126.

PROFILE ON THE PRODUCTION OF

DECORATION (WALL) PAPER
 126-ii

TABLE OF CONTENTS

PAGE

I. SUMMARY 126-2

II. PRODUCT DESCRIPTION & APPLICATION 126-2

III. MARKET STUDY AND PLANT CAPACITY 126-3

A. MARKET STUDY 126-3
B. PLANT CAPACITY & PRODUCTION PROGRAM 126-5

IV. MATERIALS AND INPUTS 126-5

A. RAW & AUXILIARY MATERIALS 126-5
B. UTILITIES 126-6

V. TECHNOLOGY & ENGINEERING 126-7

A. TECHNOLOGY 126-7
B. ENGINEERING 126-8

VI. HUMAN RESOURCE & TRAINING REQUIREMENT 126-12

A. HUMAN RESOURCE REQUIREMENT 126-12
B. TRAINING REQUIREMENT 126-13

VII. FINANCIAL ANLYSIS 126-13

A. TOTAL INITIAL INVESTMENT COST 126-14
B. PRODUCTION COST 126-14
C. FINANCIAL EVALUATION 126-15
D. ECONOMIC AND SOCIAL BENEFITS 126-17
 126-iii

I. SUMMARY

This profile envisages the establishment of a plant for the production of decoration (wall) paper
with a capacity 150 tons per annum. Decoration (wall) paper is a nonwoven (paper) or woven
(fabric) backing, decoratively printed for application to walls of a residence or business.

The demand for decoration (wall) paper is entirely met through import. The present (2012)
demand for decoration (wall) paper is estimated at 98 tons. The demand for decoration (wall)
paper is projected to reach 165 tons and 278 tons by the year 2017 and 2022, respectively.

The principal raw materials required are paper and ink which have to be imported.

The total investment cost of the project including working capital is estimated at Birr 42.65
million. From the total investment cost the highest share (Birr 30.63 million or 71.83%) is
accounted by fixed investment cost followed by initial working capital (Birr 8.08 million or
18.96%) and pre operation cost (Birr 3.92 million or 9.21%). From the total investment cost Birr
21.87 million or 51.28% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 18.12% and a net present
value (NPV) of Birr 17.04 million discounted at 10%.

The project can create employment for 36 persons. The establishment of such factory will have a
foreign exchange saving effect to the country by substituting the current imports. The project
will also generate income for the Government in terms of tax revenue and payroll tax.

II. PRODUCT DESCRIPTION AND APPLICATION

Wall paper is a nonwoven (paper) or woven (fabric) backing, decoratively printed for application
to walls of a residence or business. Wall paper is not considered essential to the decoration of a
 126-iv

structure; however, it has become a primary method by which to impart style, atmosphere, or
color into a room. Wall paper plays an important role in any type of interior decorations.

III. MARKET STUDY AND PLANT CAPACITY

A. MAREKET STUDY

1. Past Supply and Present Demand

The demand for decorating wall paper is directly related to the need to cover and/or furnish wall
spaces of buildings. The major end users are households, hotels, business enterprises and similar
establishments. Decorated wall papers are supplied to the market through imports as presented in
Table 3.1.

Table 3.1

IMPORT OF WALL PAPER (TONS)

Year Quantity

2002 30
2003 30
2004 9
2005 11
2006 24
2007 14
2008 16
2009 33
2010 52
2011 75

Source: - Ethiopian Revenues and Custom Authority.

During the period under review the imported quantity of decorating wall paper was characterized
by fluctuations during the years 2002-2007 and the annual average quantity of import was about
20 tons. However, consistent growth trend in the annual quantity of imported wall paper was
observed during the recent four years (2008--2011). The yearly average imported quantity during
the period 2008--2009 and 2010--2011 has increased to about 25 tons and 64 tons, respectively.
 126-v

The average growth rate in the quantity of imported wall paper during the period under
consideration (2002-2011) was about 28% and this average becomes about 69% during the
recent four years (2008-2011) indicating a remarkable growth in the quantity of imported wall
paper. To determine the present effective demand for the product a growth rate of 30% is
assumed to have a conservative estimate unlike the recently registered growth rate. Accordingly,
by taking year 2011 as a base, the present effective demand for the product becomes about 98
tons.

