Investment Office ANRS

Project Profile on the Establishment of Straw

Board for buildings

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...............................................................................3
3.2 Plant Capacity......................................................................................................4
3.3 Production Program.............................................................................................4
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...................................................................................6
6.3 Civil Engineering Cost........................................................................................7
7 Human Resource and Training Requirement......................................7
7.1 Human Resource..................................................................................................7
7.2 Training Requirement..........................................................................................8
8 Financial Analysis...................................................................................8
8.1 Underlying Assumption.......................................................................................8
8.2 Investment............................................................................................................9
8.3 Production Costs................................................................................................10
8.4 Financial Evaluation..........................................................................................10
9 Economic and Social Benefit and Justification..................................11
ANNEXES....................................................................................................13
 1. Executive Summary
This project profile deals with the establishment of Straw Board for buildings in Amhara
National Regional State. The following presents the main findings of the study

Demand projection divulges that the domestic demand for straw board is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 7,000 m 3 annually. The
total investment cost of the project including working capital is estimated at Birr 7.25 million
and creates 44 job opportunity and Birr 608.4 thousand of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 23.5% of capacity utilization and it will
payback fully the initial investment less working capital in 2 years and 9 months. The result
further show that the calculated IRR of the project is 30.5% and the net present value at 18 %
discount is Birr 3,643,074.19

In addition to this, the proposed project possesses wide range of economic and social benefits
such as increasing the level of investment, tax revenue, employment creation and import
substitution

Generally’ the project is technically feasible, financially and commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Product Description and Application

Straw board is a panel made from clean, dry and un pulped cereal straw or similar fibrous
material. The panel is used in the construction and wood works industries as a substitute to chip
wood or other boards. Compared to ordinary particleboard made from wood, straw panels are
stronger and more durable, yet they weigh less and resist moisture better. The reason is that straw
fibers are longer than wood fibers and contain a natural wax not found in wood. Straw board can
also be used for making containers for packaging purposes

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 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The major end users of straw board produced for building are the construction sector and the
furniture industry. Due to increase in population and need of constructing new houses it is
expected that demand for straw board will rise ultimately. Basically, the demand for straw board
is related to the expansion and growth of the building construction sector. A study conducted by
PACO/WASS in 1995 revealed that the yearly requirement of new residential building units is
estimated to be 22,000 for Addis Ababa and 121,000 for other urban towns. In other words, the
study shows that an annual demand for dwelling units in the urban Ethiopia amounts to 144,100
units. If we conservatively assume that one-fourth of this requirement will be realized, the annual
effective demand for residential buildings amounts to 36,025 units. Moreover, according to the
Statistical Abstracts of the Central Statistical Agency (2006), from 2002/03 up to 2004/05, 2242
building permits for up to 15 storey buildings had been given in Addis Ababa only. Assuming
that the construction will be completed within specified period; it represents an addition to the
housing demand in the country. Moreover, with proper marketing straw boards can also attract
demand in the furniture industries for making wardrobe, table tops and shelves.

Currently there is neither local production nor import of straw board into the country.
Nonetheless, straw board has a potential to substitute other related types of wood (such as
particle board) as it has some basic advantages. Straw board is made with a synthetic polymer
resin, methyl-diphenyl resin. It contains no formaldehyde and does not emit harmful fumes, a
key benefit to indoor air quality. The formaldehyde in standard particleboard can slowly seep
into the air. And aside from health issues, the resin in this product works better. This is because
formaldehyde based resins are water soluble, and break down when exposed to moisture whereas
the methyl-diphenyl resin is not water soluble and is resistant to water damage. Available
information reveals that in recent years more than 95 percent of the particle board consumed by
the building and furniture industry obtain the product from import. The amount of import is
summarized in the following table.

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 Table 1: Import of Particle Board (in m3)

Year Import
1997/98 15,375
1998/99 20,240
1999/00 20,606
2000/01 34,257
2001/02 42,740
2002/03 39,634
2003/04 32,193
2004/05 34,583
2005/06 50,734
2006/07 57,595

Source: Customs authority, (various yeas)

The above table shows the presence of a huge and growing demand for boards by the furniture
and construction industry which can be substituted by local straw board production.

