Investment Office ANRS

Project Profile on the Establishment of

WRITING PADS MAKING 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........................................................................................2
3.1.3 Pricing and Distribution...............................................................................3
3.2 Plant Capacity......................................................................................................3
3.3 Production Program.............................................................................................3
4. Raw Materials and Utilities....................................................................3
4.1 Availability and Source of Raw Materials...........................................................3
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................3
5 Location and Site.....................................................................................4
6 Technology and Engineering.................................................................4
6.1 Production Process...............................................................................................4
6.2 Machinery and Equipment...................................................................................5
6.3 Civil Engineering Cost........................................................................................6
7 Human Resource and Training Requirement......................................6
7.1 Human Resource..................................................................................................6
7.2 Training Requirement..........................................................................................7
8 Financial Analysis...................................................................................7
8.1 Underlying Assumption.......................................................................................7
8.2 Investment............................................................................................................9
8.3 Production Costs..................................................................................................9
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 Writing Pads Making Plant in Amhara
National Regional State. The following presents the main findings of the study

Demand projection divulges that the domestic demand for writing pads is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 1 million writing pads
annually. The total investment cost of the project including working capital is estimated at Birr
3.29 million and creates 35 jobs.

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 19.22% of capacity utilization and it will
payback fully the initial investment less working capital in second year of operation. The
calculated IRR of the project is 46.2%; and the NPV at 18% annual discount rate is about Birr
3.67 million.

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

Writing pads, notes books and ring books are made from paper sheets. The pads are commonly
ruled, stiched, or made with rings. The pads are used by students, merchants, office workers and
by the general public. The main purpose of writing pads is to write notes, draft reports, take
minutes, document court cases, etc

1
3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

Most of the domestic demand for writing pads is meet by imports. There is one factory (Yekatit
Paper Processing Factory) which produces writing pads and the factory has a capacity of
producing 500,000 writing pads and note books. According a study conducted in 1996, the
domestic demand of writing demand was estimated to be 7.7 million in 1997. Growing at annual
rate of 7.6 percent per year, the demand for writing pads was projected to reach 17 million in the
year 2008. If we assume the same rate of growth in coming years and that the share of the
Amhara Region will be about 20 percent (less than the population share), demand for writing
pads in the Region 2009 will be 3.7 million. This will justify the establishment of at least one
medium size writing pads making plant in the Region.

3.1.2 Projected Demand

The projected demand for the coming decade is depicted in Table 1 below.

Table 1: Demand Projection

Demand (in Million pcs)
Year Ethiopia Amhara
2008 17.24 3.45
2009 18.55 3.71
2010 19.95 3.99
2011 21.47 4.29
2012 23.10 4.62
2013 24.86 4.97
2014 26.75 5.35
2015 28.78 5.76
2016 30.97 6.19
2017 33.32 6.66
2018 35.85 7.17
2019 38.58 7.72

2
 3.1.3 Pricing and Distribution

The average retail price of a writing pad is about Birr 5.00. Deducting 30% for distributors, the
factory price is set at Birr 3.50. The available retail and wholesale network shall be used by the
envisaged plant.

3.2 Plant Capacity

Taking the fierce competition with imported products, the expected demand and available
affordable technology the envisaged plant is set to produce one million writing pads per annum.

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 80 percent capacity and then it grows to 90
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 market and logistics barriers would take
place for the first two years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The main raw materials are wood free writing paper, printing ink, cover sheets, stitching or
wring wire (metal or plastic) and corrugated boxes. Most of these inputs can be obtained from
domestic sources.

4.2 Annual Requirement and Cost of Raw Materials

and Utilities
The annual raw material and utility requirements and the associated cost for the envisaged plant
are listed hereunder.

3
Table 2: Annual Requirement of Raw Materials at Full Capacity
  Cost (in Birr)
Q
No. Item (tons) F. C. L.C. Total
1 Wood free writing paper 55g. sq. m 58   632,200 632,200
2 Pressing paper for cover, 120g/sq m and 8   34,720 34,720
3 Stitching wire (for pads) 0.2 2,328 1,552 3,880
4 Stitching wire, coiled 0.3 3,240 2,160 5,400
5 Printing ink 0.2 6,960 4,640 11,600
6 Corrugated paper board boxes (in pcs) 3000   21,000 21,000
Total 12,528 696,272 708,800

The annual utility requirement is estimated as it shown in Table below.

