Investment Office ANRS

Project Profile on the Establishment

of Plywood producing plant

Development Studies
Associates (DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary..................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program....................2
3.1 Market Study.......................................................................................................2
3.1.1 Present Demand and Supply........................................................................2
3.1.2 Projected Demand........................................................................................2
3.1.3 Pricing and Distribution...............................................................................3
3.2 Plant Capacity......................................................................................................3
3.3 Production Program.............................................................................................3
4. Raw Materials and Utilities....................................................................4
4.1 Availability and Source of Raw Materials...........................................................4
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................4
5 Location and Site.....................................................................................5
6 Technology and Engineering..................................................................5
6.1 Production Process...............................................................................................5
6.2 Machinery and Equipment...................................................................................6
6.3 Civil Engineering Cost........................................................................................8
7 Human Resource and Training Requirement......................................8
7.1 Human Resource..................................................................................................8
7.2 Training Requirement..........................................................................................9
8 Financial Analysis...................................................................................9
8.1 Underlying Assumption.......................................................................................9
8.2 Investment..........................................................................................................10
8.3 Production Costs................................................................................................11
8.4 Financial evaluation...........................................................................................11
9 Economic and Social Benefit and Justification..................................12
ANNEXES....................................................................................................14
 1. Executive Summary
This project profile deals with the establishment of plywood making plant in Amhara National
Regional State. The following presents the main findings of the study

Demand projection reveals that the domestic demand for plywood is substantial and is increasing
with time. The planned plant is set to produce 5000 tons plywood annually. The total investment
cost of the project including working capital is estimated at Birr 22.6 million and creates 165
jobs.

The financial result indicates that the project will generate profit beginning from the first year of
operation. The project will break even at 8.10% of capacity utilization and it will payback fully
the initial investment less working capital in one years. The result further shows that the
calculated IRR of the project is 88.2% and the NPV at 18% annual discount rate is about Birr 67
million.

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

The word plywood designates a wood panel of three or more layers or veneers (plies) bonded
together usually with the grains of adjacent veneers running at right angles to each other. The
advantage of plywood over solid wood is its near uniform distribution of strength properties
along the length and width of the panel. Plywood is used in the construction and furniture
industries. It is widely used in cabinet making, decorative wall paneling and partition wall and
as door skins or cover.

1
A product obtained as result of several even numbered boards together is called plywood.
Plywood thus produced has the particular features of being a wood with the least defects, wide
size, high length and strength mechanically or physically.

It is used for general construction purposes as interior materials for housing, ships, vehicles and
furniture.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

Though it is difficult to quantify the plywood consumption in the Amhara Region, informed
judgment indicates about the existence of a demand which can absorb the production of a small
size plywood making plant. The current consumption of the product especially in the furniture
and joinery industries is quite substantial. The small furniture and joinery units scattered
throughout the Region use plywood and this plywood is brought from Addis Ababa, most of it
imported from abroad. With increasing urbanization and its concomitant expansion of the
furniture industry, the demand for plywood will increase in the coming years.

3.1.2 Projected Demand

The countrywide demand for plywood was estimated to be 10,615 in the year 2006 and 11,146 in
the year 2007 (IPS estimate). The future demand is estimated by assuming an 8 percent annual
increase in the demand for plywood.

Table 1: Projected Demand for Plywood

Projected Demand for
Year Plywood (tons)
2008 12,038
2009 13,001
3.1.3 Pricing and
2010 14,041
Distribution
2011 15,164
The average retail 2012 16,377 price of plywood is
about Birr 14,000 per 2013 17,687 ton. Allowing a more
2014 19,102
2015 20,630 2
2016 22,281
2017 24,063
2018 25,988
than 25% margin for distributors, the factory price of the produce of the envisaged plan is set at
Birr 10,000 per ton.

