AZEB TILAHUN WHEAT FLOUR FACTORY PROJECT

FEASIBILITY STUDY

Project Promoter: Mrs.Azeb Tilahun Alemayehu

Contact Person: Azeb Tilahun Alemayehu

Contact Address: 091------------/------------

Project Name: Wheat Flour Project Feasibility Study

Project Location: SWEPRS Region, Bench Sheko Zone, Mizan Aman Town, Adidis ketema Kebele

October , 2024

Mizan Aman, Ethiopia

 Table of Contents

EXECUTIVE SUMMARY OF THE PROJECT.....................................................................................................4

1. INTRODUCTION...........................................................................................................................................5

2. PROJECT DESCRIPTION.............................................................................................................................6

2.1. Project Location..........................................................................................................................................7

2.2. Project Rationale.........................................................................................................................................7

2.3. Project Status...............................................................................................................................................7

2.4. Project Implementation Schedule...............................................................................................................8

2.5. Benefits of the Project.................................................................................................................................9

3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS...................................9

4. PROMOTER’S BACKGROUND..................................................................................................................9

5. PRODUCT DEFINITION...............................................................................................................................9

6. GTP PLAN....................................................................................................................................................10

7. PROJECT MANAGEMENT AND HUMAN RESOURCE.........................................................................10

7.1. Project Management.................................................................................................................................10

7.2. Human Resource Requirement.................................................................................................................11

7.3. Training Requirement...............................................................................................................................12

8. MARKET ANALYSIS.................................................................................................................................13

8.1. Why agro-processing is critical to the Ethiopian Economy?....................................................................13

8.2. Supply.......................................................................................................................................................13

8.3. Demand.....................................................................................................................................................16

8.4. Demand and Supply Gap..........................................................................................................................17

8.5. Marketing Strategy, segmentation and distribution..................................................................................18

8.6. Price..........................................................................................................................................................19

8.7. Future Prospects........................................................................................................................................19

9. TECHNICAL STUDIES...............................................................................................................................20

9.1. Raw material and inputs............................................................................................................................20

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9.2. Production Process....................................................................................................................................22

9.3. Civil Works...............................................................................................................................................24

9.4. Production Machinery and lay out............................................................................................................24

9.5. Vehicles.....................................................................................................................................................25

9.6. Office Equipment and Furniture...............................................................................................................25

9.7. Utility Supply............................................................................................................................................26

9.8. Environmental Impact Assessment...........................................................................................................27

10. FINANCIAL APPRAISAL...........................................................................................................................28

10.1. Initial Investment Cost..............................................................................................................................28

10.2. Financing Structure...................................................................................................................................28

10.3. Applied Financial Assumptions:...............................................................................................................29

10.4. Working Capital........................................................................................................................................29

10.5. Operating Cost, Volume and Revenue......................................................................................................30

10.6. Project Profitability...................................................................................................................................32

10.7. Project Liquidity and Payback period.......................................................................................................33

10.8. NPV & IRR...............................................................................................................................................34

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Executive Summary
This feasibility study is prepared to assess the marketability, technical feasibility and financial viability
of Flour production line projects to be undertaken by project promoter. The objective of the study is to
determine the viability of the projects. Hence, a detailed market, technical, organizational and financial
study is conducted in this feasibility study.
Flour is important item of bakery industry. They have now become a common item of consumption
among all classes of people. They are highly nutritious easy to digest can be preserved for a long time.
It is evident that Flour is used by all sections of people across the World in a broad round the year.
They are, thus, mass consumption items with number of varieties. So far, the demand for flour has not
been met for many areas through supply from Import and local production. During the past ten recent
years, from 2014 through 2024, the largest portion of consumption of these products are met through
local production. The market study revealed that the total unsatisfied demand for Wheat flour is ranges
from 80,026 to 104,312 tons during the year 2020 – 2026.
The total investment cost of the project is calculated to be Birr 22,826,850.00, out of which Birr
18,261,480.00 (80%) will be covered by Development Bank of Ethiopia lease financing , while the
remaining balance amounting to Birr 4,565,370.00 (20%) will be promoter contribution/working
capital.
The projected profit and loss statement indicates that the project is profitable throughout the project
period. At the initial year of operation, the project will generate a net profit of-------------- 126.5 million
and reaches to---------------- 325.4 million at the end of the project life. The projected cash flow
statement indicates that at the initial year of operation the cumulative net cash balance would be Birr
----------------118 million. This is expected to reach to Birr -----------------316.9 million at the end of
year five.
In general, market and financial appraisal of the project indicates that the project has ample market
potential and it is financially viable and profitable and will not face cash shortage to service its loan.
Thus it is worth implementing.

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Summary of the Project Information
1. Project Name Wheat Flour Production Project
2. Project Owner Mrs.Azeb Tilahun Alemayehu
3. Project Type Manufacturing
4. Project Promoter The promoter of the project is the owners themselves (the
investors) and those of who are benefiting from the project.
5. Nationality Ethiopian
6. Project Location Region SWEPRS Zone: Bench Sheko . City: Mizan Aman Woreda/sub
city: Mizan , Kebele; Adidis ketema

7. Land Required 4,000m2

8. Full production At full production Capacity, the plant will produce 85,000quintal
Capacity of flour annually

9. Total investment 22,826,850.00 (ETB)

capital
10. Job opportunity Permanent: Skilled 43 and unskilled 12
Temporary: Skilled 23 and unskilled 14
Total: Skilled 66 and Unskilled 26 (Aggregate manpower=92)
11. Benefit Expected The expected benefit of the project is to produce 85000 quintal of
flour per annual, 284 quintal per day and thereby create job
opportunity for 92 individuals and become source of income for
the government
12. Expected beneficiaries  The surrounding community in obtaining job opportunity
 People living in Bench Sheko Zone, Mizan Aman Town and the
surrounding in obtaining flour and job opportunity
 People living in Mizan Aman Town
 Different hotels and restaurants
 Government and non-government organizations
13. Technology to be used The firm will use environment friendly technology which can be
operated by local people.
14. Market Destination i. Different individuals who are living in South West Ethiopia
People Regional State, Bench Sheko Zone Different Hotels
and Restaurants in the woreda and South west Ethiopia,
ii. Mizan Aman and surrounding community

15. Source of finance Out of Br. 22,826,850.00 as capital requirement, 20% (Br.
4,565,370.00) from own contribution and 80% (Br 18,261,480.00)
from bank @ interest rate of 11.5%

