Investment Commission ANRS

Project Profile on the Establishment of Small-

Scale Foundry Plant

Development Studies Associates

(DSA)

Revised 2016
Bahir Dar
 Table of Contents
1. Executive Summary..........................................................................................1
2. Product Description and Application..............................................................1
3. Market Study, Plant Capacity and Production Program..............................1
3.1 Market Study.....................................................................................................................1
3.1.1 Present Demand and Supply......................................................................................1
3.1.2 Projected Demand......................................................................................................3
3.1.3 Pricing and Distribution.............................................................................................3
3.2 Plant Capacity...................................................................................................................3
3.3 Production Program..........................................................................................................3
4. Raw Materials and Utilities..............................................................................4
4.1 Availability and Source of Raw Materials........................................................................4
4.2 Annual Requirement and Cost of Raw Materials and Utilities.........................................4
5. Location and Site...............................................................................................5
6. Technology and Engineering............................................................................5
6.1 Production Process............................................................................................................5
6.2 Machinery and Equipment................................................................................................7
6.3 Civil Engineering Cost......................................................................................................8
7. Human Resource and Training Requirement................................................8
7.1 Human Resource...............................................................................................................8
7.2 Training Requirement.......................................................................................................9
8. Financial Analysis.............................................................................................9
8.1 Underlying Assumption....................................................................................................9
8.2 Investment.......................................................................................................................10
8.3 Production Costs.............................................................................................................11
8.4 Financial Evaluation.......................................................................................................11
9. Economic and Social Benefit and Justification.............................................12
ANNEXES..............................................................................................................14
Annex 1: Total Net Working Capital Requirements (in Birr)...................................................15
Annex 2: Cash Flow Statement (in Birr)...................................................................................17
Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED.............................19
Annex 4: NET INCOME STATEMENT ( in Birr)...................................................................21
 1. Executive Summary

This project envisages production of 1200 tons different size and types of cast iron products per
annum. The total investment outlay requirement of the project including the working capital is
estimated at about Birr 25.7 million; of which Birr 25.7 million is for machinery and equipments
and nearly Birr 11.3 million is the cost of the working capital. Based on the cash flow statement,
the calculated internal rate of return (IRR) and simple rate of return (SRR) of the project are 25.3
% and 23.7 %. The net present value (NPV) at 18 % discounting rate is about Birr 3.96 million.
The plant is expected to create employment opportunities for about 16 persons.

2. Product Description and Application

A foundry plant is a plant where metal is melted, and where the molten metal is poured into a
mold for producing a certain product. Foundry has been there always in the basis of all kinds of
industry for over hundreds of years supporting the progress of technology and convenience of
human life.

Today, we are surrounded by cast metal products such as automobile engine, components of
under-carriage, agricultural machine parts, various water pumps, pipe fittings, weaving machine
parts, manhole covers, ash trays and even ornamental artistic items. Cast products around us are
really countless.

There are many different ways to produce these varieties of castings. Most of them were started
with a primitive, manual method several hundred years ago and gradually mechanized. Under the
pressure of high labor cost in the recent years, the only way to survive is mechanization and
automation.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply
Establishing a foundry plant is like planting the seedlings of heavy industry- which is based on
metal casting and metal fabrication. In a region like ANRS, the main purpose of a foundry plant

1
is for producing (casting) spare parts and some components for the machinery and equipment
which are in operation in the transport, manufacturing, agriculture and building sectors.

There is not a single foundry plant in the whole ANRS. However, there are various types of
machinery and equipment whose many parts need replacement every year. Many of the parts
can be produced using foundry technology. The need of the thousands of grain mills, motor
vehicles, machinery and equipment of the textile, beer, food, leather and other factories for spare
parts that could be produced locally justifies the establishment of the foundry.

