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EAST GOJJIAM BICHENA DISTRICT
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PROJECT
 Target product: Manufacturing
 Targeted developing country: Ethiopia
 Project geographic extension in m²: 1000
 Total funding: 5,246,558 Birr

Meku Azene Sawmill Processing Cot,Ltd

Tele : +251947071189
Fax. : +251947071189
Address : Bichena, Yetmen Kebele
Email: mekumill14@gmail.com

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 PROJECT PROPOSAL COVER SHEET

Project Information
Project No. mwm00013-14
Project Title: Project Profile in Establishment of Sawmill project plant
Target product: Manufacturing
Targeted developing country: - Ethiopia
Project geographic extension (m²): 1000
Total own equity funding: 1573967 Birr
Tota loan finding : 3672591 birr
Total funding: 5,246,558 Birr
Please select the type of project you are applying for:
Single-country Project manufacturing project
Multi-country Programme
Single-country Co-development and Transfer of Technology
project
Multi-country Co-development and Transfer of Technology
project
Applicant
Name of Organization: Meku Sawmill and processing project
Type of organization: Manufacturing
Project Contact: Mr. Meku Azene ; owner of the company
E-mail address: mekumill14@gmail.com
Telephone: +251947071189
Fax: +251947071189
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 Table of contents
Content Page
1. INTRODUCTION 7
1.1. Background 7
1.2. Production Description and Application 8
1.3. Scope of the Project 8
1.4. Objectives of the Project 9
2. PROJECT LOCATION AND SOCIO ECONOMIC STATUS 10
2.1. Demography 10
2.2. Physical Characteristics Information 10
2.3. Socio-Economic information 10
2.4. Location 11
2.5. Sawmill System 12
3. MARKET STUDY AND PLANT CAPACITY 14
3.1. Past Supply and Present Demand 14
3.2. Supply-demand balance 15
4. LAND, BUILDINGS AND CIVIL WORKS 18
4.1. Land lease 18
4.2. Land use plan of the project 18
4.3. Environmental impact assessment 18
4.4. Implementation Schedule 19
5. ORGANIZATIONS AND MANAGEMENT 20
5.1. Organizational Structure 20
5.2. Management 20
5.3. Manpower Requirement 21
6. FINANCIAL STUDY 21
6.1. General 21
6.2. Project Capital and financing 25
6.3. Financial statements 28
7. SENSITIVITY ANALYSIS 30
8. RISK ANALYSIS 31
9. MONITORING AND EVALUATION 32

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10. CONCLUSION AND RECOMMENDATION 32
EXECUTIVE SUMMARY

Name of the Promoter: Meku Azene

Contact Address: 0947071189
Type of the Project: Saw mill and processing factory
Type of Business: Sole proprietor ship
Project Location: Amhara Regional state surrounding Enemay Woreda ,Yetmen Town
Administration
Project Capital: The total investment capital of the project is estimated is birr 5,246,558 of
which
Source of finance: The total investment capital of the project is to be financed
from the promoter’s equity and bank loan.
 Birr 1573967 (30%) is contributed by the promoter Meku Azene
 Birr 3672591 (70%) is to be financed by development or waliya finance banks.
Man power requirement: 20 employees, 6 permanent (2 skilled & 5 unskilled) and 7 casual
(7 unskilled) workers
Land requirement: The total area of 1000 m2 of land is required for the project
Profitability: The financial analysis of the envisaged project was carried out for the
following ten years. Based on the 10 years financial projections using the income statement,
cash flow statement and financial internal rate of return (FIRR) and the following results are
obtained.
 Income statement: According to the projected income statement the project will
generate profit beginning from the first year of operation. Based on the 5 years
financial projections the project average annual net profit after payment of bank
interest, depreciation and tax amounts to birr 14,371,194
 Cash flow statement: The cash flow statement also shows a substantial amount of
cash surplus right from the first year of project operation life. The cash balance grows
from birr 4363560 in the first year to cumulative balance of birr 24536519 during
the 5th year of operation indicating the capacity of the project to finance itself and
generate cash surplus for further investments.
 FIRR Computation: The computation of the project FIRR shows that the project will
profitably generate reasonable return on investment. Before tax financial internal rate

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 of return is calculated to be 65.0 % this indicates the project is profitable and its
implementation entails no financial risks.
 Socio economic benefits: The socio economic benefit of the project is also very high.
The project will provide 20 employees. It produce food crops and supply the market
at competitive price, generate foreign currency by promoting exports, generate
revenue for the government in form of taxes, facilitate the transfer of modern
agricultural technologies and also contribute towards promoting the linkage between
agriculture and various sectors of the economy.

Conclusion: The Project is found to be operationally profitable & has significant socio-
economic benefits. According to the projected income statement, the envisaged project starts
earning profit from the first year of production. The income statement and other profitability
indicators show that the project is viable. The project is believed to have significant social and
economic benefits that accrue to the society beyond those financial returns to its owner. The
most remarkable social benefits can be expressed in terms of job creation that leads to
reduction in the level of unemployment.
Recommendation: Therefore, considering the attractive financial and economic benefits the
project is to produce, the promoter has made the necessary preparation hoping that all the
concerned offices & financial institutions should give their support to facilitate the
implementation of this plan.