3.2 Plant Capacity

Thus, given the technology discussed below, the envisaged plant is set to produce 5000 tons of
plywood annually.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275
days, where the remaining days will be holidays and for maintenance. During the first year of
operation the plant will operate at 80 percent capacity and then it grows to 90 percent in the 2 nd
year. The capacity will grow to 100 percent starting from the 3rd year. This consideration is
developed based on the assumption that market and logistics barriers would take place for the
first two years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

Major raw materials are available in the local market although some forms of arrangements
might be required with the forestry department of Agriculture Bureau and Commercial forestry
firms. In this project profile even the forestry raw materials are assumed to be imported partially.

The chemical inputs should be imported, preferably from India.

4.2 Annual Requirement and Cost of Raw Materials

and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant
are listed in Tables 2 and 3 hereunder.

Table 2: Annual Raw Material Requirement at Full Capacity

No. Material Qty Cost (Birr)

3
 Local Foreign Total
1 Logs suitable for plywood in m3 28938 13,890,240 3,472,560 17,362,800
2 Gum tape for venner lathe and 819
patching in 000m 245,700 368,550 614,250
3 Urea resin (ton) 0.75 7,500 11,250 18,750
4 Ammonium chloride (ton) 0.18 288 432 720
Total 14,143,728 3,852,792 17,996,520

Table 3: Annual Utility Requirement at Full Capacity

Item Qty Cost (Birr)
Electricity (kwh) 267,540 147,147
Water (m3) 5,460 14,469
Furnace oil (lts) 12,000 18,000
Lubricants (lits) 2,000 30,000
Total 161,616

4
5 Location and Site
The appropriate location for the envisaged project in view of the availability of infrastructure is
Bahi Dar.

6 Technology and Engineering

6.1 Production Process

The manufacturing of plywood comprises of three major steps. These are:

 Preparation of logs
 Veneer manufacturing from logs
 Plywood manufacturing from veneer

Although each process step indicated above is the main sub-section of the overall manufacturing
activity, an attempt is made to briefly describe each of them.

1. Preparation of logs

This section consists of two major log treatment operations. In the first one, logs are cut by chain
saw to a desired length and fed to the lathe to make veneer sheets, while in the second high-
density logs are cooked in cooking vats or steam chambers to facilitate the cutting operation.

2. Veneer manufacturing from logs

Under this process step, several physical actions such as cutting, clipping, drying, joining etc. are
conducted on the log obtained from the 1st section in order to prepare good quality veneer
suitable for plywood making.

3. Plywood manufacturing from veneer

5
In plywood making, the initial operation is the preparation of glue for the process. The
proceeding step is the spreading of glue on the ore veneer sheets and the final is the pre-pressing
of the stacked sheets by the cold press.

After pre-pressing, the obtained plywood is fed to hot-press machine, where it is subjected to a
pressure at a specified temperature. Then, the plywood is cut to a pre-determined size by cutting
machine and stored for delivery.

Alternative technology

Timber is received from the forests in the form of logs. The logs are put under water in a pond if
possible or they are kept wet by water spray, to prevent decay and splitting and to keep them in a
condition suitable for peeling. The logs are cross cut into bolts of suitable length and then
graded according to their quality and are ready for peeling. Veneer cutting may be done by
peeling, slicing or sawing. The wet veneers are fed to the clipping machines to be cut to the
desired width and also to remove such defects as knots, wormudes and discolouration. The
remaining processes are drying, preparation of veneer, gluing, pressing and finishing.

Main plant and machinery include cross cut saw, veneer rotary lathe, veneer knife grinder, veneer
drier, electric hoist, veneer slicer, wet veneer clipper, dry veneer clipper, veneer joiner, glue
mixer, hydraulic hot press, drum sander, glue sprader

6.2 Machinery and Equipment

The machineries and equipment required for producing plywood is detailed in Table 4 below.