2. Projected Demand

The demand for decorating wall paper is closely related to the growth of the national economy in
general and the development in the housing construction sector in particular. The construction
sector is one of the fast growing sectors in the national economy where the Gross Domestic
Product (GDP) is growing at an average rate of about 11% during the last 7 years. Hence, this
growth rate is used in the determination of the future demand for the product. Accordingly, the
projected demand for decorating wall paper is presented in Table 3.2

Table 3.2

PROJECTED DEMAND FOR DECORATING WALL PAPER (TONS)

Year Quantity
2013 109
2014 121
2015 134
2016 149
2017 165
2018 183
2019 203
2020 226
2021 251
2022 278
2023 308

Demand for decorating or wall paper will grow from 109 tons in the year 2013 to 183 tons and
308 tons by the year 2018 and year 2023, respectively.
 126-vi

3. Pricing and Distribution

Taking in to account the informed opinion of traders of the product and allowing a profit margin
for distribution and retailing the ex-factory selling price is recommended to be Birr 285 per kg.
The products will be distributed through the existing construction materials trading channels.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The market study indicates that, the demand for decorative wall paper increases from 109 tons in
the year 2013 to 308 tons in the year 2023. The annual production capacity of the envisaged
project is proposed to be 150 tons of wall paper based on the market study, minimum economies
of scale and period required for the implementation of the project. The capacity is determined
based on 300 working days per annum on a single shift basis.

2. Production Program

At the initial stage of the production period, the plant requires some years to penetrate the market
and develop technical skill. Therefore, in the first and second year of production, the capacity
utilization rate will be 70% and 90%, respectively. In the third year and then-after, full capacity
production shall be attained. The production program is indicated in Table 3.3.

Table 3.3
PRODUCTION PROGRAM

Sr. Product Production Year

No. 1 2 3-10
1 Wall paper production (ton) 105 135 150
2 Capacity utilization rate (%) 70 90 100

IV. RAW MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIAL

 126-vii

The principal raw materials required by the envisaged plant are paper and ink. Coating material,
plates, and starch paste are materials used in small amount for the production of wall paper. All
are imported. The total annual cost of raw and auxiliary materials is estimated at Birr
29,946,500. Table 4.1 shows the annual raw material requirement and cost of the project at full
capacity production.
Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT & COST
Sr. Raw material Unit Qty Cost (‘000 Birr)
No. LC FC TC
1 Paper Ton 155 - 23,250 23,250
2 PVC coating/laminate Tons 4 - 540 540
3 Ink Tons 7 - 1,050 1,050
4 plates Pcs 200 - 16.5 16.5
5 Starch Tons 3 90 - 90
6 Packing material Lump sum - 5,000 5,000
Total 90 29,856.5 29,946.5

B. UTILITIES

The major utilities of the proposed plant are electricity and water. The total annual cost of utility
is estimated at Birr 239,200. The annual utility requirement and cost are indicated in Table 4.2.

Table 4.2
ANNUAL UTILITY REQUIREMENT & COST

Sr. Utility Unit Qty Cost (‘000

No. Birr)
1 Electricity kWh 240,000 139.2
3 Water m3 10,000 100.0
Total 239.2
 126-viii

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Processes

The major process steps of wall paper production are cutting, coating, printing, pre-pasting and
packaging. Each of the processes are described below.

 Cutting

A roll of paper from the paper mill is cut into six sub-rolls which are 53 cm wide by 3,048 m
long.

 Coating

Before the pattern is printed, the backing must be coated with a ground color. Ground wood
sheets are coated with colored vinyl (PVC), which varies in thickness depending on the
durability and strip ability of paper under production. Vinyl may also be laminated to backings
for exceptional serviceability. Wood pulp sheets are coated with one or all of the following:
kaolin clay for durability, titanium dioxide for opacity, and latex for ease in handling and color.

