FEASIBLITY STUDY FOR MIXED USE BUILDING

CONSTRUCTION

PROJECT OWNER: - AHMED HILAL ZAYED MOHAMED

ADDRESS: - OROMIA REGIONAL STATE, ADAMA CITY

PHONE: -……………………

PROJECT AREA:- ADAMA CITY, GENDE GARA KEBELE

ADAMA, ETHIOPIA
FEBRUARY, 2023 G.C

1
Table of Contents
1 Executive Summary...............................................................................................................2

2 Introduction............................................................................................................................4

2.1 General Background.......................................................................................................4

2 Project Objectives................................................................................................................6

2.1 General Objective..........................................................................................................6

2.1.1Specific objective.....................................................................................................6

2.3 Project description........................................................................................................6

2.4. Project Rationale...........................................................................................................7

2.5 The significance of the project.................................................................................7

2.6. Project Location............................................................................................................8

3 The market Study.................................................................................................................9

3.1 Market Analysis..............................................................................................................9

3.2 The Demand-Supply Gap..............................................................................................9

3.3 Current supply of mixed use building.....................................................................10

3.4 Future market or Demand of commercial Building rental.................................10

3.5 Target customers.........................................................................................................11

3.6 Marketing promotion and strategy..........................................................................12

3.7 Competition....................................................................................................................12

3.8 The project facilities and Services plan...............................................................13

4 Technical Studies................................................................................................................15

4.1 Description of the project Service.........................................................................15

4.1.1 Land Use Plan..........................................................................................................15

4.2. Construction work and Technology........................................................................16

4.2.1 Construction schedule..........................................................................................16

4.2.2 Architectural Design & Layout.........................................................................16

4.2.3 Structural design..................................................................................................17

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 4.2.4 Reinforced concrete............................................................................................17

4.2.5 Foundation Design................................................................................................18

4.2.6 Construction Plan and process...........................................................................18

4.3 Utilities...........................................................................................................................18

5. Engineering and civil works............................................................................................20

5.1 Land, Building and Civil Works..................................................................................20

5.2 Manpower and training requirement.......................................................................20

5.2.1 Manpower requirement.......................................................................................20

5.2.2 Labor Availability.................................................................................................22

5.4 Organizational Structure..........................................................................................22

5.4.1 Organization and management..............................................................................22

6 Financial analysis.................................................................................................................30

6.1 Repair and Maintenance Cost....................................................................................30

In actual term the cost of repair and maintanance is culculated as follow........31

6.2 Depreciation and Amortization................................................................................31

6.3 Total Revenue...............................................................................................................32

6.4 Discounted Payback Period.......................................................................................32

6.5 Cash flow........................................................................................................................32

6.6 Benefit cost ratio........................................................................................................35

6.7 Internal Rate of Return............................................................................................36

6.8 Net present value........................................................................................................36

7 CONCLUSIONS AND RECOMMENDATIONS...........................................................39

Conclusion..............................................................................................................................39

Recommendations................................................................................................................40

[2]
1 Executive Summary

Key Information Highlights

Project Owner Mr Ahmed Hilal Zayed Mohamed
Project Title Mixed Use Building

Owned Land 4000 M2

Project Area Adama, Gende Gara
Production Capacity Basement and G+4
Products To Be Manufactured Rental Rooms
Market Domestic And International Service Demanders
Cost of The Project 112,317,863
Equity Contribution 52,317,862.50
Required Finance For First Phase 60,000,000.00
Project Life 10 Years
Number of Working Days 365 Days
Financial Viability ( At 15% Discount Rate )
Npv (Net Present Value) 74,296,875 Birr
Irr (Internal Rate of Return) 26%
Pbp ( Pay Back Period) 7 Year And
Socio- Economic Benefit

22
Permanent Job Opportunity
Tax income to the Gevn.t @ initial
6,587,932
year
Analysis Result
The Project is Technically Feasible, Financially and Commercially Viable as Well as
Socially and Economically Acceptable. Hence, The Project as Worth
Implementing/Financing.

[3]
2. Introduction

2.1 General Background

The construction industry plays a vital role for the overall socio-economic development

of a country. The current fast and dynamic economic growth of Ethiopia especially in

Adama necessitates equivalent growth of building and construction sector. The sector

should expand rapidly to support the overall economic development sustainable.

In the building sector of the economy, the multi- purpose is the one becoming rapidly

expanding in the country in General and Adama in particular since dynamic economic

development of urban economy requires the construction of these buildings in the city

to support the growing of business service sectors like supermarkets, Beauty salon,

shops, offices cinemas, Computer Center, Cafeterias, restaurant, assembly hall,

apartments and other activities. In this regard, mixed used building expands in the all

parts of the city.

Investment and property development play an important role in any emerging markets or

economies. Property generally comprises residential houses and commercial real estate

property (mainly mixed us building) and real states developed for rental business and

sale. The property investment market in Ethiopia remained under developed for several

years. As a consequence, the supply of residential houses and non-residential real

estate that can be used for residence, office space, shopping malls and catering

services in the urban centers of the country is disproportionately low to cope with the

growing demand in the country spinning from the average growth in GDP of 5.5% over

the last ten years and population increase. The relatively good performance of the

macro-economy (real growth in GDP, low inflation rate and growth in investment and

export sector) has stimulated unprecedented investment growth in the property sector

[4]
over the last five years. The growth of investment in the property market over the last

five years in consistent with the global experience suggesting that investment in the

residential and commercial property is greatly influenced by the performance of the

macroeconomic conditions. In general, a stable macroeconomic condition leads to

economic and business growth and develops investors’ confidence. This certainly spurs

large demand in the property market for office space, shopping malls, catering services,

apartment and residential houses. Following growing demand trends, and with the

expectation of high return on their investment capital, large number of land developers

pooled their financial resources and invested in the property market. Besides, the

government policies and incentives for the private sector investment are very promising

that motivates the promoter to engaged in mixed use building business.