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1. INTRODUCTION
Agriculture in Ethiopia is the foundation of the country's economy, accounting for half of gross
domestic product (GDP), 83.9% of exports, and 80% of total employment. Ethiopia's agriculture is
plagued by periodic drought, soil degradation caused by overgrazing, deforestation, high levels of
taxation and poor infrastructure (making it difficult and expensive to get goods to market). Yet
agriculture is the country's most promising resource. A potential exists for self-sufficiency in grains and
for export development in livestock, grains, vegetables, and fruits. As many as 4.6 million people need
food assistance annually.
Agriculture accounts for 46.3 percent of the nation's Gross domestic Product (GDP), 83.9 percent of
exports, and 80% of the labour force. Many other economic activities depend on agriculture, including
marketing, processing, and export of agricultural products. Production is overwhelmingly of a
subsistence nature, and a large part of commodity exports are provided by the small agricultural cash-
crop sector. Principal crops include coffee, pulses (e.g., beans), oilseeds, cereals, potatoes, sugarcane,
and vegetables. Exports are almost entirely agricultural commodities, and coffee is the largest foreign
exchange earner. Ethiopia is also Africa's second biggest maize producer.
Ethiopia's livestock population is believed to be the largest in Africa, and in 2006/2007 livestock
accounted for 10.6% of Ethiopia's export income, with leather and leather products making up 7.5% and
live animals 3.1%.
So as to ensure sustainable development in a given country, the functioning of different sectors like,
industry, agriculture, manufacturing and service are vital. In line with this, most countries in the world
are choosing sectors that contribute greater for the attainment of development objectives and their by
increase their GDP.
The food service business is the least performed industry in country where as it has a higher potential to
contribute to this developmental agenda. The basic application of flour is for bread making, cakes and
biscuits, and porridge at household level. Semolina, a product obtained by milling extra hard (durum)
wheat, is also used in pasta and macaroni making. The byproduct bran is used as animal feed
preparation.
As clearly stated in the country’s development strategy, value adding private sector is considered as the
engine of sector growth. Because of this, the Ethiopian government (has been providing facilities and
conducive investment environment for the realization of the country’s GTP objectives. As a result, the
need of healthy food especially establishment of food industry has become increasing from time to time
since the food security agenda in the country has given more attention.

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Currently, Ethiopian government is encouraging private investors to invest their valuable resources on
what they think be important for themselves and the country. With this pulling force, many food
industries are expanding throughout the country.
Accordingly, this project is proposed to fill the gap of wheat flour supply in South West Ethiopia
people Regional State in particular in particular and Ethiopia in general.

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2. PROJECT DESCRIPTION
Establishment of the food complex factory is a contribution to the country’s real GDP as it has positive
impact in fixed asset generation and output quantity increments. Apart from creating employment
opportunity for the domestic labor, the project would reduce hard currency outlay.
The realization of the project as ascertained in the financial appraisal result enables the promoter to
generate higher net benefits, employment benefit to domestic labor, indirect employment for input
suppliers, tax revenue benefit and import substitution effect on saving hard currency. These parameters
are basic indications of the projects social desirability and economic feasibility. Therefore, it is
advisable to finance it either with equity or with debt or in a combination of both
Hence, the envisaged project is wheat flour factory. The factory produces Wheat Flour by processing
raw wheat. The installed plant capacity of wheat flour is 8500 tons per year. 100 percent of the wheat
flour manufactured in the factory shall be sold in the local market.
2.1. Project Location
The wheat flour factory is plant is located in South West Ethiopia People Regional State,Bench Sheko Zone,
Mizan Aman Town ,Addis Ketema Kebele, Mizan Aman Town is located about 584 Kilometer West of
Addis Abeba on the Main Road from Addis Abeba to Jimama ,Bonga,Mizan. While selecting location
for such food complex factory; availability of raw material, adequate storage and operation space, water
and power supply, market outlet for finished products and availability of labor are among the major
factors to be considered. The town is the host of other labor-intensive factories due to its preferable
attribute and square to different regions and zones.

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 2.2. Project Rationale
Food item is a commodity; its demand exists whenever human being exists. The demand increases as
population increases disregarding preference of consumers over the type of feeds and their catering
culture. Wheat flour based products such as biscuit, bread pasta macaroni are among the well-known
and commonly available products in the Ethiopian Market.
Food self-sufficiency is one of the prime objectives of the country. Labor intensive agro processing
industries play significant role in absorbing the large labor force and thus contribute their share to the
food self sufficiency move. The Agricultural products like wheat and the semi processed flour shall be
traded in a vertically integrated marketing methodology in order to ensure better wage to the farmer and
more value adding produces that preferably involve many labor to deploy the cheap labor force of the
country in productive sectors. The industry is a distinct sector of the economy, which makes its direct
contributions to the enhancement of social wellbeing of productive citizens.

Apart from its attractive return, existence of stable demand and employment generation as well as tax
revenue to the government, establishment of such agro processing industry is a good opportunity to the
grain market stimulation and thus to the framers. It is rationale, therefore, to involve into an activity
that helps to tap the well-known business opportunity.

2.3. Project Status

The existing investment is commenced wishing the support of the government to upgrade individual to
investors to different investment opportunities and the Regional Government aiming to establish wheat
flour factory. So far the project owner has willing to this project. Among others, the following are the
major activitis made within the project compound.
 Civil Works
5% of the civil works for the factory have been accomplished
 Machinery
All required production machineries are not purchased.
 Vehicles, Equipment and Furniture
Vehicles, equipments and furniture are not purchased.
 Raw Materials
The major raw materials are wheat and packaging materials. Communication with suppliers is
underway.

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 2.4. Project Implementation Schedule
The following chart shows major activities to be done during the implementation period.

Activity NO DE Jan Feb Ma Ap May Jun Jul Aug Sep Oct

V C r r

2024 2025/6
Land acquisition Done
Document Preparation Done
Construction of Factory Buildings * * * * * * * *

Debt lease Financing * *

Import of Machinery * * *

Purchase of Vehicles & Equip * * *

Recruitment, Installation and * * *

Commissioning
Operation * *

Grace Period One year construction and one year for pre-marketing period total two years
As indicated above and everything will go per our plan, the factory will be operational in the month of
june, 2025. One of the remaining activities is processing debt financing from bank to supplement the
implementation of the project.
2.5. Benefits of the Project
The major benefits include net returns on investment, supply of quality products to the local market and
income tax to the government. Establishment of the project is creating opportunity for productive and
unemployed portion of the labor force. Indirect benefits accrue to the country as a whole in the form of
generating potential investment capital and saving of foreign currency. Experience of this project may
be extended to the grain market by creating market the agricultural produce.

