Project Profile on the Establishment of Laundry

soap producing plant

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..............................................................................................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 2.95 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 2.0 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)
b) Per capita consumption of laundry soap in Ethiopia is 1.86 kg1 .
Table -3-
Projected Demand for Laundry Soap in Amhara Region.

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

2000 19,624 36,501
2001 20,136 37,453
2002 20,656 38,420
2003 21,182 39,398
2004 21,715 40,457
2005 22,256 41,396
2006 22,804 42,415
2007 23,358 43,446
2008 23,917 44,486
2009 24,484 45,540

As indicated on table 3 above, demand for laundry soap ranges from 36,501 tons in year 2000 to
45,540 tons in the year 2009 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 2,500 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 928250 928250 1856500
Caustic Soda Qt 3713 2227800 2227800
Oil Qt 30 75000 - 75000
Sodium silicate Qt 10 3000 - 3000
Soap color Qt 10 - 15000 15000
Salt Qt 10 1000 - 1000

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Sub total 3235050 943250 4178300
Utility
Electricity Kwh 33000 18150 - 18150
Water M3 5000 13250 - 13250
Sub total - 31400 - 31400
Total 3266450 943250 4209700

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.

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

6
 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,
continuous processes with automated and compact equipment are widely employed to save
installation space, consumption of steam and electric power and labor.

7
 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 500,000.00, of
which 75% is in foreign currency. The project will require about Birr 250,000 and Birr 20,000 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 900,000.

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:

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

1 Manager 1 2000 24,000

2. Operators 3 800 28,800
3. Quality Controller 1 1000 12,000
4. Mechanic 1 1000 12,000
5. Electrician 1 1000 12,000
6. Secretary 1 750 9,000
3. Accountant 1 800 9,600
4. Cashier 1 750 9,000
5. Sales man 1 800 9,600
6. Stores’ clerk 1 650 7,800
6. laborers 8 400 38,400
7. Security guard 3 400 14,400
8. Cleaner 1 400 4,800
Total 27 191,400
Employees' benefit 20% 38,280
229,680

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 2.95
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 0.6 million or 26.7% of the total
investment cost
Table 7: Total initial investment

  LC FC Total
Land
9,000   9,000
Building
900,000   900,000

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 Office equipment
20,000   20,000
Vehicles
250,000   250,000
machinery & equipment
125,000 375,000 500,000
Total Fixed Investment
1,304,000 375,000 1,679,000
Pre production
83,950   83,950
Total Initial Investment
1,387,950 375,000 1,762,950
Working capital
772,712 411,600 1,184,312
Total 2,160,662 786,600 2,947,262
*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 4.8 million indicating a corresponding
unit cost of birr 1,952 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 4,178,300
2.      Utilities 31,400
3.      Wages and Salaries 229,680
4.      Spares and Maintenance 50,370
Factory costs 4,489,750
5.      Depreciation 163,790
6.      Financial costs
176,836
  Total Production Cost 4,830,376

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 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 2.0 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 0.89 million per
year and birr 8.9 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 3.2 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 6.0 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 230 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.

14
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 1536275.82 1728310.29 1920344.77 0.00

Raw Materials in Stock- Total 0.00 0.00 611611.64 688063.09 764514.55 0.00

Raw Material-Local 0.00 0.00 282331.64 317623.09 352914.55 0.00

Raw Material-Foreign 0.00 0.00 329280.00 370440.00 411600.00 0.00

Factory Supplies in Stock 0.00 0.00 4061.27 4568.93 5076.59 0.00

Spare Parts in Stock and Maintenance 0.00 0.00 4395.93 4945.42 5494.91 0.00

Work in Progress 0.00 0.00 101531.78 114223.25 126914.73 0.00

Finished Products 0.00 0.00 203063.56 228446.51 253829.45 0.00

2. Accounts Receivable 0.00 0.00 540000.00 607500.00 675000.00 0.00

3. Cash in Hand 0.00 0.00 22785.16 25633.31 28481.45 0.00

CURRENT ASSETS 0.00 0.00 1487449.34 1673380.51 1859311.68 0.00

4. Current Liabilities 0.00 0.00 540000.00 607500.00 675000.00 0.00

Accounts Payable 0.00 0.00 540000.00 607500.00 675000.00 0.00

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 947449.34 1065880.51 1184311.68 0.00

