You are on page 1of 22

92.

PROFILE ON WHITE AND BLACK BOARD

92-2

TABLE OF CONTENTS
PAGE

I.

I.

SUMMARY

92-3

II.

PRODUCT DESCRIPTION & APPLICATION

92-3

III.

MARKET STUDY AND PLANT CAPACITY


A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

92-4
92-4
92-9

IV.

MATERIALS AND INPUTS


A. RAW AND AUXILIARY MATERIALS
B. UTILITIES

92-10
92-10
92-12

V.

TECHNOLOGY & ENGINEERING

92-12

A. TECHNOLOGY
B. ENGINEERING

92-12
92-13

VI.

MANPOWER & TRAINING REQUIREMENT


A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

92-16
92-16
92-17

VII.

FINANCIAL ANALYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

92-18
92-18
92-19
92-20
92-21

SUMMARY

This profile envisages the establishment of a plant for the production of white and black
boards with a capacity of 5,000 m2 white and 4,500 m2 black boards per annum.
The present demand for the proposed products is estimated at 6,217 pieces for white
boards and 18,095 pieces for blackboards per annum. The demand is expected to reach at
7,502 pieces for white boards and 42,727 pieces for blackboards by the year 2020.

92-3

The total investment requirement is estimated at about Birr 2.45 million, out of which Birr
143.70 thousand is required for plant and machinery. The plant will create employment
opportunities for 18 persons.
The project is financially viable with an internal rate of return (IRR) of 19.63 % and a net
present value (NPV) of Birr 1.32 million, discounted at 8.5%.
II .

PRODUCT DESCRIPTION AND APPLICATION

White Boards are writing boards whose surfaces are made of smooth and usually white and
hard surfaced. They are used as a writing surface for water markers of various colors which
can easily be wiped out. They can be rectangular or square in shape to be easily posted on
a wall surface or on a frame with stationary or wheeled pedestals.
White boards are a modern replacement to traditional black boards. They are utilized in
class rooms, seminars or any other public gathering places. Usage of markers instead of
chalks is suitable for avoiding dusting with white lime although it is more costly.
Black boards are traditionally known writing surfaces made of particle board with smooth
surfaces and mostly painted black color. They can be fixed on walls with different sizes for
fixed class rooms or lecture halls. They can also be mounted on pedestals as fixed or
wheeled stand. The writing material is mostly chalk. Black boards are manufactured in
various sizes. The different sizes and models of white and black board is shown in Table
2.1.
Table 2.1
PRODUCT TYPE

White board
Black board

Standard Size
Size1 - 1.20x2.40
Size2 - 1.20x1.20
Size3 - 1.20x1.60
Size4 - 0.60x0.60

Types
Type1 - Wall mounted
Type2 - Pedestal mounted
Type3 "
" +with wheels
Type4 "
" rotatable

92-4
Type5 -

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

"

"

" + wheels

White and black boards are flat, usually rectangular, objects made of veneer wood, and
plywood materials and are fixed to walls in class rooms, or suspended on pedestals during
seminars, to write on, using ink markers or chalk.
The supply of the raw materials used to make black and white boards for writing is made
available to the Ethiopian market through imports with local manufacture doing the finishing
touch.
a.

Supply of White Board

Supply of white board is through imports; and being made of veneered board, their import
quantity is lumped together with all veneered boards used for other furniture manufacture.
According to information gathered from the Ethiopian Customs Authority, the category in
which the material for white board manufacture falls is the plywood, veneered or laminated
and less than 0.6 mm thick. The quantity of veneered /laminated wood imported form 1997 to
2006 is presented in Table 3.1.
Table 3.1
IMPORT OF VENEERED OR LAMINATED SHEETS OF PLYWOOD
Year
1998
1999
2000

