
Veneers and Sunmica Coverings 35 tone 650,000
Total raw materials 380,000 970,000
Utilities
1. Electricity 150,000 kwh 82,500
2. Water 55,000 m3 145,750
3. Furnace oil 150,000 lit 1,050,000
Total utilities 1,278,250
* LC = local cost and FC = foreign cost

The total raw material is Birr 1,350,000 while the cost of utility for the envisaged plant at full
capacity of operation is estimated to be Birr 1.28 million. Thus the total input cost amounts to
Birr 2,628,250

5. Location and Site

Debre Tabor town is the most appropriate location for the envisaged project as the plant has to be
near the availability of eucalyptus tree forest.

6. Technology and Engineering

6.1 Production Process

The salient and distinctive features of the production process are stated herein. In the first stage,
eucalyptus tree, waste woods etc are crushed in the disintegrator up to complete powder stage.
This powder is further mixed with phenol formaldehyde/urea formaldehyde resins in mixing

7
drum. This mixture of resin and powder is spread over the die formats of required sizes and
thickness. This spread is hot pressed by hydraulic press machine so that the particle boards are
formed. The edges are formed by trimming machine. Some of the particle boards are coated by
veneers or sunmica as per the requirements to give it a better surface glass.

The alternative technological option employs an extrusion process. In the manufacture of

extruded particle board, it is common to include plastic (typically scrap plastic) in the blend of
starting material. This process is most useful for the production of long lengths of material such
as floor boards and planking. However, due to the relatively large proportion of plastic
contained in the material (typically approximately 50%), the properties of the final material are
rather like those of a plastic filled with an additive rather than those of a particle board. Thus, the
above stated option is not adopted by the proposed plant.

6.2 Machinery and Equipment

Production machineries and equipment required for particle board production are indicated in
Table 4 below.
Table 4: List of Machinery and Equipment

Machinery Quantity
1. Disintegrator with 15 HP Motor 1
2. Cemented pit for disintegrated particle collection 1
3. Vibratory separator with two screen fitted with 2 HP Motor 1
4. Resin Mixture drum capacity 500 liters 1
5. Mat forming sheets/dies, formats 1
6. Hydraulic Hot Press capacity 300 psi 1
7. Trimming Band Sawing Machine 1
8. Steam Boiler 1

The total cost of machinery and equipment including freight insurance and bank cost is estimated
to be Birr 8.5 million.

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

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 AMBICA HYDRAULICS PVT. LTD.
502, SHEFALI CENTRE, PRITAM RAI MARG,
PALDI CHAR RASTA, AHMEDABAD
380006, GUJARAT, INDIA
Phone : 91-79-26579899/26579399
Mobile : +919426600610
Fax : 91-79-26578357

L. M. ENGINEERING COMPANY
321, LAKE TOWN, BLOCK 'A', KOLKATA
700089, WEST BENGAL, INDIA
Phone : 91-33-25349929/25343760
Mobile : +919830051872
Fax : 91-33-25343760

6.3 Civil Engineering Cost

The total site area for the proposed plant is envisaged to be 1,500m2. The production hall shall
occupy 1000m2 and the remaining 500m2 shall be allocated to office building, stores (raw
material and finished), and facilities. The lay out of the plant should be structured in a manner
that facilitates the production process.

7. Human Resource and Training Requirement

7.1 Human Resource

Manpower requirements and the corresponding compensation for the plant are as indicated in
table 5.

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 Table 5: Manpower requirements

Position No. Monthly Total Annual

Required Salary salary
Plant manager 1 4,000 48000
Technologist 1 2500 30000
Engineer 1 2500 30000
Administrator/Finance Head 1 2000 24000
Accountant 2 1000 24000
Secretary 2 850 20400
Supervisor 2 1000 24000
Operators 10 600 72000
Laborer 4 300 14400
Technician 2 1000 24000
Clerks 2 600 14400
Driver 3 600 21600
Messenger 1 300 3600
Cleaner 2 300 7200
Guards 4 300 14400
20% Benefit 74400
Total 38 446400

The envisaged plant will creates 38 jobs and Birr 446.4 thousand of income The professionals
and support staff for the envisaged plant are available in the Amhara region

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The practical training of key personnel shall be given in ECAFCO, Addis Ababa.
The training should primarily focus on the production technology and machinery maintenance
and trouble shooting. Birr 50,000 is allocated as training expense.

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 8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of particleboard is based on the data provided in the preceding discussions
and the following assumptions.