In Ethiopia, cast iron products are supplied both locally and through imports. Although there is
no disaggregated data that shows the actual figure of the local production, it is certain that the
import figure is much higher than local production of cast iron products. The figure of the
different cast iron products imported in the past ten years is given in Table 3.1 below.
TABLE 3.1
IMPORT OF DIFFERENT PRODUCTS OF CAST IRON
Year E.C Cast Iron Products CIF Value
(In Tons) (In Birr)
1990 10,888 59,173,765
1991 7,885 42,129,504
1992 15,909 54,113,974
1993 10,397 60,680,894
1994 12,615 79,073,598
1995 10,589 61,360,292
1996 7,905 48,414,701
1997 4,900 41,319,347
1998 8,507 70,579,071
1999 5,264 55,811,838
Total 94,859
Average 9,486
Source: Compiled from CSA Import Data of Different Years

In the past ten years, a total of 94,859 tons of different products of cast iron are imported. These
include different sizes of pipes, tubes, hollow profiles, fittings, radiators, tables, kitchen and
household articles and others. The relative decline of the import figure witnessed in the past five
years is due to the substitution of imports by the local products of the existing foundries. This
certainly shows the ease to penetrate the product market if there is an additional foundry plant in
the country.

2
 3.1.2 Projected Demand

Since there is no disaggregated data that shows the actual figure on the local production of cast
iron and also the nature of the product does not allow us to make projection starting from the
demand side, it is not possible to have demand projection figure. However, it is possible to be
certain that a small-scale foundry plant that produces few thousand tons of casting products will
face unlimited demand for its products so long as it has a competitive quality and price.

3.1.3 Pricing and Distribution

The foundry plant can produce many types and different sizes of cast iron products depending on
the demand for the items. Thus, it is not possible to set prices for each. However, the current
average wholesale price of such items is estimated to reach Birr 51,320 per ton. As a new
entrant, the envisaged project plans to sell its products at an average price of Birr 38,490 per ton.

3.2 Plant Capacity

The minimum economic capacity for the production of cast iron is 1200 tons of different types
and sizes of products of cast iron per annum. The plant operates in single shift basis for 275
working days in a year. This is set by deducting 52 Sundays, 13 public holidays, 15 days for
annual maintenance and 10 days for unexpected work interruptions from a given year.

3.3 Production Program

The production program follows gradual capacity utilization due to market and technological
reasons. The first refers to the time required to penetrate the market of imported and local
products of cast iron and to secure reasonable share, while the technology refers to the speed
with which the operators assimilate the process know how. Accordingly, 50 %, 75 % and 85 %
capacity utilization are assumed for the first, the second and third years of the operation,
respectively. The fourth year onwards, 100 % capacity utilization is assumed.

3
 4. Raw Materials and Utilities
4.1 Availability and Source of Raw Materials
The major input material is ingot iron and waste scrap iron; the former will be imported while
the waste scrap iron, depends on availability, can be obtained either locally or through import.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual requirements of main raw materials at 100 % capacity utilization with their
associated costs are given in Table 4.1.
TABLE 4.1
ANNUAL RAW MATERIAL REQUIREMENT

Cost(In Birr)
No Raw Material Unit Qty.
F.C L.C Total
1 Ingot Iron Tons 500 12,830,000 0 12,830,000
2 Waste Scrap Iron Tons 800 3,079,200 9,876,534 12,955,734
3 Ingot Molds Pieces 0 3,292,178 3,292,178
4 Packing Materials
and Miscellaneous   420,824 420,824
Total 15,909,200 13,589,536 29,498,736

Electricity and water requirement is about 5184 MWH and 2,000 m 3. The total annual cost of
utility at full capacity is equal to Birr 2,856,500.

Table 4.2
UTILITIES REQUIREMENT

No. Utility Requirement Unit Price Cost

(Annual) (Birr)
1. Electricity 5184 MWH Birr0.55 /KWH 2,851,200
2. Water 2,000 m3 Birr2.65 /m3 5,300
Total 2,856,500

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 5. Location and Site
For its convenience to procure raw materials and for distribution of the product to different parts
of the region and other parts of the country, Combolcha is an appropriate choice for the
establishment of small-scale foundry plant in the Amhara region.

6. Technology and Engineering

6.1 Production Process
Foundry operation consists mainly of melting, molding, sand preparation and conditioning, core
making, pouring, cooling, surface cleaning, fettling, heat treatment if necessary, inspection and
casting repair. If any one of these is lacking, it is difficult to obtain sound castings.

