Investment Office ANRS

Project Profile on the Establishment of Laundry

soap producing plant

Development Studies Associates

(DSA)

October 2016
Bahir Dar
 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 4
3.1.3 Pricing and Distribution 5
3.2 Plant Capacity 5
3.3 Production Program 5
4. Raw Materials and Utilities..............................................................5
4.1 Availability and Source of Raw materials 5
4.2 Annual Requirement and Cost of Raw Materials and Utilities 5
5. Location and Site...............................................................................6
6. Technology and Engineering............................................................7
6.1 Production Process 7
6.2 Machinery and Equipment 8
6.3 Civil Engineering Cost 9
7. Human Resource and Training Requirement..............................10
7.1 Human Resource 10
7.2 Training Requirement 10
8. Financial Analysis............................................................................11
8.1 Underlying Assumption 11
8.2 Investment 12
8.3 Production Costs 12
8.4 Financial Evaluation 13
9. Economic and Social Benefit and Justification.............................14
ANNEXES..............................................................................................16
1. Executive Summary
This profile envisages the establishment of a plant for the production of 2475 quintals of laundry
soap per year in Amhara’s Regional State.

The present demand for laundry soap at country level is estimated at 33,789 tons per annum. The
proposed plant output is assumed to be marketed in Amhara Region so that demand for laundry
soap is projected to the Region. Thus demand at regional level is expected to grow to 37,453 tons
and 45,540 tons by year 2001and 2010, respectively.

The total investment requirement is estimated at Birr 7.56 million out of which 26.7% is in
foreign currency.

The plant will create employment opportunities for 27 persons.

The project is financially viable with an internal rate of return (IRR) of 41.2% and a net present
value (NPV) of Birr 5.13 million at 18 % discount rate.

2. Product Description and Application

Soap, a product with a 5,000 year history, remains an essential ingredient in modern living, used
daily for medicinal and laundry purposes, for household cleansing and personal hygiene. Until
fairly recently its production remained a primitive art, its manufacture being essentially the
treatment of fat with alkali, a chemical process which is the same whether production is done in a
backyard or in a factory. The simplicity of the process has led to its worldwide practice as a
small business operation. Large factory operations are exclusively based on the modern
continuous process, which produces soap in only 15 minutes but requires machinery that is
expensive, and demands close production control, a very large output is required to be
economical.

1
Soap can still be effectively manufactured by the traditional batching method, which is a week-
long, slow, open-vessel process that requires supervision to ensure a good product, but can be
undertaken by relatively unskilled operators. Initial startup operations typically employ the batch
process until the economies of production are developed and the market demand requires
investment in the more expensive continuous process.

Though the batch process requires very little training and skill to produce a crude soap, higher
qualities are easy to achieve with closer control. Digital timing and sensor technologies are cheap
and increasingly accessible and will introduce sophistication in the areas of temperature control
and timing.

The main ingredients are fat, alkalis and fuel. Fat can be obtained from numerous animal and
vegetable sources, including animal carcasses and vegetable oils.

Synthetic detergents have largely displaced soap as a heavy-duty washing material, but soap -
especially toilet and fine laundry soap - continues to enjoy consumer popularity and is preferred
where soft water is available, whether from natural resources or by treatment.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The health of the population in general and that of Amhara Region in particular depends in
consistent up keeping of cleanness. The laundering and cleaning of cloth and other textile
material should be maintained to fight disease coming from dirt and insects. Laundry soap is
used mainly for cleaning clothes. But the consumption of soap both in urban and rural areas is
very low in the region and the country at large. The level of consumption is rated among the
lowest in the world. So, there is high need of manufacturing of laundry soap in the region
because of the absence of laundry soap making plant that can satisfy the demand of the
population.

2
The demand for laundry soap of the country and Amhara Region has been met through import
except a small quantity produced by government and small private producers. The quantity of
local production and import of laundry soap is indicated in table 1 and 2 below.
Table 1
Local Supply of Laundry Soap
Year Local Production (in tons)
1994 19,249
1995 11,632
1996 14,975
1997 16,825
1998 23,567
Average 17,250

Source: CSA, Report on LMS Manufacturing and Electricity Industries Survey, Statistical Bulletin-403

