12.

PROFILE ON SOYA SAUCE BREWING

 12-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 12-3

II. PRODUCT DESCRIPTION & APPLICATION 12-3

III. MARKET STUDY AND PLANT CAPACITY 12-4

A. MARKET STUDY 12-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 12-7

IV. MATERIALS AND INPUTS 12-8

A. RAW & AUXILIARY MATERIALS 12-8
B. UTILITIES 12-11

V. TECHNOLOGY & ENGINEERING 12-11

A. TECHNOLOGY 12-11
B. ENGINEERING 12-13

VI. MANPOWER & TRAINING REQUIREMENT 12-17

A. MANPOWER REQUIREMENT 12-17
B. TRAINING REQUIREMENT 12-19

VII. FINANCIAL ANLYSIS 12-19

A. TOTAL INITIAL INVESTMENT COST 12-19
B. PRODUCTION COST 12-20
C. FINANCIAL EVALUATION 12-21
D. ECONOMIC BENEFITS 12-23

I. SUMMARY

This profile envisages the establishment of a plant for the production of soya sauce
with a capacity of 67,000 litters per annum.

Major raw materials are soya bean or de-fatted soya bean, wheat, and salt, which are all
locally available.

The present demand for the proposed product is estimated at 38.71 tonnes per annum.
The demand is expected to reach at 192.97 tonnes by the year 2022.
 12-3

The total investment requirement is estimated at about Birr 8.93 million, out of which
Birr 220.46 thousand is required for plant and machinery. The plant will create
employment opportunities for 43 persons.

The project is financially viable with an internal rate of return (IRR) of 20.48 % and a net
present value (NPV) of Birr 3.35 million, discounted at 8.5%.

The plant will have a backward linkage effect with the agriculture sector. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.

II. PRODUCT DESCRIPTION AND APPLICATION

Soya sauce is a product made from soya beans. It contains exceptional natural delicacy
which is brought forth by the intervention of all sorts of amino acids originating from
their brewing and melting with other ingredients.
 12-4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Soya sauce is a product made from soya beans. It contains exceptional natural delicacy
which is brought forth by the intervention of all sorts of amino acids originating from
their brewing and melting with other ingredients.

Presently, there is no local production of soya sauce; therefore demand for the product is
met through imports. It is imported into the country in bottles same as tomato ketchup
bottles.

The supply of soya sauce through imports was made possible initially because foreigners
needed to have it. At the beginning, it was not in the menu of Ethiopian nationals since
soya sauce was not in the list of their culinary considerations. Now-a-days, however, the
occasional consumption of soya sauce by Ethiopians of the urban middle class became an
ordinary occurrence. The rise in imports from 2 tonnes in year 1997 to 51 tonnes in year
2006 attests to the foregoing postulation (see Table 3.1) .

Table 3.1

IMPORT OF SOYA SAUCE (KG)

Year Import
1997 1,979
1998 6,724
1999 7,957
2000 3,920
2001 12,604
2002 8,437
2003 14,723
2004 50,428
2005 14,743
2006 50,968
Average 17,248.3
Source: Customs Authority: Annual External Trade Statistics; Unpublished.
 12-5

The average import of soya sauce from 1997 to 2006 is 17,248.30kg. The modest
increases in 2001-2002 from the previous 4 years and the steep rises in volume from
2003 and 2006 particularly in 2004 and 2006 is an indication that a food consumption
pattern adopting soya sauce is rapidly developing in urban Ethiopia.

A review of the import data from 2003-2006 gives the impression that the sharp increases
in 2004 and 2006 were probably intended to augment supply shortages in the
immediately preceding years 2003 and 2005. It can be deduced from this postulation that
the average of the 2004-2006 imports reflects demand for soya sauce as of 2006.

With increase of disposable income and growing palate for the delicacy of soya sauce
governing demand, the supply of and/or demand for soya sauce for 2008 is estimated to
be 47,700 kg which increased by 11% from the average import of the period 2004-2006
which was 38,713 kg.