Table 3: Annual Utility Requirements at Full Capacity

Estimated Estimated
  Req. Unit Price Total Price
Electricity (in kwh) 235,000 0.55 129,250
Water (m 3)
330 2.65 875
Total     130,125

5 Location and Site

The appropriate location for the envisaged project in view of the availability of infrastructure as
well as market for the output is Bahir Dar.

6 Technology and Engineering

6.1 Production Process

The production process begins by conveying long ribbon of paper size unwinding unit into a
printing and ruling machine. The paper is lined. Then the ribbon crosses cutter cuts according to
the width of the writing pad intended to be produced. The eat sheets of paper are contend and
stacked. They are also perforated at one end if ring books are to be produced. The covers of the
writing pads are automatically conveyed to the production flow. Then the paper sheets and the
covers are stiched with coiled or staple wire.

4
Machinery needed include unwinding unit, printing and ruling machine, rotary cross cutter,
perforator, counting and collecting unit, stack sheet feeder, glve applicator, wire stiching unit,
separation unit, collecting and discharge unit.

Alternative technology
The paper is lined if necessary, according to the latter use (as a writing or as an arithmetic book).
Then the ribbon cross cutter cuts according to the width of the envisaged book. These sheet
layers are counted and stacked. The sheet layers are also perforated at one end if ring books are
manufactured.

In parallel to the covers are automatically conveyed to the production flow. Then the sheet layers
and covers are stitched with coiled or staple wire. The writing books so made may still have a
size out of their regular size. Therefore, they are cut down to their regular size by a cutting unit.
The next step in the production process is stacking and packing of the finished writing books in
corrugated paper board boxes. The final step is then to store the boxes in the factory warehouse
until they are shipped to distributors, sales and large scale consumers.

6.2 Machinery and Equipment

The machineries and equipment required for producing writing pads is detailed in Table 4 below.
Table 4: Required Machineries and Equipments
Item Description Qty.
1 Unwinding unit 1

2 Printing and ruling machine 1

3 Rotary cross cutter 1
4 Perforator 1
5 Counting & collecting unit 1
6 Stack sheet feeder 1
7 Glue applicator 1
8 Wire stitching unit 1
9 Separation unit 1
10 Collecting and discharge unit 1
The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be Birr 1.5 million.
Supplier address.

5
 Contact Person Mr. Ketan Shah
Designation Director
G-16, SHALIMAR INDUSTRIAL ESTATE, NEAR TATA
Address POWER HOUSE, MATUNGA (W), MUMBAI - 400019,
MAHARASHTRA, INDIA
Phone Number 91-22-24038823/24037398/24093276
Mobile +919820516155
Fax 91-22-24037270
Website http://www.acmeindia.com
Year Established 1958
Bankers BANK OF IN

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 800m2 where 200m2 is allocated to
the production place and the remaining space is left other facilities. The land lease is estimated at
Birr 48,000. Building and Civil Works are estimated to cost Birr 400,000.

7 Human Resource and Training Requirement

7.1 Human Resource

The human resource requirement is shown in Table 5 below.

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 Table 5: Human Resource Requirement
Salary/Wage (Birr)

  Job Title No. Monthly Annual

1 Plant manager 1 4,500 54,000
2 Supervisor 1 2,000 24,000
3 Accountant 1 1,500 18,000
4 Secretary 1 850 10,200
5 Sales Personnel 1 1,200 14,400
6 Purchaser 1 1,200 14,400
7 Store Keeper 1 1,200 14,400
8 Casher 1 1,200 14,400
Skilled Production and maintenance
9 workers 7 1,000 84,000
10 Unskilled workers (Labourers) 10 400 48,000
11 Janitors 4 300 14,400
12 Guarders 4 300 14,400
13 Driver 1 850 10,200
14 Messenger 1 300 3,600
  Total 35   338,400
Employment Benefits 20% of Annual
  Salary     67,680
        406,080

7.2 Training Requirement

Training of key personnel is important. The training should primarily focuses on the production
technology and machinery maintenance and trouble shooting. Birr 40,000 will is allocated as
training expense.