Table -2-
Import of Laundry Soap
Year Quantity/tons CIF value/Birr
1989 12910 43390
4990 13726 47916
1991 16327 54147
1992 - -
1993 18326 74325
1994 20304 74833
1995 19341 85423
1996 16122 66455
1997 21935 95525
1998 21482 97256
Average 16539 71030
Source: Statistical Abstract 2003 - 2006
As shown in table 1 and 2 above, the country has been importing and producing toilet soap to the
tune of 16539 tons (between 89 and 98) and 17,250 tons (between 94 and 99) on the average
each year, respectively. This indicates a total effective national demand of 33,789 tons of
laundry soap in 1999. The share of Amhara Region from the national effective demand could be
about 26,142 tons with a per capita consumption of about 1.37 kgs during the same year (Project
Idea)

3.1.2 Projected Demand

Both the imports and local production of laundry soap indicated above can not be considered
representative demand for same because supply of the product largely depends on the availability

3
of foreign exchange rather than to fill the demand supply gap. For this reason, the existing and
potential demand for this product is estimated on the main determinant factors such as population
growth and improvement of income level (GDP) that determines the per capita consumption.
Therefore, assuming that soap produced in Amhara Region could be consumed in same Region,
the demand for laundry soap for the next ten years is conservatively forecasted using the
following determinant factors.
a) Population growth of the Amhara Region, as projected by CSA (1990)
1
b) Per capita consumption of laundry soap in Ethiopia is 1.86 kg .
Table -3-
Projected Demand for Laundry Soap in Amhara Region.

year Population( in 000) Laundry soap ( in tons)

2009 24,484 45,540
2010 25,123 46,729
2011 25,779 47,949
2012 26,452 49,200
2013 27,142 50,484
2014 27,850 51,802
2015 28,577 53,154
2016 29,323 54,541
2017 30,088 55,965
2018 30,873 57,426

As indicated on table 3 above, demand for laundry soap ranges from 45,540 tons in year 2009 to
57,426 tons in the year 2018 showing that laundry soap making plant that will be established in
the region will partially satisfy the huge demand for soap.

3.1.3 Pricing and Distribution

The selling price of the proposed plant, considering inflation, is assumed to be Birr 6,415 per
quintal.

The product could be distributed through wholesale traders. The selection of a packaging format
and materials usually involves considerations of product stability, cost, package safety, solid
waste impact, shelf appeal and ease of use. For most purposes the soap can be packed in cartons
in lots of dozen bars.
1
The then National Committee for Central Planning Projection 10-Year Indicative Plan.

4
 3.2 Plant Capacity
The range of feasible capacities is wide which depends on the availability of local resources and
finishing technology as well as the potential market. This plant is assumed to produce about 900
kg of laundry soap per day which is equivalent to 2475 quintals per year .A bar of soap weighs
about 150 gm.

3.3 Production Program

The production program of the plant is assumed to start at 70% in the first year, 80 % in the
second year, 90 % in the third year and 100 % in the fourth year and there after.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw materials

The input requirements of laundry soap are both from domestic and import sources. Oil and soap
stock are available in the region. Tallow, which can be found in the region may not be sufficient
and has to be imported. Salt and caustic soda are available from local source. The main inputs
are: tallow, oil, caustic soda, salt, sodium silicate etc

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The quantity and cost of raw materials and utilities required for the production of 2475 quintals
of laundry soap are given in table 4 below. Out of the total cost of raw materials, 50% of the
tallow and 100% of color are in foreign currency.

Table -4-
Quantity and Cost of Materials and Utilities

Materials Unit Quantity Cost Total

L F
Tallow Qt 3713
2,381,890 2,381,890 4,763,779
Caustic Soda Qt 3713
5,716,535 - 5,716,535
Oil Qt 30 192,450 192,450
Sodium silicate Qt 10 7,698 7,698

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Soap color Qt 10
38,490 38,490
Salt Qt 10 2,566 2,566
Sub total
8,301,138 2,420,380 10,721,518
Utility
Electricity Kwh 33000 18150 - 18150
Water M3 5000 13250 - 13250
Sub total - 31400 - 31400
Total
8,332,538 2,420,380 10,752,918

5. Location and Site

Soap can be produced anywhere, but it is best to find an area relatively free of environmental
pollutants since this is an open pan type of operation. It may be better in fact to conduct the
boiling operations indoors in a factory setting which will offer facility for better fire (heat)
control, freedom from environmental effects such as wind and relative insulation from wind-
blown bauxite plant dust and sand. Location near to a natural water source will make for
significantly reduced water consumption and expenditure. It is also best to locate where
electricity is already in place. In this respect for marketing purposes the soap making factory
location has to be in major town like Bahr Dar, Gonder and Combolcha

The location will need to be properly ventilated to avoid fumes from the mixing of alkali and fats
so the design of buildings should make provision for eliminating this condition.