6
 Table 4: Required Machineries and Equipments
Item Description Qty.
Peeler 1
1
2 Veneer router 1
3 Veneer Clipper 1
4 Veneer Drying machine 1
5 Veneer Splinter 1
6 Veneer splicer 1
7 Gluing machine 1
8 Conveyor (roller) 1
9 Pressing machine 1
10 Drying press 1
11 Plywood edger 1
12 Sanding machine (Scraper belt, drum) 1
13 Boiler with its accessories 1
14 Polishing 1

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 12 million.

Suppliers address
1. Sensigraphics, Inc.
1501 Grandview Avenue
PO Box 595
Thorofare, NJ 08086
USA
2. Quanzhou Maoyuan Stone Co., Ltd.
Changfu Industrial Area, Xiamei
Nanan
Quanzhou, Fujian
China

7
 6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 5,000m 2 where 2000m2 is allocated
to the production, office buildings and facilities. The land lease cost is estimated at Birr 300,000;
the building and civil works are estimated at Birr 4 million.

7 Human Resource and Training Requirement

7.1 Human Resource

The human resource requirement is depicted in Table 5 below.

Table 5: Human Resource Requirement

Salary/Wage (Birr)

Job Title No. Monthly Annual

1 General Manager 1 4,000 48,000

2 Supervisor 1 3,000 36,000
3 Engineers 10 2,000 240,000
4 Skilled Workers 50 850 510,000
5 Unskilled Workers 90 400 432,000
6 Personnel Head 1 1,500 18,000
7 Secretary 1 850 10,200
8 Accountant 1 1,500 18,000
9 Casher 1 850 10,200
10 Security 3 400 14,400
11 Clerks 3 500 18,000
12 Genitors 3 400 14,400
Total 165 1,369,200
Employment Benefits 20% of Annual
Salary 273,840
1,643,040

7.2 Training Requirement

8
Training of key personnel is indispensable. The training should primarily focuses on the
production technology and machinery maintenance and trouble shooting. Birr 100,000 is
allocated in the working capital as training expense.

8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of plywood producing plant is based on the data provided in the preceding
chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

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

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

9
 Raw Material-Local 30
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 22.61
million as shown in Table 6 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60% is to be financed by bank loan.
Table 6: Total Initial Investment & Working Capital

Total Initial Investment

Item Cost
Land 15,000.00
Building and civil works 4,000,000.00
Office equipment 80,000.00
Vehicles 400,000.00
Plant machinery & equipment 12,000,000.00
Total Fixed Investment 16,495,000.00
Pre production capital expenditure 824,750.00
Total Initial Investment 17,319,750.00
Working capital at full capacity 5,294,795.32
Total 22,614,545.32
*Pre-production capital expenditure includes - all expenses for pre-investment
studies, consultancy fee during construction and expenses for company‘s
establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.

8.3 Production Costs

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The total production cost at full capacity operation is estimated at Birr 23.58 million as detailed
in Table 7 below.

Table 7: Production Costs at Full Capacity

Total Production Cost at Full Capacity

Items Cost
1. Raw materials 17,996,520.00
2. Utilities 161,616.00
3. Wages and Salaries 1,643,040.00
4. Spares and Maintenance 494,850.00
Factory costs 20,296,026.00
5. Depreciation 1,652,950.00
6. Financial costs
1,628,247.26
Total Production Cost 23,577,223.26

8.4 Financial evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 3) the project
will generate profit beginning from the first year of operation. Gross Profit/Sales is 46.54%, Net
Profit after Tax/Sales - 46.54%, Return on Investment 102.80% and Return on Equity
205.78% in the first year and are gradually rising. Furthermore, the income statement and other
profitability indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 8.10% of capacity utilization.

III. Payback Period

The projects will payback the initial investment less working capital in one year.

11
 IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 88.2%.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
87.3% and the net present value at 18 % discount is Birr 67 million.