8 Financial Analysis
8.1 Underlying Assumption

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

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 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%

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
 8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 3.29
million as shown in Table 6 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 6: Total Initial Investment and Working Capital

Total Initial Investment

Item Cost
Land 2,400.00
Building and civil works 400,000.00
Office equipment 750,000.00
Vehicles  
Plant machinery & equipment 1,500,000.00
Total Fixed Investment 2,652,400.00
Pre production capital expenditure 132,620.00
Total Initial Investment 2,785,020.00
Working capital at full capacity 504,701.33
Total 3,289,721.33
*Pre-production capital expenditure includes - all expenses for pre-investment studies,
consultancy fee during construction and expenses for company‘s establishment, project
administration expenses, commission expenses, preproduction marketing and interest
expenses during construction.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 1.8 million as detailed in
Table 7 below.

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 Table 7: Total Production Cost at Full Capacity

Total Production Cost at Full Capacity

Items Cost
1.      Raw materials 708,800.00
2.      Utilities 130,124.50
3.      Wages and Salaries 406,080.00
4.      Spares and Maintenance 79,572.00
Factory costs 1,324,576.50
5.      Depreciation 271,524.00
6.      Financial costs
236,859.94
  Total Production Cost 1,832,960.44

8.4 Financial evaluation

I. Profitability
According to the projected income statement attached in the annex part (see annex 3) the project
will generate profit beginning from the first year of operation. Gross Profit/Sales, Net Profit after
Tax/Sales, Return on Investment, and Return on Equity start at 34.61%, 34.61%, 46.79%, and
73.65% and reach at 56.18%, 39.33%, 41.84%, and 104.60% respectively. The income statement
and 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 19.22% 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 during the first
half of the second year.

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 IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 42.4%.

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
46.2% and the net present value at 18 % discount is Birr 3,666,424.71.

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.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits where it 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 about Birr 12.3 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 4.5 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

11
 C. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of Birr 33.5
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 35 jobs.

E. Pro Environment Project

The proposed production process is environment friendly.

F. Diversification and InterSectoral linkage.

The proposed project helps to diversify ANRS’ and Ethiopian economy. It contributes to
industrialization of the ANRS as well as the country as a whole. It also has a potential to
strengthen the linkage between the manufacturing and the trade sub-sectors.

12
ANNEXES

13
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

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

1. Total Inventory 0 0 601,121 676,261 751,401 751,401

Raw Materials in Stock- Total 0 0 244,156 274,675 305,194 305,194

Raw Material-Local 0 0 1,093 1,230 1,367 1,367

Raw Material-Foreign 0 0 243,062 273,445 303,828 303,828

Factory Supplies in Stock 0 0 1,393 1,567 1,741 1,741

Spare Parts in Stock and Maintenance 0 0 6,944 7,813 8,681 8,681

Work in Progress 0 0 34,824 39,177 43,530 43,530

Finished Products 0 0 69,648 78,354 87,060 87,060

2. Accounts Receivable 0 0 305,455 343,636 381,818 381,818

3. Cash in Hand 0 0 46,796 52,646 58,495 58,495

CURRENT ASSETS 0 0 709,216 797,868 886,520 886,520

4. Current Liabilities 0 0 305,455 343,636 381,818 381,818

Accounts Payable 0 0 305,455 343,636 381,818 381,818

TOTAL NET WORKING CAPITAL REQUIREMENTS 0 0 403,761 454,231 504,701 504,701

INCREASE IN NET WORKING CAPITAL 0 0 403,761 50,470 50,470 0

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 751,401 751,401 751,401 751,401 751,401 751,401