1. Melting

Coke-fired, air-blast cupola is the commonest and cheapest way to obtain molten iron. However,
it requires a high grade foundry coke and pig iron, and it emits fumes and dust. Electric induction
melting system is popularly used in place of cupola with its advantageous capacity of melting
almost all kind and shape of iron and steel materials in a silent and clean manner without using
coke. Channel type or crucible type induction holding furnace is also often used for the purpose
of keeping the best timing for pouring. In this project, using low frequency induction furnace
the electric induction melting system is used.

2. Molding

Two mechanical molding systems are introduced; i.e. semi-automatic vibrate squeeze molding
system for medium size castings and automatic flask-less side-blow molding system. In this
project, the automatic flask-less side blow molding system is used.
[[[[

3. Sand Preparation and Conditioning

The bentonite added green sand is used for the above molding systems. Sand is separated from
castings and reclaimed and reconditioned by means of magnet separator, breaker screen, sand
mixer and the conditioned sand is distributed to the molding station. Above cycle is
automatically repeated.

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4. Core Making

Shell core system using resin coated silica sand is most popularly adopted. Carbon dioxide
system and chemical bonded systems are also applicable for core making. Cores are set in the
drag to complete the mould.

5. Pouring
Molten metal is poured into the completed mould by means of pouring ladle.

6. Cooling
Castings punched out from flask releasing station of the molding line are still red hot. Castings
are air cooled on the conveyor line and delivered to the surface cleaning and fettling shop. Gates
and runners are broken off manually from castings.

7) Surface Cleaning
Cooled castings are shot-blasted by super drum type blast cleaning machine.

8) Fettling
Burrs and irregular surfaces are smoothened by grinders, and surface pits are weld repaired.

9) Heat Treatment
Some of cast iron parts are required to be dimensionally accurate and physically resistible. These
parts are heat treated at 58O oC.

10) Inspection
Various tests and inspections are carried out during the production

Outline of Automatic Flask Less Molding System

The heart of this system is horizontal flask-less side blowing molding machine. One molding
machine can produce cope and drag simultaneously, and molding boxes are not required, so the
cost of the system is greatly reduced. Another factor of economy is that the molding machine
does not require any deep pit. Cores are set manually on the machine and the completed mould is
discharged smoothly onto the mould bogie type conveyor system.

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Mould is furnished with jacket and weight and then poured. After passing the cooling zone, the
jacket and weight are removed and the naked mould is crushed mechanically and sand is
separated from castings and is reclaimed to the sand conditioning plant. Castings are conveyed to
the fettling

Split sand at the molding station to be collected by spilt sand returning conveyor, while the
shakeout sand is also returned to the sand plant. During the returning process, the sand separator
and breaker screen where the tramp iron pieces arc removed and lumps arc crushed. The reusable
sand will be cooled down by multi-cooler compulsorily and stored in the sand storage. The fixed
volume of sand is then fed to the sand mixer by means of belt feeders located beneath the
storage. Dried new sand will be added to the used sand. The sand is blended by bentonite, coal
dust, water, etc. for about three minutes to obtain a necessary compressive strength for molding.
The conditioned sand is automatically delivered to the molding station.

Alternatively, instead of using automatic flaskless molding system it is possible to use a semi-
automatic molding system. The semi-automatic system has a larger capacity but it also requires
higher investment cost.

6.2 Machinery and Equipment

The machinery and equipment required and the cost estimate is presented in Table 6.1.
TABLE 6.1
MACHINERY & EQUIPMENT
Item
1. Low Frequency Induction Furnace
2. Induction Unit
3. Automatic Flask Less Molding System
4. New Sand Drying Unit
5. Green Sand Conditioning Unit
6. Core Making Unit
7. Shot Blasting Unit
8. Fettling Unit
9. Laboratory Equipments

The total cost of machinery/equipment is estimated at Birr 25.7 million of which Birr 23.1
million is in foreign currency.

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Machinery Supplier’s Address:
ZHANJIANG SUNRISE CO. LTD
88, QI ANJIN ROAD, CHIKAN DISTRICT CT,
Zhanjiang, Chaina(CN)

6.3 Civil Engineering Cost

The building area required by the plant is estimated to be 500m2, and it costs Birr 2,566,000.
This would include cost of land preparation and associated civil works. The total land area of the
plant, including the open space, is1000 m2 and its lease cost equals Birr 54,500. The cost of the
land lease is as per ANRS land lease rate for Combolcha which is equal to Birr 54.50 per sq m
for industrial purpose. Of the total cost of the lease 5% is paid in the beginning while the rest will
be paid in 40years.

