Investment Office ANRS

Project Profile on the Establishment of Cocks

and Valves producing plant

Development Studies Associates

(DSA)

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....................................................................................................3
3.1.3 Pricing and Distribution...........................................................................................5
3.2 Plant Capacity..................................................................................................................5
3.3 Production Program.........................................................................................................6
4. Raw Materials and Utilities.................................................................................6
4.1 Availability and Source of Raw Materials.......................................................................6
4.2 Annual Requirement and Cost of Raw Materials and Utilities.......................................7
5. Location and Site.................................................................................................7
6. Technology and Engineering...............................................................................8
6.1 Production Process...........................................................................................................8
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 project provides basic information on the production of pipe fittings (taps, cocks and
valves). The initial investment of the project is estimated at about Birr 75.7 million, of which
50.9% is in foreign currency.

The market study shows the existence of adequate demand for the product.

Total production costs at full capacity amount to about Birr 31.6 million while sales revenues are
estimated at Birr 3.3 million.

The project is assessed to earn an internal rate of return (IRR) of about 32.0 %, and a net present
value of Birr 41.3 million on net cash flows discounted at 18%.

The project creates employment for 102 people. Other benefits included tax revenue to the
region, foreign exchanges savings, and technological benefits.

2. Product Description and Application

Pipe fittings and valves are mechanical items which are required in a pipe network system, such
as gage values, globe valves elbows, tees, Y-branches, unions, straight couplings, etc. They are
in most cases manufactured by melting and casting scrap iron, bronze and other metals. High
pressure fittings are produced form commercial steel.

Pipe fittings and valves have applications like regulating, changing direction and prolonging the
transport of liquids through fitted pipes in a wide range of industrial fields and domestic water
supply systems.

Pipe fittings and values have various types and sizes. But the most commonly used ones can be
limited to about 70.

1
 Cocks and valves are fittings used in water pipes. They are needed in all areas (homes,
hospitals, offices, public water taps, etc) where water is delivered through pipes. These fittings
are also used (with adjustment) for pipes used to transport other liquid substances. Examples of
cocks and valves are water taps used for opening and closing the flow of water; check valves are
used to check the flow of water or other liquid during maintenance operations. Cocks and valves
are normally made of brass or stainless steel due to the fact that these metals/alloys are not
affected by water and are corrosion proof. The products are produced either by casting or
machining process

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The market for pipe fitting and valves is assessed based on the applications listed earlier. The
demand assessment is analyzed suing the trend of supplies which are composed of local
production if any and/or imports. The source of data is the yearly published External trade
Statistics by the Customs authority for imports.

The supply of piped water is expanding in both urban and rural areas of the Amhara Region.
About twenty years ago, bringing water from rivers springs or a well to villages through pipes
was very rare. Today one can witness the presence of water points in village centers in many
parts of the Region. Most of the urban areas of the Region are supplied with piped water; and
the provision of piped water is expanding. However, all materials used to construct or install
piped water (pipes, valves, water meters, etc) are either imported or brought from Addis Ababa.
In another project idea, we have proposed the establishment of a plant which will produce metal
pipes for water supply. The Region should also try to be self-sufficient in the production of
cocks and valves to facilitate the further expansion of piped water supply in the Region.

2
Table 1 shows the yearly supplies of appliances such as taps, cocks and valves during the period
1991 to 20001 only through imports as there is no local production of such construction
materials.

The import figures during the period 1991 to 2000 have shown a general increasing trend.
During the period indicated, an average of 510,740 tons or about 511 tons of taps, cocks and
valves per year had been imported into the country with a total CIF value of Birr 25 million.

The present demand for such fittings and valves is conservatively estimated to be the average
imports between the year 1994 and the year 2000, which is about 651 tons /year.