To this effect, the owner Ahmed Hilal Zayed Mohamed started the construction of

mixed use building in Adama, accordingly, the construction stage is under G+1. It is now

undertaken this project study to check the market, technical and financial feasibility of

project to get financial support from local financial institutions. The owner planned to

complete the construction of this mixed building in two Phases and for now it needs

financial support to complete the first phase which is up to G+2. The owner is very

ambitious and committed to realize the project if financially supported.

[5]
2 Project Objectives

2.1 General Objective

The major goal of this project is to contribute towards the growth of the trade sector

in Adama City. Its specific objectives include the following.

2.1.1Specific objective

 To construct and develop modern shops, offices, and restaurant& cafeteria facilities

that enable to provide standard services to customers.

 To undertake trading and other refuted business activities that enable to generate

a reasonable to the invested capital.

 To develop modern business center that would provide full services on city standard.

 To create employment opportunities.

 Contribute towards the beautification of the city through the construction of

modern building infrastructure and facilities.

 To establish economically viable, socially acceptable and environmentally friend

mixed use Apartment.

2.3 Project description

The long-term goal of the project is become the best choice trade center in the city.

The project has a total area of 4000m2, designed to reader a multipurpose giving

business, which will in turn plays significant role towards solving shortage of business

center in city. The owners start the project to render banking and insurance, shopping

facility, offices and cafeteria services to create high quality class to satisfy the

interest of customers in the city. Based on environmental and other considerations, the

entrepreneur has determined the type and size of the building which is already

determined by the site; conceptual planning and preliminary analysis have been carried

[6]
out by analysts. In order to attract its clients to the service, the project will develop

high standard shop & banking rooms and office of best choices and will also save best

quality apartments, restaurant and café.

2.4. Project Rationale

The existing promising investment opportunities, the demands of service needs along

with relatively sound investment support made by the government in such kinds of

feasible projects, compelled the project promoter to initiate the multipurpose oriented

business project to be established. Despite the promising business opportunities of the

city, the trend on such kinds of investment found to not enough. The mismatch between

the demand for and supply of such kind of services in easily observed in the city.

Therefore, the existing shortage or absence in the supply of these services, along with

its commercial and administrative access, better location and infrastructure access,

escalating trend of urbanization and business activities, thus it is with such reason that

this project is identified and proposed and assumed to be more profitable. In general,

the country’s privatized and free market economy; good governance creates a favorable

environment for the development of investment for private investors.

2.5 The significance of the project

The envisaged project deemed to add to the economic development of the city in

general and in particular with following ways:

 Source of Revenue

As public policy of any nation, the government collects different forms of taxes from

different business organizations and individuals. Among the different forms of taxes,

business income taxes, payroll income tax and VAT are collected from undertaking

business activities. Therefore, the building will serve as sources of revenue for the city.

[7]
 Employment opportunity

One of the problems that our country faced is unemployment. Therefore, the current

objective of the government is working on tackling the problem of unemployment and

fostering the development process either through creating self employment or

employment in other organization. Hence, this project will hire 22 individuals for its

normal operation and the number will increase as the 2 nd phase of construction undergo.

2.6. Project Location

The granted and licensed land is located in Oromia Regional State, Adama City. The

total area of the project is 4000m 2 of which 3300m2 is covered by building and the left

is planned for open area and parking. The location is very accessible to give it service to

needy.

[8]
3 The market Study

3.1 Market Analysis

There are a number of factors which affects the demand of standardized mixed use

building. Of these factors, the most important to have influence is population growth

and the level of income. The currently expanding service industry in A demand from

different parts of the country the city has been inviting skilled and unskilled labor

forces to it and all the increase in the number of population increases for the provision

of different services. Nowadays, most of the private business organizations need their

own small-medium offices in order to give their services and provide their products, and

they prefer the place that found in the center or close to the road.

As clearly indicated in the introductory part of this proposal, Adama is dynamically

growing city. Though the market demand gap for mixed use building is not clearly and

figuratively understands, it is expected there is wider gap for such demand as many

merchants, organizations are flowing to the city every month and year. From prior

business experiences, the demand of mixed use building is very high and hence the

demand and the supply gap is very wide. One of the best indications for this demand is

that new mixed use building rooms fastly rented even before complete finishing of the

construction.

3.2 The Demand-Supply Gap

There has been a significant growth in the number of local and international trades

across the country. This increase is mainly associated with the stimulation of economic

activist and partly due to an increase in the flow of international and local traders in to

city. Since Adama is an important commercial center nearest to Addis Ababa in addition

[9]
there is a significant increase in business activates and hence increasing the number of

traders. Even though there is a lack of quantitative estimates that depict the actual

demand and also the annual growth rate, commercial facilities are scarce in the city. As

a result there is a large gap between the developed and that of the supply for modern

Bank and cafeteria accommodation hence this project would not face any problem of

demand scarcity for it business center and it would provide good service to customers.