3.1.2 Projected Demand

The future demand for straw board is expected to increase for a number of convincing reasons.
The country in general is experiencing construction boom pressuring more demand on boards,
among other things. Currently, the building and furniture industry is expanding in the Amhara
region. Many construction activities are going on in urban areas like Bahir Dar, Gondar, Dessie,
Debre Markos, Woldiya and other smaller urban centers. In the future the trend is expected to
increase due to the population and income growth as well as the process of urbanization being
witnessed in the country.

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price is
set to be Birr 130 for 16mm of a square meter board while Birr 150 is set for the 18mm board.
The envisaged plant shall make use of the available retail and wholesale network.

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 3.2 Plant Capacity

Thus, given the expected demand for straw board for building as presented earlier, and the
planned technology, the envisaged plant is set to produce 7,000m 3 boards annually of which
4,000 is 16mm size while the rest is 18mm size.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 60 percent capacity and then it grows to 80
percent in the 2nd year. The capacity will grow to 100 percent starting from the 3 rd year. This
consideration is developed based on the assumption that there is ample demand for the product
and logistics barriers would be eliminated within the first two years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The main raw material in the production process is straw, a residue of cereal production. Straw
from cereals is the main raw material and this is found in practically all parts of the Amhara
region especially in the Dega and Woina Dega areas of the region. Other important materials
such as methyl-diphenyl resin, veneers and sunmica coverings are imported from abroad

4.2 Annual Requirement and Cost of Raw Materials

and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 2 here under

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 Table 2: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Cereal Straw 250 ton 500,000
methyl-diphenyl resin 5 ton 350,000
Veneers and Sunmica Coverings 10 ton 200,000
Total Material Cost   500,000 550,000
Utility    
Electricity 130,000kwh 71,500  
Furnace Oil 35,000 lit 245,000  
Water 20,000 m3 53,000  
Total Utility Cost   369,500  

The total material and utility cost at full capacity of operation is estimated to be Birr 1,419,500

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of input,
infrastructure as well as market for the output are towns adjacent to major cereal growing areas
such as Debre Markos, Debre Tabor, Debre Birhan and other urban areas.

6 Technology and Engineering

6.1 Production Process

The production process of straw board production is stated as follows. First of all the straw,
which has been collected and stored, is cut to a suitable uniform length by a cutter, and it is
cleaned from foreign materials. Then the straw is crushed until it reaches a powder stage. This
powder is further mixed with methyl-diphenyl resin in mixing drum. This mixture of resin and
powder is spread over the die formats of required sizes and thickness. This spread is hot pressed
by hydraulic press machine so that the straw boards are formed. The edges are formed by
trimming machine. Some of the straw boards are coated by veneers or sunmica as per the
requirements to give it a better surface glass. At last quality inspection is made before dispatched
to sale.

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The alternative technological option involves using a complete automated production line that
works round the clock. Such approach is required for a large volume of production which
otherwise will not be cost effective.

6.2 Machinery and Equipment

The machineries and equipment required for producing straw board is detailed in table 3 below

Table 3: Machinery and Equipment

Machinery and Equipment Quantity

Waste Separator 1
Straw Feed Hopper 1
Resin Mixture Drum 1
Slab Forming 1
Hydraulic Hot Press 1
Cutting , Trimming Band Sawing Machine 1

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 4,000,000

The following are some of the machineries suppliers’ address for the envisaged project

Putian Chans Wood & Machinery Co., Ltd

Guanghua Rd. Chengxiang District,
Putian, Fujian, China
Fax: 86-594-2685331
Tel: 86-594-2650631

JIALY BUILDING MATERIAL CO

Industrial Zone Sderot, Zone Sderot, Vietnam
Fax: 84-4-826403
Tel: 84-4-826402

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 6.3 Civil Engineering Cost
The total site area for the envisaged plant is estimated to be 1000m 2 where 500m2 is allocated to
the production place and the remaining space is left for stores (350m 2), office buildings and
facilities (150m2).

7 Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 4 below

Table 4: Human Resource Requirement

No. Monthly Total Annual

Position Required Salary Salary
Plant Manager 1 5000 60000
Technologist 1 4000 48000
Administration/Finance Head 1 3000 36000
Accountant 1 1200 14400
Secretary 1 850 10200
Sales Clerk 3 800 28800
Store Keeper 3 800 28800
Technician 2 1000 24000
Supervisor 2 1500 36000
Operators 15 800 144000
Laborers 5 400 24000
Cleaners 2 400 9600
Driver 2 800 19200
Guards 5 400 24000
Benefit (20%)     101400
 Total 44   608400

The envisaged plant creates 44 job opportunity and about Birr 608.4 thousand of income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

7.2 Training Requirement

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Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. Birr 75,000 will be allocated as training expense.