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 1. INTRODUCTION

1.1. Background

Ethiopia is now becoming more and more investment friendly country. The Government is
creating favorable condition that would highly encourage the private Sector to be engaged in
almost all areas of the economy. The country with population of come more than 80
million offers significant domestic market for locally for Locally produced goods and
service the country is also a member of the common Market for eastern and southern
Africa Comes a offering huge benefit of Exporting commodities in preferential tariff
rates to a wider regional market.
Privet investment should be encouraged to increase form year to year and Investment
constraints have to be alleviated in order to pave development ways so That
investment sector happens to be determinant about factor of economic development of
the country like Ethiopia.
it is usually considered as the engine of the economy .both private and government
Bodies in many ways have commonly agreed this idea .economic development in Any
case needs both efforts of the privet as well as the public sector. There are
Investments that could not be undertaken by privet sector due to its difficult nature
i.e high initial capital and long gestation period.

However, the passed command economy system and the lack of experience Between
both sides have made it so hard for a private sector to flourish .But now a day as
Ethiopia follows free market economy ‘the roll of private sector for the achievement of
the economy policy. Accordingly, the Ethiopia federal democratic government is encouraging
investors to invest their records to contribute to the development of the country in all sectors
by avoiding all barriers and facilitating all the mince for the investment.
In Ethiopia about 164,526 million tones of timber are generated every year. Most of the
timber produced are treated as charcoal and to some extent are being used as home made by
the rural population, while the bulk of the timber is burnt off in the fields after cutting of the
timber plant. As the income from timber farming in Ethiopia and other Africa countries has
become very low and often insufficiently remunerative, other ways of fetching adequate
returns to farmers are to be explored. In this connection, judicious utilization of timber by
product for value-added products could play a greater role in generating additional income to
the farming community.

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By taking this encouraging as an opportunity the promoter project plan to establish Saw Mill
and processing factory in Amhara regional state Bichena Woreda Administration
Yetmen Kebele for the benefit of the promoter, the district community as well as the country
as a whole.
1.2. Production Description and Application

Sawmilling, which is usually considered as a simple manufacturing process, (i.e. cutting

down a tree, sawing, and generating lumber), is in fact a highly technical and sophisticated
industry that must be constantly monitored so that businesses can respond to change
effectively. The major factors that influences sawmilling operations include securing log
supplies; properly designed and engineered production facilities; environmental, regulatory
and power supply issues; constant training for professionals in management, operations,
maintenance, sales, marketing, logistics; and analysis of raw material resources and product
lines, to maintain long term profitability.
The economic returns derived from saw processing are significant compared to that of
primary production of logs, for as the value chain extends, there is a significant increase in
returns and contribution to the economy. Over the past 4 years, saw processing manufacturers
have been able to diversify into new products such as: veneer, niche-market furniture,
household components - doors, and kiln-dried lumber, and there is potential for further
expansion. For the sector to realize its potential there is the need for extensive training of
personnel at all levels and in all aspects of saw processing operations, to enable the
production of quality products required by the markets; and a shift to newer technology
within sawmilling operations to increase the conversion efficiency/recovery from round logs.
However, whilst advanced technology, computerization etc. are good; they must be directly
linked to availability and development of support services and quality of operating
environment.
The forest operations aspect has been dealt with in the Project of Practice for Timber
Harvesting and other documents which are being updated regularly to promote sustainable
forest management. The next step is to upgrade saw processing operations. This proposed
Project will deal with sawmilling and lumberyard operation. Other value added operations
will be addressed in future efforts and documents.
1.3. Scope of the Project

This Project applies to all sawmills engaged in the stockpiling and sawing of round logs of

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all timber species or sawing of cants, squares and other forms of sawn forest timber
products, into sawn lumber. It applies to all processes conducted within such sawmills and
sawmill yards, including handling round logs, sawing round logs into sawn timber, handling
sawn timber, air drying of sawn timber, as well as the management of sawmill waste within
the boundaries of a sawmill yard. This Project of Practice for Sawmilling and Lumberyards
does not cover value–added operations such as: furniture manufacturing, production of
moldings, etc. Sawmilling and lumberyard operations should recognize and consider all or
relevant aspects of this Project in the day to day management and operation of their
facilities.
1.4. Objectives of the Project

The Government of Ethiopia through the National Forest Policy 2011 and the National Forest
Plan 2011 specifies the utilization of logs in downstream value added processing to maximize
national benefits from the use of forest resources. One of the steps in the realization of this
goal is the development of a Project of Practice for Saw Processing. It is expected that with
the implementation of this Project of Practice, the following results will be achieved:
 Maximize the recovery of value from logs for increased competitiveness and
profitability
 Reduce/minimize waste
 Reduce the environmental impacts of primary saw processing.
 Facilitate sustainable and economical utilization of forest resources
 Produce quality, high priced products for local and export markets
 Provide sawmill and lumberyard owners/operators with a set of guidelines and
standards for improved management practices and production of quality products for
their customers
 Improve the health and safety of sawmill and lumberyard employees
 Provide a framework for effective control of sawmilling and lumberyard operations
based on rational guidelines and benchmarks
 Improve the relationship between the surrounding communities and business entities
 Enhance global market acceptance of Guyana’s forest product

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 2. PROJECT LOCATION AND SOCIO ECONOMIC STATUS

2.1. Demography

According to the National Population and Housing Census carried out in 2007, the population
of the town was 18,876. Out of these, 10,500 were males and 8376 were females.