Table 1
SUPPLY OF TAPS, COCKS AND VALVES
(1991 - 2000)

Year Quantity (kg) CIF Value('000'Birr)

1991 18,656 881
1992 23,988 2,066
1993 - -
1994 605,374 23,288
1995 411,802 23,017
1996 758,033 28,514
1997 463,345 24,883
1998 553,685 22,600
1999 638,791 34,403
2000 1,122,982 69,119
Total 4,596,656 228,771
Average 510,740 25,419

Source: Customs Authority, Import Statistics, 1991-2000

3.1.2 Projected Demand

The supply of piped water is expanding in both urban and rural areas of the country at large in
Amhara Region. About twenty years ago, bringing water from rivers springs or a well to villages
through pipes was very rare in almost all rural areas of the country in general. Today one can
witness the presence of water points in village centers in many parts of all the Regions. Most of
1
Years in this Document are in Ethiopian Calendar

3
the urban areas of the Amhara Region are supplied with piped water; and the provision of piped
water is expanding. However, all materials used to construct or install piped water in the country
or in Amhara Region (pipes, valves, water meters, etc) are imported from abroad. In another
project idea, we have proposed the establishment of a plant which will produce metal pipes for
water supply. To facilitate the further expansion of piped water supply and hygiene of the
population as well as to be self-sufficient, the production of taps, cocks and valves in the Region
is of paramount importance.

All taps, cocks and valves used in the water system of the country are imported. Considering the
extent of water supply system and its potential for expansion all over the country, one can safely
assume that there is more than sufficient demand for such construction materials, which will
make a new plant viable.

The basis of demand projection is either the growth trend of past supplies or the anticipated
growth of the construction sector contribution of GDP. The construction sector GDP is estimated
to increase by about 14.5% yearly. Assuming that the future growth of sector is almost same
level, say 14% per year, the projected demand for taps, cocks and valves, etc for the coming ten
years is given in Table 2.
In this projection demand for the products will increase from 742 tons in the year 2001 to 2413
tons in the year 2010.
Table 2
DEMAND PROJECTION FOR TAPS, COCKS AND VALVES (TONS)

Year Projected Demand

2008 1857
2009 2117
2010 2413
2011 2752
2012 3140
2013 3581
2014 4085
2025 4660
2026 5315
2027 6063

4
 3.1.3 Pricing and Distribution

Selling prices are determined by general market indictors. Since the fittings are of various in
sizes and types, their selling prices vary also from time to time as a result of fluctuations in
supplies. The CIF selling price of such fittings ranges from Birr 38/kg to Birr 61/kg .The selling
price of the plant is estimated to be Birr 51,320 per ton.

Sales and distribution can be arranged through sole distributors and retailers. In this particular
case, the market area and the nature of the product dictate that sales and distribution be arranged
through wholesalers and retailers so that the product can be made available throughout the
market.

3.2 Plant Capacity

Under circumstances where supplies are made only through imports and there are no local
producers, it becomes reasonable to assume case of import substitution and consider all imports
as potential demand in the country. In all cases, the portion of demand met by imports has been
considered as part of the gap between supply and demand, or the available demand.

Considering 8 working hours per day and 275 working days per year, the envisaged plant is
assumed to produce about 1200 tons of different fittings and valves per year in one shift.
Maintenance, activities will be carried out in phase without interruption of production, if
possible, and preventive maintenance will be carried out on non production hours.

It should be noted that all sizes of pipe fittings and valves are not equally demanded. Smaller
sizes are the most commonly used and the production schedule should be planned accordingly.
The proposed product mix of the plant is indicated in table 3 bellow.

5
 Table 3
ANNUL PRODUCTION AND MIX AT 100% CAPACITY UTILIZATION

Pipe fittings and Production Production

valves (%) (tons)
½” 25 300
¾” 20 240
1” 15 180
1 ¼” 10 120
1 ½” 10 120
1 ¾” 6 72
2” 5 60
2 ½” 6 60
3 4 48
Total Production 100 1200

3.3 Production Program

New producers/ suppliers that come into the market take time before they get used to customer
behaviour, establish sales networks and create sufficient awareness of their brand of a product.
Thus, three year period has been assumed to elapse before the plant reaches at full capacity.
According, a production programme of 75%, 85% and 100% capacity has been adopted during
the first, second and third year of production, respectively.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The major raw material for the production of pipe fittings and valves is scrap iron. Other inputs
like limestone, coal, etc. which are quite small in proportion are added. The scrap and other
materials requirements are almost double by weight of the product. Almost all of these materials
are locally available.

6
 4.2 Annual Requirement and Cost of Raw Materials and Utilities

As per the IPS estimations, the annual requirement of raw materials and utilities and their
respective cost are given in Table 4.

The only auxiliary materials required for the manufacturing of pipe fittings and valves are oil and
packaging materials. Both of these auxiliary materials are abundant locally.

The utilities required the manufacturing of valves and pipe fittings are electric power and water.
The power requirement is, on average, 2,688,000 KWA. Annual consumption raw materials and
utilities for a single shift per day, 275 days per year of operation is given in Table 4.