8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of straw board for building producing plant is based on the data provided
in the preceding chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

Source of finance 40% equity and 60% 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%

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 C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 7.28
million as shown in table 5 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.

Table 5: Total initial investment

Items L.C F.C Total

Land
3,000 3,000
Building and civil works
2,000,000 2,000,000
Office equipment
60,000 60,000
Vehicles
250,000 250,000
Plant machinery & equipment
4,000,000 4,000,000
Total fixed investment cost
2,313,000 4,000,000 6,313,000
Pre production capital
expenditure* 315,650 315,650
Total initial investment
2,628,650 4,000,000 6,628,650
Working capital at full capacity
417,051 240,000 657,051
Total 3,045,701 4,240,000 7,285,701
*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.

The foreign component of the project accounts for 58.2% of the total investment cost.

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 8.3 Production Costs
The total production cost at full capacity operation is estimated at Birr 3.27 million as detailed in
table 6 below.

Table 6: Production Cost

Items Cost
1. Raw materials 1,050,000
2. Utilities 369,500
3. Wages and Salaries 608,400
4. Spares and Maintenance 189,390
Factory costs 2,217,290
5. Depreciation 619,130
6. Financial costs 437,142
  Total Production Cost 3,273,562

8.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 10%, 12% and 22% in
the first year and are gradually rising. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 23.5% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in two years
and 8 months.

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 IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 30.0%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
30.5% and the net present value at 18 % discount is Birr 3,643,074.19

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector. This result is accompanied with payback period of 2 years and 9 months.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that help promote the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It also
boosts inter sectorial linkage between the agricultural and industrial sector. At the same time,
therefore, it helps diversify the economic activity of the region. The other major benefits are
presented below.

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 18.4 million per year
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 7 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

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 C. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of US Dollar
5.4 million will be saved as a result of the proposed project substituting the import of related
materials such as particle board.. 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
region. That is, it will provide permanent employment to 44 professionals as well as support
stuffs. Consequently the project creates income of Birr 608.4 thousands per year. This would be
one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

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ANNEXES

13
 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 60% 80% 100% 100%

1. Total Inventory 0.00 0.00 506949.98 675933.31 844916.64 844916.64

Raw Materials in Stock- Total 0.00 0.00 176727.27 235636.36 294545.45 294545.45

Raw Material-Local 0.00 0.00 32727.27 43636.36 54545.45 54545.45

Raw Material-Foreign 0.00 0.00 144000.00 192000.00 240000.00 240000.00

Factory Supplies in Stock 0.00 0.00 1856.57 2475.42 3094.28 3094.28

Spare Parts in Stock and Maintenance 0.00 0.00 12396.44 16528.58 20660.73 20660.73

Work in Progress 0.00 0.00 46414.15 61885.53 77356.91 77356.91

Finished Products 0.00 0.00 92828.29 123771.05 154713.82 154713.82

2. Accounts Receivable 0.00 0.00 376366.91 501822.55 627278.18 627278.18

3. Cash in Hand 0.00 0.00 64008.00 85344.00 106680.00 106680.00

CURRENT ASSETS 0.00 0.00 770597.62 1027463.49 1284329.37 1284329.37

4. Current Liabilities 0.00 0.00 376366.91 501822.55 627278.18 627278.18

Accounts Payable 0.00 0.00 376366.91 501822.55 627278.18 627278.18

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 394230.71 525640.95 657051.19 657051.19

INCREASE IN NET WORKING CAPITAL 0.00 0.00 394230.71 131410.24 131410.24 0.00

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 844916.64 844916.64 844916.64 844916.64 844916.64 844916.64

Raw Materials in Stock-Total 294545.45 294545.45 294545.45 294545.45 294545.45 294545.45

Raw Material-Local 54545.45 54545.45 54545.45 54545.45 54545.45 54545.45

Raw Material-Foreign 240000.00 240000.00 240000.00 240000.00 240000.00 240000.00

Factory Supplies in Stock 3094.28 3094.28 3094.28 3094.28 3094.28 3094.28

Spare Parts in Stock and Maintenance 20660.73 20660.73 20660.73 20660.73 20660.73 20660.73