3.3 Current supply of mixed use building

Commercial building/office sector has shown a dynamic change in the past few years.

The reason for this could be rapid economic growth and a supporting public

infrastructural development. Other factors relevant in the specific case of commercial

buildings are the large increases in national and international businesses, particularly

firms in the services sector.

The business of multipurpose buildings in Adama is increasing due to the recent rapid

growth experienced in Ethiopia. As a result, a good number of local and international

organizational are coming in place. Government offices which used to operate in limited

spaces all over the city are also concentrating on leasing new and modern buildings.

Increasing numbers of international organization which in the past had typically

converted residences into office space are now moving towards renting whole floors or

even multiple floors in modern city-center commercial buildings.

3.4 Future market or Demand of commercial Building rental

The demand for office space is a derived demand because firms rent space as an input

to the production of services or goods they provide to businesses and households in the

local or national economy.

[10]
Office space users in several areas are mainly firms providing banking, offices,

cafeteria and restaurants, supermarkets, computer center service. Future demand for

office space is actually driven from growth in number of offices in the city which in

turn is influenced by the macro-economic growth in the country. Assuming that demand

for office space is directly related to the growth in the economy, the forecast for

office space demand is shown in the following table;

Table 1: Office Space Demand

Office space demand under base case Office space demand under high
economic case economic
Years Growth Growth
2010/2011 9,916,543 11,304,859
2011/2012 11,007,363 12,057,416
2012/2013 12,218,173 12,953,878
2013/2014 13,562,173 13,963,577
2014/2015 15,054,011 14,554,534
2015/2016 16,709,952 14,987,431
2016/2017 17682233.54 15,859,486.32
2017/2018 18711088.03 16,782,282.85
2019/2020 19799807.23 17,758,773.01
2020/2021 20951874.39 18,792,081.02
2021/2022 22170975.48 19,885,512.85

Source: acadamia.edu.com

3.5 Target customers

The target customers of this envisaged project include:-

1. Business Community

2. Business organization

3. The government bureau

4. Non-governmental organizations

[11]
3.6 Marketing promotion and strategy

In order to penetrate and gain considerable market share, one of the major marketing

strategies for the project is consistently rendering quality service to its tenants. Due

emphasis must be placed on improving quality of service and facilities. The major

marketing strategies to promote the project and gain considerable market share

include:

 Advertising through different means focusing on the existing service and

facilities

 Promote in association to the key location and nearby business

 Working on sustained promotional work.

 Working on public relations to reach and influence key personas and organization

with a capacity of making decision.

 Keeping the quality of its service/ facilities and consistently improving with

changing situations.

 Seasonal discount pricing different others customer centric marketing

strategies will be used by the company.

3.7 Competition

There are different forms of competition that may face the envisaged mixed use

building. These are price and non-price based competition. Moreover, there are

different competitors that will compete with the project either directly or indirectly.

But the mixed use building under discussion has diversified marketing strategies that

could enable it Cope up with the different competitors in the market. Moreover it will

frequently conduct competitors research which focuses on, the strength and the

[12]
weaknesses, the different competitors’ strategies, the techniques they use in rendering

the service, their customer handling methods, and others. Generally the project has

competitors all over Adama which compete with it.

3.8 The project facilities and Services plan

In order to provide mixed use business center building services of a high standard, it

has been planned to construct and develop the infrastructure and facilities that would

viable to meet the requirements of both national &an international standard business

center. Accordingly, various buildings and facilities will be constructed phase by phase

starting with the most needed ones that are essential to commence the operation of its

business activities. With the completion of construction, the building will provide a

combined service such as shops, offices, restaurant and café service as well as modern

business center that primarily serve its guests and major clients.

Table 2: The plan

Aviale b Unit price

annual re ntal
Building De scription le M2 month/ m2 Remark
income
for re nt or hr
Basement Parking and store 1000 3 1,236,000.00
Banking, Insurance, Supper
Phase I construction
Ground market and pharmacy 3300 500 19,800,000.00
plan
Resturant, Beauty Salon, Shops,
1st- second floor Computor Center and cafteria 3300 390 15,444,000.00
Phase II
3rd- 4th floor Office and apartama Construction plan
Tota 36,480,000.00

Since the project will be engaged in mixed building the main sources of its annual

revenue would be from the rental of building spaces such as shops, offices, and banking,

café and restaurant. Therefore, the sources of revenue have been classified in to one

[13]
category namely the rental of banking and supermarket, offices, shops, bedrooms

restaurant and café based on these classifications. Based on the market price of similar

mixed use building in the area, the envisioned buildings set the above fair price (Before

VAT) for its service, hence when the building construction fully get operational it is

assumed to generate a yearly income of ETB 36,480,000.

[14]
4 Technical Studies

4.1 Description of the project Service

The envisioned mixed purpose building will provide different rental services to the

different customer groups for different purpose. The building will have ground and

twelve floors. The purpose of the building explained as follows;

 The ground floor, first floor second floor designed for different business centers

like banks, supermarket, beauty salon(man and women), Computer center, pharmacy,

internet café, boutiques, different shops and other business activities,

 3-4 is designed to use for offices and other residential house

4.1.1 Land Use Plan

The total land required for the envisioned project is estimated to be 4000m 2. The total

area for the construction of the building will be 3300m2, as revealed below.