INCREASE IN NET WORKING CAPITAL 0.00 0.00 947449.34 118431.17 118431.17 -1184311.68

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 1920344.77 1920344.77 1920344.77 1920344.77 1920344.77 1920344.77

Raw Materials in Stock-Total 764514.55 764514.55 764514.55 764514.55 764514.55 764514.55

Raw Material-Local 352914.55 352914.55 352914.55 352914.55 352914.55 352914.55

Raw Material-Foreign 411600.00 411600.00 411600.00 411600.00 411600.00 411600.00

Factory Supplies in Stock 5076.59 5076.59 5076.59 5076.59 5076.59 5076.59

Spare Parts in Stock and Maintenance 5494.91 5494.91 5494.91 5494.91 5494.91 5494.91

Work in Progress 126914.73 126914.73 126914.73 126914.73 126914.73 126914.73

Finished Products 253829.45 253829.45 253829.45 253829.45 253829.45 253829.45

2. Accounts Receivable 675000.00 675000.00 675000.00 675000.00 675000.00 675000.00

3. Cash in Hand 28481.45 28481.45 28481.45 28481.45 28481.45 28481.45

CURRENT ASSETS 1859311.68 1859311.68 1859311.68 1859311.68 1859311.68 1859311.68

4. Current Liabilities 675000.00 675000.00 675000.00 675000.00 675000.00 675000.00

Accounts Payable 675000.00 675000.00 675000.00 675000.00 675000.00 675000.00

TOTAL NET WORKING CAPITAL REQUIRMENTS 1184311.68 1184311.68 1184311.68 1184311.68 1184311.68 1184311.68

INCREASE IN NET WORKING CAPITAL 1184311.68 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 881475.00 2065786.68 5490000.00 5636250.00 6255000.00 -675000.00
1. Inflow Funds 881475.00 2065786.68 540000.00 67500.00 67500.00 -675000.00
Total Equity 352590.00 826314.67 0.00 0.00 0.00 0.00
Total Long Term Loan 528885.00 1239472.01 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 540000.00 67500.00 67500.00 -675000.00
2. Inflow Operation 0.00 0.00 4950000.00 5568750.00 6187500.00 0.00
Sales Revenue 0.00 0.00 4950000.00 5568750.00 6187500.00 0.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 881475.00 881475.00 5545336.23 4751249.04 5566441.61 -1402051.95
4. Increase In Fixed Assets 881475.00 881475.00 0.00 0.00 0.00 0.00
Fixed Investments 839500.00 839500.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 41975.00 41975.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 1487449.34 185931.17 185931.17 -1859311.68
6. Operating Costs 0.00 0.00 3609797.32 4058388.86 4506980.40 21065.00
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 401968.17 0.00
8. Interest Paid 0.00 0.00 448089.57 212202.84 176835.70 141468.56
9. Loan Repayments 0.00 0.00 0.00 294726.17 294726.17 294726.17
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 1184311.68 -55336.23 885000.96 688558.39 727051.95
Cumulative Cash Balance 0.00 1184311.68 1128975.45 2013976.41 2702534.81 3429586.76

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 6862500.00 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00
1. Inflow Funds 675000.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 675000.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00
Sales Revenue 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 7190308.12 5326276.44 5301519.45 4982036.28 4982036.28 4982036.28
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 1859311.68 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 4506980.40 4506980.40 4506980.40 4506980.40 4506980.40 4506980.40
7. Corporate Tax Paid 423188.45 453835.60 464445.74 475055.88 475055.88 475055.88
8. Interest Paid 106101.42 70734.28 35367.14 0.00 0.00 0.00
9. Loan Repayments 294726.17 294726.17 294726.17 0.00 0.00 0.00
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) -327808.12 861223.56 885980.55 1205463.72 1205463.72 1205463.72
Cumulative Cash Balance 3101778.64 3963002.19 4848982.74 6054446.46 7259910.18 8465373.90

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 4950000.00 5568750.00 6187500.00 0.00