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits where it promotes the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. These
benefits are listed as follows

A. Profit Generation

The project is found to be financially viable and earns Birr 197.8 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 66.7 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

C. Import Substitution and Foreign Exchange Saving

12
Based on the projected figure we learn that in the project life an estimated amount of Birr 485
million will be saved as a result of the proposed project. This will create room for the saved hard
currency to be allocated on other vital and strategic sectors

D. Employment and Income Generation

The proposed project is expected to create 165 jobs. This is one of the commendable
accomplishments of the project.

E. Diversification and InterSectoral linkage.

The proposed project helps to diversify ANRS’ and Ethiopian economy. It contributes to
industrialization of the ANRS as well as the country as a whole. It also has a potential to
strengthen the linkage between the manufacturing and the trade sub-sectors.

13
ANNEXES

14
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

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

1. Total Inventory 0 0 6,657,675 7,489,885 8,322,094 8,322,094

Raw Materials in Stock- Total 0 0 2,579,336 2,901,753 3,224,170 3,224,170

Raw Material-Local 0 0 1,234,362 1,388,657 1,542,952 1,542,952

Raw Material-Foreign 0 0 1,344,975 1,513,096 1,681,218 1,681,218

Factory Supplies in Stock 0 0 19,155 21,550 23,944 23,944

Spare Parts in Stock and Maintenance 0 0 43,187 48,585 53,984 53,984

Work in Progress 0 0 478,887 538,748 598,608 598,608

Finished Products 0 0 957,773 1,077,495 1,197,217 1,197,217

2. Accounts Receivable 0 0 4,363,636 4,909,091 5,454,545 5,454,545

3. Cash in Hand 0 0 157,497 177,184 196,872 196,872

CURRENT ASSETS 0 0 8,599,473 9,674,407 10,749,341 10,749,341

4. Current Liabilities 0 0 4,363,636 4,909,091 5,454,545 5,454,545

Accounts Payable 0 0 4,363,636 4,909,091 5,454,545 5,454,545

TOTAL NET WORKING CAPITAL REQUIREMENTS 0 0 4,235,836 4,765,316 5,294,795 5,294,795

INCREASE IN NET WORKING CAPITAL 0 0 4,235,836 529,480 529,480 0

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 8,322,094 8,322,094 8,322,094 8,322,094 8,322,094 8,322,094

Raw Materials in Stock-Total 3,224,170 3,224,170 3,224,170 3,224,170 3,224,170 3,224,170