2. Projected Demand

It has been stated earlier that brewed soya sauce as nutritious food is gaining increasing
recognition among urban dwellers; particularly among above average income groups.

Regarding determination of future demand for soya sauce, both income and awareness
factors play the major roles. If increase in demand due to increase in disposable income
attributes an 11.0% increase and awareness contributes 4.0%, future demand for soya
sauce is assumed to increase at annual rate of 15.0% for the coming ten years (see Table
3.2.).
 12-6

Table 3.2
DEMAND FORECAST FOR BREWED SOYA SAUCE (KG)

Year Forecasted
Demand
2009 54,855
2010 63,083
2011 72,546
2012 83,427
2013 95,942
2014 110,333
2015 126,883
2016 145,945
2017 167,803
2018 192,973

3. Pricing and Distribution

Brewed soya sauce filled and packed in a 250 grams-holding-capacity bottle is currently
sold at Birr 16.00 on retail. A kilogram of soya sauce packed in 4 bottles is, therefore,
sold for Birr 64.00 per kg. Allowing a 25% margin for wholesalers and retailers, a factory
gate selling price of Birr 48.00/kg is recommended.

Being a food item itself and used in flavoring cooked food, soya sauce may be distributed
either directly to big hotels or super markets. The best distribution mechanism would,
however, be wholesalers specializing in distribution of processed and packed or canned
food items.

It is assumed that a local manufacturer will satisfy at least 60% of the demand for soya
sauce; and be prepared to meet the challenges of competition from imported products
both in quality and selling price terms.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

 12-7

1. Plant Capacity

Based on the market study, the production capacity of the envisaged soya sauce plant is
67,000 liters per year. The plant is expected to work for 288 days per annum and in a
single shift of 8 hours per day.

2. Production Programme

The annual production programme is formulated on the basis of the market forecast and
selected plant capacity. It is assumed that the plant will achieve 70% and 85% capacity
utilization rate in the first and second year and full capacity will be attained in the third
year and onwards. The production programme for soya sauce is shown below on Table
3.3.

Table 3.3
PRODUCTION PROGRAMME

Sr. Description Production Programme

st
1 year 2nd year 3rd year
No.
1 Capacity utilization rate 70 85 100
[%]
2 Soya sauce production 46,900 56,950 67,000
[liter/year]

IV. MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIALS

1. Main Raw Materials

 12-8

The three main ingredients used in the production of soya sauce are soya bean, wheat,
and salt. The major raw materials soya bean and wheat are locally available in the
neighboring regions such as SNNPRS and Oromia Regional State while salt can be
sourced from Afar region, Afdera.

During the production process, the three raw materials are mixed in different ratio at
different production steps. That is soya bean: wheat is 9:1, and soya bean +wheat: salt is
1.5:1. Considering full capacity utilization, raw material consumption is given in Table
4.1.
Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT AND COST ESTIMATES

Sr. Description Rate Of Raw Material Amount Raw Unit Total

No. Consumption Per Material Per Price Per Price
Product [Tonnes/m3] Year Kg [Birr]
[Kg] [Birr]
1 Soya bean 0.281 2,100 7.00 14,700
2 Wheat 0.0312 18,830 7.00 131,810
3 Salt 0.164 13,000 1.50 19,500
Grand Total 166,010

2. Auxiliary Materials

The major auxiliary material in soya sauce production is filling bottle, carton box and
scotch tape.

a) Filling bottles

Regarding filling bottles capacity, the one with 250ml (0.25lit) is fast running in market
than the one with 1 lit and above capacity. This can be due to handiness and easiness in
handling the container and consumer friendly structure and design of the bottles.
Therefore, 85% and 15% will be packed in 0.25,lit and 1 lit capacity bottles, respectively.
 12-9

Taking the 100 % capacity utilization rate, the required filling bottle consumption is
given in Table 4.2.
Table 4.2
ANNUAL FILLING BOTTLE REQUIREMENT AND ITS COST ESTIMATES