6. Technology and Engineering

6.1 Production Process

Laundry soap production regarding to this project is batch system. Soap making or the
saponification process is done by reacting fatty acids with a caustic alkali, the properties of the
resulting soap depending on the mixture of fats used, the kind of caustic alkali and the actual
process employed. Caustic soda is most often used but caustic potash, or a mixture of the two,
are also suitable. Potash produces a finer product. Sophisticated items such as perfumed bath
preparations require prior bleaching and deodorization of the fats to achieve the color, odor and
performance features desired in the finished bar.

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i) Oil slowly heated in an open pan; concentrated caustic soda solution added, slowly in small
quantities at a time, boiling over a period of several hours. The mixture must be boiled under
controlled conditions, to ensure completion of the saponification process without over-
boiling.

ii) A moderate heat is maintained and each addition of caustic soda solution is allowed to react
fully with the oils, before the next addition. Hasty addition of caustic soda solution will result
in undesirable graining. If the mass shows signs of separating or graining, further water is
added to bring the oil charge to a homogeneous state.

iii) After as much as 5 hours boiling, a fatty layer emerges on top of the mixture. This is mostly
half-spent caustic, some of which should be added to the next batch in the pan to speed
emulsification. Eventually the soap separates as a loose curd leaving more ½ spent caustic.
The mass thickens, gets increasingly transparent and finally assumes a peculiar shiny
translucent surface free from froth. If colors are to be added to the soap these should be
incorporated before closing the boiling operation.

iv) On settling and cooling, which may take up to 4 days, the soap separates into 3 layers, pure
neat soap uppermost, next an impure nigre soap and at the bottom a nigre lye. The pure soap
is skimmed off for further processing the nigre soap goes to be re-worked and the lye gets
returned to a next boiling batch. Perfumes, if any, may be added after the soap charge in the
pan has become cooled a little.
v) Builders and fillers are added and thoroughly crutched in; the soap is then transferred to
frames for subsequent cooling and cutting.

A valuable by-product of this process is glycerin, which is usually recovered by chemical

treatment, followed by evaporation and refining. (Refined glycerin is an important industrial
material used in foods, cosmetics, drugs and many other products.)

If the producer requires alternative technology he/she can employ Semi-Boiled or Cold processes
which are economical and simple ways of making soft or potash soaps, requiring low-cost
investment in equipment and no sophisticated skills. In addition to the above two alternatives,

7
continuous processes with automated and compact equipment are widely employed to save
installation space, consumption of steam and electric power and labor.

6.2 Machinery and Equipment

The main machinery and equipment required in the manufacturing process of toilet soap are
indicated in the following table.

The cost of required machinery and equipment is estimated to be about Birr 1,283,000 of which
75% is in foreign currency. The project will require about Birr 641,500 and Birr 51,320 to
purchase a pick-up vehicle and office furniture and equipment, respectively.

8
 Table-5-
Machinery and Equipment

Machinery Unit
Bottle kettles 5
Cylindrical pans 4
Stirring Ladles 6
Soap Cooling frames 10
Soap Cutting machine 3
Soap Stamping Machines 2
The promoter can access machinery supplier through the following address.
Corporate Headquarters: Address: 187 Moganshan Road (No. 1 Wulin Xiang) 12F Yisheng
Bldg. Hangzhou, Zhejiang 310012, China
Phone: +86-571-88228188(Market) 88228199(Service) 88161139(Expo)
Fax: +86-571-88228166(Market) 88228200(Service)

Alternative technology can be obtained from India or Japan

6.3 Civil Engineering Cost

A simple factory type building incorporating a small office will suffice for an initial startup, the
main consideration being basic security and environmental protection. The building design
should allow for smooth transitioning of raw materials into completed products ready for
movement to curing areas and warehouse for storing soaps away from environmental
contamination effects.

The location will need to be properly ventilated to avoid fumes from the mixing of alkali and fats
so the design of buildings should make provision for eliminating this condition.

The approximate area of a plant site would be about 3000m 2 of which the built up area could be
600 m2 which costs about Birr 2,309,400.