Import (kg)
260,309
302,912
841,503

Value (Birr)
1,582,543
1,089,756
4,089,343

92-5
2001

7,817,265

2,462,502
2002
1,447,018
3,409,971
2003
1,690,419
3,940,769
2004
297231
1,797,101
2005
280,338
1,725,686
2006
90,816
728,526
Total
7,673,048
26,180,960
Source: Ethiopian Customs Authority: Annual External Trade Statistics, unpublished.
According to the same source, plywood sheets laminated with veneer more than 1 mm
thick are classified differently. More over, 3 to 4% of annual shipment of this type of
laminated plywood is suitable for white boards, since tint is the determining factor. Supply
of material for white board form 1998 to 2006, based on the information obtained at
Customs, was calculated, therefore, at 3.5% of average import of veneer laminated board
for the same period.
The average import quantity between 1998 and 2006 was 852,561 kilograms. Mean
average of imports for the same period is also calculated at 782,456kg. The variance is
8.2%. Plain white boards are afterwards cut, usually into one sq. meter sheets and framed
by local wood workshops.
A close look of the above table reveals an upwards trend in import from 1998 to 2001; and
then except for 2002 to 2003, a down ward trend: upwards for the first four years, and then
downwards for the next four.
It can be conjectured from this fact that supply is now on the rise. Assuming a replication
of a similar trend, it can be estimated that current supply of veneer laminated board is
increasing at 16.36% as was recorded between 1998 and 1999; current supply is estimated
to have reached 1,044,721 kilograms.
With white boards constituting 3.5% the supply of veneered/laminated board less than
0.6mm thick, present supply of white board is computed at 29,840 kilograms. At 3.2kg per
square meter, present supply is 9,325 pieces of 1M2 white board.

92-6

b.

Supply of Black Boards

Supply of black boards shares more or less similar features to white boards. They likewise are
not imported in their finished state. There is no specific data regarding the importation of
black boards in the external trade statistics data base. Direct import supply of black boards
can not be determined as a result. Supply from domestic sources is made available through its
manufacture in several mediumsized and small scale furniture workshops. Despite the highly
considerable volume of manufacture and a very wide distribution of black boards, no separate
public record is maintained for this product.
To estimate present supply, therefore the induction method, as was previously applied in the
case of white boards will be applied here.
Black boards are made from particle board sheets, and single layers of ply sheets. The
imported volume of these two categories of wooden sheets are presented in Table 3.2.

Table 3.2
IMPORT OF PARTICLE BOARD AND PLY SHEETS, {KG}

Year
1997
1998
1999

Particle Board
Quantity Value(Birr)
1,315,168
2,867,255
893,204
2,697,476
555,323
1,274,975

Ply wheets
Quantity Value (Birr)
136,380
898,385
605,275
2,360,388
205,591
1,241,958

Total Imports
Quantity
Value (Birr)
1,451,548
3,765,640
1,498,479
5,057,864
1,760,914
2,516,933

92-7
2000
2001
2002
2003
2004
2005
2006
Total

117,094
90,495
14,674
183,985
106,542
327,762
907,861

266,390
324,831
75,252
890,027
489,093
1,060,711
3,995,415

452,109
7,172,148
11,366,641
10,579,357
14,503,353

2,902,082

569,203

3,168,472

32,891,054
46,504994
60,252,331
82,782,331

90,495
7,186,822
11,550,626
106,542
10,907,119
15,411,214
49,532,962

324,831
32,966,306
47,395,021
489,093
61,313,042
86,777,746
243,774,948

Source: Annual External Trade Statistics, unpublished


It must be noted that the bulk of these imports is for the building construction industry
whereby the sheets are used to erect wall partitions in office buildings. The second biggest
consumer of these two types of woods is the wooden furniture industry. It is estimated that
about 2% of these wooden sheets is used locally to make black boards.
Due to the erratic nature of the import data, the average of the last four years of imported
quantity is assumed to be the average annual supply of particle board and ply wooden sheets.
Accordingly, average annual supply of these materials is estimated at 9,498,875 kilograms.
At 2% share, the supply of particle board and ply sheets to be used for manufacture of
black boards is 189,976 kilograms. At 7.0 kg per 2m2 of black board, present supply
estimate of black boards stands at 27,140 pieces.

92-8

Local furniture factories do not specialize in conversion of these semi processed inputs into
the finished product. Conversion capacity of these furniture factories is estimated at 1/3 of
the semi processed items they import. Output capacity of local wood workshops, is thus,
calculated at:
-

3,108 pieces of 1m2 white boards,

9,045 pieces of 2m2 black boards.

Supply gap is 6,217 pieces for white boards and 18,095 pieces for blackboards.
2.