 Printing

There are four possible types of printing techniques. These are surface, gravure, screen and
rotary printing. The envisaged profile adopts rotary printing since it is simple, fast high print
quality and relatively automated.

Rotary printing process combines the mechanics of gravure printing with the precision of
photographically produced stencils. Mesh stencils are wrapped around hollow tubes mounted
within a machine. Ink continuously flows through the film-wrapped tubes and onto paper,
imparting a tremendous amount of color (a maximum of 12 colors). This technique resembles the
more expensive silk-screening, but it can print much more quickly--approximately 73.12 m of
wallpaper per minute.
 126-ix

 Pre-pasting

Printed wallpaper is rolled with a wet cornstarch or wheat starch-based coating and then dried.

 Packaging

Residential-use wallpapers are cut down from 2,742 m rolls to 13.71 m rolls. Commercial-use
rolls are generally packaged in 27, 41, and 55 m rolls. A printed label, run number, and hanging
instructions are placed against each roll and shrink wrapped together. Rolls are stored in a
warehouse until final shipment.

2. Environmental Impact Assessment

The selected technology is green that adopts utilization of nonhazardous inputs and prevention of
waste of ink and dampening solution. Recycling of wastes is also done if they are created..
Hence there is no adverse impact on environment.

B. ENGINEERING

1. Machinery & Equipment

The total cost of machinery is estimated at Birr 26,250,000, of which Birr 21,875,000 is in
foreign currency. The list of machinery and equipment is indicated in Table 5.1.
Table 5.1
LIST OF MACHINERY & EQUIPMENT

Sr. Machinery No.

No.
1 High capacity computer with design 2
software package
2 Color printer 1
3 CTP machine 1
4 Guillotine 2
5 Web Offset printing machine with coating 1
 126-x

6 Rolling and packaging machine 1

2. Land, Building and Civil Work

The total area of the project is 1,500 m 2 out of which 700 m2 is a built-up area. Therefore, the
cost of building and civil work is estimated at Birr 3.2 million.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.

In Addis Ababa the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
 126-xi

City Administration for the promotion of the sector and all manufacturing projects are assumed
to be located in the developed industrial zones.

Regarding land allocation of industrial zones if the land requirement of the project is below
5,000 m2, the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the City’s Investment Authority. However, if the
land request is above 5,000 m2, the request is evaluated by the City’s Investment Authority and
passed with recommendation to the Land Development and Administration Authority for
decision, while the lease price is the same for both cases.

Moreover, the Addis Ababa City Administration has recently adopted a new land lease floor
price for plots in the city. The new prices will be used as a benchmark for plots that are going to
be auctioned by the city government or transferred under the new “Urban Lands Lease Holding
Proclamation.”

The new regulation classified the city into three zones. The first Zone is Central Market District
Zone, which is classified in five levels and the floor land lease price ranges from Birr 1,686 to
Birr 894 per m2. The rate for Central Market District Zone will be applicable in most areas of the
city that are considered to be main business areas that entertain high level of business activities.
The second zone, Transitional Zone, will also have five levels and the floor land lease price
ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are surrounding the city
and are occupied by mainly residential units and industries.

The last and the third zone, Expansion Zone, is classified into four levels and covers areas that
are considered to be in the outskirts of the city, where the city is expected to expand in the future.
The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191 per m 2 (see
Table 5.2).
 126-xii

Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA

Floor
Zone Level Price/m2
1st 1686
2nd 1535
Central Market
District 3rd 1323
4th 1085
5th 894
1st 1035
2nd 935
Transitional zone 3rd 809
4th 685
5th 555
1st 355
2nd 299
Expansion zone
3rd 217
4th 191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all
new manufacturing projects will be located in industrial zones located in expansion zones.
Therefore, for the profile a land lease rate of Birr 266 per m 2 which is equivalent to the average
floor price of plots located in expansion zone is adopted.

On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.
 126-xiii

Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment Down
Grace Completion Paymen
Scored Point Period Period t
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The land lease period for industry is 60
years.

Accordingly, the total land lease cost at a rate of Birr 266 per m2 is estimated at Birr 399,000 of
which 10% or Birr 39,900 will be paid in advance. The remaining Birr 359,100 will be paid in
equal installments with in 28 years i.e. Birr 12,825 annually.