Table 3: land utilization Plan

Land M2
No Description
Basement Ground First floor-
1 Building (G+4)
1 Ground 3300
1 First floor-fourth floor 3300
Total 3300

[15]
4.2. Construction work and Technology

4.2.1 Construction schedule

The construction of this mixed use building is already started. Accordingly it is raised

up to G+1. However, the promoter wants to complete the first phase of the construction

and start to rent the spaces. Hence this work needs completing the building at least up

to G+2 and finalizing Ground, G+1 and G+2 and make ready for rental purpose. The first

phase is expected to be finished on Sept, 2023. As seen in the construction schedule

below, a majority of the schedule’s time is made up of five major activities; concrete,

building Enclosure, masonry, mechanical and Electrical install.

SN Activities Date Remark

1 Land request processing Already Done

2 Land approval Already Done

4 Site Development Already Done

This
3 Bank loan processing Mar-23 Construction
Schedule is only
5 Building and construction work up to March, 2023-Sept 2023
for Phase I
G+2

6 Preparation for service Nov, 2023

7 Service execution Dec, 2023

4.2.2 Architectural Design & Layout

Although functional spaces for the project were laid out in significant detail, the rest

of the building had designated spaces but set layouts. It was at the discretion of the

project promoter to devise typical layouts for the non-detailed commercial and office

spaces. To make sure that the building’s layouts were practical, the project owner

[16]
researched typical architectural layouts for laboratory and executive office spaces.

The walls and partitions throughout the floor will congruent with the structural frame

and column locations.

4.2.3 Structural design

One of principle deliverables of the project is the structural design of the building. The

structural bays were coordinated with the layout of the building adjustments will be

made to the bays if specific layouts are necessary. The frame will be made up of a grid

with repeating standard structural bays. Included in the structural system are bay

sizes, shape and size of structural members, floor compositions and curtain walls. These

elements were established to resist gravity ad lateral loads as appropriate.

The gravity load design will completed for two frames; one of structural steel and one

of reinforced concrete. The structural steel frame will chosen for further design based

on cost per square foot, local availability of material and constructability

considerations, such as erection and fabrication. The steel system will then designed

for lateral loading with necessary adjustment being made to framing.

4.2.4 Reinforced concrete

The project group prepared hand structural design calculations for a typical bay of a

reinforced concrete frame. In all reinforced concrete bay designs, a superimposed dead

load of 8 pounds per square foot will be assumed for mechanical equipment, floor

coverings and ceilings.

Similarly, the design of the typical bay accounted for the use of different commercial

space, in which a live load of 1000 pounds per square was assumed. Loads will be

calculated based on the requirements of the minimum Design loads for Buildings and

other Structures.

[17]
4.2.5 Foundation Design

The design of a superstructure may be accurate, have considered all possibilities and

still fail because the substructure is incapable of distributing the applied loads to the

supporting soil. Foundation design takes more into consideration than merely the loading

from the columns. While the main part of the project focused on the structural frame

and its alternate designs, a preliminary foundation plan was designed based upon

maximum load carried from the superstructure through the columns. The foundation

design conducted by the project team consisted of the selection of foundation type,

determination of the bearing capacity and the design for typical interior and exterior

spread footings.

4.2.6 Construction Plan and process

The construction process for this project is normally a disjointed three mages

development by which the conceptualized need of the promoter of this project is

translated into a functional facility that will meet their needs in terms of time, cost and

quality. Based on a general program of the project owner the consultant who is going to

be hired makes site studies, develops structural designs, prepares drawings and

specifications, determines quantities involved and estimated the resultants costs. All

these activities have been done in the first phase of the project. After all study

completed the construction has been started and ground and first floor is already

erected.

4.3 Utilities

A number of utilities world be put in place in order to ensure smooth functioning of the

project. These utilities include:

[18]
Table 4: Utilities

Annual
No Description Unit cost Cost (Birr)
consumption

Electricity supply,
1 kW 182,500 1.65/KW 301,125

2 Water Supply m3 73,000 15/M3 1,095,000

Telephone and
Internet
3 Broadband     80,000
  Total     1,476,125

The project is expected and estimated to consume a total of 182,500 kw Electric power

yearly with the cost of Birr 301,125. Furthermore, it is also estimated that will

consumed up to 73,000M2 water annually which will cost the project Birr 1,092,000

[19]
5. Engineering and civil works

5.1 Land, Building and Civil Works

The Mixed use building has a total site area of 4000m 2. Of which 3300M2 is

covered by construction. The construction cost is given on Table 5.

Table 5: List of Building and Civil Works and Their Costs

S.N Description of works Total Cost in birr Remark

1 Building construction 107,486,000.00

2 Site Development 1,000,000.00 Phase I

Construction
3 Design and supervision 1,500,000.00 Cost
1st Year land lease & (10%) 14000
4 down payment
  Total 110,000,000

As shown on Table 5, the total cost of building and civil work is estimated at Birr

110,000,000 and out of which the proponent has worked more than birr 50 million.

5.2 Manpower and training requirement

5.2.1 Manpower requirement

The list of manpower and the annual cost of labor is indicated in Table 6.