Projected Demand

The education sector is probably the only significant end user of black boards. The education
sector is growing at 3.8% rate every year. This is the rate applied to project future demand for
black boards. In addition to this, there is expected to be occurrences of wear and tear of black
boards already in use.
In Ethiopia today, according to information obtained from the Ministry of Education, there are
around 15,486 grades 1-8 schools and 672 grades 9-12 schools, with 113,345 and 10,290
sections respectively. Altogether, there are 123,635 sections; meaning that at least 123,635
black boards are in use. Assuming that it takes 10 years to replace a unit of blackboard,
replacement rate for the coming 10 years is, therefore, 10%; or 12,363 pieces per annum.
Government and private sector offices fix white boards to walls using them as schedule
boards for employees to see. Colleges prefer whiteboards to blackboards, thereby avoiding
having to use chalk. Training workshops and seminars use whiteboards for presentations.
Eqoubs use them to post weekly collection amounts.
Frequency of seminars and usage by Eqoubs is not expected to increase in the coming years.
The use of whiteboard for office program scheduling is, however, expected to increase at 5%
rate every year. Estimates based on information gathered among public and private, NGO, etc.
offices place demand by these institutions comprises only 2,330 pieces of the overall demand
of 9,325 pieces which is about 25% of total demand for whiteboards. Future demand for white
board is, therefore, expected to increase at 1.25% per annum.

92-9

Table 3.3 depicts the projected future demand for both white and black boards.
Table 3.3
PROJECTED DEMAND FOR WHITE & BLACK BOARDS (Pieces)

Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
3.

Projected Demand for Black boards


New
Replacement
Existing
Supply
Demand
Demand
Capacity
Gap
28,171
12,365
9,045
31,491
29,242
12,365
9,045
32,562
30,350
12,365
9,045
33,670
31,506
12,365
9,045
34,826
32,703
12,365
9,045
36,023
33,946
12,365
9,045
37,266
35,236
12,365
9,045
38,556
36,575
12,365
9,045
39,895
37,965
12,365
9,045
41,285
39,407
12,365
9,045
42,727

White Boards
Forecast
Existing Supply
Demand
Capacity
Gap
9,446
3,108
6,338
9,569
3,108
6,461
9,693
3,108
6,585
9,819
3,108
6,711
9,947
3,108
6,839
10,076
3,108
6,968
10,207
3,108
7,099
10,340
3,108
7,232
10,474
3,108
7,366
10,610
3,108
7,502

Pricing and Distribution

Current market price for a sq. meter of white board is between Birr 480 to 600 at retail,
depending on quality, where as the retail price of a standard school type black board ranges
from Birr 85 120 a piece.
With a combined profit margin of 25% allowed to wholesalers and retailers, a manufacturer
should sell a white board for Birr 432 and a black board for Birr 82 a piece. White boards can
be distributed through whole sellers of stationery items whereas black boards have to be sold
ex-factory.
B. PLANT CAPACITY & PRODUCTION PROGRAMME
1.

Plant Capacity

The annual production capacity of white and black boards of assorted types for the
envisaged plant is 5000 sq.mt.(3600pcs) of white board and 4500 sq. mt (3300pcs) of
black board . The plant will operate single shift of 8 hrs, 300 days per annum.

92-10

2.

Production Programme

The envisaged project will start production at 75% of its full capacity in the first year.
Then, it will build up to 85%, 95% and full capacity in the 2nd, 3rd and 4th year and then
after.
Table 3.4
ANNUAL PRODUCTION PROGRAMME FOR WHITE AND BLACK BOARDS

Year
white board(pcs)
black board (pcs.)
Capacity utilization %

1
2,700

2
3,060

3
3,420

2,475
75

2,805
85

3,135
95

IV.

MATERIALS AND INPUTS

A.

RAW & AUXILIARY MATERIALS

4-10
3,600
3,300
100

Most of the raw materials are available from local markets .The main raw materials are
indicated in Table 4.1.

92-11

Table 4.1
RAW & AUXILIARY & MATERIALS REQUIREMENT & COST
Description
1
1.1
1.2
1.3
1.4
1.5
2
2.1
2.2
2.3
2.4

3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8

White Boards
Wood
White Formica
Chipwood
R.H.S
Castor Wheel
Black Boards
1.Wood
2. R.H.S
3. Hard board
4.Chipwood
Sub-Total
(Auxiliary materials )
White Boards
Self tapping screw
Nail 5cms
Paint
Electrodes 2.5mm
Coolant liquid
Wood glue
Plastic glue
Aluminum sht metal/0.8
Black Boards
Self tapping screw
Nail 5cms
Paint
Electrodes 2.5mm
Coolant liquid
Wood glue
Plastic glue
Aluminum sht metal/0.8
Sub-Total
Grand Total

Annual
Inputs

Unit
Cost(Birr)

Total Cost
( Birr )

3,600
3,600
3,600
14,400
14,400

30
35
34
15
6

108,000
126,000
122,400
216,000
86,400

3,600
3,600
3,600
14,400

30
35
25
15

108,000
126,000
90,000
216,000
1,198,800

312 Pkt
624 Kg
312 Kg
156 Kg
312 lit
312 lit
312 lit
312 pcs

30
10
20
27
10
40
45
200

9,360
6,240
6,240
4,212
3,120
12,480
14,040
62,400

312 Pkt
624 Kg
312 Kg
156 Kg
312 lit
312 lit
312 lit
312 pcs

30
10
20
27
10
40
45
200

9,360
6,240
6,240
4,212
3,120
12,480
14,040
62,400
236,184
1,434,984

92-12

B. UTILITIES
The major utilities required by the envisaged factory are electricity and water. The required
quantities of these utilities are indicated below in Table 4.2.
Table 4.2
UTILITIES REQUIREMENT AND COST
Sr.
No

Utility

Unit

Qty.