VI. HUMAN RESOURCE & TRAINING REQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

For a smooth operation of the plant a total of 36 persons are required. The total annual cost of
labor is estimated at Birr 720,000. The list of human resource and labor cost are indicated in
Table 6.1.
Table 6.1
MANPOWER REQUIREMENT & COST

Sr. No. Manpower No. Monthly Annual Salary

Salary (Birr) (Birr)
1 General manager 1 8,000 96,000
2 Secretary 1 2,000 24,000
 126-xiv

Sr. No. Manpower No. Monthly Annual Salary

Salary (Birr) (Birr)
3 Sales and purchasing officer 2 5,000 60,000
4 Accountant 2 5000 60,000
5 Production head 1 5,000 60,000
6 Mechanic 2 3,000 36,000
7 Electrician 2 3,000 36,000
8 Chemist 3 4500 54,000
9 Operators 6 4500 54,000
10 Laborers 8 4,800 57,600
11 General service 8 3,200 38,400
Sub total 48,000 576,000
36
Benefit (25% BS) 12,000 144,000
Total 60,000 720,000

B. TRAINING REQUIREMENT

Training of labor force shall be carried out during plant erection by the experts of plant
machinery supplier. The cost of training is estimated at Birr 60,000

VII. FINANCIAL ANALYSIS

The financial analysis of the decorating wall paper project is based on the data presented in the
previous chapters and the following assumptions:-
Construction period 1 year
Source of finance 30 % equity & 70% loan
Tax holidays 5 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 days
Raw material imported 120 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
 126-xv

Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 42.65
million (see Table 7.1). From the total investment cost the highest share (Birr 30.63 million or
71.83%) is accounted by fixed investment cost followed by initial working capital (Birr 8.08
million or 18.96%) and pre operation cost (Birr 3.92 million or 9.21%). From the total
investment cost Birr 21.87 million or 51.28% is required in foreign currency.

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Local Foreign Total %

No. Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 39.90 39.90 0.09
1.2 Building and civil work 3,200.00 3,200.00 7.50
1.3 Machinery and equipment 4,375.00 21,875.00 26,250.00 61.54
1.4 Vehicles 900.00 900.00 2.11
1.5 Office furniture and equipment 250.00 250.00 0.59
Sub total 8,764.90 21,875.00 30,639.90 71.83
2 Pre operating cost *
2.1 Pre operating cost 1,137.50 1,137.50 2.67
2.2 Interest during construction 2,790.67 2,790.67 6.54
Sub total 3,928.17 3,928.17 9.21
3 Working capital ** 8,089.27 8,089.27 18.96
Grand Total 20,782.33 21,875.00 42,657.33 100

* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest during
construction.
** The total working capital required at full capacity operation is Birr 10.10 million. However,
only the initial working capital of Birr 8.08 million during the first year of production is
assumed to be funded through external sources. During the remaining years the working
capital requirement will be financed by funds to be generated internally (for detail working
capital requirement see Appendix 7.A.1).
 126-xvi

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 40.94 million (see Table
7.2). The cost of raw material account for 73.15% of the production cost. The other major
components of the production cost are depreciation and financial cost, which account for 14.19%
and 6.56% respectively. The remaining 6.10% is the share of utility, repair and maintenance,
labor, labor overhead and administration cost. For detail production cost see Appendix 7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (year three)

Items Cost
%
(000 Birr)
Raw Material and Inputs 29,947.00 73.15
Utilities 239.00 0.58
Maintenance and repair 788.00 1.92
Labor direct 576.00 1.41
Labor overheads 144.00 0.35
Administration Costs 250.00 0.61
Land lease cost - -
Cost of marketing and distribution 500.00 1.22
Total Operating Costs 32,444.00 79.25
Depreciation 5,810.50 14.19
Cost of Finance 2,686.02 6.56
Total Production Cost 40,940.52 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through out its
operation life. Annual net profit after tax will grow from Birr 2.33 million to Birr 7.09 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
 126-xvii

flow amounts to Birr 52.58 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point for capacity utilization and sales value estimated by using income statement projection are
computed as followed.