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3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS
 Name of the project: Wheat Flour Production factory Project
 Owner: Mrs.Azeb Tilahun Alemayehu
 Contact Person: Mrs.Azeb Tilahun Alemayehu
 Legal form of business: Sole proprietorship
4. PROMOTER’s BACKGROUND
Mrs.Azeb Tilahun Alemayehu is very experienced business works like simple trades of shops, cereals
and her current position of investment promoter. Mrs.Azeb Tilahun Alemayehu runs her business in
South West Ethiopia People Regional State,Bench Sheko Zone, Mizan Aman Town ,Addis Ketema Kebele
want to expand the size and volume of it to reach the current wheat flour factory promoter.She is a
business man who thoroughly studied all the end to end production and marketing process and already
started implementation of the project and also has commenced the construction of the building.
Following the government policy of encouraging transforming farmers and in order to expand his
business product line, Mrs.Azeb Tilahun Alemayehu is planning to engage in production of wheat flour
in South West Ethiopia People Regional State,Bench Sheko Zone, Mizan Aman Town ,Addis Ketema Kebele
and the basic infrastructures are available, on a land size of 4,000m2
5. PRODUCT DEFINITION
Wheat flour
It is a powder made from the grinding of wheat used for human consumption. More wheat flour is
produced than any other flour. In terms of the parts of the grain (the grass fruit) used in flour—the
endosperm or protein/starchy part, the germ or protein/fat/vitamin-rich part, and the bran or fibre part—
there are three general types of flours. White flour is made from the endosperm only. Whole grain or
whole meal flour is made from the entire grain, including bran, endosperm and germ. Germ flour is
made from the endosperm and germ, excluding the bran. The project planned to produce germ flour
type.
6. GTP plan
The agro-processing industry sector is one of the emphases areas of the GTP plan aiming to increase
the capacity utilization of the industries to 90% at the end of the GTP plan 2014/15 from 60% in the
year 2009/10.
In achieving this target the government has also set a plan to increase the productivity of in industrial
crop which are the main inputs like wheat to 1,174.70 metric tons in the year 2014/15from 629.7 metric
ton in the year 2009/10 used as a base period. This simply shows that the project is one of the
government emphasis areas to meet the ultimate goal of food sufficiency; otherwise the GTP plan has
left only one and half year period which may be short as we compared with the project life of 10 years.
The following two tables of extract from the GTP plan portray the above facts.
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7. PROJECT MANAGEMENT AND HUMAN RESOURCE

7.1. Project Management

The technical aspect of Wheat flour production is a well-known profession in the Ethiopian food-
processing sector. As a result, qualified professionals are available in the market. Hence; all the
technical, marketing, finance & Administration and Production functions are supervised and managed
by Ethiopians. The owner is also member of the top management group of the factory and other
qualified professionals assume the Production, Marketing & Procurement as well as Finance &
Administration functions.
The organizational structure of the factory would be is as shown below:

General Manager

Secretary

Head -Production and Head Marketing & Finance & Administration

Technique Procurment Manager

Head- Sales and

Head Production Head Finance
Promotion

Head Technical Head Procurment and

Head Administration
Services Store

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 7.2. Human Resource Requirement
A total number of 55permanent local employees are projected for the managerial, professional,
technical, and non-professional posts of the project. The 20 percent staff benefit includes, 7 percent
pension, transportation and other benefits. Monthly and annual salary expense is Birr 112,320 and Birr
1,347,840, respectively.
The detail including the salary expense is shown in the following table.
Position No. of posts Monthly Pay Monthly Salary Expense Annual Pay
General Manager 1 3,000 3,000 36,000
Executive Secretary 1 1,200 1,200 14,400
sub-total 3 4,200 4,200 50,400
Head Finance and Admin. Department 1 2,500 2,500 30,000
General Service Clerk 1 1,500 1,500 18,000
Drivers 2 2,000 4,000 48,000
Assistant Drivers 2 1,000 2,000 24,000
Guards 4 800 3,200 38,400
Janitors 2 800 1,600 19,200
Gardeners 1 800 800 9,600
Accountant 3 2,000 6,000 72,000
Casher 1 1,500 1,500 18,000
sub-total 17 12,900 23,100 277,200
Purchaser 1 2,500 2,500 30,000
Store keeper 2 2,000 4,000 48,000
Sales Clerk 2 1,500 3,000 36,000
Invoice clerk 1 1,500 1,500 18,000
sub-total 6 7,500 11,000 132,000
Production Division Head 1 3,500 3,500 42,000
Shift leader 3 2,500 7,500 90,000
Different machines operators 4 2,000 8,000 96,000
Different machines assistant operators 4 1,500 6,000 72,000
Packing supervisors 2 2,500 5,000 60,000
Packing workers 10 1,500 15,000 180,000
Quality Controller-chemist 1 2,500 2,500 30,000
Sub-total 25 16,000 47,500 570,000
Mechanic 1 2,500 2,500 30,000
Senior electrician 1 2,500 2,500 30,000
Electrician 1 2,000 2,000 24,000
Tool Keeper 1 800 800 9,600
sub-total 4 7,800 7,800 93,600
Total 55 48,400 93,600 1,123,200
20% benefit 18,720 224,640
Grand total 112,320 1,347,840

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 7.3. Training Requirement
Training shall be carried out during plant erection and commissioning by machinery supplier. The
training and erecting period is scheduled to be for 90 days. The cost of installation and training cost is
included in the cost of production machinery.
8. MARKET ANALYSIS
8.1. Why agro-processing is critical to the Ethiopian Economy?
It is obvious that Ethiopia, which depends on agriculture of nearly half of its GDP, should give top
priority to the development of its agricultural sector. To this effect, the government has adopted an
Agricultural-Development Led Industrialization (ADLI) strategy to ensure sustainable agricultural
production for food self reliance and promote industrialization. The rigorous implementation of the
ADLI strategy is recognized to result in surplus production of agricultural products. Rather than
exporting surplus primary products such as cereals, pulses, oilseeds and fresh produce, Ethiopia will
increasingly realize the benefits of exporting processed foods that add value to primary agricultural
products. Therefore, the prospects for expansion of the food processing sub-sector are considerable.
Food processing factories of cereals, oilseeds, pulses, sugarcane, vegetables, fruits, meat, dairy
products and spices are expected to be established in large numbers. In all, agro-industry in general and
food processing in particular will play an increasingly important role in the Ethiopian economy.
In order to be competitive in the market, the Ethiopian food processing industry should increase the
degree of transformation of primary agricultural products and improve upon the quality of food
packaging. Therefore, use of modern technology will be very critical element in food processing and
packaging. In this connection, market access, management knows how and transfer of technology
would take up most.
Given the large agricultural resources potential of the country and relatively under developed status of
the manufacturing sector, the Ethiopian Government should as part of its ADLI strategy, initially focus
on the development of the country’s agro-industry, especially the food processing industry, both for the
export and the domestic markets. The domestic market is important because growth in income of the
general population, combined with increased urbanization, will in time translate into increased
domestic demand for processed foods.