7. Human Resource and Training Requirement

7.1 Human Resource

Details of the manpower requirement of the plant is shown in Table 7.1

TABLE 7.1
MANPOWER REQUIREMENT
Description No Monthly Salary Annual
(Birr) Salary (Birr)
A. Administration
1. Manager 1 7,698.00 92,376.00
2. Accountant 1 2,566.00 30,792.00
3.Seretary 1 2,052.80 24,633.60
4.Purchaser 1 2,052.80 24,633.60
5.Salesman 1 2,052.80 24,633.60
6. Cashier 1 1,539.60 18,475.20
7. Storekeeper 1 1,539.60 18,475.20
8.Guards 4 769.80 36,950.40
Sub-total 10 - 270,969.60
B. Production - -
1. Skilled workers (Operators) 6 2,566.00 184,752.00
Benefits (20%)   91,144.32
16 546,865.92
The total annual wages and salary, including 20 % benefits, amount to Birr 546,865.92.

8
 7.2 Training Requirement

One month on job training is required for the technical personnel. And this can be managed by
hiring one expert in the area from the technology suppliers.

8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of Small-Scale Foundry plant is based on the data provided in the
preceding chapters and the following assumptions.

A. Construction and Finance

Construction Period 2 Years

Source Of Finance 30% Equity and 70% Loan
Tax Holidays 2 Years
Bank Interest Rate 12%
Discount For Cash Flow 18%
Value Of Land Based on Lease Rate of ANRS
Spare Parts, Repair & Maintenance 3% of the Fixed Investment

B. Depreciation

Building 5%
Machinery And Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%

9
 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 Birr 41 million
as shown in Table 8.1 below. The Owner shall contribute 30 % of the finance in the form of
equity while the remaining 70 % is to be financed by bank loan.

TABLE 8.1
TOTAL INITIAL INVESTMENT

Items L.C F.C Total

Land
6,992 0 6,992
Building and Civil Works
2,566,000 0 2,566,000
Office Equipment
128,300 0 128,300
Vehicles
0 0 0
Plant Machinery & Equipment
2,566,000 23,094,000 25,660,000
Total Fixed Investment Cost
5,267,292 23,094,000 28,361,292
Pre Production Capital Expenditure*
1,418,064 0 1,418,064
Total Initial Investment
1,418,064 0 1,418,064
Working Capital at Full Capacity
4,308,796 6,942,198 11,250,994
Total Working Capital
4,308,796 6,942,198 11,250,994
Total 10,994,153 30,036,198 41,030,350
*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.

10
The foreign component of the project accounts for Birr 30 million or 73.2 % of the total
investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 14.1 million (See Table
8.2). Raw materials and utilities account for 79.7 %.
TABLE 8.2
PRODUCTION COST AT FULL CAPACITY
Raw Material Requirement Cost
1. Local Raw Materials 5,552,824
2. Foreign Raw Materials 15,909,200

Total Production Cost at full Capacity

Items Cost
1.      Raw materials 21,462,024
2.      Utilities 7,329,779
3.      Wages and Salaries 546,866
4.      Spares and Maintenance 850,839
Factory Costs 30,189,508
5.      Depreciation 2,990,742
6.      Financial Costs
2,954,184
  Total Production Cost 36,134,435

8.4 Financial Evaluation

I. Profitability
According to the projected income statement (See Annex 4) the project will generate profit
beginning from the second year of operation and increases on wards. The income statement and
other profitability indicators also show that the project is viable.

II. Breakeven Analysis

11
The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 20.9 % of capacity utilization

III. Payback Period
Investment cost and income statement projection are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in three years.

IV. Simple Rate of Return

The project’s simple rate of return (SRR) is given by the formula:

SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.

The SRR would be 23.7 % at full capacity utilization.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the
project is 25.3 % and the net present value (NPV) at 18 % discount is Birr 10,121,996.

VI. Sensitivity Analysis

The sensitivity test result which undertaken by increasing the cost of production by 10 % still
indicates that the project would be viable.