7. Human Resource and Training Requirement

7.1 Human Resource

The manpower requirements for an installation of the same capacity would be as shown in table
6 below:

9
 Table-6 -
Human Resource Requirement
Salary per Salary per
Position No month year

1 Manager 1 5,132 61,584

2. Operators 3 2,053 73,901
3. Quality Controller 1 2,566 30,792
4. Mechanic 1 2,566 30,792
5. Electrician 1 2,566 30,792
6. Secretary 1 1,925 23,094
3. Accountant 1 2,053 24,634
4. Cashier 1 1,925 23,094
5. Sales man 1 2,053 24,634
6. Stores’ clerk 1 1,668 20,015
6. laborers 8 1,026 98,534
7. Security guard 3 1,026 36,950
8. Cleaner 1 1,026 12,317
Total 27 - 491,132
Employees' benefit 20% - 98,226
- 589,359

7.2 Training Requirement

All operators need basic training, which can be acquainted during the commissioning period of
the plant and from local industries at marginal cost.

8. Financial Analysis

8.1 Underlying Assumption

The financial analysis of laundry soap producing plant is based on the data provided in the
preceding sections and the following assumptions.
A. Construction and Finance

Construction period 2 years

Source of finance 40% equity and 60% loan
Tax holidays 20 years
Bank interest rate 12%

10
 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)

Raw Material-Local 30 days

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

8.2 Investment
The total investment cost of the project including working capital is estimated at about Birr 7.56
million as shown in table 7 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.

The foreign component of the project accounts for Birr 2.01 million or 26.7% of the total
investment cost
Table 7: Total initial investment

  LC FC Total
Land 23,094 - 23,094
Building 2,309,400 - 2,309,400

11
 Office equipment 51,320 - 51,320
Vehicles 641,500 - 641,500
machinery & equipment 320,750 962,250 1,283,000
Total Fixed Investment 3,346,064 962,250 4,308,314
Pre production 215,416 - 215,416
Total Initial Investment 3,561,480 962,250 4,523,730
Working capital 1,982,779 3,038,945
1,056,166
Total 5,544,259 7,562,674
2,018,416
*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

The summary of the production cost of the laundry soap plant is shown on table 8. The total
production cost including depreciation will amount to Birr 12.34 million indicating a
corresponding unit cost of birr 5,009 per quintal. Of the total production cost raw materials
accounted for about 86.5 %.

Table 8

Total Production Cost at full Capacity

Items Cost
1.      Raw materials
10,721,518
2.      Utilities 31,400
3.      Wages and Salaries
589,359
4.      Spares and Maintenance
129,249
Factory costs
11,471,526
5.      Depreciation
420,285
6.      Financial costs
453,761

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   Total Production Cost 12,345,572

8.4 Financial Evaluation

I. Profitability
According to the income statement of the project, the laundry soap plant will generate profit
starting from the first year of operation. Return on investment and return on equity of the project
is 43% and 62 %, respectively.

II. Breakeven Analysis

The break even point of the project is estimated by using income statement projection.
The plant breaks evens at 15.4% of capacity utilization

III. Payback Period

The project will pay back fully the initial investment in two year time.

IV. Simple Rate of Return

The simple rate of return of the project at its full capacity utilization is 37.1%.

V. Internal Rate of Return and Net Present Value

The Internal rate of return and Net Present Value of the project at its full capacity utilization is
41.2% .and Birr 5.13 million, respectively.

VI. Sensitivity Analysis

The project will absorb shocks if prices increased by 10%

9. Economic and Social Benefit and Justification

Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In

13
general the envisaged project 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 on average a profit of birr 2.28 million per
year and birr 22.8 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 8.2 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

The commencement of this project relieves a portion of the import burden. That is, based on the
projected figure we learn that in the project life an estimated amount of US Dollar 15.39 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 employment opportunity to 27 professionals as well as
support stuffs. Consequently the project creates income of birr 590 thousands per year. This
would be one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process should be carried out carefully to protect the environment from
pollution.