Sr. Packaging Total Soya Number Bottle Total Unite Total Cost
No. Capacity Sauce of Breakage Number Price [Birr]
[Lit] Production Bottles Allowance of [Birr]
Per Year Required 2% Bottles
[Lit/Yr] Required
1 0.250 56,950 227,800 4,556 232,356 2.85 662,214.60
2 1.00 10,050 10,050 201 10,250 5.10 52,280.10
Grand Total 714,494.70

b) Carton box

The quantity and cost of ideal carton box size which is suitable to pack the two types of
bottle capacity is estimated at 100% capacity utilization rate of the plant in Table 4.3.

Table 4.3
ANNUAL REQUIREMENT OF CARTON BOX AND COST ESTIMATE

Sr. Packaging Volume Number Carton Amount Annual Carton Unit Total
No. Capacity of The of Size of Production Box Price Price
[Lit] Bottle Bottles Lxwxh Product Per [Birr] [Birr]
[Cm3] * Per Box [Cm] Per Box Annum
[Lit]
1 0.250 294.5 4x5=20 28x23x15 5 56,950 11,390 2.25 25,627.50
 12-10

2 1.00 1150 3x4=12 30x23x30 12 10,050 838 3.75 3,142.50

Grand Total 28,770.00

* The volume of the bottles is estimated by adding 15% unfilled space above the
product

c) Scotch tape

The estimated scotch tape amount and its cost at 100% capacity utilization rate re given
in Table 4.4.
Table 4.4
ANNUAL REQUIREMENT OF SCOTCH TAPE AND COST ESTIMATE

Packaging Carton Length of Length Estimated Total Length Required Unit Total
Capacity Box Scotch of Waste Length of One Number Price Price
[Lit] Per Tape Scotch Amount of Role of Roles of of
Annum Needed Tape [0.5%) Scotch Scotch One Roles
to Seal Needed [M] Tape Tape Role [Birr]
One Per Yr Needed [M] [Birr]
Carton* [M] [M]
[M]
0.250 11,390 0.76 8,656.4 43.8 8,700 18 483 25 12,075
1.00 838 0.8 670.4 3.35 674 18 37 25 925
Grand total 13,000
* The length of scotch tape required per carton box is estimated considering the total length and 10cm
tolerance of the length side of the box..
B. UTILITIES

Electricity, water, and furnace oil are the three major utilities for production process of
soya sauce. The annual consumption and cost estimates at full plant capacity utilization is
given in Table 4.5.
Table 4.5
ANNUAL UTILITIES REQUIREMENT AND ESTIMATED COST

Sr. Description Unit of Qty/Yr Unit Cost Total Cost

No. Measure [Birr]
 12-11

1 Electricity kWh 420,500 0.4736 198,912

2 Furnace oil liter 536 5.84 600,000
3 Water m3 100 3.25 325
Grand Total 704,754

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

Soyabean (or defatted soyabean): the most important raw material for soya sauce
protein, is heated by steam so that soya sauce koji of Aspergillus Oryzae will easily work
on protein. The quality and yield (Availability of nitrogen in raw material to product) of
soya sauce are swayed by this treatment. High temperature, high pressure, short time
treatment will greatly improve the quality and yield of the product. After being steamed,
the soya bean is cooled in a cooler down to the designated temperature.

Wheat: another important raw material of soya sauce is heat treated indirectly to produce
alfa-starch so that enzyme will work on it easily. Usually heated sand is used for roasting
the wheat, then the wheat is cooled in a cooler to the designated temperature, and finally
the wheat is crushed by a crusher.

The two kinds of treated raw material are seeded and taken into the koji room. The
treatment and humidity are controlled artificially to promote growth of koji fungus, and
koji is made in two days.