Work in Progress 77356.91 77356.91 77356.91 77356.91 77356.91 77356.91

Finished Products 154713.82 154713.82 154713.82 154713.82 154713.82 154713.82

2. Accounts Receivable 627278.18 627278.18 627278.18 627278.18 627278.18 627278.18

3. Cash in Hand 106680.00 106680.00 106680.00 106680.00 106680.00 106680.00

CURRENT ASSETS 1284329.37 1284329.37 1284329.37 1284329.37 1284329.37 1284329.37

4. Current Liabilities 627278.18 627278.18 627278.18 627278.18 627278.18 627278.18

Accounts Payable 627278.18 627278.18 627278.18 627278.18 627278.18 627278.18

TOTAL NET WORKING CAPITAL REQUIRMENTS 657051.19 657051.19 657051.19 657051.19 657051.19 657051.19

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

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 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 3314325.00 3971376.19 3826396.91 4725495.64 5875505.64 5750050.00
1. Inflow Funds 3314325.00 3971376.19 376366.91 125455.64 125455.64 0.00
Total Equity 1325730.00 1588550.47 0.00 0.00 0.00 0.00
Total Long Term Loan 1988595.00 2382825.71 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 376366.91 125455.64 125455.64 0.00
2. Inflow Operation 0.00 0.00 3450030.00 4600040.00 5750050.00 5750050.00
Sales Revenue 0.00 0.00 3450030.00 4600040.00 5750050.00 5750050.00
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 3314325.00 3314325.00 3239899.81 3219572.84 4315284.88 3997219.12
4. Increase In Fixed Assets 3314325.00 3314325.00 0.00 0.00 0.00 0.00
Fixed Investments 3156500.00 3156500.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 157825.00 157825.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 770597.62 256865.87 256865.87 0.00
6. Operating Costs 0.00 0.00 1298313.52 1709566.36 2120819.20 2120819.20
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 771887.62 798116.14
8. Interest Paid 0.00 0.00 1170988.67 524570.49 437142.07 349713.66
9.Loan Repayments 0.00 0.00 0.00 728570.12 728570.12 728570.12
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 657051.19 586497.10 1505922.80 1560220.75 1752830.88
Cumulative Cash Balance 0.00 657051.19 1243548.29 2749471.08 4309691.84 6062522.72

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 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00
1. Inflow Funds 0.00 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 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00
Sales Revenue 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00
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 3936019.23 3908758.34 3847558.45 3057788.44 3057788.44 3057788.44
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 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 2120819.20 2120819.20 2120819.20 2120819.20 2120819.20 2120819.20
7. Corporate Tax Paid 824344.67 884512.19 910740.72 936969.24 936969.24 936969.24
8. Interest Paid 262285.24 174856.83 87428.41 0.00 0.00 0.00
9. Loan Repayments 728570.12 728570.12 728570.12 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 1814030.77 1841291.66 1902491.55 2692261.56 2692261.56 2692261.56
Cumulative Cash Balance 7876553.49 9717845.15 11620336.71 14312598.27 17004859.83 19697121.39

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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 0.00 0.00 3450030.00 4600040.00 5750050.00 5750050.00

1. Inflow Operation 0.00 0.00 3450030.00 4600040.00 5750050.00 5750050.00

Sales Revenue 0.00 0.00 3450030.00 4600040.00 5750050.00 5750050.00

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 3314325.00 3314325.00 1692544.23 1840976.60 3024117.06 2918935.34

3. Increase in Fixed Assets 3314325.00 3314325.00 0.00 0.00 0.00 0.00

Fixed Investments 3156500.00 3156500.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 157825.00 157825.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 394230.71 131410.24 131410.24 0.00

5. Operating Costs 0.00 0.00 1298313.52 1709566.36 2120819.20 2120819.20

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 771887.62 798116.14

NET CASH FLOW -3314325.00 -3314325.00 1757485.77 2759063.40 2725932.94 2831114.66

CUMMULATIVE NET CASH FLOW -3314325.00 -6628650.00 -4871164.23 -2112100.83 613832.12 3444946.77

Net Present Value (at 18%) -3314325.00 -2808750.00 1262198.91 1679251.17 1406005.89 1237506.31