Table 4.
ANNUAL MATERIALS AND UTILITIES REQUIREMENT AT 100%
CAPAITY UTILIZATION

Unit Cost in Total cost in

Materials and Input Unit Qty.
Birr/ton Birr
Raw Materials
Scrap iron & steel Tons 1,500 5132 7698000
Others “ 500   1539600
Aux. Materials 0 0
Oil Lit 108,000 12.83 1385640
Packaging materials - -   10623240
Sub total   21,246,480
Utilities    
Electric power Kwh 2,688,000 0.55 1,478,400
Water M3 750 2.65 1987
Sub total   1,480,387
Total   22,726,867
Source of Technology is UNIDO, how to start manufacturing industries.

The first requisite of the plant is the convenient procuring of high voltage electric power
and water. The most suitable place should be chosen by taking this and other
conditions into consideration. In this regard Combolcha or Bahir Dar could be suitable
location.

7
 5. Technology and Engineering
5.1 Production Process

First, the various materials are weighed and charged into a furnace. After making sure that the
chemical composition is within the range of malleable iron casting, the metal is tapped into the
crane ladle to be powered into the sand mould previously made. The castings are separated from
sand after cooling for 5 to 10 minutes by share out.

After removing sand, the cast products are separated from spruce, runners and gates by
hammering. The products are then treated in a shot blast prior to inspection.

The spruce, runners and gates are re-melted for use. After inspection, the products are sealed in
an annealing pot and charged into the annealing furnace. After being annealed completely at a
proper temperature for a proper time, the casting is removed of gates and burrs by the cutting
machine.

The distortion of casting is removed by the deformation corrector. Then, the castings are cleaned
by shot blast and pickled for galvanizing. The castings after galvanizing are machined and
threaded. Finally, every, piece of casting is subject to the pressure leakage test and anti corrosive
oil is applied to the casting and packed for dispatch.

Alternatively the promoter can increase the production scale of the plant from 1200 tons per year
to 400 tons per year by increasing a little reinforcement of equipment according to the increase
of demand.

5.2 Machinery and Equipment

The machinery and equipment to be employed for the manufacturing of pipe fittings and valves
are standard and well known and proven all over the world. Details of these machinery and
equipment with respective cost estimates are given in Table 5. The total estimated cost of
machinery and equipment is about Birr 51 million, of which 12.8 million is in local currency
used for installation work and steel fabrications. The project will also requires about Birr 641,500
and Birr 51,320 to purchase a pick up vehicle and office furniture and equipments, respectively.
Table 5
MACHINERY AND EQUIPMENT

8
 Machinery & equipment Qty.
Moulding machines 1set
Sand Conditioning plant “
Melting furnace “
Shot blasting Machine “
Annealing Furnace “
Galvanizing shop “
Tapping machine “
Laboratory Equipment “
Testers etc ''

Machinery and equipment of the project could be purchased from the following Supplier.

Ashok Kumar Arora

E-81, Phase IV, Focal Point
Ludhiana 141010
Punjab
India
Phone: 91-161-2673735
Fax: 91-161-2670077

For better quality, the promoter could buy the machineries and equipment from
companies of Italy or Germany.

5.3 Civil Engineering Cost

It is recommended that the plant site area should be about 12,000 meter-square. The total
building area necessary for factory proper, stores and office complex is 4,000 meter square. Of
this, office complex is estimated to cover an area of about 200m2. The plant will require about
Birr 25,660 for the purchase of office equipment and furniture.

The average cost of building for factory proper and a store is about Birr 3,849 per meter-square
and that for office complex is Birr 5,132 per meter-square. Therefore, the total building cost will
be Birr 15,652,600

The plant layout for the production line must be designed to follow the process. Stores are
recommended to be located at the beginning and end of the production line.

9
 6. Human Resource and Training Requirement

6.1 Human Resource

The total manpower requirement for this plant will be about 102 people. Of this, about 80 will be
direct workers. Details of manpower and associated salaries are given in Table 6.