Raw Material-Local 1,542,952 1,542,952 1,542,952 1,542,952 1,542,952 1,542,952

Raw Material-Foreign 1,681,218 1,681,218 1,681,218 1,681,218 1,681,218 1,681,218

Factory Supplies in Stock 23,944 23,944 23,944 23,944 23,944 23,944

Spare Parts in Stock and Maintenance 53,984 53,984 53,984 53,984 53,984 53,984

Work in Progress 598,608 598,608 598,608 598,608 598,608 598,608

Finished Products 1,197,217 1,197,217 1,197,217 1,197,217 1,197,217 1,197,217

2. Accounts Receivable 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545

3. Cash in Hand 196,872 196,872 196,872 196,872 196,872 196,872

CURRENT ASSETS 10,749,341 10,749,341 10,749,341 10,749,341 10,749,341 10,749,341

4. Current Liabilities 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545

Accounts Payable 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545

TOTAL NET WORKING CAPITAL REQUIREMENTS 5,294,795 5,294,795 5,294,795 5,294,795 5,294,795 5,294,795

INCREASE IN NET WORKING CAPITAL 0 0 0 0 0 0

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 8,659,875 13,954,670 44,363,636 45,545,455 50,545,455 50,000,000
1. Inflow Funds 8,659,875 13,954,670 4,363,636 545,455 545,455 0
Total Equity 3,463,950 5,581,868 0 0 0 0
Total Long Term Loan 5,195,925 8,372,802 0 0 0 0
Total Short Term Finances 0 0 4,363,636 545,455 545,455 0
2. Inflow Operation 0 0 40,000,000 45,000,000 50,000,000 50,000,000
Sales Revenue 0 0 40,000,000 45,000,000 50,000,000 50,000,000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 8,659,875 8,659,875 28,332,032 23,155,310 32,925,233 31,660,337
4. Increase In Fixed Assets 8,659,875 8,659,875 0 0 0 0
Fixed Investments 8,247,500 8,247,500 0 0 0 0
Pre-production Expenditures 412,375 412,375 0 0 0 0
5. Increase in Current Assets 0 0 8,599,473 1,074,934 1,074,934 0
6. Operating Costs 0 0 16,188,608 18,190,674 20,192,741 20,192,741
7. Corporate Tax Paid 0 0 0 0 8,039,231 8,120,643
8. Interest Paid 0 0 3,543,952 1,628,247 1,356,873 1,085,498
9.Loan Repayments 0 0 0 2,261,455 2,261,455 2,261,455
10.Dividends Paid 0 0 0 0 0 0
Surplus (Deficit) 0 5,294,795 16,031,604 22,390,144 17,620,222 18,339,663
Cumulative Cash Balance 0 5,294,795 21,326,400 43,716,544 61,336,766 79,676,429

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000
Sales Revenue 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 31,470,375 31,353,897 31,163,935 28,712,519 28,712,519 28,712,519
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 20,192,741 20,192,741 20,192,741 20,192,741 20,192,741 20,192,741
7. Corporate Tax Paid 8,202,056 8,356,953 8,438,365 8,519,778 8,519,778 8,519,778
8. Interest Paid 814,124 542,749 271,375 0 0 0
9. Loan Repayments 2,261,455 2,261,455 2,261,455 0 0 0
10.Dividends Paid 0 0 0 0 0 0
Surplus (Deficit) 18,529,625 18,646,103 18,836,065 21,287,481 21,287,481 21,287,481
Cumulative Cash Balance 98,206,054 116,852,157 135,688,222 156,975,703 178,263,185 199,550,666

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 40,000,000 45,000,000 50,000,000 50,000,000

1. Inflow Operation 0 0 40,000,000 45,000,000 50,000,000 50,000,000

Sales Revenue 0 0 40,000,000 45,000,000 50,000,000 50,000,000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 8,659,875 8,659,875 20,424,444 18,720,154 28,761,451 28,313,384

3. Increase in Fixed Assets 8,659,875 8,659,875 0 0 0 0

Fixed Investments 8,247,500 8,247,500 0 0 0 0

Pre-production Expenditures 412,375 412,375 0 0 0 0

4. Increase in Net Working Capital 0 0 4,235,836 529,480 529,480 0

5. Operating Costs 0 0 16,188,608 18,190,674 20,192,741 20,192,741

6. Corporate Tax Paid 0 0 0 0 8,039,231 8,120,643

NET CASH FLOW -8,659,875 -8,659,875 19,575,556 26,279,846 21,238,549 21,686,616

CUMULATIVE NET CASH FLOW -8,659,875 -17,319,750 2,255,806 28,535,652 49,774,201 71,460,817

Net Present Value (at 18%) -8,659,875 -7,338,877 14,058,860 15,994,726 10,954,607 9,479,420

Cumulative Net present Value -8,659,875 -15,998,752 -1,939,892 14,054,833 25,009,440 34,488,860

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000

1. Inflow Operation 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000

Sales Revenue 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 28,394,796 28,549,694 28,631,106 28,712,519 28,712,519 28,712,519

3. Increase in Fixed Assets 0 0 0 0 0 0

Fixed Investments 0 0 0 0 0 0

Pre-production Expenditures 0 0 0 0 0 0

4. Increase in Net Working Capital 0 0 0 0 0 0

5. Operating Costs 20,192,741 20,192,741 20,192,741 20,192,741 20,192,741 20,192,741

6. Corporate Tax Paid 8,202,056 8,356,953 8,438,365 8,519,778 8,519,778 8,519,778

NET CASH FLOW 21,605,204 21,450,306 21,368,894 21,287,481 21,287,481 21,287,481

CUMULATIVE NET CASH FLOW 93,066,021 114,516,327 135,885,221 157,172,702 178,460,184 199,747,665

Net Present Value (at 18%) 8,003,249 6,733,788 5,684,941 4,799,392 4,067,281 3,446,849