Table 6: Manpower Requirement and Annual Labor Cost

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S Position No Qualification Monthl Annual
N y salary in
salary Birr
in Birr
1 General manager 1 BA in management 15,000 180,000

2 Building admin 1 BA in Acct/Mgt 7,500 90,000

3 Secretary 1 10+2 in secretariat science 5,000 60,000

4 HRM Officer 1 10+2 in HRM/Management 8,500 102,000
5 Technical and 1 Diploma in building 6,500 78,000
maintenance manager maintenance
6 Finance head 1 BA in Accounting 9,000 108,000
7 Accountant 1 Diploma in accounting 6,500 78,000

8 Guards/Security 4 Basic 2,700 32,400

9 General Service head 1 Diploma in Management 6,000 72,000

10 Purchaser 1 Diploma in purchasing &Sup 3,500 42,000

Mgt
11 Electrician 1 10+2 in general electricity 4,000 48,000
12 Plumber 1 10+2 in general mechanic 3,500 42,000
13 Casher 1 10+1 in bookkeeping 3,500 42,000
14 Cleaner 5 Unskilled 2,500 30,000
15 Maintenance officer 1 10+2 in General mechanic 4,000 48,000
  Total 22     1,052,400
  Benefit (25%)       263,100
  Grand Total       1,315,500

[21]
5.2.2 Labor Availability

Workers for this type of plant are available throughout the year. No foreseeable

problems are expected as most of the work requires no previous skills.

5.4 Organizational Structure

5.4.1 Organization and management

Organizational Structure

The organizational structure of the project is designed by including all the

necessary personnel under the right division. At the top of the organizational

structure, there will be manager with the responsibility of supervising the overall

activity of the building. Depending up on the nature of the center and the amount

of work to be performs; there exist auxiliary units under the general manager.

Employees under each unit will be supervised by the department head that is

accountable for the general manager. General Manager is appointed by the owners

As clearly shown in the organizational structure, the center organization has one

general manager and three main sections. Under the general manager there are

the, Marketing Department, Maintenance and Building administration department.

Under building admin dept there exist two sections i.e., HRM & finance and general

service. Further sub sections are also organized under technical and maintenance

manager. The following section deals with the duties and responsibilities of each

department

A. The General Manager’s Duties and Responsibilities

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 He/she will plan, organize, direct and control the overall activities of the

building.

 He/she will devise policies and strategies that will enable the center to be

profitable.

 He/she will incorporate modern technological innovation that will facilitate the

service delivery of the building to increase customer’s satisfaction.

 He/she will plan, organize, direct and control the human and non-human

resources of the building so as to achieve the short and long run objectives of

the organization.

B. Building Administration Department

The building Administration Department of the multipurpose building has two main

sections (HRM and Finance and General Service section). It has responsible for

undertaking the following activities;

 Manage the human resources and control employee’s activity

 Well non human resources of the project, which include; effective handling

of the different resources of the building, and devise strategies of

controlling against fraud and damage.

 Will provide the right material or inventory to the center with right price at

the right time.

 Will plan, organize direct and control the financial transaction of the

building by using all the necessary documents.

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  Accountant and casher that will collect money from the customers.

 Will develop sound financial control system by developing modern financial

control systems.

 Will prepare the annual financial statements and prepare condensed reports

for both the General Manager and other concerned government body.

 Follow the overall status of the business and provide maintenance and repair

services

C. The marketing Department

 Will handle the overall marketing activities of the organization which

include planning, organizing, directing, and controlling.

 Will develop the marketing strategies for future multipurpose building

development

 Will develop effective customer handling strategies.

 Execute the promotion methods.

D. Technical and maintenance manager

 Will handle the overall physical maintenance and related issues

 Will make sure electricity and back up is organized.

 Follow up security issues and educate tenants

[24]
  Works in collaboration with general service to make sure tenants are well

served

Figure 1.organizational structure

5.6 Financial Requirement and Analysis

The financial resource is a prime resource for undertaking any activities. Hence

for implementing this mixed use building a total of 112,317,863 ETB is required.

From this 47% 52,317,862.50 birr will be covered by the promoter of the

project while the rest 53% (60,000,000.00) will be covered through loan from

bank at the prevailing interest rate.

[25]
Therefore the said amount of finance is needed for undertaking the following.

5.1 fixed Investment

A. Land, Building & Construction

S.N Description of works Total Cost in birr Remark

1 Building construction 107,486,000.00

2 Site Development 1,000,000.00 Phase I

Construction
3 Design and supervision 1,500,000.00 Cost
1st Year land lease & (10%)
14000
4 down payment
  Total 110,000,000

B. Building Machineries and Equipment

SN Description Measuremen Qty Unit cost in Total cost

t Birr in Birr.
1 Generator Unit 1 400,000.00 400,000.00
Carpentry tool
2 Set 1 75,000.00 75,000.00
box
Electrician tools
3 Set 1 300,000.00 18,500.00
box
4 Plumber tools kit Set 1 400,000.00 12,300.00
5 Fire extinguisher Unit 3 75,000.00 225,000.00
6 Elevator Unit 1 1,500,000 750,000
Total 1,480,800

C. Office Equipment

For the purpose of building machinery and related equipment’s the project needs

Birr 1.4M

[26]
 SN Description Measurement Qty Unit cost in Total cost in
birr Birr
1 Managerial tables Unit 1 18,000.00 18,000.00
2 Managerial chairs Unit 1 25,000.00 25,000.00
3 Office table with Unit 5 7,000.00 35,000.00
chair
4 Secretarial table Unit 1 8,000.00 8,000.00
with chairs
5 Computer with Unit 1 35,000.00 35,000.00
chairs
6 Shelf Unit 1 9,500.00 9,500.00
7 Filing cabinets Unit 1 12,000.00 12,000.00
8 Guest chairs Unit 2 5000 10,000.00
9 Fax & Telephone Unit 1 18,000.00 18,000.00
machine
Total 170,500.00

The mixed use building need Birr 170,500 to cover cost of office furniture and

equipment that will be used for administration and managerial purpose.