Table 6
DETAILS OF MANPOWER

Monthly Annual
Manpower Qty. Salary /Person Salary (Birr)
Manager 1 8981 107772
Engineer 1 7698 92376
Foremen 4 3849 184752
Operators 40 2309.4 1108512
Asst. Operators 40 1924.5 923760
Technicians 3 2566 92376
Asst. Technicians 3 2052.8 73900.8
Clerical workers 6 2052.8 147801.6
Others 4 1026.4 49267.2
Total 102 2780517.6
Benefits (20%) 556103.52
Total Salary 3336621.12

6.2 Training Requirement

It is recommended that all operators and technicians should be trained on-the –job by the experts
of machinery suppliers. But for an engineer and foremen, it will be worth considering for
training and exposure abroad in the suppliers training center. It is assumed that with the above
training and the experience that will be gained during erection operation and maintenance of the
plant can easily be handled by local staff.

7. Financial Analysis
7.1 Underlying Assumption

The financial analysis of Pipe fittings producing plant is based on the data provided in the
preceding chapters and the following assumptions.

10
 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 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

7.2 Investment
The total investment cost of the project including working capital is estimated at Birr 76.2
million as shown in table 7 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.
The foreign component of the project accounts for Birr 38.5 million or 50.9% of the total
investment cost.

11
 Table 7: Total initial investment

  LC FC Total
Land
720,000 720,000
Building
15,652,600 0 15,652,600
Office equipment
51,320 0 51,320
Vehicles
641,500 0 641,500
machinery & equipment
12,830,000 38,490,000 51,320,000
Total Fixed Investment
29,895,420 39,210,000 68,385,420
Pre production
3,387,890 0 3,387,890
Total Initial
Investment 33,283,310 39,210,000 71,773,310
Working capital
4,456,069 0 4,456,069
Total 38,490,000
37,739,379 76,229,379
*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.

7.3 Production Costs

Production costs are comprised of raw, materials costs, labor, utilities, depreciation and financial
costs. Total production costs at full capacity utilization are about Birr 29.24 million as shown in
table 8 bellow.

12
 Table 8
Total Production Cost at full Capacity
Items Cost
1.      Raw materials 11,136,440
2.      Utilities 1,480,378
3.      Wages and Salaries 3,336,621
4.      Spares and Maintenance 2,032,734
Factory costs 17,986,173
5.      Depreciation 6,725,640
6.      Financial costs
4,536,106
  Total Production Cost 29,247,918

7.4 Financial Evaluation

I. Profitability
According to the projected income statement the envisaged project starts earning profit from the
first year of operation. The rate of return on investment and the rate of return on equity of the
project is 33% and 42 %, respectively.

II. Breakeven Analysis

Break-even capacity is the level of capacity utilization at which the project not makes any profit
or incurs any losses. Its revenues are equal to its costs of operation. The Breakeven point of the
project is 19.8 %

III. Payback Period

Payback period is the number of years the annual project cash flows cover totally the amount
investment made. The payback period for this project is three years.

IV. Simple Rate of Return

Simple rate of return (SRR) is the percentage of net profit after taxes plus interest to the total
investment. Thus SRR for this project is about 34%.

13
 V. Internal Rate of Return and Net Present Value
Based on cash flow statement the calculated IRR of the project is 32% and the net present value
of 18% discount rate Birr 41.3 million.

VI. Sensitivity Analysis

The project will not be affected if prices of raw materials increase by 10%.

8. 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 facilitates the provision of piped water, introduces new skills and
technology to the Region, and promotes self-sufficiency; possibility of exporting to other parts of
the country and 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 45.2 million per
year and birr 195.5 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 72.9 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 local production of pipe fittings 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 58.8 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 102 professionals as well as support

14
staff. Consequently the project creates income of birr 3.3 million per year. This would be one of
the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production does not pollute the environment.

15
ANNEXES

16
 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 75% 85% 100% 0%

1. Total Inventory 0.00 0.00 3669421 4158677.1 4892561.28 0

Raw Materials in Stock- Total 0.00 0.00 911163.28 1032651.7 1214884.375 0

Raw Material-Local 0.00 0.00 911163.28 1032651.7 1214884.375 0

Raw Material-Foreign 0.00 0.00 0 0 0 0

Factory Supplies in Stock 0.00 0.00 22115.533 25064.252 29487.36862 0

Spare Parts in Stock and Maintenance 0.00 0.00 166314.6 188489.87 221752.7962 0

Work in Progress 0.00 0.00 552888.09 626606.53 737184.1385 0

Finished Products 0.00 0.00 1105776.2 1253213 1474368.277 0

2. Accounts Receivable 0.00 0.00 5038690.9 5710516.4 6718254.55 0

3. Cash in Hand 0.00 0.00 583794.89 661634.22 778393.2004 0

CURRENT ASSETS 0.00 0.00 8380743.5 9498176 11174324.68 0

4. Current Liabilities 0.00 0.00 5038690.9 5710516.4 6718254.55 0

Accounts Payable 0.00 0.00 5038690.9 5710516.4 6718254.55 0

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 3342052.6 3787659.6 4456070.13 0