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 8.2. Supply
The food processing industry in Ethiopia consists of three scale-based classes; the dominant core,
which consists of large-scale manufacturers producing well-known brands account for a significant
share of the market when it comes to packaged foods such as biscuits and pasta/macaroni. The second
& third class is the competitive fringe consisting of medium and small scale enterprises that
collectively account for a larger share of the market for unbranded, staple (commodity) food items such
as flour & bread. The 2012 CSA Manufacturing Business Survey reports the total production value of
the food processing sector to be 2, 688, 620, 795, in 2011- which is about 11.93 percent of the
manufacturing industry as a whole.

Ethiopian Food Processing Industry

Number of Establishments by Size

2007/2008 2008/2009 2009/2010

Me Me
Sml Lg Sml Lg Sml Med Lg
d d

Vegetables/ Fruits processing 1 2 9 1 3 9 - 2 8

Vegetable & animal oils/fats 21 5 7 23 8 8 25 3 8

Dairy products - - 4 1 1 3 3 7 25

Mills 24 62 38 30 77 41 34 88 52

Animal Feed 1 2 40 1 1 12 2 2 3

Bakery 114 66 6 119 70 52 92 49 58

Sugar & Confectionery 11 4 6 6 9 6 5 9 7

Pasta & Macaroni 2 2 7 3 1 8 1 3 12

unclassified 5 4 5 4 3 12 3 1 9

Total 179 147 122 188 173 151 165 164 182

Source: CSA Manufacturing Industry Report 2011

The wheat flour and Biscuit is mainly supplied by the local manufacturers. There are also some traders
that import theses products irregularly from European & Gulf countries. In the last five years,
however, most of the consumption had been supplied by local producers. On top of that we need not
consider or disregard import figures from our supply projection as our main intention is import
substitution. Otherwise it may pose a question shouldn’t we establish our factory, had the import
figures are significantly large? (We think the answer is no.)
Regarding Investment licenses issued to the Food processing sector, it is observed that although
investment licenses issued to the food processing sector-including beverages accounted in thousand
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every year, the proportion of projects that turned out to operation each year is between 1% and 7%,
average 4% during the past 5 years (2007-2010). According to the CSA’s database the food processing
sector constitutes 4% of the total food and beverages processing. The flour, biscuit, Macaroni and pasta
firms constitute 40% of the food processing firms.
Applying the percentage proportion distribution of firms to the investment licenses issued (historical
trend) results that the number of new projects that would be converted to operational status is nearly 1
in 2010.
Year and No of Project Compositions 2006 2007 2008 2009 2010
No of Projects in Pre Implementation…………. (1) 1,275 2,094 1,427 1,420
No of Projects In Implementation……… ….(2) 57 72 60 37
Projects converted to operational……...……….(3) 96 90 72 16
Total………………………...4 1,521 1,428 2,256 1,559 1,473
Food Licenses (4%)……………………………5 60.84 57.12 90.24 62.36 58.92
Share of flour, biscuit, Macaroni, Pasta Licenses (40%)..6 24 23 36 25 24
Percentage of Conversion to operation.. ¾………7 7% 4% 5% 1%
Share of flour, biscuit Macaroni, Pasta(No.) …...7 x 6 1.54 1.44 1.15 0.26

Hence, more than the supply increment contributed by new entrants, the capacity increment of the already
established firms is significant. The historical production volume trends in ton and the supply forecast based
on the past trend is shown in the following two tables:-
NB. The trend analysis above incorporates estimated no. of firms joining the sector or new entrants.
Production Volume of the Past ten years Trend:
Year Flour production in Ton Growth rate

2009 185,437 -

2010 165,345 -11%

2011 142,541 -14%

2012 136,669 -4%

2013 155,669 14%

2014 148,786 -4%

2015 173,787 17%

2016 177,263 2%

2017 180,808 2%

2018 184,424 2%

2019 188,113 2%

Average growth 1%

Source: CSA reports of respective years.

The production capacity of the new entrant firm (nearly one) is unknown. However, on top of the increase
in capacity of the existing firms, prudently we assumed a 1% increase per annum for the product (flour).

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Supply Forecast-in tons
Within the projected period, the total supply of wheat flour increases from 850,000 -1,078,006 tons
year flour supply
2020 850,000
2021 867,000
2022 884,340
2023 902,027
2024 920,067
2025 938,469
2026 957,238
2027 976,383
2028 995,910
2029 1,015,829
2030 1,036,145
2031 1,056,868
2032 1,078,006
8.3. Demand
In order to forecast the demand for the next ten years, per capita consumption rate is applied. Other
things being constant, apparent consumption/demand is the amount purchased and consumed. This
equals Production + Import-Export. The third variable is almost zero in Ethiopian case as there is no
data on significant exports so far. Therefore, Demand equals Local Production plus Import. According
to the business development service, Ethiopia’s per capita consumption for Wheat Flour is 3.8 Kg.
These rates are considered for the forecast. Population growth of 2.4% plus 6% annual increase due to
the increment of expending power of the population is applied to forecast the demand as shown below:
The population projection figures in this issue are based on the results of the May 2007, National
population and Housing Census of Ethiopia. Therefore, the projected figures for the year 2020/2012
become 114,000,000
Year Population per capita flour consumption in ton
2,020 114,000,000 610,877
2,021 116,622,000 635,312
2,022 119,304,306 660,725
2,023 122,048,305 687,154
2,024 124,855,416 714,640
2,025 127,727,091 743,225
2,026 130,664,814 772,954
2,027 133,670,104 803,872
2,028 136,744,517 836,027
2,029 139,889,641 869,468
2,030 143,107,102 904,247
2,031 146,398,566 940,417

As shown above, the demand volume is expected to grow due to population increment and per capita
income improvement. According to the forecast within the years from 2021 up to 2031, Demand of
wheat flour increases from 635,312- 940,417 tons
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 8.4. Demand and Supply Gap
The demand-supply variance shows positive demand gap indicating that even after capacity increment
of existing factories, demand for the products would fully be met with additional imported portion.
In aggregate all the products have adequate demand gap that can be supplied by a number of new
entrants including this project.