2.2. Physical Characteristics Information

The built up area of Yetmen town is around 6361 ha excluding rural kebele and it has linear
shape. Its altitude is 2250–2860 m above sea level; major or dominant soil is black soil. It has
Mean Annual Temperature of 18ºC and Mean annual rainfall of 1,188 mm. The prevailing
wind direction is from East to West. The principal natural constraints for the physical
expansion of the town is the level topography of the land and flooding while manmade
constrains are existence of  informal settlement, high tension lines, rugged and steep slopes in
valley kebele.

2.3. Socio-Economic information

Urban Economy and Role of the Town: The Bichena town serves as administration and full
infrastructure center. There are more than 23 manufacturing, 45 wholesale, 231 retail trade,
147 service trade, four fuel stations and three garages in the town. There are 9 banks and
three micro financial institutions giving financial services in the town.

The major investment opportunities in the town are: agro-industry processing and
construction. Bichena has economic linkages with the surrounding areas, towns, and Addis
Ababa. The town gets industry products, livestock supply, natural resources (fuel wood,
charcoal) and surplus labor from surrounding areas. The town gets industrial inputs from
Addis Ababa.

Infrastructure: Regarding infrastructure, the town has asphalt and gravel roads connecting it
to different kebeles, woredas, zones, regions and Addis Ababa. In addition to these; the town
gets 24 hours electric supply from the national grid, mobile and fixed telephone lines and
internet services. The main water supply source is potable underground water distributed with

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pipe network system and 3 main public water points. The town has open ditch system to
discharge storm water.

2.4. Location

A project’s geographical location, topography, geotechnical conditions, remoteness and

climate can all affect Saw mill manufacturing plant project. To improve the economics of
such locations, modular and pre-assembled structures and plant facilities are used prior to
transportation to site. Local labour costs often dictate what material can be best used
economically in a particular region. Remote projects can suffer from difficulties in obtaining
spare parts on short notice. A Saw mill production Machine should accordingly provide for
lay down and workspace for onsite equipment refurbishment and repair. Where possible,
equipment manufacturers should be encouraged to stock and provide spare parts close to the
machine operation. Good biological information is essential to Cutting, sort, slicing and
milling Machine sitting and design. The proposed project of a Machine will planned to be
located in Amhara regional state Enemay Woreda Yetmen small town which is located 248
km from capital city and 325 km from regional city. The total land size the promoter
requesting for the implementation of the project is estimated at 3000 square meters. The place
is geo-center for the six Woreda; Yedwha, Dejen, Debrewerk, Motta, Mertule Mariyam and
Debay Tilatgin.

Figure: Neighboring Woredas and Map location of project

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 2.5. Sawmill System

To achieve the goal of optimal recovery of value whilst still achieving high production rates
requires a sawing system that will break down logs accurately to the desired final lumber
thickness. The aim is to have the flexibility to break down each log using different sawing
patterns to suit the varying quality of logs being fed in, adapt to defects found as the log is
opened up and cut for product/products required by the market.

Figure: sawmilling process flow

Headrig / Breakdown Saw Requirements

To be able to maximize value in wood processing, during the headrig/breakdown process, the
ability to turn the log is important. Turning the log whilst cutting produces higher quality
lumber in wider boards by: sawing around defects, cutting for grade, tension reduction,
flexibility to produce different products, etc. The ability to rapidly turn, clamp and taper set
logs, and index the log or saw head for accurate sizing, becomes paramount to achieve
realistic production levels in conjunction with higher grade and value recovery.

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Figure: Mobile Horizontal bandsaw
Sawmilling Operations
The benefits of cutting for grade far outweigh any gains that can be achieved by volume
production, for it generates the greatest net value from the resource. This concept encourages
the realization of small gains at every stage of processing to achieve the greatest returns.
Grade can be recovered/improved at each stage of the processing chain by operators at the
headrig, resaw. edger, trimsaw, etc. They are required to make critical decisions which
culminate into increased profitability and competitiveness. The most critical single factor in
the creation of system of cutting for value is the people involved. Knowledge, ability, and
motivation of personnel at all levels of the organization, far more than equipment or finance,
dictate whether any processing entity will be viable and sustainable or wasteful and
unsustainable. Given this, there can be a vast differences in performance of a sawmill through
the creation of a truly professional workforce.

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 3. MARKET STUDY AND PLANT CAPACITY

Marketing is one of the most important functions of any business venture and yet its
importance is frequently underestimated. This is particularly evident in the case of small to
medium-sized sawmills. Typically, those involved in the development of these ventures have
work experiences associated with wood harvesting or milling and have had only limited
experience with the marketing of sawn wood. As a result, the conceptual planning of new
mills often focuses almost entirely upon the needs of the producer rather than the marketplace
and often with disastrous results.
3.1. Past Supply and Present Demand