INCREASE IN NET WORKING CAPITAL 0.00 0.00 3342052.6 445607.02 668410.5144 -4456070

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 4892561.28 4892561 4892561 4892561 4892561 4892561

Raw Materials in Stock-Total 1214884.375 1214884 1214884 1214884 1214884 1214884

Raw Material-Local 1214884.375 1214884 1214884 1214884 1214884 1214884

Raw Material-Foreign 0 0 0 0 0 0

Factory Supplies in Stock 29487.36862 29487.37 29487.37 29487.37 29487.37 29487.37

Spare Parts in Stock and Maintenance 221752.7962 221752.8 221752.8 221752.8 221752.8 221752.8

Work in Progress 737184.1385 737184.1 737184.1 737184.1 737184.1 737184.1

Finished Products 1474368.277 1474368 1474368 1474368 1474368 1474368

2. Accounts Receivable 6718254.55 6718255 6718255 6718255 6718255 6718255

3. Cash in Hand 778393.2004 778393.2 778393.2 778393.2 778393.2 778393.2

CURRENT ASSETS 11174324.68 11174325 11174325 11174325 11174325 11174325

4. Current Liabilities 6718254.55 6718255 6718255 6718255 6718255 6718255

Accounts Payable 6718254.55 6718255 6718255 6718255 6718255 6718255

TOTAL NET WORKING CAPITAL REQUIRMENTS 4456070.13 4456070 4456070 4456070 4456070 4456070

INCREASE IN NET WORKING CAPITAL 4456070.13 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 35572843 40028913 51226691 53018225 62591738 -6718255
1. Inflow Funds 35572843 40028913 5038691 671825.4 1007738 -6718255
Total Equity 14229137 16011565 0 0 0 0
Total Long Term Loan 21343706 24017348 0 0 0 0
Total Short Term Finances 0 0 5038691 671825.4 1007738 -6718255
2. Inflow Operation 0 0 46188000 52346400 61584000 0
Sales Revenue 0 0 46188000 52346400 61584000 0
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 35572843 35572843 35225591 30603101 42353534 736191.8
4. Increase In Fixed Assets 35572843 35572843 0 0 0 0
Fixed Investments 33878898 33878898 0 0 0 0
Pre-production Expenditures 1693945 1693945 0 0 0 0
5. Increase in Current Assets 0 0 8380743 1117432 1676149 -1.1E+07
6. Operating Costs 0 0 14627966 16482167 19263468 721456.6
7. Corporate Tax Paid 0 0 0 0 9317636 0
8. Interest Paid 0 0 12216882 5443326 4536105 3628884
9. Loan Repayments 0 0 0 7560176 7560176 7560176
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 0 4456070 16001100 22415124 20238204 -7454446
Cumulative Cash Balance 0 4456070 20457170 42872295 63110499 55656053

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 68302255 61584000 61584000 61584000 61584000 61584000
1. Inflow Funds 6718255 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 6718255 0 0 0 0 0
2. Inflow Operation 61584000 61584000 61584000 61584000 61584000 61584000
Sales Revenue 61584000 61584000 61584000 61584000 61584000 61584000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 50581600 39013984 38378930 30183699.3 30183699.34 30183699.34
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 11174325 0 0 0 0 0
6. Operating Costs 19263468 19263468 19263468 19263468.5 19263468.48 19263468.48
7. Corporate Tax Paid 9861969 10375898 10648065 10920230.9 10920230.87 10920230.87
8. Interest Paid 2721663 1814442 907221.1 0 0 0
9. Loan Repayments 7560176 7560176 7560176 0 0 0
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 17720654 22570016 23205070 31400300.7 31400300.66 31400300.66
Cumulative Cash Balance 73376707 95946722 1.19E+08 150552093 181952394 213352694.6

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 46188000 52346400 61584000 0

1. Inflow Operation 0 0 46188000 52346400 61584000 0

Sales Revenue 0 0 46188000 52346400 61584000 0

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 35572843 35572842.9 17970018.08 16927773.7 29249514.9 -3734613.6