A. Construction and Finance

Construction period 2 years

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 days

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

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 8.2 Investment

The total investment cost of the project including working capital is estimated at Birr 13.8
million as detailed in table 6 below. The Owners 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 (in Birr)

Items L.C F.C Total

Land
4,500 4,500
Building and civil works
3,000,000 3,000,000
Office equipment
60,000 60,000
Vehicles
600,000 600,000
Plant machinery & equipment
1,500,000 7,000,000 8,500,000
Total fixed investment cost
5,164,500 7,000,000 12,164,500
Pre production capital expenditure*
608,225 608,225
Total initial investment
5,772,725 7,000,000 12,772,725
Working capital at full capacity
637,852 423,273 1,061,125
Total 6,410,577 7,423,273 13,833,850

*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, pre-
production marketing
The foreign component of the project accounts for 53.7% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 5.44 million. This is
detailed in table 7 below.

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 Table 7: Production Cost (‘000 Birr)

Items Cost
1. Raw materials 1,350,000
2. Utilities 1,278,250
3. Wages and Salaries 446,400
4. Spares and Maintenance 121,645
Factory costs 3,196,295
5. Depreciation 1,247,645
6. Financial costs 996,037
Total Production Cost 5,439,977

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. The percentage of net profit after
tax to sales, return on investment and return on equity is about 3%, 4 and 18% respectively and it
further increases in the subsequent period. In addition to this, 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 27.7% 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 time.

13
 IV. Simple Rate of Return

Simple rate of return refers to the ratio of net profit plus interest to the total capital invested for a
single year at full capacity operation. Accordingly, for the envisaged plant the return amounts to
21.6%.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement the calculated IRR of the project is 24.3% and the net present
value at 18 % discount is Birr 3,293,915.88.

VI. Sensitivity Analysis

The envisaged plant is slightly sensitive to considerable cost increment. That is, the plant incurs
loss of Birr 8,779 in the first year of operation and then maintains to be profitable starting from
the second year when 10 % cost increment takes place in the sector. This result is accompanied
with payback period of 3 years and 7 months.

9. Economic and Social Benefit and Justification

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

A. Profit Generation
The project is found to be financially viable and earns a net profit of about Birr 21.5 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 8.5 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result creates
additional fund for the regional government that will be used in expanding social and other basic
services in the region .

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 C. Import Substitution and Foreign Exchange Saving

The analysis conducted revealed the presence of strong dependence on imported particle boards.
Thus, with the advent of this project a portion of the import burden will be relieved. That is,
based on the projected figure we learn that in the project life an estimated amount of US Dollar
8.03 million will be saved as a result of the proposed project. This will create room for the saved
hard currency to be used in other vital and strategic sectors.

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to 38 professionals as well as support
staff. Consequently the project creates income of Birr 446,400 thousands per year.

E. Pro Environment Project

The proposed production process is environment friendly. Moreover, since processed tree and
wood is used in producing the particle board, it plays a positive role in reducing the deforestation
tendencies in the region as well as in the country.

15
ANNEXES

16
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

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

1. Total Inventory 0.00 0.00 936396.06 1070166.93 1203937.80 1337708.66

Raw Materials in Stock- Total 0.00 0.00 325309.09 371781.82 418254.55 464727.27

Raw Material-Local 0.00 0.00 29018.18 33163.64 37309.09 41454.55

Raw Material-Foreign 0.00 0.00 296290.91 338618.18 380945.45 423272.73

Factory Supplies in Stock 0.00 0.00 3393.55 3878.35 4363.14 4847.93

Spare Parts in Stock and Maintenance 0.00 0.00 27867.76 31848.87 35829.98 39811.09

Work in Progress 0.00 0.00 84838.85 96958.69 109078.53 121198.36

Finished Products 0.00 0.00 169677.71 193917.38 218157.05 242396.73

2. Accounts Receivable 0.00 0.00 652416.16 745618.47 838820.78 932023.09

3. Cash in Hand 0.00 0.00 131700.55 150514.91 169329.27 188143.64

CURRENT ASSETS 0.00 0.00 1395203.68 1594518.49 1793833.30 1993148.12

4. Current Liabilities 0.00 0.00 652416.16 745618.47 838820.78 932023.09

Accounts Payable 0.00 0.00 652416.16 745618.47 838820.78 932023.09

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 742787.52 848900.02 955012.52 1061125.03