8.5. Marketing Strategy, segmentation and distribution

The major customers of our products are Wholesalers, Retailers & service-based end-users. We plan to
sell products in bulk primarily to the first segment, wholesalers who in-turn sells it to retailers in smaller
quantities. The second segment comprises of large retail outlets such as supermarkets who buy bulk
quantities directly from the manufacturer and resell to the consumer.
The third customer segment, service-based end users comprises of institutions & organizations that
source products directly from the manufacturers either as raw materials or supplies for their
businesses/organizations.
The market & distribution system in Ethiopia consists of major wholesalers, regional wholesale
distributors, retailers, middlemen, traders and collectors in a long and complex value chain. Major
Wholesalers in particular have an excessively significant role to play with the function of bulking;
picking up large quantities for smaller wholesalers in regional cities who in turn distribute it to retailers
within the city. Intermediaries such as regional distributors and middlemen are involved in logistics by
covering the difference between the location of the product and the marketplace where consumers
purchase products. Other traders & entrepreneurs have multiple roles in getting goods to various
customer groups.
Major Wholesalers are concentrated in Mizan Aman,Bonga,Teppi, Gambella regional state
Dima,Majang(Meti Town) and Dawro zone (Tercha Town) the wholesale center of the south West
Ethiopia.
The smaller wholesalers are highly sensitive to price and local competition so they may or may not
carry the same type of products for a significant period. Thus, South West Ethiopia People Regional State
Zones becomes an ideal destination for the smaller wholesalers as it provides them with variety and
information on price comparisons as well as market intelligence in terms of the volume of a particular
product that has been sold to their competitors. Using this information, the smaller wholesalers choose
the brands and/or product mix they are willing to take back to their respective markets. This causes
consistent fluctuations in sales and production schedule for a manufacturer if regular market intelligence
is not conducted. Large-scale food processors have an advantage to determine price points if they have
penetrated the market well. For this purpose we will use penetration price strategy.

18
The development of the retail sector in terms of the emergence organized businesses with high volume
sales and high-traffic locations etc has fostered a growing direct-to-retailer sales trend amongst
manufacturers. Large-scale manufacturers are now distributing their products to supermarkets and
mini-marts through door-to-door sales/delivery route system. This system allows the manufacturer and
retailer to earn a higher margin by cutting out the middlemen. Despite the benefits its offers,
manufacturers generate low volume from the route sales system since the addressable customer size is
very small. The majority of the Country’s retailers are inaccessible neighborhood kiosks with low-
volume sales. Thus, the , South West Ethiopia People Regional State Zones -wholesale distribution system,
although very costly to local manufacturers is assumed to be the most efficient way to deliver products
making the intermediary group ‘the primary distribution channel’.
The promoter will use aggressive promotion and product popularization through use of electronic
media especially via TV as visualizing the product will be more convincing. For the purpose 0.5% of
sales are allotted.

8.6. Price
Presently there are different types of flours in the market both imported and locally manufactured. Per
our market survey currently, the factory gate price of flour ranges from birr 4,500-5,500. As a
penetration price the average lowest price of birr 5,500 for flour is considered in the analysis. The
minimum market price for the by-product bran is birr 2,000 per quintal.
8.7. Future Prospects
The project has an excellent and promising future since the life style of the consumer base is changing
in its favor. The following factors are expected to contribute positively to the sustainable growth of the
food sector in general.
 Urbanization:-Increased urbanization results in increased consumer demand for processed food
products like wheat flour, bread, pasta &biscuits. Increased number of catering companies, hotels,
universities, and Army consumption is also expected to increase.
 Urban consumer trends:
 Decrease in consumption of home-produced Injera due to the rising prices of Teff.
 Wheat bread replace traditional bread
 More food & drinks consumed outside from home
 Real income growth due to declining inflation rates
 Increased employment rates due to robust economic activity.
 Other Forces:- Population growth results in overall demand increase

19
9. TECHNICAL STUDIES
The most important technical considerations for this project is raw materials type and selection,
technology and capacity of plant, power source, water source, production process and production
support facilities like land and factory buildings. Each of them is discussed in the subsequent parts.

9.1. Raw material and inputs

The major raw material is wheat. Ethiopia is the largest wheat producer in sub-Sahara Africa. Wheat
production is the fourth largest production in Ethiopia with 3,075,640 ton in area of 1.5 million hectare
in the year 2015EC.
The crop ranked fourth after teff, maize and sorghum both in terms of area coverage (1,663,845.63
hectares) and quantity of production (4,231,588.72 tons) in 2014/15 cropping season in Ethiopia (CSA,
2015).

Production (Int
Rank Commodity $1000) Production (MT)

1 Roots and Tubers, 930197 5439400

2 Maize 528815 3897160

3 Cereals, 821423 3207300

4 Wheat 466,686 3,075,640

5 Sorghum 452014 2971270

5

Source: FAOSTAT (2010)

The production is planned to increase through area expansion and yield improvement. Ethiopia’s wheat
production increase in recent years appears to be a combination of both.

20
Wheat is the major raw material that accounts for approximately 74% of manufacturing cost. It is made
available locally, primarily through small-holder farms & government owned farming enterprises. A
cluster of privately held, large-scale agricultural enterprises have been emerging in the past two years
bringing the prospect of enhanced quality & dependable supply into the horizon.
The following annual raw material requirement at full capacity is computed based on the following
input output relationship.

Wheat flour

Raw Material Intake Capacity/year Extraction Rate Flour Yield Bran

Raw Wheat 85,000 0.76 64,600 11,900

Unit
Packaging Quantity pcs price Cost at full capacity
Wheat Flour Sacks 25 kg (50% of
production) 170,000 5 850,000
Wheat Flour Sacks (50kg 50% of production) 85,000 5 425,000
sub-total 255,000 1,275,000
PP Bag for Byproduct 11,900 5 59,500
sub-total 59,500
Total 1,334,500

9.2. Production Process

9.2.1. Cleaning
Wheat received for milling contains field contamination, which includes plant parts, weed seeds,
stones, and lumps of soil. It may also have extraneous materials like metal fragments and other grains.
Raw wheat stored in bulk store requires regular recycling and dosing of fumigation tablets. The wheat
from the dumping pit, via bucket elevator is fed to the vibro separator. Materials to be separated fall
freely through the inlet onto the coarse screen of the vibiro separator, which removes coarse impurities
as string, straws, and stones. Fine sieves further remove broken kernels, sands and other fine impurities.
Tailing from sieve layer cleaned water is used at the outlet to separate light particles by an aspiration
channel.
9.2.2. Conditioning
Prior to milling water is added in process known as “tempering”. Hard wheat is normally brought to 15-
16% moisture, soft wheat 13-14% moisture. Tempered wheat is held 18-24 hours at ambient
temperature in conditioning bins. The process toughness the seed coat /bran/ and softens the starchy
endosperm so that an efficient separation of bran and endosperm can take place.