For each of the end-use categories identified, the following information should be developed:
the specifications of sawn wood used, estimated annual consumption and supply, and future
trends. Finally, the present and projected sawn wood supply-demand balance should be
estimated.
Sawn wood Specifications
It is vital to the planning of a sawmill, regardless of size, that a reliable definition be available
of market requirements with respect to product specifications. To provide the necessary
background information, the sawn wood specifications required by each of the end-use
categories should be determined. Attention to detail is most important at this stage, as
seemingly insignificant aspects with respect to grade, size, etc., can be of critical concern to
the design and operation of the sawmill. Futile it is unlikely that a single sawmill could meet
the product requirements of all potential end-users within its market region sound knowledge
of theta picture can be of great value in making the final decisions as to which sectors to
focus upon in a final market plan. Specific details which must be obtained are as follows:
Quality:- Preferences with respect to species, color, durability, strength, allowable
defects.
Size: - Thickness, width, length.
Tolerance: - Allowable oversize and undersize tolerances.
Dryness: - Acceptability of "green" sawn wood as opposed to requirements for partial
drying or kiln drying.
Existing sawn wood supply

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An analysis should be made of the existing sawn wood supply within the market region. This
should include the following possible sources of sawn wood, sawmills within the market
region, sawmills within the country but outside the market region, imported sawn wood.
It should be reasonably easy to obtain information concerning the existing sawn wood supply
within the region. As much detail as possible should be obtained, particularly with respect to
species, dimension and quality. Data on sawn wood entering the market region from external
sources (either domestic or foreign) may be more difficult to obtain as Government statistics
are not always available or reliable. Also, detail as to specifications of imports may be
lacking. Nevertheless, much useful. Information can usually be developed through interviews
with those involved directly in the importation process, such as importers, wholesalers,
retailers and transport organizations.
Future trends
Some attempt must be made to identify future trends which might be expected to affect the
existing sawn wood supply-demand balance, and hence the competitive position of a new
sawmill. Demand can be affected by changes in population and national wealth, as measured
by gross national product per capita. Of great significance can be adequate change in
government policy that could bear upon the supply of new housing units. Similarly, other
wood-using sectors of the economy within the market region may be developed as a result of
government policy. Rail was may be expanded, new industrial plants subsidized, major
public works projects undertaken, etc. Chain in sawn wood supply can occur due to a number
of variables. Sawmilling capacity within the market region can increase or decrease due to
factors such as wood supply, local market demand, the competitive position of individual
mills, planned new mills, the availability of labor and so forth. Imports of sawn wood from
mills outside the market region can change due to similar reasons, Imports from foreign
suppliers may increase or decrease in the future as a consequence of protective tariffs,
changing prices reflecting economic conditions external to the local market region and
competition from domestic producers. The following sources will provide useful information
with respect to future trends and maxi.mum use should be made of them:
 Population forecasts,
 Government plans,
 Economic: forecasts (public and private),
 Judgment of experienced representatives of the sawn wood end-users and producers.

3.2. Supply-demand balance

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Through examination of the previously developed estimates of current sawn wood supply and
consumption, coupled with the review of probable future trends, it should be possible to
develop a reasonable assessment of the likely supply demand balance for sawn wood during
the next five to ten years. Ideally, this assessment should deal with the main products. The
fore cast of the supply-demand balance will only be as reliable as the input data. The high
levels of accuracy should not be expected, if the previous work has been done with care a
useful indication of future opportunities can be developed.
Also, projected shortages of certain types of sawn wood be identified which which have a
direct bearing on the planned product-mix for a new sawmill. Conversely, although it is
unlikely, the supply-demand projection may reveal an excess of supply relative to demand,
thus signaling the need for extreme caution in the short-term development of new milling
capacity within the market region. Similarly, an excess supply of a particular item may be
indicated, once again providing invaluable information in planning the product specifications
of a new mill.
Trim saw in feed and out feed
Pieces from the trim saw and the edger are deposited onto a transfer table leading to the
trimming position. This allows the pieces to be examined and sent back to either re saw or
edger, as required. It also permits edgings and. waste pieces to be pulled off into the residual
collection system, to avoid impeding the trimming operations. After trimming, the pieces
continue along a similar transfer table to the grading position and then to the green chain. The
tables are usually comprised of four or five strands of flat-topped mill chain running in chain
saws and powered by a small electric or mechanical drive unit. The spacing of the chains is
arranged to support all lengths of lumber expected to be produced in the sawmill.
Sorting, Grading and Treating
Sorting: After trimming, boards and planks move to the sorting or "green" chain. Depending
on markets and end-use, there are different levels of intensity of sorting. These include the
following:
i. Sort by thickness only.
ii. Sort by thickness and width.
iii. Sort by thickness, width and length.
iv. Sort by thickness, width, length and grade.
v. Sort by thickness, Width, length, grade and species.
Grading: The decision as to whether or not the lumber should be graded for quality will
depend upon market requirements.
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Dipping and End Treatment: it uses in a suitable solution protects stacked lumber and, in
some instances, the finished product from fugal and insect attack and Dipping also creates
more uniform coloration
Dipping: Dipping for protection from mould, fungi and Insects requires chemical solutions
adapted to both the species being protected and the hazards being guarded against.
Information on solutions is freely available from major suppliers. Such solutions are often
strong enough to cause skin irritations; the labourers who work with the solutions or handle
treated lumber should be suitably protected.
End Treatment: End treatment normally involves a brush or spray application of paint or
wax solution to seal the end grain of the lumber. With the solution in place, air drying
proceeds largely from the flat faces of the lumber; drying at the ends is slower and more
uniform. The end sealant can be applied before the lumber reaches the Sorting chain or after
it has been stacked. It is easier to seal before sorting if pieces of different lengths are being
treated. When treating stacked lumber, all pieces in the stack must have the same length so
that both ends are accessible.
Drying: After the lumber is sorted and stacked it may be bold green or dried to an acceptable
level. Drying accomplishes the following:
i. Reduces the weight of lumber for subsequent transportation.
ii. Stabilizes the lumber dimensions for subsequent end use.
iii. Develops desirable color or strength characteristics.