Raw Materials in Stock-Total 305,194 305,194 305,194 305,194 305,194 305,194

Raw Material-Local 1,367 1,367 1,367 1,367 1,367 1,367

Raw Material-Foreign 303,828 303,828 303,828 303,828 303,828 303,828

Factory Supplies in Stock 1,741 1,741 1,741 1,741 1,741 1,741

Spare Parts in Stock and Maintenance 8,681 8,681 8,681 8,681 8,681 8,681

Work in Progress 43,530 43,530 43,530 43,530 43,530 43,530

Finished Products 87,060 87,060 87,060 87,060 87,060 87,060

2. Accounts Receivable 381,818 381,818 381,818 381,818 381,818 381,818

3. Cash in Hand 58,495 58,495 58,495 58,495 58,495 58,495

CURRENT ASSETS 886,520 886,520 886,520 886,520 886,520 886,520

4. Current Liabilities 381,818 381,818 381,818 381,818 381,818 381,818

Accounts Payable 381,818 381,818 381,818 381,818 381,818 381,818

TOTAL NET WORKING CAPITAL REQUIREMENTS 504,701 504,701 504,701 504,701 504,701 504,701

INCREASE IN NET WORKING CAPITAL 0 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 1,392,510 1,897,211 3,105,455 3,188,182 3,538,182 3,500,000
1. Inflow Funds 1,392,510 1,897,211 305,455 38,182 38,182 0
Total Equity 557,004 758,885 0 0 0 0
Total Long Term Loan 835,506 1,138,327 0 0 0 0
Total Short Term Finances 0 0 305,455 38,182 38,182 0
2. Inflow Operation 0 0 2,800,000 3,150,000 3,500,000 3,500,000
Sales Revenue 0 0 2,800,000 3,150,000 3,500,000 3,500,000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 1,392,510 1,392,510 2,268,591 1,817,017 2,426,376 2,310,090
4. Increase In Fixed Assets 1,392,510 1,392,510 0 0 0 0
Fixed Investments 1,326,200 1,326,200 0 0 0 0
Pre-production Expenditures 66,310 66,310 0 0 0 0
5. Increase in Current Assets 0 0 709,216 88,652 88,652 0
6. Operating Costs 0 0 1,036,436 1,162,533 1,288,630 1,288,630
7. Corporate Tax Paid 0 0 0 0 522,739 534,582
8. Interest Paid 0 0 522,939 236,860 197,383 157,907
9.Loan Repayments 0 0 0 328,972 328,972 328,972
10.Dividends Paid 0 0 0 0 0 0
Surplus (Deficit) 0 504,701 836,864 1,371,165 1,111,806 1,189,910
Cumulative Cash Balance 0 504,701 1,341,565 2,712,730 3,824,536 5,014,446

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000
1. Inflow Funds 0 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 0 0 0 0 0 0
2. Inflow Operation 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000
Sales Revenue 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 2,282,457 2,262,780 2,235,146 1,878,541 1,878,541 1,878,541
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 0 0 0 0 0 0
6. Operating Costs 1,288,630 1,288,630 1,288,630 1,288,630 1,288,630 1,288,630
7. Corporate Tax Paid 546,425 566,225 578,068 589,911 589,911 589,911
8. Interest Paid 118,430 78,953 39,477 0 0 0
9. Loan Repayments 328,972 328,972 328,972 0 0 0
10.Dividends Paid 0 0 0 0 0 0
Surplus (Deficit) 1,217,543 1,237,220 1,264,854 1,621,459 1,621,459 1,621,459
Cumulative Cash Balance 6,231,989 7,469,209 8,734,063 10,355,522 11,976,981 13,598,441

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 2,800,000 3,150,000 3,500,000 3,500,000

1. Inflow Operation 0 0 2,800,000 3,150,000 3,500,000 3,500,000

Sales Revenue 0 0 2,800,000 3,150,000 3,500,000 3,500,000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 1,392,510 1,392,510 1,440,197 1,213,003 1,861,839 1,823,211

3. Increase in Fixed Assets 1,392,510 1,392,510 0 0 0 0

Fixed Investments 1,326,200 1,326,200 0 0 0 0

Pre-production Expenditures 66,310 66,310 0 0 0 0

4. Increase in Net Working Capital 0 0 403,761 50,470 50,470 0

5. Operating Costs 0 0 1,036,436 1,162,533 1,288,630 1,288,630

6. Corporate Tax Paid 0 0 0 0 522,739 534,582

NET CASH FLOW -1,392,510 -1,392,510 1,359,803 1,936,997 1,638,161 1,676,789

CUMULATIVE NET CASH FLOW -1,392,510 -2,785,020 -1,425,217 511,779 2,149,941 3,826,729

Net Present Value (at 18%) -1,392,510 -1,180,093 976,589 1,178,916 844,945 732,940