1. Inflow Operation 0.00 0.00 4950000.00 5568750.00 6187500.00 0.00

Sales Revenue 0.00 0.00 4950000.00 5568750.00 6187500.00 0.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 881475.00 881475.00 4557246.66 4176820.03 5027379.74 -1163246.68

3. Increase in Fixed Assets 881475.00 881475.00 0.00 0.00 0.00 0.00

Fixed Investments 839500.00 839500.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 41975.00 41975.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 947449.34 118431.17 118431.17 -1184311.68

5. Operating Costs 0.00 0.00 3609797.32 4058388.86 4506980.40 21065.00

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 401968.17 0.00

NET CASH FLOW -881475.00 -881475.00 392753.34 1391929.97 1160120.26 1163246.68

CUMMULATIVE NET CASH FLOW -881475.00 -1762950.00 -1370196.66 21733.31 1181853.57 2345100.25

Net Present Value (at 18%) -881475.00 -747012.71 282069.33 847171.55 598377.13 508465.84

Cumulative Net present Value -881475.00 -1628487.71 -1346418.38 -499246.83 99130.30 607596.14

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00

1. Inflow Operation 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00

Sales Revenue 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 6114480.53 4960816.00 4971426.14 4982036.28 4982036.28 4982036.28

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 1184311.68 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 4506980.40 4506980.40 4506980.40 4506980.40 4506980.40 4506980.40

6. Corporate Tax Paid 423188.45 453835.60 464445.74 475055.88 475055.88 475055.88

NET CASH FLOW 73019.47 1226684.00 1216073.86 1205463.72 1205463.72 1205463.72

CUMMULATIVE NET CASH FLOW 2418119.72 3644803.72 4860877.58 6066341.30 7271805.02 8477268.74

Net Present Value (at 18%) 27048.71 385086.82 323522.06 271779.11 230321.28 195187.53

Cumulative Net present Value 634644.86 1019731.67 1343253.73 1615032.84 1845354.13 2040541.65

Net Present Value (at 18%) 2,040,541.65

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 4950000.00 5568750.00 6187500.00 0.00 6187500.00

Sales Revenue 4950000.00 5568750.00 6187500.00 0.00 6187500.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 3515234.72 3954639.06 4394043.40 0.00 4394043.40
VARIABLE MARGIN 1434765.28 1614110.94 1793456.60 0.00 1793456.60
(In % of Total Income) 28.99 28.99 28.99 #DIV/0! 28.99
3. Less Fixed Costs 258352.60 267539.80 276727.00 184855.00 276727.00
OPERATIONAL MARGIN 1176412.68 1346571.14 1516729.60 -184855.00 1516729.60
(In % of Total Income) 24 24 25 #DIV/0! 25
4. Less Cost of Finance 448089.57 212202.84 176835.70 141468.56 106101.42
5. GROSS PROFIT 728323.11 1134368.30 1339893.90 -326323.56 1410628.18
6. Income (Corporate) Tax 0.00 0.00 401968.17 0.00 423188.45
7. NET PROFIT 728323.11 1134368.30 937925.73 -326323.56 987439.73
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 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00