Cumulative Net present Value -3314325.00 -6123075.00 -4860876.09 -3181624.92 -1775619.03 -538112.72

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00

1. Inflow Operation 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00

Sales Revenue 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00

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 2945163.87 3005331.39 3031559.92 3057788.44 3057788.44 3057788.44

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 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 2120819.20 2120819.20 2120819.20 2120819.20 2120819.20 2120819.20

6. Corporate Tax Paid 824344.67 884512.19 910740.72 936969.24 936969.24 936969.24

NET CASH FLOW 2804886.13 2744718.61 2718490.08 2692261.56 2692261.56 2692261.56

CUMMULATIVE NET CASH FLOW 6249832.91 8994551.51 11713041.60 14405303.16 17097564.72 19789826.28

Net Present Value (at 18%) 1039018.29 861635.88 723222.11 606986.71 514395.52 435928.41

Cumulative Net present Value 500905.56 1362541.44 2085763.56 2692750.27 3207145.79 3643074.19

Net Present Value (at 18%) 3,643,074.19

Internal Rate of Return 30.5%

Annex 4: NET INCOME STATEMENT ( in Birr)

6
 PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 60% 80% 100% 100% 100%

1. Total Income 3450030.00 4600040.00 5750050.00 5750050.00 5750050.00

Sales Revenue 3450030.00 4600040.00 5750050.00 5750050.00 5750050.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1087742.52 1450323.36 1812904.20 1812904.20 1812904.20
VARIABLE MARGIN 2362287.48 3149716.64 3937145.80 3937145.80 3937145.80
(In % of Total Income) 68.47 68.47 68.47 68.47 68.47
3. Less Fixed Costs 829701.00 878373.00 927045.00 927045.00 927045.00
OPERATIONAL MARGIN 1532586.48 2271343.64 3010100.80 3010100.80 3010100.80
(In % of Total Income) 44 49 52 52 52
4. Less Cost of Finance 1170988.67 524570.49 437142.07 349713.66 262285.24
5. GROSS PROFIT 361597.81 1746773.15 2572958.73 2660387.14 2747815.56
6. Income (Corporate) Tax 0.00 0.00 771887.62 798116.14 824344.67
7. NET PROFIT 361597.81 1746773.15 1801071.11 1862271.00 1923470.89
RATIOS (%)  
Gross Profit/Sales 10% 38% 45% 46% 48%
Net Profit After Tax/Sales 10% 38% 31% 32% 33%
Return on Investment 22% 32% 31% 30% 30%
Return on Equity 12% 60% 62% 64% 66%

Annex 4: NET INCOME STATEMENT (in Birr):Continued

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

1. Total Income 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00

Sales Revenue 5750050.00 5750050.00 5750050.00 5750050.00 5750050.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1812904.20 1812904.20 1812904.20 1812904.20 1812904.20
VARIABLE MARGIN 3937145.80 3937145.80 3937145.80 3937145.80 3937145.80
(In % of Total Income) 68 68 68 68 68
3. Less Fixed Costs 813915.00 813915.00 813915.00 813915.00 813915.00
OPERATIONAL MARGIN 3123230.80 3123230.80 3123230.80 3123230.80 3123230.80
(In % of Total Income) 54 54 54 54 54
4. Less Cost of Finance 174856.83 87428.41 0.00 0.00 0.00
5. GROSS PROFIT 2948373.97 3035802.39 3123230.80 3123230.80 3123230.80
6. Income (Corporate) Tax 884512.19 910740.72 936969.24 936969.24 936969.24
7. NET PROFIT 2063861.78 2125061.67 2186261.56 2186261.56 2186261.56
RATIOS (%)  
Gross Profit/Sales 51% 53% 54% 54% 54%
Net Profit After Tax/Sales 36% 37% 38% 38% 38%
Return on Investment 31% 30% 30% 30% 30%
Return on Equity 71% 73% 75% 75% 75%

Annex 5: Projected Balance Sheet (in Birr)