21
 9.2.3. Milling/Grinding/
The process of wheat milling is a complex procedure of repetitive grinding and sieving. The grinding
process is divided into the break, scratch and reduction operations.
The tempered wheat is grounded on a serious of corrugated break rolls, the objective being to open up
and scrap the wheat kernel to release endosperm from the bran. Each grinding operation is followed by
sifting operation, in which the coarse branny stock from the sifter is fed on successive break rolls. Each
grinding and bolting operation results in stream of flour of various breaks (1 st, 2nd, etc) that are collected
from finest sieves as intermediate granular particles. The final products of wheat flour are ready to go
for the biscuit line and to store.
An average well-matured grain of wheat has 55% endosperm, 13% bran, and 2% germ. It is the
endosperm of the wheat grain that is converted to flour in milling. In theory, it should be possible to
remove or extract approximately 85% of the grains flour, however other structural features makes it an
impossible task in actual fact, the amount of flour produced may have some amount of bran, while
some flour is lost with the bran. Therefore, the commercial flour may have extraction rate in the ranges
of 73%-80%.

Wheat Flour processing flow Chart

22
 CLEANING -RAW CONDITIONING RAW
WHEAT WHEAT

GRINDING/
MILLING

PACKAGIN
G
9.3. Civil Works
 Land
The land at which the wheat flour factory plant located is acquired and has green card certificate from
Mizan Aman Woreda, Adidis ketema Kebele. The land area is about 10,100 m 2. The promoter has to
paid tax.

The project is located at the near Bench Sheko zone of Mizan Aman town which is being selected by
the government considering infrastructure, proximity to the market, availability of manpower, etc. In
this case it seems that the decision for site selection is being made by the government instead of the
promoter.
 Building
The factory requires bigger production, raw material and finished products hall. Such store and other
construction works are already started. Among others, the factory building consists of the following
parts.
 Raw material store , Finished goods store, Offices, Two separate dressing rooms
9.4. Production Machinery and lay out
The flour processing machinery will be selected with consultation of the concerned government bodies
from different suppliers; namely the proposed china suppliers are HEBEI PINGLE FLOUR
MACHINERY GROUP CO.LTD.

23
Among others, the following points are our selection criteria.
 Lower price
 They supply the complete plant while the others don’t supply the complete plant
 The main parts of the plant are from very popular and reliable suppliers like Siemens
 The type of material from which the machineries made are the best quality
 They have been in the business for the long time and have good reputation. Moreover they have
supplied to many countries including Ethiopia and we have learnt from their customers that they
provide good quality machineries.
 They provide reliable spare parts
 The machineries run by latest technology.
The flour making machine has a designed production capacity of 8,500 ton per year assuming 300
working days in a year.

The under shown table portrays the machinery and its associated costs per the proforma invoice plus
transaction costs computed based on Ethiopian investment agency, factor cost publication of the year
2012&access capital price data base.

S/ Description USD price Unit price in birr Total amount in birr

N ( 1 USD =124 ETB)
1 1 set of 6FTS-42 FLOUR MILL 115,470.00 14,318,280 14,318,280
PLANT WITHROLLERS
2 1 set of two years spare parts 2,800.00 347,200.00 347,200.00
3 1 set of two lab equipment 11,500.00 1,426,000.00 1,426,000.00
4 1 set of two auto packing machine 14,000.00 1,736,000.00 1,736,000.00
5 1 set of two vitamin feeding 3,500.00 434,000.00 434,000.00
(Micro Doser )
Total 147,270.00 18,261,480.00

24
 9.5. Office Equipment and Furniture

The factory has to be equipped with the necessary office equipment, furniture for the administrative,
and finance staffs as well as for market integration of input supply and finished product quality control.
The details with related costs are shown in the table below.
As indicated from the table the project requires total investment of birr 239,896 for furniture,
transformer and generator acquisition.

Furniture, Generator and Transformer

Description Unit cost/unit Total
Generator, transformer and electric work one each 150,000 150,000
Dell computers with LCD monitor & Speaker 1 14,348 14,348
HP laser Jet printer 1 6,087 6,087
Managerial table-one side arch 1 3,303 3,303
managerial table-bean type 180x90x75 1 3,144 3,144
Single Pedestal table 140x80 2 2,151 4,303
Executive Book shelf 2 4,538 9,077
Gust chair 5 499 2,496
managerial swivel chair 2 2,050 4,099
managerial swivel chair 5 1,763 8,817
Dixon shelf 2 1,466 2,932
sub-total 189,350 208,605
15% VAT 31,291
Total 239,896

9.6. Utility Supply

Power Supply

The factory requires total 290 KW (for flour mill 290) power. The electric installation cost including
power transformer is indicated in the table above under part 6.6 supported by valid proforma
invoice.The following table shows the computation of annual power cost to the factory.
POWER KW Annual Consumption at 24 hrs/day, Rate Per Unit Birr
@100% capacity
Flour Mill Line 290 208,800 0.58 121,104
Total 290 208,800 121,104
 Water
Water line is not availed to the project as a result estimated cost of birr 4,875 is allotted in the pre-operating
expenditure. For Flour production, water is an essential input. Including the requirement for human use, the
factory’s annual water consumption reaches 1,500-m3 at birr 3.25/m3 consumption per day.
The detail is shown below.
Water m3/DAY Annual Consumption Rate/ m33 total

Flour Mill 5 1,500 3.25 4,875

25
  Fuel Consumption
Fuel Consumption
KM/day km. distance /litter price Total
100 6 20 200,000
5% oil & Lubricant 10,000
Estimated hours power off fuel consumption liter/hr price Total
1 5 20 2,000
Total 212,000
As indicated above on average each vehicle is assumed to travel 200 km per day and will travel 6
kilometers per liter of fuel. Price of fuel is birr 20/litter. The annual fuel consumption for the two trucks
will, thus, be birr 200,000. Oil and lubricant expense is estimated to be 5 % of fuel.Likewise, a stand by
generator on average will work for 1 hours per day with 5 litter consumption per hour at birr 20/litter,
the annual fuel cost will be birr 2,000.
 Communication and Stationery
Telecommunication, Internet and fax service in today’s business world have great importance in
exchanging information between raw material suppliers, intermediaries, consumers and producers. The
area is equipped with mobile network, landline, and internet service. Total cost for communication and
stationery is considered 3% of salary expense.
9.7. Environmental Impact Assessment
The project will not have an adverse impact on the environment as it is not associated with process that
emits hazardous effluents that can potentially endanger the working or surrounding environment.