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 4. LAND, BUILDINGS AND CIVIL WORKS

4.1. Land lease

The overall land required is about 1,000 square meters. Land lease cost at the rate of Birr 200
birr per m2 and for 70 years land holding is estimated to be Birr 200,000 birr. The total built-
up area for production building, offices, and other utility buildings is about 500 square
meters. At the rate of Birr 1,500 per m2 considering that the building are constructed by EGA
sheet roof, HCB wall, and cement tile floor, the expenditure on buildings will be Birr
750,000. Thus, the total investment on land, building and civil works is estimated to be Birr
950,000 (the detailed drawing and cost estimation will done on day time price on before
development of project).
4.2. Land use plan of the project

Building designing will be constructed which insures smooth functioning of all operations.
The building will have well-ventilated appropriate Saw Mill Cutting factory area the
structure includes separate rooms and other different activates the detail as follows
Table. Description of Land use plan
S/n Description Area/m2
1 Factory building 230
3 Staff residence 90
4 Store for raw material 60
5 packaging and store for output product 100
6 sales shop 50
7 Generator and pump house 40
8 Guard house 30
9 parking area 250
10 garden area 150
Total 1000
4.3. Environmental impact assessment

The project will seriously involve itself protecting conserving and developing the natural and
flora of the project area in line with the millennium development goal. To this to will play a
vital role in participating the varies organization and the community around the project area
to from an environmental commute in charge of all environmental issues to be handled in
accordance to varies environmental and water policies of 97/99.

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 The owner of the project believes to undertake several environmental issues for the
conservation development and creation of sustainable environmental around the project area.
The discharges of this project that may be mists to the atmosphere during mill and little
discharge of oil. The dust revolve are managed by constructing
4.4. Implementation Schedule

The actual implementation of the Saw Mill cutting and processing factory is planned to begin
on the September 2015. The major activities envisaged are processing of land preparation,
construction and delivery, installation and commissioning of the factory line. Undertaking of
civil design works and execution of construction works which will be carried out by side
which opening and processing of L/C will take 3 months. The FOB delivery of plant
machinery and equipment will take 4 months. Allowing additional one month for sea freight
and clearing, the delivery of plant of project site and thus commencement of installation work
requires 5 month. Plant installation and commissioning will take place for 4 months.
The provision of infrastructural facilities such as Electric Power and water will be carried out
in the course of project implementation schedule. Other activities such us man power
recruitment and training, system development, and procurement of raw and other supplies
will also be duty performed to ensure that everything is in place by the time the plant is ready
for operation. All in all the project is expected to take 12 months for completion as per the
below detailed implementation schedule.
Table . Implementation schedule
Description (Months) in Gregorian Calendar
7 8 9 10 11 12 1 2 3 4 5
Acquisition of Investment Land (Sep.
2015)
Opening & Processing of L/C x x x
Building Construction x x x x x x
Delivery of Plant machinery and x x x x x
Clearing
Installation and Commissioning x x x x
Recruitment of man power arranging x x x x x x
for other works
Customers, timely availability all the week including week end days, customer care, and
quick response to the feedback from clients.

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 5. ORGANIZATIONS AND MANAGEMENT

5.1. Organizational Structure

The organizational structure of the project is designed by including all the necessary personal
under the right division. At the top of the organizational structure, there will be a general
manager with the responsibility of supervising the overall activity of plant. Depending up on
the nature of the center and the amount of work to be performs under each will be supervised
by the unit head that is accountability for general manager

CEO

Adviser G/Manager Internal Auditing &

Inspection

Coordinator
Manager

Secretary

Sales& technical Marketing Admin &

Unit Unit finance Unit

As clearly shown the organizational structure, the integrated projected center has CEO three
Departments under the general manager, Addition and the internal Auditing and inspection.
The departments are the production Department, the marketing department and the general
service department under each department there are different section which are undertaking
different activities
5.2. Management

As to the management of the project is concerned the owner will be responsible for the
overall project planning, co-ordination and implementation. After project implementation the
promoter serves as a top management body and frequently visits and supervises the
organization.

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Cattle fattening farm a business man who has a long year experience in managing business
activities. Therefore, the extensive experience he has enables him to organize and properly
manage the envisaged Saw Mill cutting and processing factory

5.3. Manpower Requirement

For smooth and efficient operation of the organization, it has been anticipated that each units
will have adequate number of qualified and experienced manpower. The labor component of
the Jute and Saw Mill cutting and processing factory G/manager will hire qualified and
experienced in management whose main responsibility is to coordinate the overall activity of
the project.
The distinct units have their own operational teams under them. To fill in all these work units
with the required manpower the project needs 20 workers. For smooth operation of the
project, employees will be given on job training, clear duties and responsibilities under the
direct supervision of their respective units.