  CONSTRUCTION PRODUCTION
8
 Year 1 Year 2 1 2 3 4
TOTAL ASSETS 3314325.00 7285701.19 8023665.91 9167324.58 10365281.21 11498982.09
1. Total Current Assets 0.00 657051.19 2014145.91 3776934.58 5594021.21 7346852.09
Inventory on Materials and Supplies 0.00 0.00 190980.27 254640.37 318300.46 318300.46
Work in Progress 0.00 0.00 46414.15 61885.53 77356.91 77356.91
Finished Products in Stock 0.00 0.00 92828.29 123771.05 154713.82 154713.82
Accounts Receivable 0.00 0.00 376366.91 501822.55 627278.18 627278.18
Cash in Hand 0.00 0.00 64008.00 85344.00 106680.00 106680.00
Cash Surplus, Finance Available 0.00 657051.19 1243548.29 2749471.08 4309691.84 6062522.72
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 3314325.00 6628650.00 6009520.00 5390390.00 4771260.00 4152130.00
Fixed Investment 0.00 3156500.00 6313000.00 6313000.00 6313000.00 6313000.00
Construction in Progress 3156500.00 3156500.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 157825.00 315650.00 315650.00 315650.00 315650.00 315650.00
Less Accumulated Depreciation 0.00 0.00 619130.00 1238260.00 1857390.00 2476520.00
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 3314325.00 7285701.19 8023665.91 9167324.58 10365281.21 11498982.09
5. Total Current Liabilities 0.00 0.00 376366.91 501822.55 627278.18 627278.18
Accounts Payable 0.00 0.00 376366.91 501822.55 627278.18 627278.18
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1988595.00 4371420.71 4371420.71 3642850.59 2914280.47 2185710.36
Loan A 1988595.00 4371420.71 4371420.71 3642850.59 2914280.47 2185710.36
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 1325730.00 2914280.47 2914280.47 2914280.47 2914280.47 2914280.47
Ordinary Capital 1325730.00 2914280.47 2914280.47 2914280.47 2914280.47 2914280.47
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 361597.81 2108370.97 3909442.08
9.Net Profit After Tax 0.00 0.00 361597.81 1746773.15 1801071.11 1862271.00
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 361597.81 1746773.15 1801071.11 1862271.00

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

  PRODUCTION

9
 5 6 7 8 9 10
TOTAL ASSETS 12693882.86 14029174.52 15425666.07 17611927.63 19798189.19 21984450.75
1. Total Current Assets 9160882.86 11002174.52 12904666.07 15596927.63 18289189.19 20981450.75
Inventory on Materials and Supplies 318300.46 318300.46 318300.46 318300.46 318300.46 318300.46
Work in Progress 77356.91 77356.91 77356.91 77356.91 77356.91 77356.91
Finished Products in Stock 154713.82 154713.82 154713.82 154713.82 154713.82 154713.82
Accounts Receivable 627278.18 627278.18 627278.18 627278.18 627278.18 627278.18
Cash in Hand 106680.00 106680.00 106680.00 106680.00 106680.00 106680.00
Cash Surplus, Finance Available 7876553.49 9717845.15 11620336.71 14312598.27 17004859.83 19697121.39
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 3533000.00 3027000.00 2521000.00 2015000.00 1509000.00 1003000.00
Fixed Investment 6313000.00 6313000.00 6313000.00 6313000.00 6313000.00 6313000.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 315650.00 315650.00 315650.00 315650.00 315650.00 315650.00
Less Accumulated Depreciation 3095650.00 3601650.00 4107650.00 4613650.00 5119650.00 5625650.00
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 12693882.86 14029174.52 15425666.07 17611927.63 19798189.19 21984450.75
5. Total Current Liabilities 627278.18 627278.18 627278.18 627278.18 627278.18 627278.18
Accounts Payable 627278.18 627278.18 627278.18 627278.18 627278.18 627278.18
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1457140.24 728570.12 0.00 0.00 0.00 0.00
Loan A 1457140.24 728570.12 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 2914280.47 2914280.47 2914280.47 2914280.47 2914280.47 2914280.47
Ordinary Capital 2914280.47 2914280.47 2914280.47 2914280.47 2914280.47 2914280.47
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 5771713.08 7695183.97 9759045.75 11884107.42 14070368.98 16256630.54
9. Net Profit After Tax 1923470.89 2063861.78 2125061.67 2186261.56 2186261.56 2186261.56
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 1923470.89 2063861.78 2125061.67 2186261.56 2186261.56 2186261.56

10