26
10. FINANCIAL APPRAISAL
10.1. Initial Investment Cost
The total initial project cost required for the project is 22,826,850.00 birr. The items and cost
breakdown is shown in the following table.
Investment Cost Schedule
Description Unit Total Investment cost
Factory Building Birr 1,177,543.17
Production Machinery Birr 18,261,480.00
Generator, transformer and office Equipment Birr 739,896.03
Sub-total Birr 20,178,919.20
Pre operating Interest Birr 1,147,930.8
Initial Working Capital Birr 1,500,000.00
Sub Total Birr 2,647,930.8
Total Birr 22,826,850.00

10.2. Financing Structure

Total Initial Investment Cost Equity Contribution Debt Finance
Item Unit Amount % Amount % Amount
Land - Payment Birr 0 100% 0 0% -
Factory Building Birr 1,177,543 20% 235,509 80% 942,035
Production Machinery Birr 5,112,207 20% 1,022,441 80% 4,089,766
Vehicles Birr 1,173,000 20% 234,600 80% 938,400

Generator, transformer and office Equipment Birr 239,896 20% 47,979 80% 191,917
Sub-total Birr 7,702,646 20% 1,540,529 80% 6,162,117
100.00
Pre-operating Expenditure Birr 14,660 % 14,660 0% -
Pre operating Interest Birr 862,703 20% 172,541 80% 690162.7751
Initial Working Capital Birr 1,500,000 20% 300,000 80% 1,200,000
Sub Total Birr 2,377,363 20% 487,201 80% 1,890,163
Total Birr 10,080,010 20% 2,027,730 80% 8,052,280

As indicated in the above table, it is planned that the promoter would contribute (20%) birr
4,565,370.00 of the total project cost and the remaining 80% would be financed by debt. The 80%
bank lease financing, which is birr 18,261,480.00 would be payable within 8 years exclusive of 2 years
grace period at yearly repayments with 11.5% interest rate.

27
 10.3. APPLIED FINANCIAL ASSUMPTIONS:
1. Capacity Utilization Rate: Starts at 60% and increases by 5% every additional year up to
attainable capacity of 90%.
2. Working days per year: 300
3. Number of shifts: at full capacity = 3,
4. Working hours per shift : 8, total working hours per day, 24,
5. Tax holiday period: Nil,
6. Profit tax: 35% of IBIT and 15% VAT on sales.
7. Salvage value:Buildings 50%, Vehicles, Machinery, and Major Equipment, 20%.
8. Recovery rate:Full amount of the ending working capital amount,
9. Cost of Capital for discounting: 9.5%
10. Grace period:2 years.
11. Financial Expense on debt finance:Fixed 11.5%,
12. Loan Repayment:Principal plus interest is paid per quarter within 8. years, however, interest
alone would be paid during grace period of 2 years,
13. Water average Rate Birr 3.25 Per M3
14. Power: average rate Birr 0.58 per KWH,
15. Stationery and Communication:3% of salary expense,
16. Marketing and Promotion: 0.5% of sales revenue,
17. Uniform and miscellaneous : Birr 400 per employee/year,
18. Miscellaneous expense birr 20,000 per annum.
19. Salary Expense: Per the schedule shown in item 4.2,
20. Wage:Birr 50 per ton,
21. Depreciation:Buildings 5%, Machinery, Vehicle, Equipment and furniture 20%, land lease 1%
based lease life.
22. Amortization:Pre-operating expense : 20%,
23. Property Insurance premium: would be 1.75 % for the buildings cost and 2.5% for
Machinery and Vehicles,
24. Repair including tier, spare parts, etc: 0.10% of the cost of building, Machinery, vehicle and
equipment for the first 5 years, then will increase by 10% then after.
25. Lease Fee:Nill

28
 10.4. Working Capital
The major costs selected to be financed with debt are only cost of wheat, packaging, Salary, wage, fuel,
as well as power and light costs.
As indicated in the table below, the minimum days coverage considered for one turnover is 30-90 days.
The working capital amount is determined to be Birr 4,565,370.00 . The incremental working capital
after year 1 due to increase in production capacity will be financed from the internally generated cash.
WORKING CAPITAL Schedule

Cost Items/Year MDOC Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year-8

114,531,51

Cost of Wheat 60 93,500,000 99,110,000 107,038,800 6 122,548,722 129,901,645 136,396,728 136,396,728

Packaging 60 1,334,500 1,441,260 1,556,561 1,665,520 1,782,106 1,889,033 1,983,484 1,983,484

Power and Light 30 121,104 130,792 141,256 151,144 161,724 171,427 179,998 179,998

Salary and

Wage 30 149,386 161,336 174,243 186,440 199,491 211,461 222,034 222,034

Fuel 30 212,000 228,960 247,277 264,586 283,107 300,094 315,098 315,098

116,799,20

Total 95,316,990 101,072,349 109,158,137 6 124,975,151 132,473,660 139,097,343 139,097,343

Incremental WC 5,755,359 8,085,788 7,641,070 8,175,944 7,498,509 6,623,683 0

*MDOC-minimum days of coverage

** Import of one L/C takes 90 days

29
 10.5. Operating Cost, Volume and Revenue
10.5.1. Operating Cost
The table below shows the factory operating cost before depreciation and interest expenses under
different production capacity. The assumptions for each cost and expense are indicated in the
aforementioned discussion under part 7.3 above.
Operating cost schedule

Capacity Utilization 100 60% 65% 70% 75% 80%

Description/Year - Year 1 Year 2 Year 3 Year 4 Year 5
93,500,00 56,100,00 60,775,00 65,450,00 70,125,00 74,800,00
Cost of Wheat Flour 0 0 0 0 0 0
Power and Light 121,104 72,662 78,718 84,773 90,828 96,883
Water 4,875 2,925 3,169 3,413 3,656 3,900
Fuel Cost 212,000 127,200 137,800 148,400 159,000 169,600
Packaging 1,334,500 800,700 867,425 934,150 1,000,875 1,067,600
Salary expense 1,347,840 808,704 876,096 943,488 1,010,880 1,078,272
Wage (Birr 50/tone 425,000 255,000 276,250 297,500 318,750 340,000
Property Insurance 177,737 106,642 115,529 124,416 133,303 142,190
Repair & Maintenance 7,703 4,622 5,007 5,392 5,777 6,162
Stationery& Communication 6,739 4,044 4,380 4,717 5,054 5,391
Marketing and Promotion 31,008 18,605 20,155 21,706 23,256 24,806
Auditing fee 6,000 3,600 3,900 4,200 4,500 4,800
Uniform 22,000 13,200 14,300 15,400 16,500 17,600
miscellaneous expense 20,000 12,000 13,000 14,000 15,000 16,000
97,216,50 58,329,90 63,190,72 68,051,55 72,912,38 77,773,20
Operating Cost Before Dep. 6 4 9 4 0 5
Depreciation 373,138 373,138 373,138 373,138 373,138
Operating Cost Before 97,216,50 58,703,04 63,563,86 68,424,69 73,285,51 78,146,34
Interest 6 1 6 2 7 2
Interest Expense 862,703 748,312 633,920 519,529 405,137
97,216,50 59,565,74 64,312,17 69,058,61 73,805,04 78,551,47
Total Operating Cost 6 5 8 2 6 9

Per the above successive tables,the total annual factory cost is estimated to be Birr 59 million in the
initial year and increases to birr 88 million when it operates at attainable capacity of 90%.
10.5.2. Production Volume and Revenue
 Production Volume: the machinery line has an aggregate installed production capacity of
8,500tons per annum of wheat.
 Per the table below the flour line will produce two types of flours of (grade 1 & 2 with equal
proportion). At full capacity with extraction rate of 76% the annual production of flour will reach
total64,600 quintals and 11,900 quintal of bran.