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
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:

12
 A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 7.2 million per
year and Birr 72.9 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 29.3 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

As there is no enough production of cast iron in the country, 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 16.4 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 several citizens of the
country. That is, it will provide permanent employment to 16 professionals as well as support
stuffs. Consequently the project creates income of Birr 213 thousands per year. This would be
one of the commendable accomplishments of the project.

13
ANNEXES

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

Capacity Utilization (%) 0 0 50% 75% 85% 100%

1. Total Inventory - - 8,969,841 13,454,761 15,248,729 17,939,681

Raw Materials in Stock- Total - - 3,773,980 5,660,969 6,415,765 7,547,959

Raw Material-Local - - 302,881 454,322 514,898 605,763

Raw Material-Foreign - - 3,471,098 5,206,647 5,900,867 6,942,196

Factory Supplies in Stock - - 18,098 27,147 30,767 36,197

Spare Parts in Stock and Maintenance - - 46,409 69,614 78,896 92,819

Work in Progress - - 452,458 678,687 769,179 904,916

Finished Products - - 904,916 1,357,374 1,538,357 1,809,832

2. Accounts Receivable - - 2,519,345 3,779,018 4,282,887 5,038,691

3. Cash in Hand - - 429,635 644,453 730,380 859,270

CURRENT ASSETS - - 8,144,842 12,217,263 13,846,231 16,289,683

4. Current Liabilities - - 2,519,345 3,779,018 4,282,887 5,038,691

Accounts Payable - - 2,519,345 3,779,018 4,282,887 5,038,691

TOTAL NET WORKING CAPITAL REQUIRMENTS - - 5,625,496 8,438,244 9,563,344 11,250,993

INCREASE IN NET WORKING CAPITAL - - 5,625,496 2,812,748 1,125,099 1,687,649

15
 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 17,939,681 17,939,681 17,939,681 17,939,681 17,939,681 17,939,681

Raw Materials in Stock-Total 7,547,959 7,547,959 7,547,959 7,547,959 7,547,959 7,547,959

Raw Material-Local 605,763 605,763 605,763 605,763 605,763 605,763

Raw Material-Foreign 6,942,196 6,942,196 6,942,196 6,942,196 6,942,196 6,942,196

Factory Supplies in Stock 36,197 36,197 36,197 36,197 36,197 36,197

Spare Parts in Stock and Maintenance 92,819 92,819 92,819 92,819 92,819 92,819

Work in Progress 904,916 904,916 904,916 904,916 904,916 904,916

Finished Products 1,809,832 1,809,832 1,809,832 1,809,832 1,809,832 1,809,832

2. Accounts Receivable 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691

3. Cash in Hand 859,270 859,270 859,270 859,270 859,270 859,270

CURRENT ASSETS 16,289,683 16,289,683 16,289,683 16,289,683 16,289,683 16,289,683

4. Current Liabilities 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691

Accounts Payable 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691

TOTAL NET WORKING CAPITAL REQUIRMENTS 11,250,993 11,250,993 11,250,993 11,250,993 11,250,993 11,250,993

INCREASE IN NET WORKING CAPITAL - - - - - -

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Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 14,831,652 26,038,798 25,513,527 35,760,764 39,608,705 46,760,858
1. Inflow Funds 14,831,652 26,038,798 2,509,527 1,254,764 501,905 752,858
Total Equity 5,932,661 10,415,519 - - - -
Total Long Term Loan 8,898,991 15,623,279 - - - -
Total Short Term Finances - - 2,509,527 1,254,764 501,905 752,858
2. Inflow Operation - - 23,004,000 34,506,000 39,106,800 46,008,000
Sales Revenue - - 23,004,000 34,506,000 39,106,800 46,008,000
Interest on Securities - - - - - -
3. Other Income - - - - - -
TOTAL CASH OUTFLOW 14,831,652 14,831,652 29,535,527 33,538,215 36,049,740 41,691,357
4. Increase In Fixed Assets 14,831,652 14,831,652 - - - -
Fixed Investments 14,125,383 14,125,383 - - - -
Pre-production Expenditures 706,269 706,269 - - - -
5. Increase in Current Assets - - 8,113,100 4,056,550 1,622,620 2,433,930
6. Operating Costs - - 15,063,237 22,451,948 25,407,432 29,840,658
7. Corporate Tax Paid - - - - 2,480,416 3,367,942
8. Interest Paid - - 6,359,189 2,942,672 2,452,227 1,961,782
9.Loan Repayments - - - 4,087,045 4,087,045 4,087,045
10.Dividends Paid - - - - - -
Surplus(Deficit) - 11,207,146 (4,022,000) 2,222,548 3,558,966 5,069,502
Cumulative Cash Balance - 11,207,146 7,185,146 9,407,695 12,966,660 18,036,162