Cost ( Birr )

Electricity

kWh

748.8

35,642

Water

m3

7,488

24,336

Total

V. TECHNOLOGY AND ENGINEERING


A.

TECHNOLOGY

1.

Process Description

- White Board Manufacturing Process


Wood cutting on circular saw, cutting to Size, Sanding.
Chip wood cutting to necessary size on circular saw.
Formica Cutting to Size.
Nailing, Screw fastening, Gluing, Pressing, Assembling.
Metal frame preparing, Welding, Assembly of all parts.
Painting, Drying, Packing & storing.
-

Black Board Manufacturing Process Flow Chart

59,978

92-13

Wood cutting on circular saw, cutting to Size, Sanding.


Cheep wood cutting to necessary size on circular saw.
Nailing, Screw fastening, Gluing, Pressing, Assembling.
Metal frame preparing, Welding, Assembly of all parts.
Painting, Drying, Packing & storing.
By- Products:-The process has a dusty and noisy working atmosphere in- doors. Although
it is non toxic personal protective equipment such as nose mask, goggle and ear plug are
essential for protection from the dust and high noise. The main by product in the process is
saw dust and wooden shavings this by product is mostly sold for fuel.
The process does not have adverse effect on the environment.
2.

Source of Technology

All of the required machinery for the plant are locally available.
B.

ENGINEERING

1.

Machinery and Equipment

The production process requires careful manual work on the machinery. Hence, manual
skill in control of the machinery is very essential for having quality products. The list of
machines is shown in Table 5.1.

92-14

Table 5.1
MACHINERY & EQUIPMENT REQUIREMENT AND COST

2.

Sr.
No.

Name of Machine

Qty.

Type

1
2
3
4
5
6
7
8
9
10
11
12
13
14

Circular saw
Jointer
Facer
Shaper
Sander
Hot Press
Pillar Drill Machine
Hand tools
Cross cutting saw
Welding machine
Hand grinder
Hand Drilling Machine
Pillar Drilling Machine
Trolleys and handling equipment

1
1
1
1
1
1
1
set
1
1
2
2
1
3

6"Dia. saw,3hp
6"wide cutters 2hp
6"wide cutters 2hp
10" 2.5hp
2.5 hp
5kW
13mm chuck 1hp
Assorted
16"Dia saw 2hp
2-4Dia,10kW
6000rpm, 0.5hp
12mmdia,700w
13mm chuck 1hp

15

Hand Tools
Grand Total

set

Total Price
(Birr )
30,000
27,000
25,000
12,000
10,000
5,000
5,000
10,000
7,000
2,000
2,400
1200
1,200
900
5,000
143,700

Land, Building and Civil Works

The total area requirement of the project is estimated at 450 m 2, of which the built up area
is 250 m2. Out of this, 150m2 is covered by production hall, 60m2 for store and 40m2 for
office purpose. The total cost of building at a cost of Birr 2,300 m. sq. is Birr 575,000.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No. 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease prices.
The lease period ranges from 99 years for education, cultural research health, sport, NGO,
religious and residential area to 80 years for industry and 70 years for trade while the

92-15

lease payment period ranges from 10 years to 60 years based on the towns grade and type
of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay
in installments will be charged interest based on the prevailing interest rate of banks.
Moreover, based on the type of investment, two to seven years grace period shall also be
provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention


measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is blow
5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However, if
the land request is above 5,000 m 2 the request is evaluated by the Citys Investment
Authority and passed with recommendation to the Land Development and Administration
Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For example,
a land was allocated with a lease price of Birr 284 /m 2 in Akakai-Kalti and Birr 341/ m 2 in
Lebu and recently the citys Investment Agency has proposed a lease price of Birr 346 per
m2 for all industrial zones.