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ANNEXES

15
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0.00 0.00 80% 90% 100% 0%

1. Total Inventory 0.00 0.00 3942084 4434844 4927605 0

Raw Materials in Stock- Total 0.00 0.00 1569395 1765570 1961744 0
Raw Material-Local 0.00 0.00 724463 815020.8 905578.7 0
Raw Material-Foreign 0.00 0.00 844932.5 950549 1056166 0
Factory Supplies in Stock 0.00 0.00 10421.22 11723.87 13026.53 0
Spare Parts in Stock and Maintenance 0.00 0.00 11279.96 12689.95 14099.94 0
Work in Progress 0.00 0.00 260530.5 293096.9 325663.2 0
Finished Products 0.00 0.00 521061.1 586193.7 651326.4 0
2. Accounts Receivable 0.00 0.00 1385640 1558845 1732050 0
3. Cash in Hand 0.00 0.00 58466.72 65775.07 73083.4 0
CURRENT ASSETS 0.00 0.00 3816795 4293894 4770994 0
4. Current Liabilities 0.00 0.00 1385640 1558845 1732050 0
Accounts Payable 0.00 0.00 1385640 1558845 1732050 0
TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 2431155 2735049 3038944 0
INCREASE IN NET WORKING CAPITAL 0.00 0.00 2431155 303894.4 303894.4 -3038944

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 4927605 4927605 4927605 4927605 4927605 4927605

Raw Materials in Stock-Total 1961744 1961744 1961744 1961744 1961744 1961744
Raw Material-Local 905578.7 905578.7 905578.7 905578.7 905578.7 905578.7
Raw Material-Foreign 1056166 1056166 1056166 1056166 1056166 1056166
Factory Supplies in Stock 13026.53 13026.53 13026.53 13026.53 13026.53 13026.53
Spare Parts in Stock and Maintenance 14099.94 14099.94 14099.94 14099.94 14099.94 14099.94
Work in Progress 325663.2 325663.2 325663.2 325663.2 325663.2 325663.2
Finished Products 651326.4 651326.4 651326.4 651326.4 651326.4 651326.4
2. Accounts Receivable 1732050 1732050 1732050 1732050 1732050 1732050
3. Cash in Hand 73083.4 73083.4 73083.4 73083.4 73083.4 73083.4
CURRENT ASSETS 4770994 4770994 4770994 4770994 4770994 4770994
4. Current Liabilities 1732050 1732050 1732050 1732050 1732050 1732050
Accounts Payable 1732050 1732050 1732050 1732050 1732050 1732050
TOTAL NET WORKING CAPITAL REQUIRMENTS 3038944 3038944 3038944 3038944 3038944 3038944
INCREASE IN NET WORKING CAPITAL 3038944 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 2261865 5300809 14087340 14462618 16050330 -1732050
1. Inflow Funds 2261865 5300809 1385640 173205 173205 -1732050
Total Equity 904745.9 2120323 0 0 0 0
Total Long Term Loan 1357119 3180485 0 0 0 0
Total Short Term Finances 0 0 1385640 173205 173205 -1732050
2. Inflow Operation 0 0 12701700 14289413 15877125 0
Sales Revenue 0 0 12701700 14289413 15877125 0
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 2261865 2261865 14229333 12191705 14283489 -3597665
4. Increase In Fixed Assets 2261865 2261865 0 0 0 0
Fixed Investments 2154157 2154157 0 0 0 0
Pre-production Expenditures 107707.9 107707.9 0 0 0 0
5. Increase in Current Assets 0 0 3816795 477099.4 477099.4 -4770994
6. Operating Costs 0 0 9262740 10413826 11564912 54052.79
7. Corporate Tax Paid 0 0 0 0 1031450 0
8. Interest Paid 0 0 1149798 544512.5 453760.4 363008.3
9. Loan Repayments 0 0 0 756267.4 756267.4 756267.4
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 0 3038944 -141993 2270912 1766841 1865615
Cumulative Cash Balance 0 3038944 2896951 5167863 6934704 8800320

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 17609175 15877125 15877125 15877125 15877125 15877125
1. Inflow Funds 1732050 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 1732050 0 0 0 0 0
2. Inflow Operation 15877125 15877125 15877125 15877125 15877125 15877125
Sales Revenue 15877125 15877125 15877125 15877125 15877125 15877125
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 18450331 13667225 13603699 12783905 12783905 12783905
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 4770994 0 0 0 0 0
6. Operating Costs 11564912 11564912 11564912 11564912 11564912 11564912
7. Corporate Tax Paid 1085902 1164542 1191768 1218993 1218993 1218993
8. Interest Paid 272256.2 181504.2 90752.08 0 0 0
9. Loan Repayments 756267.4 756267.4 756267.4 0 0 0
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) -841156 2209900 2273426 3093220 3093220 3093220
Cumulative Cash Balance 7959164 10169064 12442490 15535710 18628930 21722149