Cumulative Net present Value 42,492,109 49,225,897 54,910,838 59,710,230 63,777,512 67,224,360

Net Present Value (at 18%) 67,224,360.10

Internal Rate of Return 87.3%

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

1. Total Income 40,000,000 45,000,000 50,000,000 50,000,000 50,000,000

Sales Revenue 40,000,000 45,000,000 50,000,000 50,000,000 50,000,000
Other Income 0 0 0 0 0
2. Less Variable Cost 15,490,760 17,427,105 19,363,450 19,363,450 19,363,450
VARIABLE MARGIN 24,509,240 27,572,895 30,636,550 30,636,550 30,636,550
(In % of Total Income) 61.27 61.27 61.27 61.27 61.27
3. Less Fixed Costs 2,350,798 2,416,519 2,482,241 2,482,241 2,482,241
OPERATIONAL MARGIN 22,158,442 25,156,376 28,154,309 28,154,309 28,154,309
(In % of Total Income) 55.40 55.90 56.31 56.31 56.31
4. Less Cost of Finance 3,543,952 1,628,247 1,356,873 1,085,498 814,124
5. GROSS PROFIT 18,614,491 23,528,129 26,797,437 27,068,811 27,340,186
6. Income (Corporate) Tax 0 0 8,039,231 8,120,643 8,202,056
7. NET PROFIT 18,614,491 23,528,129 18,758,206 18,948,168 19,138,130
RATIOS (%)
Gross Profit/Sales 46.54% 52.28% 53.59% 54.14% 54.68%
Net Profit After Tax/Sales 46.54% 52.28% 37.52% 37.90% 38.28%
Return on Investment 102.80% 113.91% 88.95% 88.59% 88.23%
Return on Equity 205.78% 260.10% 207.37% 209.47% 211.57%

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 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000

Sales Revenue 50,000,000 50,000,000 50,000,000 50,000,000 50,000,000
Other Income 0 0 0 0 0
2. Less Variable Cost 19,363,450 19,363,450 19,363,450 19,363,450 19,363,450
VARIABLE MARGIN 30,636,550 30,636,550 30,636,550 30,636,550 30,636,550
(In % of Total Income) 61.27 61.27 61.27 61.27 61.27
3. Less Fixed Costs 2,237,291 2,237,291 2,237,291 2,237,291 2,237,291
OPERATIONAL MARGIN 28,399,259 28,399,259 28,399,259 28,399,259 28,399,259
(In % of Total Income) 56.80 56.80 56.80 56.80 56.80
4. Less Cost of Finance 542,749 271,375 0 0 0
5. GROSS PROFIT 27,856,510 28,127,885 28,399,259 28,399,259 28,399,259
6. Income (Corporate) Tax 8,356,953 8,438,365 8,519,778 8,519,778 8,519,778
7. NET PROFIT 19,499,557 19,689,519 19,879,481 19,879,481 19,879,481
RATIOS (%)
Gross Profit/Sales 55.71% 56.26% 56.80% 56.80% 56.80%
Net Profit After Tax/Sales 39.00% 39.38% 39.76% 39.76% 39.76%
Return on Investment 88.63% 88.27% 87.91% 87.91% 87.91%
Return on Equity 215.56% 217.66% 219.76% 219.76% 219.76%