Sales Revenue 6187500.00 6187500.00 6187500.00 6187500.00 6187500.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 4394043.40 4394043.40 4394043.40 4394043.40 4394043.40
VARIABLE MARGIN 1793456.60 1793456.60 1793456.60 1793456.60 1793456.60
(In % of Total Income) 29 29 29 29 29
3. Less Fixed Costs 209937.00 209937.00 209937.00 209937.00 209937.00
OPERATIONAL MARGIN 1583519.60 1583519.60 1583519.60 1583519.60 1583519.60
(In % of Total Income) 26 26 26 26 26
4. Less Cost of Finance 70734.28 35367.14 0.00 0.00 0.00
5. GROSS PROFIT 1512785.32 1548152.46 1583519.60 1583519.60 1583519.60
6. Income (Corporate) Tax 453835.60 464445.74 475055.88 475055.88 475055.88
7. NET PROFIT 1058949.72 1083706.72 1108463.72 1108463.72 1108463.72
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)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 881475.00 2947261.68 4215584.79 5122726.92 5833426.49 4863700.32
1. Total Current Assets 0.00 1184311.68 2616424.79 3687356.92 4561846.49 3429586.76
Inventory on Materials and Supplies 0.00 0.00 620068.83 697577.44 775086.04 0.00
Work in Progress 0.00 0.00 101531.78 114223.25 126914.73 0.00
Finished Products in Stock 0.00 0.00 203063.56 228446.51 253829.45 0.00
Accounts Receivable 0.00 0.00 540000.00 607500.00 675000.00 0.00
Cash in Hand 0.00 0.00 22785.16 25633.31 28481.45 0.00
Cash Surplus, Finance Available 0.00 1184311.68 1128975.45 2013976.41 2702534.81 3429586.76
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 881475.00 1762950.00 1599160.00 1435370.00 1271580.00 1107790.00
Fixed Investment 0.00 839500.00 1679000.00 1679000.00 1679000.00 1679000.00
Construction in Progress 839500.00 839500.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 41975.00 83950.00 83950.00 83950.00 83950.00 83950.00
Less Accumulated Depreciation 0.00 0.00 163790.00 327580.00 491370.00 655160.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 326323.56
TOTAL LIABILITIES 881475.00 2947261.68 4215584.79 5122726.92 5833426.49 4863700.32
5. Total Current Liabilities 0.00 0.00 540000.00 607500.00 675000.00 0.00
Accounts Payable 0.00 0.00 540000.00 607500.00 675000.00 0.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 528885.00 1768357.01 1768357.01 1473630.84 1178904.67 884178.50
Loan A 528885.00 1768357.01 1768357.01 1473630.84 1178904.67 884178.50
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 352590.00 1178904.67 1178904.67 1178904.67 1178904.67 1178904.67
Ordinary Capital 352590.00 1178904.67 1178904.67 1178904.67 1178904.67 1178904.67
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 728323.11 1862691.41 2800617.14
9. Net Profit After Tax 0.00 0.00 728323.11 1134368.30 937925.73 0.00
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 728323.11 1134368.30 937925.73 0.00

9
 Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION
  5 6 7 8 9 10
TOTAL ASSETS 5905090.32 6669313.87 7458294.42 8566758.14 9675221.86 10783685.58
1. Total Current Assets 4961090.32 5822313.87 6708294.42 7913758.14 9119221.86 10324685.58
Inventory on Materials and Supplies 775086.04 775086.04 775086.04 775086.04 775086.04 775086.04
Work in Progress 126914.73 126914.73 126914.73 126914.73 126914.73 126914.73
Finished Products in Stock 253829.45 253829.45 253829.45 253829.45 253829.45 253829.45
Accounts Receivable 675000.00 675000.00 675000.00 675000.00 675000.00 675000.00
Cash in Hand 28481.45 28481.45 28481.45 28481.45 28481.45 28481.45
Cash Surplus, Finance Available 3101778.64 3963002.19 4848982.74 6054446.46 7259910.18 8465373.90
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 944000.00 847000.00 750000.00 653000.00 556000.00 459000.00
Fixed Investment 1679000.00 1679000.00 1679000.00 1679000.00 1679000.00 1679000.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 83950.00 83950.00 83950.00 83950.00 83950.00 83950.00
Less Accumulated Depreciation 818950.00 915950.00 1012950.00 1109950.00 1206950.00 1303950.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 5905090.32 6669313.87 7458294.42 8566758.14 9675221.86 10783685.58
5. Total Current Liabilities 675000.00 675000.00 675000.00 675000.00 675000.00 675000.00
Accounts Payable 675000.00 675000.00 675000.00 675000.00 675000.00 675000.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 589452.34 294726.17 0.00 0.00 0.00 0.00
Loan A 589452.34 294726.17 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 1178904.67 1178904.67 1178904.67 1178904.67 1178904.67 1178904.67
Ordinary Capital 1178904.67 1178904.67 1178904.67 1178904.67 1178904.67 1178904.67
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 2474293.58 3461733.31 4520683.03 5604389.75 6712853.47 7821317.19
9. Net Profit After Tax 987439.73 1058949.72 1083706.72 1108463.72 1108463.72 1108463.72
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 987439.73 1058949.72 1083706.72 1108463.72 1108463.72 1108463.72

10