3. Increase in Fixed Assets 35572843 35572842.9 0 0 0 0

Fixed Investments 33878898 33878898 0 0 0 0

Pre-production Expenditures 1693944.9 1693944.9 0 0 0 0

4. Increase in Net Working Capital 0 0 3342052.598 445607.0182 668410.514 -4456070.1

5. Operating Costs 0 0 14627965.51 16482166.68 19263468.5 721456.56

6. Corporate Tax Paid 0 0 0 0 9317635.85 0

NET CASH FLOW -35572843 -35572842.9 28217981.92 35418626.3 32334485.1 3734613.57

- -
CUMMULATIVE NET CASH FLOW -35572843 -71145685.8 42927703.88 7509077.583 24825407.6 28560021.1
-
Net Present Value (at 18%) -35572843 30146477.03 20265715.26 21556869.44 16677767.7 1632434.01
- - -
Cumulative Net present Value -35572843 65719319.93 45453604.69 23896735.25 -7218967.5 -5586533.5

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 61584000 61584000 61584000 61584000 61584000 61584000

1. Inflow Operation 61584000 61584000 61584000 61584000 61584000 61584000

Sales Revenue 61584000 61584000 61584000 61584000 61584000 61584000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 33581507 29639367 29911533 30183699 30183699 30183699.34

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 4456070 0 0 0 0 0

5. Operating Costs 19263468 19263468 19263468.5 19263468 19263468 19263468.48

6. Corporate Tax Paid 9861969 10375898 10648064.5 10920231 10920231 10920230.87

NET CASH FLOW 28002493 31944633 31672467 31400301 31400301 31400300.66

CUMMULATIVE NET CASH FLOW 56562514 88507147 120179614 151579915 182980216 214380516.3

Net Present Value (at 18%) 10373007 10028220 8426084.95 7079388.4 5999481.7 5084306.528

Cumulative Net present Value 4786473 14814693 23240778 30320166 36319648 41403954.71
41,403,954.71
Net Present Value (at 18%)

Internal Rate of Return 32.0%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 75% 85% 100% 0% 100%

1. Total Income 46188000 52346400 61584000 0 61584000

Sales Revenue 46188000 52346400 61584000 0 61584000
Other Income 0 0 0 0 0
2. Less Variable Cost 12905523 14626259 17207363 0 17207363
VARIABLE MARGIN 33282477 37720141 44376637 0 44376637
(In % of Total Income) 184.906 184.906 184.906 #DIV/0! 184.906
3. Less Fixed Costs 8448083 8581548 8781745 7447096.52 8781745
OPERATIONAL MARGIN 24834395 29138593 35594892 -7447096.52 35594892
(In % of Total Income) 138.564 143.696 148.828 #DIV/0! 148.828
4. Less Cost of Finance 12216882 5443326 4536105 3628884.286 2721663
5. GROSS PROFIT 12617513 23695267 31058786 -11075980.8 32873228
6. Income (Corporate) Tax 0 0 9317636 0 9861969
7. NET PROFIT 12617513 23695267 21741150 -11075980.8 23011260
RATIOS (%)  
Gross Profit/Sales 27% 45% 50% #DIV/0! 53%
Net Profit After Tax/Sales 27% 45% 35% #DIV/0! 37%
Return on Investment 33% 39% 35% -10% 34%
Return on Equity 42% 78% 72% -37% 76%

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 61584000 61584000 61584000 61584000 61584000

Sales Revenue 61584000 61584000 61584000 61584000 61584000
Other Income 0 0 0 0 0
2. Less Variable Cost 17207363 17207363 17207363 17207363 17207363
VARIABLE MARGIN 44376637 44376637 44376637 44376637 44376637
(In % of Total Income) 184.752 184.752 184.752 184.752 184.752
3. Less Fixed Costs 7975867 7975867 7975867 7975867 7975867
OPERATIONAL MARGIN 36400770 36400770 36400770 36400770 36400770
(In % of Total Income) 151.394 151.394 151.394 151.394 151.394
4. Less Cost of Finance 1814442 907221.1 0 0 0
5. GROSS PROFIT 34586327 35493548 36400770 36400770 36400770
6. Income (Corporate) Tax 10375898 10648065 10920231 10920231 10920231
7. NET PROFIT 24210429 24845484 25480539 25480539 25480539
RATIOS (%)  
Gross Profit/Sales 56% 58% 59% 59% 59%
Net Profit After Tax/Sales 39% 40% 41% 41% 41%
Return on Investment 34% 34% 34% 34% 34%
Return on Equity 80% 82% 84% 84% 84%