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 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 8,659,875 22,614,545 45,592,672 67,404,801 84,447,006 101,133,720
1. Total Current Assets 0 5,294,795 29,925,872 53,390,951 72,086,106 90,425,770
Inventory on Materials and Supplies 0 0 2,641,679 2,971,889 3,302,098 3,302,098
Work in Progress 0 0 478,887 538,748 598,608 598,608
Finished Products in Stock 0 0 957,773 1,077,495 1,197,217 1,197,217
Accounts Receivable 0 0 4,363,636 4,909,091 5,454,545 5,454,545
Cash in Hand 0 0 157,497 177,184 196,872 196,872
Cash Surplus, Finance Available 0 5,294,795 21,326,400 43,716,544 61,336,766 79,676,429
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 8,659,875 17,319,750 15,666,800 14,013,850 12,360,900 10,707,950
Fixed Investment 0 8,247,500 16,495,000 16,495,000 16,495,000 16,495,000
Construction in Progress 8,247,500 8,247,500 0 0 0 0
Pre-Production Expenditure 412,375 824,750 824,750 824,750 824,750 824,750
Less Accumulated Depreciation 0 0 1,652,950 3,305,900 4,958,850 6,611,800
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 8,659,875 22,614,545 45,592,672 67,404,801 84,447,006 101,133,720
5. Total Current Liabilities 0 0 4,363,636 4,909,091 5,454,545 5,454,545
Accounts Payable 0 0 4,363,636 4,909,091 5,454,545 5,454,545
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 5,195,925 13,568,727 13,568,727 11,307,273 9,045,818 6,784,364
Loan A 5,195,925 13,568,727 13,568,727 11,307,273 9,045,818 6,784,364
Loan B 0 0 0 0 0 0
7. Total Equity Capital 3,463,950 9,045,818 9,045,818 9,045,818 9,045,818 9,045,818
Ordinary Capital 3,463,950 9,045,818 9,045,818 9,045,818 9,045,818 9,045,818
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 18,614,491 42,142,619 60,900,825
9.Net Profit After Tax 0 0 18,614,491 23,528,129 18,758,206 18,948,168
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 18,614,491 23,528,129 18,758,206 18,948,168

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 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 118,010,395 135,248,498 152,676,562 172,556,044 192,435,525 212,315,007
1. Total Current Assets 108,955,395 127,601,498 146,437,562 167,725,044 189,012,525 210,300,007
Inventory on Materials and Supplies 3,302,098 3,302,098 3,302,098 3,302,098 3,302,098 3,302,098
Work in Progress 598,608 598,608 598,608 598,608 598,608 598,608
Finished Products in Stock 1,197,217 1,197,217 1,197,217 1,197,217 1,197,217 1,197,217
Accounts Receivable 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545
Cash in Hand 196,872 196,872 196,872 196,872 196,872 196,872
Cash Surplus, Finance Available 98,206,054 116,852,157 135,688,222 156,975,703 178,263,185 199,550,666
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 9,055,000 7,647,000 6,239,000 4,831,000 3,423,000 2,015,000
Fixed Investment 16,495,000 16,495,000 16,495,000 16,495,000 16,495,000 16,495,000
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 824,750 824,750 824,750 824,750 824,750 824,750
Less Accumulated Depreciation 8,264,750 9,672,750 11,080,750 12,488,750 13,896,750 15,304,750
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 118,010,395 135,248,498 152,676,562 172,556,044 192,435,525 212,315,007
5. Total Current Liabilities 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545
Accounts Payable 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545 5,454,545
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 4,522,909 2,261,455 0 0 0 0
Loan A 4,522,909 2,261,455 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 9,045,818 9,045,818 9,045,818 9,045,818 9,045,818 9,045,818
Ordinary Capital 9,045,818 9,045,818 9,045,818 9,045,818 9,045,818 9,045,818
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 79,848,992 98,987,122 118,486,680 138,176,199 158,055,680 177,935,162
9. Net Profit After Tax 19,138,130 19,499,557 19,689,519 19,879,481 19,879,481 19,879,481
Dividends Payable 0 0 0 0 0 0
Retained Profits 19,138,130 19,499,557 19,689,519 19,879,481 19,879,481 19,879,481

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