Table: Manpower Requirement

Monthly Annual
S/n Description of Job Qualification No.
salary Salary(Br)
1 General Manager CEO 1 7,000.00 84000
2 Secretary Ba in secretarial 1 3,500.00 42000
3 cashier diploma in accounting 1 2,500.00 30000
4 Store Keeper diploma in accounting 1 2,000.00 24000
5 Operator 12 th complete 1 3,000.00 36000
6 Laborer no skill 13 2,000.00 31200
7 Mechanic diploma in engineering 1 2,500.00 30000
8 Guard 8th graduate 1 2,000.00 24000
Total 301200

6. FINANCIAL STUDY

6.1. General

Financial analysis of the proposed project of Saw Mill cutting and processing factory will be
projected to test the financial visibility if the investigated organization. Quantifying both

15
project cost and benefits over the assumed project life, which is five years, made the project
visible. Besides it has been tried to make a realistic forecasting of costs and the benefits based
in current market price of all necessary materials. Once the anticipated stone cutting
operation has been attained both projects cost and revenue is estimated to be consumed to be
compensated by increasing in sales revenue
Investment cost
The cost of the project is classified as fixed incitement cost and initial working capital. With
regards to fixed investment cost of the project, the land lease, building and civil works cost,
machinery and equipment cost office furniture costs and fuel costs will be required. As to
working and operating cost a brief illustration will be given as to utilities, salary expense,
maintenance cost and depreciation cost and the other related costs
Fixed costs
Fixed cost that include Land development, Building and civil work, machinery equipment
and vehicles and office furniture estimated birr 2,324,600 of the total project.
Table: land development
Unit Price
S/n Description Qty Total Price (Br)
(Br)
1 Land clearing and leveling 500 m2 60 30000
2 Water well drilling 28m2 200 5600
3 Water reservoirs 64m2 185 12000
Total 47600
Table: Building and civil works
S/n Description Area/m2 Unit price Total price
1 Factory building 230 345000 345000
3 Staff rest residence 90 135000 135000
4 Store for raw material 60 90000 90000
5 packaging and store for output product 100 150000 150000
6 sales shop 50 75000 75000
7 Generator and pump house 40 60000 60000
8 Guard house 30 45000 45000
9 parking area 250 125000 125000
10 Garden area 150 12000 12000
Total 1000 1,037,000

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Table: List of machinery and equipment’s and cost

S/n Description Quantity Total Cost (Br.)

1 Horizontal sawmill 1 540,000

2 Slide Cutting Machine 1 150,000
3 Tools L.S 50,000
Total 740,000
Table : Procurement of Vehicles and furniture’s
S/n Description Qty Unit cost Total Cost (Br.)
1 Computers and accessories Ls - 100,000
2 Sino truck 1 1,750,000 1,750,000
3 Office furniture  ..  .. 50,000
Total     1,900,000
Table Summary of Fixed asset
S/n Description Estimate Cost birr
1 Land development 47600
2 Building & Constructions 1,037,000
3 Machinery and equipment 740,000
  vehicles and office furniture 1,900,000
Total 3,724,600
Production costs
Production cost of the project includes direct production and overhead costs. The major cost
item under this category includes cost of material and labour inputs, fuel and lubricants, repair
and maintenance, employee salary and benefits, insurance, office supplies and other
miscellaneous expenses; the total estimated production cost is birr 8,848,400 million.
Table: Raw materials
Description Qty in tones Cost ‘Birr
Timber 7000 490,000
Eucalyptus tree 3000 210,000
Total 10,000 700,000
Table: Utilities
Sr. Descriptio Unit of Qty. Unit price Cost ('000 Birr)
No. n Measure (Birr)

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1 Electricity kWh 79,000 1.4 110000
2 Water m3 5,400 5.5 29700
3 Oil and lubricants Kg 450 10 4500
  Total       144,200

 Employee benefits : It includes medical expense, uniform and other incentive

package and assumed to be 25 % of annual salary expense = birr 75300
 Travel expense: It is assumed to be 10% of annual salary expense i.e. birr 30120
 Repair and maintenance
Cost estimate/ year
Item
% Price
Land development 2 952
Building & Constructions 2 20740
Machinery and equipment 3 22200
Vehicles & furniture’s 5 95000
Total - 138,892

 Insurance: It is assumed to be 1% of fixed investment cost = birr 37246

 Office supplies: Including stationery and sanitary supplies annual cost of birr 50,000
is considered.
 Miscellaneous expense: It includes cost of land rent, telephone and postage, audit,
legal and license fees and other miscellaneous expenses. The total annual cost of these
cost components is estimated to be birr 35,000 /year.
Table: Determination of Initial Working capital requirement
S/n Cost item Annual cost
1 Raw materials  
1.1 Raw materials 700,000
1.2 Utilities 144,200
Sub total 844,200
2 Administrative costs  
2.1 Salary and wage 301200
2.2 Employee benefits 75300

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 2.3 Travel expense 30120
2.4 Repair and maintenance 138,892
2.5 Insurance 37246
2.6 Advertizing expense 10000
2.7 Office supplies 50000
2.8 Miscellaneous expense 35000
Sub total 677,758
Initial W.C. requirement 1,521,958
6.2. Project Capital and financing

Project Capital
The total investment capital of the project is estimated at birr 5,246,558 of which birr
3,724,600 is for fixed investment items while the remaining balance of birr 1,521,958 will be
initial working capital. The detail of investment capital of the project is given below:
Table : Project capital
S/n Item Investment capital (Br.)