Salt: the third raw material of soya sauce, is dissolved in water to make saturated solution
of salt. After adjusting the concentration of the saturated solution of salt made it is cooled
in a refrigerator to the designated temperature. Then it is mixed with the koji and
fermented in the fermentation tank.
 12-12

The koji and solution of salt fermented in the fermentation tank become moromi
(soyabean and wheat which are under fermentation). The moromi is kept under control
for a long period of time in a suitable temperature so that it is matured by the action of
enzyme, lactobacilli, yeast fungus, etc.

The matured moromi is pressed and separated into raw soya sauce and cake. The raw
soya sauce is cooled in a refrigerator and stored in low temperature. The raw soya sauce
is sweetened or other additives are added, depending on the tastes of consumers. It is
pasteurized by heating and then stored for a fixed period of time for sediment separation.

Next, the clear soya sauce is further filtered through a filter and made into beautiful,
highly fragrant, and tasty soya sauce. Finally, the completed soya sauce is filled in glass
bottles or plastic containers by the bottling machine, labeled, and dispatched. The
production process does not have any adverse impact on environment.

2. Source of Technology

Machinery and technology for production of soya sauce can be obtained from a number
of suppliers. The one listed below are few of soya based product production plant
manufactures.

1. Alfa Laval South East Asia Pte. Ltd. (SINGAPORE)

11 Joo Koon Circle, Jurong, Singapore 629043
Ph : 6559 2828 ; Fax : 6862 3567
Email: al.singapore@alfalaval.com
Website : www.alfalaval.com.sg
 12-13

2. Cottor International (INDIA)

706 Acme Plaza, Andheri-Kurla Road,
Opp. Sangam Talkies, Andheri(E),
Mumbai-400059, India
Tel: +91 (22) 2826 4201/2/3/4 Fax: +91 (22) 2834 6161

B. ENGINEERING

1. Machinery and Equipment

The total cost of machinery and equipments estimated to be Birr 225,900, out of which
Birr 194,849 will be required in foreign currency. Detail list of machinery and equipment
and their cost estimates are given in Table 5.1.
 12-14

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND ESTIMATED COST

Sr. Description Qty. Unit Cost Total Cost [Birr]

No. [Birr] F.C L.C Total
1 Raw material storage 1 11,295.03 9,036.024. 2,259.01 11,295.03
equipment and
Accessories
2 Soyabean treatment 1 31,626.09 25,300.87 6,325.22 31,626.09
equipment and
Accessories
3 Wheat treatment 1 36,144.09 28,915.27 7,228.82 36,144.09
equipment and
Accessories
4 Mixing and heaping 1 9,036.02 8,132.42 903.6 9,036.02
equipment and
Accessories
5 Automatic koji making 1 13,554.03 12,198.63 1,355.4 13,554.03
equipment and
Accessories
6 Koji mixing and 1 13,554.03 12,876.328 677.702 13,554.03
transporting equipment
and accessories
7 Salt water dissolving 1 9,036.02 8,855.30 180.72 9,036.02
equipment and
Accessories
8 Moromi fermenting 1 20,331.05 20,331.05 - 20,331.05
equipment and
Accessories
9 Moromi pressing 1 24,849.06 24,600.57 248.49 24,849.06
equipment and
Accessories
10 Raw soya sauce storage 1 6,777.02 656.71 6,120.31 6,777.02
and cooling equipment
and Accessories
11 Pasteurization and 1 15,813.04 15,496.78 316.26 15,813.04
filtration equipment and
Accessories
12 Automatic bottling 1 30,708.07 30,708.07 - 30,708.07
equipment and
Accessories
13 Boiler and accessories 1 6,777.02 6,777.02 - 6,777.02
Grand Total 194,849.018 25,615.53 220,464.55
 12-15

2. Land, Building and Civil Works

The total land required for soya sauce production plant is 2000 m2. The total built up area
is estimated at 1500 m2. Out of the total built up area, 800m 2 will be used for production
facility, 400m2 for store and 300m2 for office building. The total cost of building and civil
works at the rate of birr 2300 per m2 is estimated at birr 3,450,000.