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 12701700 14289413 15877125 0
1. Inflow Operation 0 0 12701700 14289413 15877125 0
Sales Revenue 0 0 12701700 14289413 15877125 0
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 2261865 2261865 11693895 10717720 12900256 -2984891
3. Increase in Fixed Assets 2261865 2261865 0 0 0 0
Fixed Investments 2154157 2154157 0 0 0 0
Pre-production Expenditures 107707.9 107707.9 0 0 0 0
4. Increase in Net Working Capital 0 0 2431155 303894.4 303894.4 -3038944
5. Operating Costs 0 0 9262740 10413826 11564912 54052.79
6. Corporate Tax Paid 0 0 0 0 1031450 0
NET CASH FLOW -2261865 -2261865 1007805 3571692 2976869 2984891
CUMMULATIVE NET CASH FLOW -2261865 -4523730 -3515925 55767.67 3032636 6017527
Net Present Value (at 18%) -2261865 -1916835 723789.9 2173842 1535436 1304723
Cumulative Net present Value -2261865 -4178699 -3454910 -1281067 254368.3 1559092

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 15877125 15877125 15877125 15877125 15877125 15877125
1. Inflow Operation 15877125 15877125 15877125 15877125 15877125 15877125
Sales Revenue 15877125 15877125 15877125 15877125 15877125 15877125
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 15689757 12729454 12756679 12783905 12783905 12783905
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 3038944 0 0 0 0 0
5. Operating Costs 11564912 11564912 11564912 11564912 11564912 11564912
6. Corporate Tax Paid 1085902 1164542 1191768 1218993 1218993 1218993
NET CASH FLOW 187368 3147671 3120446 3093220 3093220 3093220
CUMMULATIVE NET CASH FLOW 6204895 9352566 12473012 15566232 18659452 21752672
Net Present Value (at 18%) 69406.99 988132.8 830157.6 697385.2 591004.4 500851.2
Cumulative Net present Value 1628499 2616631 3446789 4144174 4735179 5236030
Net Present Value (at 18%) 5,236,029.87

Internal Rate of Return 41.2%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 80% 90% 100% 0% 100%

1. Total Income 12701700 14289413 15877125 0 15877125

Sales Revenue 12701700 14289413 15877125 0 15877125
Other Income 0 0 0 0 0
2. Less Variable Cost 9020092 10147604 11275115 0 11275115
VARIABLE MARGIN 3681608 4141809 4602010 0 4602010
(In % of Total Income) 28.99 28.99 28.99 28.99 28.99
3. Less Fixed Costs 662932.8 686507 710081.5 474337.9 710081.5
OPERATIONAL MARGIN 3018675 3455302 3891928 -474338 3891928
(In % of Total Income) 24 24 25 25 25
4. Less Cost of Finance 1149798 544512 453760.4 363008.3 272256.2
5. GROSS PROFIT 1868877 2910789 3438168 -837346 3619672
6. Income (Corporate) Tax 0 0 1031450 0 1085902
7. NET PROFIT 1868877 2910789 2406717 -837346 2533770
RATIOS (%)  
Gross Profit/Sales 15% 20% 22% #DIV/0! 23%
Net Profit After Tax/Sales 15% 20% 15% #DIV/0! 16%
Return on Investment 43% 48% 38% -10% 37%
Return on Equity 62% 96% 80% -28% 84%

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
15877125 15877125 15877125 15877125 15877125

Sales Revenue
15877125 15877125 15877125 15877125 15877125

Other Income
0 0 0 0 0

2. Less Variable Cost

11275115.36 11275115.36 11275115.36 11275115.36 11275115.36

VARIABLE MARGIN
4602009.636 4602009.636 4602009.636 4602009.636 4602009.636

(In % of Total Income)

29 29 29 29 29

3. Less Fixed Costs

538698.342 538698.342 538698.342 538698.342 538698.342

OPERATIONAL MARGIN
4063311.294 4063311.294 4063311.294 4063311.294 4063311.294

(In % of Total Income)