D. Operating Expenses

SN List of Items Annual cost in birr Assumptions Used

1 Audit and legal fee 180,000.00 15000 br/per ,month

2 Stationery supplies 60,000.00 5000br/month

3 Promotional Cost 200,000.00 annual

4 Property Insurance 825,000.00 .75% of the building

5 Cleaning Supplies 150,000.00 5*2500br. Per month

6 Water consumption 1,095,000.00 73000 m3 by 15 br

7 Electric 301,125.00 182500KWH By Br.1.65

consumption
9 Telephone & fax 96,000.00 8000 month
10 Repair expense 2,200,000.00 2% of building cost
11 Miscellaneous 180,000.00 15000 per month
costs
Total 5,287,125.00

The project needs birr 5.2M at its initial year for overall operational activity. This

expense is expected to be covered by owner/ loan at first year.

[27]
E. Working Capital

Project Year
Description Period
Initial year
A. Direct Cost    
Electric Consumption 1 month 25,094
Water Consumption 1month 91,250
Sub Total   116,344
B. Indirect Costs  
Wages and Salaries 1month 109,625
Audit and legal fee 1month 15,000
Stationery supplies 1month 5,000
Promotional Cost 1 month 16,667
Property Insurance 1 month 68,750
Cleaning Supplies 1 month 12,500
Water consumption 1month 91,250
Electric consumption 1month 25,094
Telephone & fax 1month 8,000
Repair expense 1month 183,333
Miscellaneous costs 1month 15,000
Sub Total   550,219
Total   666,563

After determining the total initial year operational cost of the project the working capital

is determined to be for one month. Accordingly, the determined working capital of the

project at first year is Birr 666,563 which will be used for above listed purpose.

[28]
F. Summary of Total initial investment cost

Sr. Equity Total

Description Loan
No. contribution Investment
1 Building 51,837,063 58,162,938 110,000,000
Building
2 480,800 1,000,000 1,480,800
Machinery
Office
3 - 170,500 170,500
furniture
111,651,3
  Sub-total 52,317,863 59,333,438
00
Working
4 666,563 666,563
Capital
  Sub-total 666,563 666,563
60,000,000. 112,317,8
  Grand Total 52,317,862.50
00 63
Equity/Debt
  ratio 47% 53% 100%
As summarized above, the total Cost of the project is estimated to be Birr 112.3m

of which Birr 52M is already invested by the owner and the left Birr 60M is

additional fund expected from financial institutions.

[29]
6 Financial analysis

The financial analysis of this mixed use project is based on the data presented in

the previous chapters and the following assumptions: -

Finishing period 9 month for first phase

Source of finance 47 % equity

Debt finance 53 % loan

Commission 9%

Repair and maintenance 5% of equipment cost

Insurance .75% of the building cost

6.1 Repair and Maintenance Cost

The annual repair and maintenance cost of the Building is estimated based on the

following rates.

Table 8: Repair and Maintenance Cost

Item Rate
Machinery and equipment 5% of the total cost or Book
value
Building and civil works 2% of the total cost or Book
value
Utilities 5% of the total cost or Book
value

[30]
 In actual term the cost of repair and maintenance is calculated as follow

Rate
Descrpition Value (Birr) Cost (Birr)
(% )
Building/ Civil Works 110,000,000.00 2% 2,200,000
Machinery 1,480,800 5% 74,040
Total 111,480,800 2,274,040

6.2 Depreciation and Amortization

The following depreciation rates are applied to depreciate the assets of the

project:

 Buildings and associated Civil works 5%, linear to scrap Value

 Machinery and Equipment’s 10%, linear to scrap Value

In actual term the depreciation and amortization cost of the project is calculated

as follow

Depreciation Project Years

Description Original Value Rate %
Amount/annum 1 2 3 4 5 6 7 8 9 10
A. Depreciation
Building/ Civil 110,000,000 5% 5,500,000 104,500,000 99,000,000 93,500,000 88,000,000 82,500,000 77,000,000 71,500,000 66,000,000 60,500,000 55,000,000
Works
Machinery 1,480,800 10% 148,080 1,332,720 1,184,640 1,036,560 888,480 740,400 592,320 444,240 296,160 148,080 -
Office Equipment
170,500 10% 17,050 153,450 136,400 119,350 102,300 85,250 68,200 51,150 34,100 17,050 -
Sub Total 111,651,300 0 5,665,130 105,986,170 100,321,040 94,655,910 88,990,780 83,325,650 77,660,520 71,995,390 66,330,260 60,665,130 55,000,000
Total Annual
Deprci 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130

[31]
6.3 Total Revenue

Based on the projected profit and loss statement, the project will generate a

profit throughout its operation life. Annual net profit after tax increases from

Birr 36,480,000 at the beginning of the project to Birr 56,592,453 during the

last year of operation year. The detail is presented in as follow.