Cumulative Net present Value -1,392,510 -2,572,603 -1,596,014 -417,098 427,847 1,160,787

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000

1. Inflow Operation 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000

Sales Revenue 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 1,835,054 1,854,855 1,866,698 1,878,541 1,878,541 1,878,541

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 0 0 0 0 0 0

5. Operating Costs 1,288,630 1,288,630 1,288,630 1,288,630 1,288,630 1,288,630

6. Corporate Tax Paid 546,425 566,225 578,068 589,911 589,911 589,911

NET CASH FLOW 1,664,946 1,645,145 1,633,302 1,621,459 1,621,459 1,621,459

CUMULATIVE NET CASH FLOW 5,491,675 7,136,820 8,770,123 10,391,582 12,013,041 13,634,501

Net Present Value (at 18%) 616,748 516,452 434,521 365,568 309,803 262,545

Cumulative Net present Value 1,777,535 2,293,988 2,728,508 3,094,076 3,403,880 3,666,425

Net Present Value (at 18%) 3,666,424.71

Internal Rate of Return 46.2%

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 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 80% 90% 100% 100% 100%
1. Total Income 2,800,000 3,150,000 3,500,000 3,500,000 3,500,000
Sales Revenue 2,800,000 3,150,000 3,500,000 3,500,000 3,500,000
Other Income 0 0 0 0 0
2. Less Variable Cost 878,827 988,680 1,098,534 1,098,534 1,098,534
VARIABLE MARGIN 1,921,173 2,161,320 2,401,466 2,401,466 2,401,466
(In % of Total Income) 68.61 68.61 68.61 68.61 68.61
3. Less Fixed Costs 429,134 445,377 461,620 461,620 461,620
OPERATIONAL MARGIN 1,492,040 1,715,943 1,939,846 1,939,846 1,939,846
(In % of Total Income) 53.29 54.47 55.42 55.42 55.42
4. Less Cost of Finance 522,938.58 236,859.94 197,383.28 157,906.62 118,429.97
5. GROSS PROFIT 969,101.01 1,479,083.11 1,742,463.22 1,781,939.87 1,821,416.53
6. Income (Corporate) Tax 0.00 0.00 522,738.96 534,581.96 546,424.96
7. NET PROFIT 969,101.01 1,479,083.11 1,219,724.25 1,247,357.91 1,274,991.57
RATIOS (%)  
Gross Profit/Sales 34.61% 46.96% 49.78% 50.91% 52.04%
Net Profit After Tax/Sales 34.61% 46.96% 34.85% 35.64% 36.43%
Return on Investment 46.79% 52.97% 43.08% 42.72% 42.36%
Return on Equity 73.65% 112.40% 92.69% 94.79% 96.89%
Annex 4: NET INCOME STATEMENT (in Birr): Continued

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

1. Total Income 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000

Sales Revenue 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000
Other Income 0 0 0 0 0
2. Less Variable Cost 1,098,534 1,098,534 1,098,534 1,098,534 1,098,534
VARIABLE MARGIN 2,401,466 2,401,466 2,401,466 2,401,466 2,401,466
(In % of Total Income) 68.61 68.61 68.61 68.61 68.61
3. Less Fixed Costs 435,096 435,096 435,096 435,096 435,096
OPERATIONAL MARGIN 1,966,370 1,966,370 1,966,370 1,966,370 1,966,370
(In % of Total Income) 56.18 56.18 56.18 56.18 56.18
4. Less Cost of Finance 78,953 39,477 0 0 0
5. GROSS PROFIT 1,887,417 1,926,894 1,966,370 1,966,370 1,966,370
6. Income (Corporate) Tax 566,225 578,068 589,911 589,911 589,911
7. NET PROFIT 1,321,192 1,348,826 1,376,459 1,376,459 1,376,459
RATIOS (%)  
Gross Profit/Sales 53.93% 55.05% 56.18% 56.18% 56.18%
Net Profit After Tax/Sales 37.75% 38.54% 39.33% 39.33% 39.33%
Return on Investment 42.56% 42.20% 41.84% 41.84% 41.84%
Return on Equity 100.40% 102.50% 104.60% 104.60% 104.60%