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 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000
1. Inflow Funds - - - - - -
Total Equity - - - - - -
Total Long Term Loan - - - - - -
Total Short Term Finances - - - - - -
2. Inflow Operation 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000
Sales Revenue 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000
Interest on Securities - - - - - -
3. Other Income - - - - - -
TOTAL CASH OUTFLOW 38,914,115 38,655,555 38,312,243 33,881,887 33,881,887 33,881,887
4. Increase In Fixed Assets - - - - - -
Fixed Investments - - - - - -
Pre-production Expenditures - - - - - -
5. Increase in Current Assets - - - - - -
6. Operating Costs 29,840,658 29,840,658 29,840,658 29,840,658 29,840,658 29,840,658
7. Corporate Tax Paid 3,515,075 3,746,961 3,894,095 4,041,229 4,041,229 4,041,229
8. Interest Paid 1,471,336 980,891 490,445 - - -
9. Loan Repayments 4,087,045 4,087,045 4,087,045 - - -
10.Dividends Paid - - - - - -
Surplus(Deficit) 7,093,885 7,352,445 7,695,757 12,126,113 12,126,113 12,126,113
Cumulative Cash Balance 25,130,047 32,482,492 40,178,249 52,304,362 64,430,475 76,556,588

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Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW - - 23,004,000 34,506,000 39,106,800 46,008,000
1. Inflow Operation - - 23,004,000 34,506,000 39,106,800 46,008,000
Sales Revenue - - 23,004,000 34,506,000 39,106,800 46,008,000
Interest on Securities - - - - - -
2. Other Income - - - - - -
TOTAL CASH OUTFLOW 14,831,652 14,831,652 20,666,810 25,253,734 26,528,147 34,889,672
3. Increase in Fixed Assets 14,831,652 14,831,652 - - - -
Fixed Investments 14,125,383 14,125,383 - - - -
Pre-production Expenditures 706,269 706,269 - - - -
4. Increase in Net Working Capital - - 5,603,573 2,801,787 1,120,715 1,681,072
5. Operating Costs - - 15,063,237 22,451,948 25,407,432 29,840,658
6. Corporate Tax Paid - - - - - 3,367,942
NET CASH FLOW (14,831,652) (14,831,652) 2,337,190 9,252,266 12,578,653 11,118,328
CUMMULATIVE NET CASH FLOW (14,831,652) (29,663,303) (27,326,114) (18,073,848) (5,495,194) 5,623,134
Net Present Value (at 18%) (14,831,652) (12,569,196) 1,678,533 5,631,215 6,487,930 4,859,924
Cumulative Net present Value (14,831,652) (27,400,848) (25,722,315) (20,091,100) (13,603,171) (8,743,247)

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 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000
1. Inflow Operation 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000
Sales Revenue 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000 46,008,000
Interest on Securities - - - - - -
2. Other Income - - - - - -
TOTAL CASH OUTFLOW 33,355,734 33,587,620 33,734,753 33,881,887 33,881,887 33,881,887
3. Increase in Fixed Assets - - - - - -
Fixed Investments - - - - - -
Pre-production Expenditures - - - - - -
4. Increase in Net Working Capital - - - - - -
5. Operating Costs 29,840,658 29,840,658 29,840,658 29,840,658 29,840,658 29,840,658
6. Corporate Tax Paid 3,515,075 3,746,961 3,894,095 4,041,229 4,041,229 4,041,229
NET CASH FLOW 12,652,266 12,420,380 12,273,247 12,126,113 12,126,113 12,126,113
CUMMULATIVE NET CASH FLOW 18,275,400 30,695,781 42,969,028 55,095,141 67,221,254 79,347,367
Net Present Value (at 18%) 4,686,799 3,899,068 3,265,152 2,733,906 2,316,869 1,963,449
Cumulative Net present Value (4,056,448) (157,380) 3,107,772 5,841,678 8,158,547 10,121,996
Net Present Value (at 18%) 10,121,996