1 Land development 47600

2 Building & Constructions 1,037,000
3 Machinery and equipment 740,000
4 Vehicles and furniture 1,900,000
Sub total 3,724,600
5 Working Capital 1,521,958
Total 5,246,558

Financing
The total investment capital of the project is to be financed from the promoter’s equity and
bank loan. Out of the total capital birr 1573968 (30%) is contributed by the promoter, Meku
Azene while the remaining balance of birr 3672590 (70%) is to be financed by local banks.
The bank loan will be repaid based on the following terms and conditions:
 Loan amount = birr 3672590
 Installment period/ term = 5 years
 Interest on loan (including service charge) = 10 %
Table: Loan Repayment Schedule
Principal Interest Year ending
Year
Repayment Payment Balance

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 0 - - 3672590
1 734518 367259 2938072
2 734518 293908 2203554
3 734518 220355 1469036
4 734518 146904 734518
5 734518 73452 0
Depreciation of fixed investment items
The straight-line method has been used to depreciate/amortize all fixed items of the project.
The depreciation rate applied for all fixed assets is given below:
Table : Depreciation Schedule
Annual Depreciation
S/n Item Original Value
% Amount (Br.)
1 Land development 10 4760
47600
2 Building & Constructions 10 103700
1,037,000
3 Machinery and equipment 10 74000
740,000
4 vehicles and furniture 10 190000
1,900,000
Total 3724600 372460
Table: Summary of project Annual production costs
S/n Cost item Year 1 Year 2 Year 3 Year 4 Year 5
1 Direct cost          
1.1 Raw materials 700,000 735000 771750 810337.5 850854.4
1.3 Utilities 144,200 151410 158980.5 166929.5 175276
Sub total 844,200 886,410 930,731 977,267 1,026,130
2 Administrative costs
2.1 Salary and wage 301200 316260 332073 348676.7 366110.5
2.2 Employee benefits 75300 79065 83018.25 87169.16 91527.62
2.3 Travel expense 30120 31626 33207.3 34867.67 36611.05
2.4 Repair and 138,892 145836.6 153128.4 160784.9 168824.1
maintenance
2.5 Insurance 37246 39108.3 41063.72 43116.9 45272.75
2.6 Advertizing expense 10000 10500 11025 11576.25 12155.06
2.7 Office supplies 50000 52500 55125 57881.25 60775.31
2.8 Miscellaneous 35000 36750 38587.5 40516.88 42542.72
expense
Sub total 844200 886410 930730.5 977267 823819.1

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Total cost working capital 677758 711645.9 747228.2 784589.6 1849949

Note: Production costs are assumed to increase by 5% annually.

Revenue projection
The project will collect its revenue from the provision of outputs.The selling of intended output
has estimated based on the current market price of similar service provision in district. The
annual sale program is formulated based on proposed plant capacity considered the problem of
market penetration and skill development of production at the initial stage of the production
period
Table: Description of revenue projection

Unit price/ Total

Description Quantity/year
S/N m2 Revenue/year

 1 Finishing output board/m2 48,000 150 7200000

2 Finishing output moralie/m2 71000 22 1562000
3 Waste sawdust in Qt 720 120 86400
  Total revenue     8,848,400

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 6.3. Financial statements

Projected Profit/loss statement

AminaSimbo TufaSaw Mill cutting and processing factory

Projected profit/loss statement

Table : Project Profit/loss statement

Description 1 2 3 4 5
Revenue 8,848,400 9290820 9755361 10243129 10755286
Less: Production
costs 677,758 711645.9 747228.2 784589.6 823819.1
Gross Income 8170642 8579174 9008133 9458539 9931466
Less: Interest on
loan 367259 385622 404903 425148.2 446405.6
Less:
Depreciation 372460 391083 410637.2 431169 452727.5
Profit before tax 7430923 7802469 8192593 8602222 9032333
Less: Income tax
(35%) 2600824 2730865 2867408 3010779 3161318
Net Profit 4830100 5071605 5325185 5591445 5871017
Note: Sales revenue is assumed to increase by 5% annually

Projected cash flow statement

Meku Azene Saw Mill and processing factory

Projected cash flow statement

Table : Project cash flow Statement

Description 0 1 2 3 4 5
Cash Inflow            
Equity 1573968   - - - -
Bank loan 3672590          
Revenue 8,848,400 9290820 9755361 10243129 10755286
Depreciation 372460 391083 410637.2 431169 452727.5
Total Inflow 5246558
9,220,860 9,681,903 10,165,998 10,674,298 11,208,014
Cash Out
Flow
Fixed Cost 3724600 - - - -
Initial W.C 1,521,958 1521958 1598056 1674154 1750252 1826350
Tax 2600824 2730865 2867408 3010779 3161318
Loan 734518 734518 734518 734518 734518
Repayment
Total Out 5246558
flow 4857300 5063439 5276080 5495549 5722186
Net Inflow - 4,363,560 4,618,464 4,889,918 5,178,749 5,485,828
Cumulative -
balance 4,363,560 4,618,464 4,889,918 5,178,749 5,485,828
Viability and other measurement
Meku Azene Saw Mill and processing factory