Annex 5: Projected Balance Sheet (in Birr)

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 CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 1,392,510 3,289,721 4,564,277 5,752,570 6,681,504 7,599,889
1. Total Current Assets 0 504,701 2,050,781 3,510,598 4,711,056 5,900,965
Inventory on Materials and Supplies 0 0 252,493 284,055 315,616 315,616
Work in Progress 0 0 34,824 39,177 43,530 43,530
Finished Products in Stock 0 0 69,648 78,354 87,060 87,060
Accounts Receivable 0 0 305,455 343,636 381,818 381,818
Cash in Hand 0 0 46,796 52,646 58,495 58,495
Cash Surplus, Finance Available 0 504,701 1,341,565 2,712,730 3,824,536 5,014,446
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 1,392,510 2,785,020 2,513,496 2,241,972 1,970,448 1,698,924
Fixed Investment 0 1,326,200 2,652,400 2,652,400 2,652,400 2,652,400
Construction in Progress 1,326,200 1,326,200 0 0 0 0
Pre-Production Expenditure 66,310 132,620 132,620 132,620 132,620 132,620
Less Accumulated Depreciation 0 0 271,524 543,048 814,572 1,086,096
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 1,392,510 3,289,721 4,564,277 5,752,570 6,681,504 7,599,889
5. Total Current Liabilities 0 0 305,455 343,636 381,818 381,818
Accounts Payable 0 0 305,455 343,636 381,818 381,818
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 835,506 1,973,833 1,973,833 1,644,861 1,315,889 986,916
Loan A 835,506 1,973,833 1,973,833 1,644,861 1,315,889 986,916
Loan B 0 0 0 0 0 0
7. Total Equity Capital 557,004 1,315,889 1,315,889 1,315,889 1,315,889 1,315,889
Ordinary Capital 557,004 1,315,889 1,315,889 1,315,889 1,315,889 1,315,889
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 969,101 2,448,184 3,667,908
9.Net Profit After Tax 0 0 969,101 1,479,083 1,219,724 1,247,358
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 969,101 1,479,083 1,219,724 1,247,358

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 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL ASSETS 8,545,909 9,538,129 10,557,982 11,934,442 13,310,901 14,687,360
1. Total Current Assets 7,118,509 8,355,729 9,620,582 11,242,042 12,863,501 14,484,960
Inventory on Materials and Supplies 315,616 315,616 315,616 315,616 315,616 315,616
Work in Progress 43,530 43,530 43,530 43,530 43,530 43,530
Finished Products in Stock 87,060 87,060 87,060 87,060 87,060 87,060
Accounts Receivable 381,818 381,818 381,818 381,818 381,818 381,818
Cash in Hand 58,495 58,495 58,495 58,495 58,495 58,495
Cash Surplus, Finance Available 6,231,989 7,469,209 8,734,063 10,355,522 11,976,981 13,598,441
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 1,427,400 1,182,400 937,400 692,400 447,400 202,400
Fixed Investment 2,652,400 2,652,400 2,652,400 2,652,400 2,652,400 2,652,400
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 132,620 132,620 132,620 132,620 132,620 132,620
Less Accumulated Depreciation 1,357,620 1,602,620 1,847,620 2,092,620 2,337,620 2,582,620
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 8,545,909 9,538,129 10,557,982 11,934,442 13,310,901 14,687,360
5. Total Current Liabilities 381,818 381,818 381,818 381,818 381,818 381,818
Accounts Payable 381,818 381,818 381,818 381,818 381,818 381,818
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 657,944 328,972 0 0 0 0
Loan A 657,944 328,972 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 1,315,889 1,315,889 1,315,889 1,315,889 1,315,889 1,315,889
Ordinary Capital 1,315,889 1,315,889 1,315,889 1,315,889 1,315,889 1,315,889
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 4,915,266 6,190,258 7,511,450 8,860,276 10,236,735 11,613,194
9. Net Profit After Tax 1,274,992 1,321,192 1,348,826 1,376,459 1,376,459 1,376,459
Dividends Payable 0 0 0 0 0 0
Retained Profits 1,274,992 1,321,192 1,348,826 1,376,459 1,376,459 1,376,459

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