Internal Rate of Return 25.3%

20
Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 50% 75% 85% 100% 100%

1. Total Income 23,094,000 34,641,000 39,259,800 46,188,000 46,188,000

Sales Revenue 23,094,000 34,641,000 39,259,800 46,188,000 46,188,000
Other Income - - - - -
2. Less Variable Cost 14,725,863 22,088,794 25,033,966 29,451,725 29,451,725
VARIABLE MARGIN 8,368,137 12,552,206 14,225,834 16,736,275 16,736,275
(In % of Total Income) 36.24% 36.24% 36.24% 36.24% 36.24%
3. Less Fixed Costs 3,387,050 3,441,737 3,463,612 3,496,424 3,496,424
OPERATIONAL MARGIN 4,981,087 9,110,469 10,762,222 13,239,851 13,239,851
(In % of Total Income) 21.57% 26.30% 27.41% 28.67% 28.67%
4. Less Cost of Finance 6,384,069 2,954,185 2,461,821 1,969,457 1,477,093
5. GROSS PROFIT (1,402,982) 6,156,284 8,300,401 11,270,395 11,762,759
6. Income (Corporate) Tax - - 2,490,120 3,381,118 3,528,828
7. NET PROFIT (1,402,982) 6,156,284 5,810,281 7,889,276 8,233,931
RATIOS (%)  
Gross Profit/Sales -6.08% 17.77% 21.14% 24.40% 25.47%
Net Profit After Tax/Sales -6.08% 17.77% 14.80% 17.08% 17.83%
Return on Investment 14.07% 23.84% 21.03% 24.03% 23.67%
Return on Equity -8.55% 37.51% 35.40% 48.07% 50.17%
Annex 4: NET INCOME STATEMENT (in Birr):Continued

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 PRODUCTION
  6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 46,188,000 46,188,000 46,188,000 46,188,000 46,188,000

Sales Revenue 46,188,000 46,188,000 46,188,000 46,188,000 46,188,000
Other Income - - - - -
2. Less Variable Cost 29,451,725 29,451,725 29,451,725 29,451,725 29,451,725
VARIABLE MARGIN 16,736,275 16,736,275 16,736,275 16,736,275 16,736,275
(In % of Total Income) 36.24% 36.24% 36.24% 36.24% 36.24%
3. Less Fixed Costs 3,212,811 3,212,811 3,212,811 3,212,811 3,212,811
OPERATIONAL MARGIN 13,523,464 13,523,464 13,523,464 13,523,464 13,523,464
(In % of Total Income) 29.28% 29.28% 29.28% 29.28% 29.28%
4. Less Cost of Finance 984,728 492,364 - - -
5. GROSS PROFIT 12,538,736 13,031,100 13,523,464 13,523,464 13,523,464
6. Income (Corporate) Tax 3,761,621 3,909,330 4,057,039 4,057,039 4,057,039
7. NET PROFIT 8,777,115 9,121,770 9,466,425 9,466,425 9,466,425
RATIOS (%)  
Gross Profit/Sales 27.15% 28.21% 29.28% 29.28% 29.28%
Net Profit After Tax/Sales 19.00% 19.75% 20.50% 20.50% 20.50%
Return on Investment 23.79% 23.43% 23.07% 23.07% 23.07%
Return on Equity 53.48% 55.58% 57.68% 57.68% 57.68%

 Annex 5: Projected Balance Sheet (in Birr)