8
 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 35572843 75601756 93257960 110064877 125253589.5 110975159.4
1. Total Current Assets 0 4456070 28837914 52370470.7 74284823.61 55656052.61
Inventory on Materials and Supplies 0 0 1099593 1246205.84 1466124.515 0
Work in Progress 0 0 552888.1 626606.525 737184.1385 0
Finished Products in Stock 0 0 1105776 1253213.03 1474368.277 0
Accounts Receivable 0 0 5038691 5710516.38 6718254.55 0
Cash in Hand 0 0 583794.9 661634.222 778393.2004 0
Cash Surplus, Finance Available 0 4456070 20457170 42872294.7 63110498.93 55656052.61
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 35572843 71145686 64420046 57694405.9 50968765.92 44243125.96
Fixed Investment 0 33878898 67757796 67757796 67757796 67757796
Construction in Progress 33878898 33878898 0 0 0 0
Pre-Production Expenditure 1693945 3387890 3387890 3387889.8 3387889.8 3387889.8
Less Accumulated Depreciation 0 0 6725640 13451279.9 20176919.88 26902559.84
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 11075980.81
TOTAL LIABILITIES 35572843 75601756 93257960 110064877 125253589.5 110975159.4
5. Total Current Liabilities 0 0 5038691 5710516.38 6718254.55 0
Accounts Payable 0 0 5038691 5710516.38 6718254.55 0
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 21343706 45361054 45361054 37800878 30240702.37 22680526.77
Loan A 21343706 45361054 45361054 37800878 30240702.37 22680526.77
Loan B 0 0 0 0 0 0
7. Total Equity Capital 14229137 30240702 30240702 30240702.4 30240702.37 30240702.37
Ordinary Capital 14229137 30240702 30240702 30240702.4 30240702.37 30240702.37
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 12617513 36312779.89 58053930.24
9. Net Profit After Tax 0 0 12617513 23695266.9 21741150.35 0
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 12617513 23695266.9 21741150.35 0

9
 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL ASSETS 122068517 138718771 156004079.3 181484618 206965157 232445695
1. Total Current Assets 84551031 107121047 130326117.3 161726418 193126719 224527019
Inventory on Materials and Supplies 1466124.5 1466124.515 1466124.515 1466124.515 1466124.51 1466124.51
Work in Progress 737184.14 737184.1385 737184.1385 737184.1385 737184.139 737184.139
Finished Products in Stock 1474368.3 1474368.277 1474368.277 1474368.277 1474368.28 1474368.28
Accounts Receivable 6718254.6 6718254.55 6718254.55 6718254.55 6718254.55 6718254.55
Cash in Hand 778393.2 778393.2004 778393.2004 778393.2004 778393.2 778393.2
Cash Surplus, Finance Available 73376707 95946722.28 119151792.6 150552093.3 181952394 213352695
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 37517486 31597724 25677962 19758200 13838438 7918676
Fixed Investment 67757796 67757796 67757796 67757796 67757796 67757796
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 3387889.8 3387889.8 3387889.8 3387889.8 3387889.8 3387889.8
Less Accumulated Depreciation 33628200 39547961.8 45467723.8 51387485.8 57307247.8 63227009.8
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 122068517 138718771 156004079.3 181484618 206965157 232445695
5. Total Current Liabilities 6718254.6 6718254.55 6718254.55 6718254.55 6718254.55 6718254.55
Accounts Payable 6718254.6 6718254.55 6718254.55 6718254.55 6718254.55 6718254.55
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 15120351 7560175.598 0 0 0 0
Loan A 15120351 7560175.598 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 30240702 30240702.37 30240702.37 30240702.37 30240702.4 30240702.4
Ordinary Capital 30240702 30240702.37 30240702.37 30240702.37 30240702.4 30240702.4
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 46977949 69989209.28 94199638.44 119045122.4 144525661 170006200
9. Net Profit After Tax 23011260 24210429.16 24845483.91 25480538.66 25480538.7 25480538.7
Dividends Payable 0 0 0 0 0 0
Retained Profits 23011260 24210429.16 24845483.91 25480538.66 25480538.7 25480538.7

10