30
  The total flour production will be sold to local market. The flowing table shows the production
volume in detail for each of the production capacity.
Production Schedule In Quintal/100-kg
Product Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
At Full 60% 65% 70% 75% 80% 85% 90%
Capacity
Production of Wheat Flour Grade 1 32,300 19,380 20,995 20,995 24,225 22,610 27,455 29,070
Production of Wheat Flour Grade 2 32,300 19,380 20,995 20,995 24,225 22,610 27,455 29,070
Total-Flour 64,600 38,760 41,990 41,990 48,450 45,220 54,910 58,140
Flour to the Market (100%) 64,600 38,760 41,990 41,990 48,450 45,220 54,910 58,140
Bran 11,900 7,140 7,735 8,330 8,925 9,520 10,710 10,710

 Sales Revenue:

The net revenue of the project’s products starts with Birr 79.5 million and increases to Birr 122 million
when it operates at attainable capacity. The under shown table depicts the revenue for each year under
different capacity.

Revenue Schedule

Description/Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7-10

Capacity Utilization 60% 65% 70% 75% 80% 85% 90%

Flour Sale 62,016,000 67,802,093 74,372,116 79,684,441 84,996,764 90,309,062 95,621,402

Bran Sale 7,140,000 7,711,200 8,328,096 8,911,063 9,445,726 9,941,627 10,538,125

Total Revenue 69,156,000 75,513,293 82,700,212 88,595,504 94,442,491 100,250,689 106,159,527

with VAT 79,529,400 86,840,287 95,105,243 101,884,830 108,608,864 115,288,292 122,083,456

10.6. Project Profitability

The project would be profitable throughout the considered life years. It is expected to generate from
Birr 6.22 million up to 25.9 million net profits. The following table shows the forecasted income
statement of the project within its ten operational years.

Projected Income/Loss Statement

Description/Year Year 1 Year 2 Year 3 Year 4 Year 5
Revenue 69,156,000 75,513,293 82,700,212 88,595,504 94,442,491
Total Expense Before Interest 58,703,041 63,563,866 68,424,692 73,285,517 78,146,342
Gross profit 10,452,959 11,949,426 14,275,520 15,309,987 16,296,148
Interest Expenses 862,703 748,312 633,920 519,529 405,137
Net Income 9,590,255 11,201,115 13,641,600 14,790,459 15,891,011
Profit Tax 3,364,539 3,928,340 4,782,510 5,184,610 5,569,804
Net Income After Tax 6,225,716 7,272,775 8,859,090 9,605,848 10,321,208

31
 10.7. Project Liquidity and Payback period
The project would produce positive net cash inflow starting from the first year and throughout its life.
The cumulative net cash inflow for year one and at the end of 10 th year would be Birr 5.59 million and
81 million, respectively. The initial investment costs would be paid back with the gross value of net-
cash inflows at the end of 3rd operational year

Cash Flow Statement For Financial Planning purpose

Description/Year - Year 1 Year 2 Year 3 Year 4 Year 5
Net Income 6,225,716 7,272,775 8,859,090 9,605,848 10,321,208
Depreciation and Amortization 373,138 373,138 373,138 373,138 373,138
Equity 2,027,730 - - - - -
Bank Loan 8,052,280 - - - - -
Working Capital Recovery
Salvage Value
Total cash Inflow 10,080,010 6,598,854 7,645,912 9,232,227 9,978,986 10,694,345
Initial Investment Cost 10,080,010
Principal Repayment 1,006,535 1,006,535 1,006,535 1,006,535 1,006,535
Incremental working capital - 5,755,359 8,085,788 7,641,070 8,175,944
Total cash outflow 10,080,010 1,006,535 6,761,894 9,092,323 8,647,605 9,182,479
Net cash 0 5,592,319 884,018 139,905 1,331,381 1,511,866
Cumulative cash inflow 5,592,319 6,476,337 6,616,241 7,947,623 9,459,488

10.8. NPV & IRR

The harmonizing up of the discounted cash inflows at the rate of 11.5% less the original outlay cost
resulted in (NPV) of Birr 137 million. The internal rate of return (IRR) is 48%, which is a good deal on
top of the considered cost of capital.

Cash Flow statement for Discounting

Description/Year y-0 Year 1 Year 2 Year 3 Year 4 Year 5
Net Income 0 6,225,716 7,272,775 8,859,090 9,605,848 10,321,208
Dep. and Amortization 373,138 373,138 373,138 373,138 373,138
Interest expense 862,703 748,312 633,920 519,529 405,137
W/Capital Recovery
Salvage Value
Total Cash Inflow 0 7,461,557 8,394,224 9,866,148 10,498,514 11,099,482
Initial Investment Cost 10,080,010
Principal Repayment 0 1,006,535 1,006,535 1,006,535 1,006,535 1,006,535
Incremental working
capital 0 5,755,359 8,085,788 7,641,070 8,175,944

32
Total cash outflow 10,080,010 1,006,535 6,761,894 9,092,323 8,647,605 9,182,479
Net cash flow -10,080,010 6,455,022 1,632,330 773,825 1,850,910 1,917,003
NPV @ RRR 11.5% 137,355,997
IRR 48%

Cash Flow statement for Discounting, cnt.

Description/Year Year 6 Year 7 Year-8 Year-9 Year-10
Net Income 11,011,355 11,766,917 12,234,313 18,845,140 25,993,611
Depreciation and
Amortization 373,138 373,138 410,451 451,496 496,646
Interest expense 290,745 176,354 61,962 0 0
Working Capital
Recovery - - - 3,765,929

Salvage Value - - 3,784,877

Total Cash Inflow 11,675,237 12,316,409 12,706,727 19,296,636 34,041,063
Initial Investment Cost
Principal Repayment 1,006,535 1,006,535 1,006,535 - -
Incremental working
capital 7,498,509 6,623,683 0 0 0
Total cash outflow 8,505,044 7,630,218 1,006,535 0 0
Net cash flow 3,170,193 4,686,191 11,700,192 19,296,636 34,041,063

33