INCREASE IN NET WORKING CAPITAL 0.00 0.00 742787.52 106112.50 106112.50 106112.50

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 1337708.66 1337708.66 1337708.66 1337708.66 1337708.66 1337708.66

Raw Materials in Stock-Total 464727.27 464727.27 464727.27 464727.27 464727.27 464727.27

Raw Material-Local 41454.55 41454.55 41454.55 41454.55 41454.55 41454.55

Raw Material-Foreign 423272.73 423272.73 423272.73 423272.73 423272.73 423272.73

Factory Supplies in Stock 4847.93 4847.93 4847.93 4847.93 4847.93 4847.93

Spare Parts in Stock and Maintenance 39811.09 39811.09 39811.09 39811.09 39811.09 39811.09

Work in Progress 121198.36 121198.36 121198.36 121198.36 121198.36 121198.36

Finished Products 242396.73 242396.73 242396.73 242396.73 242396.73 242396.73

2. Accounts Receivable 932023.09 932023.09 932023.09 932023.09 932023.09 932023.09

3. Cash in Hand 188143.64 188143.64 188143.64 188143.64 188143.64 188143.64

CURRENT ASSETS 1993148.12 1993148.12 1993148.12 1993148.12 1993148.12 1993148.12

4. Current Liabilities 932023.09 932023.09 932023.09 932023.09 932023.09 932023.09

Accounts Payable 932023.09 932023.09 932023.09 932023.09 932023.09 932023.09

TOTAL NET WORKING CAPITAL REQUIRMENTS 1061125.03 1061125.03 1061125.03 1061125.03 1061125.03 1061125.03

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 6386362.50 7447487.53 6632897.66 6928038.31 7782392.81 8636747.31
1. Inflow Funds 6386362.50 7447487.53 652416.16 93202.31 93202.31 93202.31
Total Equity 2554545.00 2978995.01 0.00 0.00 0.00 0.00
Total Long Term Loan 3831817.50 4468492.52 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 652416.16 93202.31 93202.31 93202.31
2. Inflow Operation 0.00 0.00 5980481.50 6834836.00 7689190.50 8543545.00
Sales Revenue 0.00 0.00 5980481.50 6834836.00 7689190.50 8543545.00
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 6386362.50 6386362.50 5930981.84 5197791.04 6147859.24 6506297.51
4. Increase In Fixed Assets 6386362.50 6386362.50 0.00 0.00 0.00 0.00
Fixed Investments 6082250.00 6082250.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 304112.50 304112.50 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 1395203.68 199314.81 199314.81 199314.81
6. Operating Costs 0.00 0.00 2307145.08 2619054.02 2930962.96 3242871.90
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 804165.46 1016700.99
8. Interest Paid 0.00 0.00 2228633.08 996037.20 830031.00 664024.80
9.Loan Repayments 0.00 0.00 0.00 1383385.00 1383385.00 1383385.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 1061125.03 701915.83 1730247.27 1634533.57 2130449.80
Cumulative Cash Balance 0.00 1061125.03 1763040.85 3493288.12 5127821.70 7258271.50

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00
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 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00
Sales Revenue 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00
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 6190778.35 6147067.51 6030863.17 4531273.83 4531273.83 4531273.83
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 3242871.90 3242871.90 3242871.90 3242871.90 3242871.90 3242871.90
7. Corporate Tax Paid 1066502.85 1188798.21 1238600.07 1288401.93 1288401.93 1288401.93
8. Interest Paid 498018.60 332012.40 166006.20 0.00 0.00 0.00
9. Loan Repayments 1383385.00 1383385.00 1383385.00 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 2352766.65 2396477.49 2512681.83 4012271.17 4012271.17 4012271.17
Cumulative Cash Balance 9611038.15 12007515.63 14520197.46 18532468.63 22544739.80 26557010.97

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 5980481.50 6834836.00 7689190.50 8543545.00

1. Inflow Operation 0.00 0.00 5980481.50 6834836.00 7689190.50 8543545.00

Sales Revenue 0.00 0.00 5980481.50 6834836.00 7689190.50 8543545.00

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 6386362.50 6386362.50 3049932.60 2725166.52 3037075.46 4365685.39

3. Increase in Fixed Assets 6386362.50 6386362.50 0.00 0.00 0.00 0.00

Fixed Investments 6082250.00 6082250.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 304112.50 304112.50 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 742787.52 106112.50 106112.50 106112.50