Financial IRR computation

Table: Financial IRR computation

Year 0 1 2 3 4 5
Gross
 
income 8,848,400 9290820 9755361 10243129 10755286
Total costs 5246558 4857300 5063439 5276080 5495549 5722186
Gross profit -5246558 8170642 8579174 9008133 9458539 9931466
Less: Profit
 
tax 2600824 2730865 2867408 3010779 3161318
After tax net
-5246558
benefit 4830100 5071605 5325185 5591445 5871017
DF at 35%
1 0.741 0.549 0.406 0.301 0.223
rate
Present
5246558
Value 4830100 5071605 5325185 5591445 5871017
Net present
1836296 - - - - -
Value
DF at 30%
1 0.769 0.592 0.455 0.35 0.269
rate
Present
3410263
Value 4830100 5071605 5325185 5591445 5871017
Net present
1,573,967 - - - - -
Value
 NPV (Net Present Value)

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It is a method of calculating the expected net gain or loss from project by discounting rate of
all expected future cash inflow and outflows to the present point in time In the above table
shows that NPV at 30% and 35 % discount rate is 1,573,967 birr and 1836296 birr
respectively, this figure is positive value or NPV>0 it is indicate that accepted the project
until 30 % and 35 % of discount rate
 Payback Period (PBP)
The payback period is the amount of time required for a firm to recover its initial investment
in a project, as calculate from cash inflow. The investment cost and income statement
projection are used to project the pay-back period
PBP = Initial investment Cost
Profit + Depreciation
= 5246558 = 5246558
4830100+372460 5202560
1.01=1Years
The payback period = 1 is less than the maximum acceptable payback period (10) therefore
accept the project.
 IRR
The internal rate of the project is the rate of discount that radios the present value of the
investigated project to zero. In calculating the IRR, the discount rate can be adjusted until the
NPV becomes Zero or at least as to zero. Hence, the IRR of this project is calculated as
follows
After tax IRR = 30 + 5 (1,573,967 birr and 1836296 birr)
=65.0%
IRR=65.0% of the project returns its initial investment cost within its life
7. SENSITIVITY ANALYSIS

Sensitivity analysis is variant of scenario analysis in which each scenario represents a change
in only one variable, rather than a number of variables. For the proposed project, the
sensitivity of the project has been computed at 30% and 35% for sales reduction, operating
cost increase and investment cost increased accordingly, as described in table the result
shows that IRR at 65.0% operating cost increase and 30 and 35% investment cost increase
and 30% service sales reduction. Predicting among these sales reduction is more sensitive to
the project and it should further expand after the project proposed life time because in this
case NPV equal zero at IRR=65.0
8. RISK ANALYSIS

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The major risk of this project shall be high market price fluctuation and turnover the skilled
and trained man power. These risks can be mitigated. The high staff turnover may be
lessened by creating conductive working atmosphere and providing some benefits. For this
project, 25% benefit is proposed for the permanent employees
Characteristic (Personal) Risk: This is the most important risk, which should be seriously
considered? As to this company, the promoter have sufficient years of work experience in
both government and private organization (leading private business by engaging themselves),
so personal risk is minimum under this context
Business Risk: The fate of the business is generally found to be dependable. The demand-
supply analysis exhibits the need of the service of the business organization. According to the
overall demand the effect of competitors in the sector would not be an immediate alarming
threat at least for the coming few years. In additional to this. Long year experience of the
owner in the field will help to react against any adverse situation in the business. However,
the reaction of competitors should be attended. In additional to an advanced promotional
work and sustainable goodwill development by creating new and best quality products with
good service deliveries
Collateral Risk: Since the owners of the project are engaged on different related business,
there is no any risk related to collateral. In this regard, the proposed building and other
proposed equipment and the business as a whole are dependable securities. The experience
and skill of the owner as well as the manager and the other expertise add confidence to the
lenders. Therefore, there is no risk regarding collateral in general.
Construction Risk: Construction risk is one of the most important areas of risk that need
great consideration during project implementation. In the case of Saw Mill cutting and
processing factory, the construction work of the proposed building will be made by phase
with self response supervision. Hence, there is no as such serious risk related to construction
work.
All the identified risks, which are related to the universally accepted lending policy, are to the
acceptable level that keeps the lender’s interest in safe position. Furthermore, the quality of
the assets of the company is dependable and the projected finical reports show that the
company will have a capacity to pay the principal and interest without any problem with in
short period of time.
9. MONITORING AND EVALUATION

Monitoring and Evaluation (M&E) has long been recognized as a vital aspect of
development projects generally and of industrial and services projects in particular.   The
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 monitoring of project performance consists of the tracking of human, physical and financial
resources and the recording of how they are converted into outputs (project goods and
services), and in turn, outcomes and impacts.

10.CONCLUSION AND RECOMMENDATION

Conclusion: The Project is found to be operationally profitable & has significant socio-
economic benefits. According to the projected income statement, the envisaged project starts
earning profit from the first year of production. The income statement and other profitability
indicators show that the project is viable. The project is believed to have significant social and
economic benefits that accrue to the society beyond those financial returns to its owner. The
most remarkable social benefits can be expressed in terms of job creation that leads to
reduction in the level of unemployment.
Recommendation: The project directly employs 20 persons; therefore, considering the
attractive financial and economic benefits the project is to produce, the promoter has made
the necessary preparation hoping that all the concerned offices & financial institutions should
give their support to facilitate the implementation of this plan.

SAW-MILL MANUFACTURING
FACTORY PROJECT PROPOSAL

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