Brake Even Sales Value = Fixed Cost + Financial Cost = Birr 24,965,193
Variable Margin ratio (%)

Brake Even Capacity utilization = Break even Sales Value X 100 = 58 %

Sales revenue
4. Pay-back Period

The pay- back period, also called pay – off period is defined as the period required for recovering
the original investment outlay through the accumulated net cash flows earned by the project.
 126-xviii

Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 6 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 18.12% indicating the viability of the
project.

6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In 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 17.04 million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 36 persons. The project will generate Birr 15.48 million
in terms of tax revenue. The establishment of such factory will have a foreign exchange saving
 126-xix

effect to the country by substituting the current imports. The project will also generate other
income for the Government.

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
 126-19

Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
6,738.0
Total inventory 5,989.40 8 7,486.75 7,486.75 7,486.75 7,486.75 7,486.75 7,486.75 7,486.75 7,486.75
Accounts 2,437.4
receivable 2,171.27 7 2,703.67 2,703.67 2,704.74 2,704.74 2,704.74 2,704.74 2,704.74 2,704.74

Cash-in-hand 19.53 21.98 24.42 24.42 24.59 24.59 24.59 24.59 24.59 24.59
CURRENT 9,197.5
ASSETS 8,180.20 2 10,214.83 10,214.83 10,216.08 10,216.08 10,216.08 10,216.08 10,216.08 10,216.08

Accounts payable 90.93 102.30 113.67 113.67 113.67 113.67 113.67 113.67 113.67 113.67
CURRENT
LIABILITIES 90.93 102.30 113.67 113.67 113.67 113.67 113.67 113.67 113.67 113.67
TOTAL
WORKING 9,095.2
CAPITAL 8,089.27 2 10,101.17 10,101.17 10,102.41 10,102.41 10,102.41 10,102.41 10,102.41 10,102.41

Appendix 7.A.2
 126-20

PRODUCTION COST ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Raw Material and Inputs 23,958 26,952 29,947 29,947 29,947 29,947 29,947 29,947 29,947 29,947

Utilities 191 215 239 239 239 239 239 239 239 239

Maintenance and repair 630 709 788 788 788 788 788 788 788 788

Labour direct 461 518 576 576 576 576 576 576 576 576

Labour overheads 115 130 144 144 144 144 144 144 144 144

Administration Costs 200 225 250 250 250 250 250 250 250 250

Land lease cost 0 0 0 0 13 13 13 13 13 13

Cost of marketing
and distribution 500 500 500 500 500 500 500 500 500 500

Total Operating Costs 26,055 29,250 32,444 32,444 32,457 32,457 32,457 32,457 32,457 32,457

Depreciation 5,811 5,811 5,811 5,811 5,811 153 153 153 153 153

Cost of Finance 0 3,070 2,686 2,302 1,919 1,535 1,151 767 384 0

Total Production Cost 31,866 38,130 40,941 40,557 40,186 34,145 33,761 33,377 32,994 32,610

Appendix 7.A.3
 126-21

INCOME STATEMENT ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Sales revenue 34,200 38,475 42,750 42,750 42,750 42,750 42,750 42,750 42,750 42,750
Less variable costs 25,555 28,750 31,944 31,944 31,944 31,944 31,944 31,944 31,944 31,944

VARIABLE MARGIN 8,645 9,725 10,806 10,806 10,806 10,806 10,806 10,806 10,806 10,806
in % of sales revenue 25.28 25.28 25.28 25.28 25.28 25.28 25.28 25.28 25.28 25.28
Less fixed costs 6,311 6,311 6,311 6,311 6,323 666 666 666 666 666