26 26 26 26 26

4. Less Cost of Finance

181504.1625 181504.1625 90752.08124 0 0

5. GROSS PROFIT
3881807.131 3881807.131 3972559.212 4063311.294 4063311.294

6. Income (Corporate) Tax

1164542.15 1164542.15 1191767.769 1218993.388 1218993.388

7. NET PROFIT
2717264.982 2717264.982 2780791.444 2844317.906 2844317.906

RATIOS (%)  
Gross Profit/Sales 24% 25% 26% 26% 26%
Net Profit After Tax/Sales 17% 18% 18% 18% 18%
Return on Investment 38% 38% 38% 38% 38%
Return on Equity 90% 92% 94% 94% 94%

8
Annex 5: Projected Balance Sheet (in Birr)

9
 CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 2261865 7562673 10817191 13144917 14968572.37 12480255
1. Total Current Assets 0 3038944 6713746 9461758 11705698.09 8800320
Inventory on Materials and Supplies 0 0 1591097 1789984 1988870.779 0
Work in Progress 0 0 260530.5 293096.9 325663.1972 0
Finished Products in Stock 0 0 521061.1 586193.7 651326.3687 0
Accounts Receivable 0 0 1385640 1558845 1732050 0
Cash in Hand 0 0 58466.72 65775.07 73083.4007 0
Cash Surplus, Finance Available 0 3038944 2896951 5167863 6934704.322 8800320
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 2261865 4523730 4103445 3683159 3262874.28 2842589
Fixed Investment 0 2154157 4308314 4308314 4308314 4308314
Construction in Progress 2154157 2154157 0 0 0 0
Pre-Production Expenditure 107707.9 215415.7 215415.7 215415.7 215415.7 215415.7
Less Accumulated Depreciation 0 0 420285.1 840570.3 1260855.42 1681141
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 837346.3
TOTAL LIABILITIES 2261865 7562673 10817191 13144917 14968572.37 12480255
5. Total Current Liabilities 0 0 1385640 1558845 1732050 0
Accounts Payable 0 0 1385640 1558845 1732050 0
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1357119 4537604 4537604 3781337 3025069.383 2268802
Loan A 1357119 4537604 4537604 3781337 3025069.383 2268802
Loan B 0 0 0 0 0 0
7. Total Equity Capital 904745.9 3025069 3025069 3025069 3025069.383 3025069
Ordinary Capital 904745.9 3025069 3025069 3025069 3025069.383 3025069
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 1868877 4779666.158 7186384
9. Net Profit After Tax 0 0 1868877 2910789 2406717.423 0
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 1868877 2910789 2406717.423 0

Annex 5: Projected Balance Sheet (in Birr): Continued

10
 PRODUCTION
  5 6 7 8 9 10
TOTAL ASSETS 15152462 17113459 19137983 21982301 24826619.29 27670937
1. Total Current Assets 12730158 14940057 17213483 20306703 23399923.29 26493143
Inventory on Materials and Supplies 1988871 1988871 1988871 1988871 1988870.779 1988871
Work in Progress 325663.2 325663.2 325663.2 325663.2 325663.1972 325663.2
Finished Products in Stock 651326.4 651326.4 651326.4 651326.4 651326.3687 651326.4
Accounts Receivable 1732050 1732050 1732050 1732050 1732050 1732050
Cash in Hand 73083.4 73083.4 73083.4 73083.4 73083.4007 73083.4
Cash Surplus, Finance Available 7959164 10169064 12442490 15535710 18628929.52 21722149
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 2422304 2173402 1924500 1675598 1426696 1177794
Fixed Investment 4308314 4308314 4308314 4308314 4308314 4308314
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 215415.7 215415.7 215415.7 215415.7 215415.7 215415.7
Less Accumulated Depreciation 2101426 2350328 2599230 2848132 3097033.7 3345936
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 15152462 17113459 19137983 21982301 24826619.29 27670937
5. Total Current Liabilities 1732050 1732050 1732050 1732050 1732050 1732050
Accounts Payable 1732050 1732050 1732050 1732050 1732050 1732050
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1512535 756267.4 0 0 0 0
Loan A 1512535 756267.4 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 3025069 3025069 3025069 3025069 3025069.383 3025069
Ordinary Capital 3025069 3025069 3025069 3025069 3025069.383 3025069
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 6349037 8882808 11600073 14380864 17225182 20069500
9. Net Profit After Tax 2533770 2717265 2780791 2844318 2844317.906 2844318
Dividends Payable 0 0 0 0 0 0
Retained Profits 2533770 2717265 2780791 2844318 2844317.906 2844318

11