5. Operating Costs 0.00 0.00 2307145.08 2619054.02 2930962.96 3242871.90

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 804165.46 1016700.99

NET CASH FLOW -6386362.50 -6386362.50 2930548.90 4109669.48 4652115.04 4177859.61

CUMMULATIVE NET CASH FLOW -6386362.50 -12772725.00 -9842176.10 -5732506.62 -1080391.58 3097468.02

Net Present Value (at 18%) -6386362.50 -5412171.61 2104674.59 2501271.72 2399509.18 1826180.94

Cumulative Net present Value -6386362.50 -11798534.11 -9693859.52 -7192587.80 -4793078.62 -2966897.68

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00

1. Inflow Operation 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00

Sales Revenue 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00

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 4309374.75 4431670.11 4481471.97 4531273.83 4531273.83 4531273.83

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 3242871.90 3242871.90 3242871.90 3242871.90 3242871.90 3242871.90

6. Corporate Tax Paid 1066502.85 1188798.21 1238600.07 1288401.93 1288401.93 1288401.93

NET CASH FLOW 4234170.25 4111874.89 4062073.03 4012271.17 4012271.17 4012271.17

CUMMULATIVE NET CASH FLOW 7331638.28 11443513.17 15505586.20 19517857.37 23530128.54 27542399.71

Net Present Value (at 18%) 1568470.20 1290820.46 1080666.45 904590.89 766602.45 649663.10

Cumulative Net present Value -1398427.47 -107607.01 973059.44 1877650.33 2644252.78 3293915.88

Net Present Value (at 18%) 3,293,915.88

Internal Rate of Return 24.3%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 70% 80% 90% 100% 100%

1. Total Income 5980481.50 6834836.00 7689190.50 8543545.00 8543545.00

Sales Revenue 5980481.50 6834836.00 7689190.50 8543545.00 8543545.00

Other Income 0.00 0.00 0.00 0.00 0.00

2. Less Variable Cost 2058370.58 2352423.52 2646476.46 2940529.40 2940529.40

VARIABLE MARGIN 3922110.92 4482412.48 5042714.04 5603015.60 5603015.60
(In % of Total Income) 65.58 65.58 65.58 65.58 65.58
3. Less Fixed Costs 1496419.50 1514275.50 1532131.50 1549987.50 1549987.50
OPERATIONAL MARGIN 2425691.42 2968136.98 3510582.54 4053028.10 4053028.10
(In % of Total Income) 40.56 43.43 45.66 47.44 47.44
4. Less Cost of Finance 2228633.08 996037.20 830031.00 664024.80 498018.60
5. GROSS PROFIT 197058.34 1972099.78 2680551.54 3389003.30 3555009.50
6. Income (Corporate) Tax 0.00 0.00 804165.46 1016700.99 1066502.85
7. NET PROFIT 197058.34 1972099.78 1876386.08 2372302.31 2488506.65
RATIOS (%)

Gross Profit/Sales 3% 29% 35% 40% 42%

Net Profit After Tax/Sales 3% 29% 24% 28% 29%
Return on Investment 18% 22% 20% 22% 22%
Return on Equity 4% 36% 34% 43% 45%

7
 Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00

Sales Revenue 8543545.00 8543545.00 8543545.00 8543545.00 8543545.00
Other Income 0.00 0.00 0.00 0.00 0.00

2. Less Variable Cost 2940529.40 2940529.40 2940529.40 2940529.40 2940529.40

VARIABLE MARGIN 5603015.60 5603015.60 5603015.60 5603015.60 5603015.60
(In % of Total Income) 65.58 65.58 65.58 65.58 65.58
3. Less Fixed Costs 1308342.50 1308342.50 1308342.50 1308342.50 1308342.50
OPERATIONAL MARGIN 4294673.10 4294673.10 4294673.10 4294673.10 4294673.10
(In % of Total Income) 50.27 50.27 50.27 50.27 50.27
4. Less Cost of Finance 332012.40 166006.20 0.00 0.00 0.00
5. GROSS PROFIT 3962660.70 4128666.90 4294673.10 4294673.10 4294673.10
6. Income (Corporate) Tax 1188798.21 1238600.07 1288401.93 1288401.93 1288401.93
7. NET PROFIT 2773862.49 2890066.83 3006271.17 3006271.17 3006271.17
RATIOS (%)

Gross Profit/Sales 46% 48% 50% 50% 50%

Net Profit After Tax/Sales 32% 34% 35% 35% 35%
Return on Investment 22% 22% 22% 22% 22%
Return on Equity 50% 52% 54% 54% 54%