Aviale b Unit price

Building De scription le M2 month/ m2 re ntal income Re mark
for re nt or hr
Basement Parking and store 1000 3 1,236,000.00
Banking, Insurance, Supper
Phase I construction
Ground market and pharmacy 3300 500 19,800,000.00
plan
Resturant, Beauty Salon, Shops,
1st- second floor Computor Center and cafteria 3300 390 15,444,000.00
Phase II
3rd- 4th floor Office and apartama Construction plan
Tota 36,480,000.00

6.4 Discounted Payback Period

The payback period, also called pay–off period is defined as the period required

recovering the original investment outlay through the accumulated net cash flows

earned by the project. Accordingly, based on the projected cash flow it is

estimated that the project’s initial investment will be fully recovered within 7

year.

6.5 Cash flow

The projected cash flow of the envisaged project shows that the project would

generate positive net cash flows throughout the operation years. Cumulative cash

flow generated by the project towards the end of the first operation year will

amount to Birr 7,351,051. At the end of the project life, this amount will rise

to Birr 97,607,898. The detail is presented in the following table.

[32]
 Proejct Years
Description 0 1 2 3 4 5 6 7 8 9 10
Cash Inflows
Owner's Equity 52,317,863
Bank Loan 60,000,000
Net Profit 15,371,842 16,320,868 17,317,346 18,363,648 19,462,265 20,615,812 21,827,037 23,098,824 24,434,199 25,836,344
Depreciation 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130
Total Cash Inflows 112,317,863 21,036,972 21,985,998 22,982,476 24,028,778 25,127,395 26,280,942 27,492,167 28,763,954 30,099,329 31,501,474
Cash out Flows
Civil work 110,000,000
Building machinery 1,480,800
Office furniture 170,500
Working capital 666,563
Increase In worikng Capital - - 33,328 34,995 36,744 38,581 40,511 42,536 44,663 46,896 49,241
Interest free loan repayment 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000
Dividened/Withdrwal 50% 7,685,921 8,160,434 8,658,673 9,181,824 9,731,132 10,307,906 10,913,519 11,549,412 12,217,100 12,918,172
Total Cash Outflows 112,317,863 13,685,921 14,193,762 14,693,668 15,218,568 15,769,714 16,348,417 16,956,055 17,594,075 18,263,996 18,967,413
Net Cash Flow - 7,351,051 7,792,236 8,288,809 8,810,210 9,357,681 9,932,526 10,536,113 11,169,879 11,835,334 12,534,061
Cumulative Cash Balance 7,351,051 15,143,287 23,432,096 32,242,305 41,599,986 51,532,512 62,068,624 73,238,503 85,073,837 97,607,898

Retained earning 7,685,921 8,160,434 8,658,673 9,181,824 9,731,132 10,307,906 10,913,519 11,549,412 12,217,100 12,918,172
Commulative retained earning - 7,685,921 15,846,355 24,505,028 33,686,852 43,417,985 53,725,891 64,639,409 76,188,821 88,405,921 101,324,093

6.6. Profit and Loss Statement

A profit-and-loss statement is a company’s financial record documenting costs

incurred and revenues collected to determine the company’s profit for a specific

accounting period. According to projects profit and loss statement the project

will generate a profit of Birr 15,371,842 at initial year and Birr 25,836,344 at

the tenth year.

[33]
 Ahmed Hilal Zayed Mohamed
Projected Profit and/or Loss Statement

Proejct Years
Description 1 2 3 4 5 6 7 8 9 10
Rental Income 36,480,000 38,304,000 40,219,200 42,230,160 44,341,668 46,558,751 48,886,689 51,331,023 53,897,575 56,592,453

Direct Operating Costs 1,396,125 1,465,931 1,539,228 1,616,189 1,696,999 1,781,849 1,870,941 1,964,488 2,062,712 2,165,848

Indirect Operating Cost 5,287,125 5,551,481 5,829,055 6,120,508 6,426,533 6,747,860 7,085,253 7,439,516 7,811,492 8,202,066

Total Operating Costs 6,683,250 7,017,413 7,368,283 7,736,697 8,123,532 8,529,709 8,956,194 9,404,004 9,874,204 10,367,914
Gross profit 29,796,750 31,286,588 32,850,917 34,493,463 36,218,136 38,029,043 39,930,495 41,927,020 44,023,370 46,224,539
Less: Deprication 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130 5,665,130
Profit Before Interest & Tax 24,131,620 25,621,458 27,185,787 28,828,333 30,553,006 32,363,913 34,265,365 36,261,890 38,358,240 40,559,409
Less: Commision fee 9% 2,171,846 2,305,931 2,446,721 2,594,550 2,749,771 2,912,752 3,083,883 3,263,570 3,452,242 3,650,347
Profit before tax 21,959,774 23,315,526 24,739,066 26,233,783 27,803,235 29,451,161 31,181,482 32,998,319 34,905,999 36,909,062
Less: Profit Tax (30%) 6,587,932 6,994,658 7,421,720 7,870,135 8,340,971 8,835,348 9,354,445 9,899,496 10,471,800 11,072,719
Net Profit 15,371,842 16,320,868 17,317,346 18,363,648 19,462,265 20,615,812 21,827,037 23,098,824 24,434,199 25,836,344

when revanu decrease by 10% 32,832,000 34,473,600 36,197,280 38,007,144 39,907,501 41,902,876 43,998,020 46,197,921 48,507,817 50,933,208
income tax 5,493,532 5,845,538 6,215,144 6,603,230 7,010,721 7,438,586 7,887,844 8,359,565 8,854,872 9,374,945
when operating cost increas by 10% 7,351,575 7,719,154 8,105,111 8,510,367 8,935,885 9,382,680 9,851,814 10,344,404 10,861,625 11,404,706
income tax 6,387,435 6,784,136 7,200,671 7,638,034 8,097,265 8,579,457 9,085,759 9,617,376 10,175,574 10,761,681

6.7. Balance Sheet

A balance sheet is a financial statement that reports a company's assets,

liabilities, and shareholder equity. The balance sheet is one of the three core

financial statements. Accordingly the projected balance sheet statement of the

project indicates that the asset of the project will increase from Birr 112M to

Birr 153M at initial and last investment period respectively. The following table

clearly indicates the asset and liability of the project.