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 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 14,889,678 41,030,349 43,549,695 45,459,635 47,670,750 52,212,795
1. Total Current Assets - 11,250,993 15,358,099 21,661,764 26,863,622 34,396,409
Inventory on Materials and Supplies - - 3,838,487 5,757,731 6,525,428 7,676,974
Work in Progress - - 452,458 678,687 769,179 904,916
Finished Products in Stock - - 904,916 1,357,374 1,538,357 1,809,832
Accounts Receivable - - 2,519,345 3,779,018 4,282,887 5,038,691
Cash in Hand - - 429,635 644,453 730,380 859,270
Cash Surplus, Finance Available - 11,250,993 7,213,257 9,444,501 13,017,391 18,106,726
2. Total Fixed Assets, Net of Depreciation 14,889,678 29,779,357 26,788,614 23,797,871 20,807,128 17,816,385
Fixed Investment - 14,180,646 28,361,292 28,361,292 28,361,292 28,361,292
Construction in Progress 14,180,646 14,180,646 - - - -
Pre-Production Expenditure 709,032 1,418,065 1,418,065 1,418,065 1,418,065 1,418,065
Less Accumulated Depreciation - - 2,990,743 5,981,486 8,972,229 11,962,972
3. Accumulated Losses Brought Forward - - - - - -
4. Loss in Current Year - - 1,402,982 - - -
TOTAL LIABILITIES 14,889,678 41,030,349 43,549,695 45,459,635 47,670,750 52,212,795
5. Total Current Liabilities - - 2,519,345 3,779,018 4,282,887 5,038,691
Accounts Payable - - 2,519,345 3,779,018 4,282,887 5,038,691
Bank Overdraft - - - - - -
6. Total Long-term Debt 8,933,807 24,618,210 24,618,210 20,515,175 16,412,140 12,309,105
Loan A 8,933,807 24,618,210 24,618,210 20,515,175 16,412,140 12,309,105
7. Total Equity Capital 5,955,871 16,412,140 16,412,140 16,412,140 16,412,140 16,412,140
Ordinary Capital 5,955,871 16,412,140 16,412,140 16,412,140 16,412,140 16,412,140
Preference Capital - - - - - -
8. Reserves, Retained Profits Brought Forward - - - (1,402,982) 4,753,302 10,563,583
9.Net Profit After Tax - - - 6,156,284 5,810,281 7,889,276
Dividends Payable - - - - - -
Retained Profits - - - 6,156,284 5,810,281 7,889,276
Annex 5: Projected Balance Sheet (in Birr): Continued
  PRODUCTION

23
 5 6 7 8 9 10
TOTAL ASSETS 56,343,691 61,017,771 66,036,506 75,502,931 84,969,356 94,435,781
1. Total Current Assets 41,518,049 48,899,259 56,625,124 68,798,679 80,972,234 93,145,789
Inventory on Materials and Supplies 7,676,974 7,676,974 7,676,974 7,676,974 7,676,974 7,676,974
Work in Progress 904,916 904,916 904,916 904,916 904,916 904,916
Finished Products in Stock 1,809,832 1,809,832 1,809,832 1,809,832 1,809,832 1,809,832
Accounts Receivable 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691
Cash in Hand 859,270 859,270 859,270 859,270 859,270 859,270
Cash Surplus, Finance Available 25,228,365 32,609,575 40,335,440 52,508,995 64,682,550 76,856,105
2. Total Fixed Assets, Net of Depreciation 14,825,642 12,118,512 9,411,382 6,704,252 3,997,122 1,289,992
Fixed Investment 28,361,292 28,361,292 28,361,292 28,361,292 28,361,292 28,361,292
Construction in Progress - - - - - -
Pre-Production Expenditure 1,418,065 1,418,065 1,418,065 1,418,065 1,418,065 1,418,065
Less Accumulated Depreciation 14,953,715 17,660,845 20,367,975 23,075,105 25,782,235 28,489,365
3. Accumulated Losses Brought Forward - - - - - -
4. Loss in Current Year - - - - - -
TOTAL LIABILITIES 56,343,691 61,017,771 66,036,506 75,502,931 84,969,356 94,435,781
5. Total Current Liabilities 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691
Accounts Payable 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691 5,038,691
Bank Overdraft - - - - - -
6. Total Long-term Debt 8,206,070 4,103,035 - - - -
Loan A 8,206,070 4,103,035 - - - -
Loan B - - - - - -
7. Total Equity Capital 16,412,140 16,412,140 16,412,140 16,412,140 16,412,140 16,412,140
Ordinary Capital 16,412,140 16,412,140 16,412,140 16,412,140 16,412,140 16,412,140
Preference Capital - - - - - -
8. Reserves, Retained Profits Brought Forward 18,452,859 26,686,790 35,463,905 44,585,676 54,052,101 63,518,526
9. Net Profit After Tax 8,233,931 8,777,115 9,121,770 9,466,425 9,466,425 9,466,425
Dividends Payable - - - - - -
Retained Profits 8,233,931 8,777,115 9,121,770 9,466,425 9,466,425 9,466,425

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