92-16

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for this
profile, which is a manufacturing project a land lease rate of Birr 346 per m2 is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc. Accordingly,
Table 5.2 shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
Period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Payment
10%
10%
10%

For the purpose of this project profile the average, i.e., five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years.
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 9.34 million of which 10% or Birr 934,200 will be paid in advance. The
remaining Birr 8.41 million will be paid in equal installments with in 28 years, i.e., Birr
300,279 annually.
V.
A.

MANPOWER AND TRAINING REQUIREMENT


MANPOWER REQUIREMENT

The man power and the skill required is available in the country .the production
technology course is offered in many technical schools. There are also highly skilled
technical workers available but with out any formal academic training. The workers can

92-17

also serve in this project after a few orientation. The essential workers required and the
related cost is shown in Table 6.1.
B.

TRAINING REQUIREMENT

No training is required to run the plant. Skilled operators to be recruited will be TVET
graduates.
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST (BIRR)

Sr.
No.
1
2
3
4
5
6
7
8
9
10
11

VII.

Description
General Manager
Administrator & General
Service.
Cashier
Accountant
Store Keeper
Secretary
W Shop Head
Foreman
Welder
Helper
Labour
Guard
Sub-Total
Employees benefit(25% of
basic salary)
Total
FINANCIAL ANALYSIS

Req.
No.
1
1
1
1
1
1
1
1
3
3
2
2

18

Monthly
Salary
2,200
1,800
600
1,200
600
700
1,200
900
2,100
1,500
700
700

Annual
Salary
26,400
21,600
7,200
14,400
7,200
8,400
14,400
10,800
25,200
18,000
8,400
8,400
170,400
42,600
213,000

The financial analysis of the white and black board project is based on the data presented
in the previous chapters and the following assumptions:Construction period

1 year

92-18

Source of finance

30 % equity
70 % loan

Tax holidays

2 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Work in progress

1 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

3% of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 2.45
million. The major breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.

Cost Items

Local
Cost

Foreign
Cost

Total
Cost

Land lease value

934.20

934.20

Building and Civil Work

575.00

575.00

92-19
3

143.70

75.00

75.00

4
5

Vehicle

250.00

250.00

Pre-production Expenditure*

191.21

191.21

Working Capital

286.65

286.65

2,455.76

2,455.76

Total Investment cost


*

143.70

Plant Machinery and Equipment


Office Furniture and Equipment

N.B Pre-production expenditure includes interest during construction ( Birr 116.21


thousand) and Birr 75 thousand costs of registration, licensing and formation of the
company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 1.97
million (see Table 7.2).

The raw material cost accounts for 72.59 per cent of the

production cost. The other major components of the production cost are direct labour,
depreciation and financial cost which account for 6.47%, 5.85% and 4.69 % respectively.
The remaining 10.40 % is the share of repair and maintenance, utility, labour overhead and
other administration cost.

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair

Cost

1,434.98
59.98

72.59
3.03

7.19

0.36

92-20
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

127.80

6.47

53.25
85.20

2.69
4.31

1,768.40
115.62

89.46

92.71

4.69

1,976.73

100

5.85

Total Production Cost

C.

FINANCIAL EVALUATION

1.

Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 312.92 thousand to
Birr 425.82 thousand during the life of the project. Moreover, at the end of the project life
the accumulated cash flow amounts to Birr 3.39 million.
2.

Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.
3.

Break-even Analysis

92-21

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the breakeven point of the project including cost of finance when it starts to operate at full capacity
( year 3) is estimated by using income statement projection.
BE =

Fixed Cost

28 %

Sales Variable Cost


4.

Payback Period

The pay back period, also called pay off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the projects
initial investment will be fully recovered within 5 years.
5.

Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way, the
internal rate of return for an investment is the discount rate that makes the net present value
of the investment's income stream total to zero. It is an indicator of the efficiency or quality
of an investment. A project is a good investment proposition if its IRR is greater than the
rate of return that could be earned by alternate investments or putting the money in a bank
account. Accordingly, the IRR of this porject is computed to be 19.63 % indicating the
vaiability of the project.
6.

Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time series
of cash flows. NPV aggregates cash flows that occur during different periods of time
during the life of a project in to a common measuring unit i.e. present value.

It is a

standard method for using the time value of money to appraise long-term projects. NPV is
an indicator of how much value an investment or project adds to the capital invested. In

92-22

principal a project is accepted if the NPV is non-negative. Accordingly, the net present
value of the project at 8.5% discount rate is found to be Birr 1.32 million which is
acceptable.

D.

ECONOMIC BENEFITS

The project can create employment for 18 persons. In addition to supply of the domestic
needs, the project will generate Birr 671 thousand in terms of tax revenue.

The

establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.