8
 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 6386362.50 13833850.03 14683324.53 15365241.62 15951445.00 17033564.62
1. Total Current Assets 0.00 1061125.03 3158244.53 5087806.62 6921655.00 9251419.62
Inventory on Materials and Supplies 0.00 0.00 356570.41 407509.04 458447.67 509386.30
Work in Progress 0.00 0.00 84838.85 96958.69 109078.53 121198.36
Finished Products in Stock 0.00 0.00 169677.71 193917.38 218157.05 242396.73
Accounts Receivable 0.00 0.00 652416.16 745618.47 838820.78 932023.09
Cash in Hand 0.00 0.00 131700.55 150514.91 169329.27 188143.64
Cash Surplus, Finance Available 0.00 1061125.03 1763040.85 3493288.12 5127821.70 7258271.50
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 6386362.50 12772725.00 11525080.00 10277435.00 9029790.00 7782145.00
Fixed Investment 0.00 6082250.00 12164500.00 12164500.00 12164500.00 12164500.00
Construction in Progress 6082250.00 6082250.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 304112.50 608225.00 608225.00 608225.00 608225.00 608225.00
Less Accumulated Depreciation 0.00 0.00 1247645.00 2495290.00 3742935.00 4990580.00
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 6386362.50 13833850.03 14683324.53 15365241.62 15951445.00 17033564.62
5. Total Current Liabilities 0.00 0.00 652416.16 745618.47 838820.78 932023.09
Accounts Payable 0.00 0.00 652416.16 745618.47 838820.78 932023.09
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 3831817.50 8300310.02 8300310.02 6916925.01 5533540.01 4150155.01
Loan A 3831817.50 8300310.02 8300310.02 6916925.01 5533540.01 4150155.01
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 2554545.00 5533540.01 5533540.01 5533540.01 5533540.01 5533540.01
Ordinary Capital 2554545.00 5533540.01 5533540.01 5533540.01 5533540.01 5533540.01
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 197058.34 2169158.12 4045544.20
9.Net Profit After Tax 0.00 0.00 197058.34 1972099.78 1876386.08 2372302.31
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 197058.34 1972099.78 1876386.08 2372302.31

9
 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 18138686.26 19529163.75 21035845.58 24042116.75 27048387.92 30054659.09
1. Total Current Assets 11604186.26 14000663.75 16513345.58 20525616.75 24537887.92 28550159.09
Inventory on Materials and Supplies 509386.30 509386.30 509386.30 509386.30 509386.30 509386.30
Work in Progress 121198.36 121198.36 121198.36 121198.36 121198.36 121198.36
Finished Products in Stock 242396.73 242396.73 242396.73 242396.73 242396.73 242396.73
Accounts Receivable 932023.09 932023.09 932023.09 932023.09 932023.09 932023.09
Cash in Hand 188143.64 188143.64 188143.64 188143.64 188143.64 188143.64
Cash Surplus, Finance Available 9611038.15 12007515.63 14520197.46 18532468.63 22544739.80 26557010.97
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 6534500.00 5528500.00 4522500.00 3516500.00 2510500.00 1504500.00
Fixed Investment 12164500.00 12164500.00 12164500.00 12164500.00 12164500.00 12164500.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 608225.00 608225.00 608225.00 608225.00 608225.00 608225.00
Less Accumulated Depreciation 6238225.00 7244225.00 8250225.00 9256225.00 10262225.00 11268225.00
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 18138686.26 19529163.75 21035845.58 24042116.75 27048387.92 30054659.09
5. Total Current Liabilities 932023.09 932023.09 932023.09 932023.09 932023.09 932023.09
Accounts Payable 932023.09 932023.09 932023.09 932023.09 932023.09 932023.09
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 2766770.01 1383385.00 0.00 0.00 0.00 0.00
Loan A 2766770.01 1383385.00 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 5533540.01 5533540.01 5533540.01 5533540.01 5533540.01 5533540.01
Ordinary Capital 5533540.01 5533540.01 5533540.01 5533540.01 5533540.01 5533540.01
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 6417846.51 8906353.16 11680215.65 14570282.48 17576553.65 20582824.82
9. Net Profit After Tax 2488506.65 2773862.49 2890066.83 3006271.17 3006271.17 3006271.17
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 2488506.65 2773862.49 2890066.83 3006271.17 3006271.17 3006271.17

10