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 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
 12-16

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 m2 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 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the citys Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.

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 the
this profile since it is a manufacturing project a land lease rate of Birr 346 per m 2 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.
 12-17

Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Payment Down
Grace Completion Paymen
Scored point period Period t
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile the average i.e. five years grace period, 28 years
payment completion period and 10% down payment is used. The 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 41.52 million of which 10% or Birr 4,152,000 will be paid in advance.
The remaining Birr 37.37 million will be paid in equal installments with in 28 years i.e.
Birr 1,334,571 annually.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The total manpower required is 43.This includes skilled and unskilled labor. As shown in
Table 6.1, the corresponding annual labor cost is estimated to be Birr 756,750.
 12-18

Table 6.1
MANPOWER REQUIREMENT AND ESTIMATED LABOR COSTS

Sr. Description Req. Monthly Salary Annual Salary

No. No. [Birr] [Birr]
1 Managing Director 1 4,000 48,000
2 Secretary of MD 1 1,000 12,000
3 Finance and Administration Head 1 3,000 36,000
4 Accountants 2 3,000 36,000
5 Personnel 1 1500 18,000
6 Commercial Head 1 3,000 36,000
7 Sales personnel 2 3,000 36,000
8 Purchaser 1 1,500 18,000
9 Production Head 1 2,500 30,000
10 Shift leaders 1 1,500 18,000
11 Operators 16 12,800 153,600
12 Technique head 1 2,500 30,000
13 Mechanic 2 2,000 24,000
14 Electrician 2 2,000 24,000
15 Quality control head 1 2,000 24,000
16 Chemists 2 2,400 28,800
17 Drivers 2 1,000 12,000
18 Guards 2 700 8,400
19 Cleaners 3 1,050 12,600
Sub Total 43 605,400
Employees benefit(25% of basic
salary) 151,350
Total 756,750

B. TRAINING REQUIREMENT

On the job training can be arranged for those skilled labours who are mainly engaged on
production, quality control and technique departments. The total estimated training cost is
Birr 80,000.
 12-19

VII. FINANCIAL ANALYSIS

The financial analysis of the soya sauce project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 10 days
Work in progress 3 days
Finished products 10 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
8.93 million, of which 2 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)

Sr. Cost Items Local Foreign Total

No. Cost Cost Cost
 12-20

1 Land lease value 4,152.00 - 4,152.00

2 Building and Civil Work 3,450.00 - 3,450.00
3 Plant Machinery and Equipment 25.6 194.8 220.46
4 Office Furniture and Equipment 100.00 - 100.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 356.37 - 356.37
7 Working Capital 203.45 - 203.45
Total Investment cost 8,737.44 194.85 8,932.28

* N.B Pre-production expenditure includes interest during construction ( Birr 176.37

thousand), training ( Birr 80,000) and Birr 150 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 2.96
million (see Table 7.2). The raw material cost accounts for 31.10 per cent of the
production cost. The other major components of the production utility, direct labour and
depreciation which account for 23.77 %, 12.25% and 12.04 % respectively. The
remaining 20.85 % is the share of repair and maintenance, labour overhead, financial cost
and other administration cost.

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs
921.97 31.10
 12-21

Utilities 704.75 23.77

Maintenance and repair
11.02 0.37
Labour direct 363.24 12.25
Labour overheads
151.35 5.10
Administration Costs 242.16 8.17
Land lease cost
- -
Total Operating Costs 2,394.49 80.76
Depreciation 356.9 12.04
Cost of Finance 213.6 7.20
Total Production Cost
2,964.94 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 969.98 thousand to
Birr 1.01 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 12.48 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.
 12-22

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point 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 = 31 %
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 20.48 %
indicating the vaiability of the project.

6. Net Present Value

 12-23

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
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 3.35 million which is acceptable.

D. ECONOMIC BENEFITS

The project can create employment for 43 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.73 million 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.