OPERATIONAL MARGIN 2,334 3,415 4,496 4,496 4,483 10,140 10,140 10,140 10,140 10,140
in % of sales revenue 6.83 8.88 10.52 10.52 10.49 23.72 23.72 23.72 23.72 23.72
Financial costs 3,070 2,686 2,302 1,919 1,535 1,151 767 384 0
GROSS PROFIT 2,334 345 1,809 2,193 2,564 8,605 8,989 9,373 9,756 10,140
in % of sales revenue 6.83 0.90 4.23 5.13 6.00 20.13 21.03 21.92 22.82 23.72
Income (corporate) tax 0 0 0 658 769 2,582 2,697 2,812 2,927 3,042
NET PROFIT 2,334 345 1,809 1,535 1,795 6,024 6,292 6,561 6,830 7,098
in % of sales revenue 6.83 0.90 4.23 3.59 4.20 14.09 14.72 15.35 15.98 16.60

Appendix 7.A.4
 126-22

CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH IN
FLOW 31,777 45,171 38,486 42,761 42,750 42,750 42,750 42,750 42,750 42,750 42,750 14,853
Inflow funds 31,777 10,971 11 11 0 0 0 0 0 0 0 0
Inflow operation 0 34,200 38,475 42,750 42,750 42,750 42,750 42,750 42,750 42,750 42,750 0
Other income 0 0 0 0 0 0 0 0 0 0 0 14,853
TOTAL CASH
OUTFLOW 31,777 37,026 37,174 39,985 39,241 38,983 40,410 40,142 39,873 39,605 35,499 0
Increase in fixed
assets 31,777 0 0 0 0 0 0 0 0 0 0 0
Increase in current
assets 0 8,180 1,017 1,017 0 1 0 0 0 0 0 0
Operating costs 0 25,555 28,750 31,944 31,944 31,957 31,957 31,957 31,957 31,957 31,957 0
Marketing and
Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income tax 0 0 0 0 658 769 2,582 2,697 2,812 2,927 3,042 0
Financial costs 0 2,791 3,070 2,686 2,302 1,919 1,535 1,151 767 384 0 0
Loan repayment 0 0 3,837 3,837 3,837 3,837 3,837 3,837 3,837 3,837 0 0
SURPLUS
(DEFICIT) 0 8,145 1,313 2,777 3,509 3,767 2,340 2,608 2,877 3,145 7,251 14,853
CUMULATIVE
CASH BALANCE 0 8,145 9,457 12,234 15,743 19,510 21,849 24,457 27,334 30,480 37,731 52,584

Appendix 7.A.5
 126-23

DISCOUNTED CACH FLOW ( in 000 Birr)

Year Year Year Year Year Year Year Year Year Year Year
Item 1 2 3 4 5 6 7 8 9 10 11 Scrap
TOTAL CASH INFLOW 0 34,200 38,475 42,750 42,750 42,750 42,750 42,750 42,750 42,750 42,750 14,853
Inflow operation 0 34,200 38,475 42,750 42,750 42,750 42,750 42,750 42,750 42,750 42,750 0
Other income 0 0 0 0 0 0 0 0 0 0 0 14,853

TOTAL CASH OUTFLOW 39,867 27,061 30,256 32,444 33,103 33,226 35,038 35,154 35,269 35,384 35,499 0
Increase in fixed assets 31,777 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 8,089 1,006 1,006 0 1 0 0 0 0 0 0 0
Operating costs 0 25,555 28,750 31,944 31,944 31,957 31,957 31,957 31,957 31,957 31,957 0

Marketing and Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income (corporate) tax 0 0 0 658 769 2,582 2,697 2,812 2,927 3,042 0

NET CASH FLOW -39,867 7,139 8,219 10,306 9,647 9,524 7,712 7,596 7,481 7,366 7,251 14,853
- -
CUMULATIVE NET CASH FLOW -39,867 32,728 -24,508 14,202 -4,556 4,968 12,680 20,276 27,758 35,124 42,375 57,228
Net present value -39,867 6,490 6,793 7,743 6,589 5,914 4,353 3,898 3,490 3,124 2,796 5,726
- -
Cumulative net present value -39,867 33,377 -26,584 18,841 -12,252 -6,338 -1,985 1,913 5,403 8,527 11,323 17,049

NET PRESENT VALUE 17,049

INTERNAL RATE OF RETURN 18.12%
NORMAL PAYBACK 6 years