[34]
 Ahmed Hilal Zayed Mohamed
Projected Balance Sheet

YEARS
DESCRIPTION 0 1 2 3 4 5 6 7 8 9 10
ASSETS
CURRENT ASSETS
Cash - 7,351,051 15,143,287 23,432,096 32,242,305 41,599,986 51,532,512 62,068,624 73,238,503 85,073,837 97,607,898
Inventory 666,563 666,563 699,891 734,885 771,629 810,211 850,721 893,258 937,920 984,816 1,034,057
Total Current Assets 666,563 8,017,613 15,843,178 24,166,981 33,013,935 42,410,197 52,383,233 62,961,882 74,176,424 86,058,653 98,641,955
FIXED ASSETS
Building 110,000,000 104,500,000 99,000,000 93,500,000 88,000,000 82,500,000 77,000,000 71,500,000 66,000,000 60,500,000 55,000,000
Building machinery and equip 1,480,800 1,332,720 1,184,640 1,036,560 888,480 740,400 592,320 444,240 296,160 148,080 -
Office furniture 170,500 153,450 136,400 119,350 102,300 85,250 68,200 51,150 34,100 17,050 -
Total Fixed Assets 111,651,300 105,986,170 100,321,040 94,655,910 88,990,780 83,325,650 77,660,520 71,995,390 66,330,260 60,665,130 55,000,000
Total Assets 112,317,863 114,003,783 116,164,218 118,822,891 122,004,715 125,735,847 130,043,753 134,957,272 140,506,684 146,723,783 153,641,955
LIABILITIES & Capital
Bank Loan 60,000,000.00 54,000,000.00 48,000,000.00 42,000,000.00 36,000,000.00 30,000,000.00 24,000,000.00 18,000,000.00 12,000,000.00 6,000,000.00 -
Sub Total 60,000,000 54,000,000 48,000,000 42,000,000 36,000,000 30,000,000 24,000,000 18,000,000 12,000,000 6,000,000 -
CAPITAL
Owner's Equity 52,317,863 52,317,863 52,317,863 52,317,863 52,317,863 52,317,863 52,317,863 52,317,863 52,317,863 52,317,863 52,317,863
Retained Earnings 7,685,921 15,846,355 24,505,028 33,686,852 43,417,985 53,725,891 64,639,409.51 76,188,821 88,405,921 101,324,093
Sub total 52,317,863 60,003,783 68,164,218 76,822,891 86,004,715 95,735,847 106,043,753 116,957,272 128,506,684 140,723,783 153,641,955
Total Liabilities and Capital 112,317,863 114,003,783 116,164,218 118,822,891 122,004,715 125,735,847 130,043,753 134,957,272 140,506,684 146,723,783 153,641,955

6.6 Benefit cost ratio

The BCR is defined as the ratio of the sum of the project’s discounted benefits to

the sum of its discounted investment and operating costs.

When BCR > 1, accept the project

When BCR < 1, reject the project

When BCR = 1, be indifferent

n
Bt
 (1  r ) t
t 0
BCR  n
Ct
 (1  r ) t
t 0

[35]
 BCR is 3.5 and positive this indicates this project would return 3.5 birr in benefits

for each birr spent.

6.7 Internal Rate of Return

The internal rate of return (IRR) is an indicator of the efficiency or quality of an

investment. A project is a good investment proposition if its IRR is greater than

the rate of return that could be earned by alternate investments or putting the

money in a bank account. Accordingly, the IRR of the project after tax is computed

to be 26% indicating the viability of the project.

Ahmed Hilal Zayed Mohamed

Financial Internal Rate of Return

Working Total Cost

Fixed Asset Total Operating Net Benefit Net Benefit
Year Revenue Capital Initial Inv't. Replacement Total Costs Profit Tax Including
Recovery Benefits Costs Before Tax After Tax
Recovery Profit Tax
0 - 112,317,863 - 112,317,863 112,317,863 (112,317,863) (112,317,863)
1 36,480,000 36,480,000 6,683,250 6,683,250 6,683,250 29,796,750 29,796,750
2 38,304,000 38,304,000 7,017,413 7,017,413 7,017,413 31,286,588 31,286,588
3 40,219,200 40,219,200 7,368,283 7,368,283 7,368,283 32,850,917 32,850,917
4 42,230,160 42,230,160 7,736,697 7,736,697 7,870,135 15,606,832 34,493,463 26,623,328
5 44,341,668 44,341,668 8,123,532 8,123,532 8,340,971 16,464,503 36,218,136 27,877,165
6 46,558,751 46,558,751 8,529,709 8,529,709 8,835,348 17,365,057 38,029,043 29,193,694
7 48,886,689 48,886,689 8,956,194 8,956,194 9,354,445 18,310,639 39,930,495 30,576,050
8 51,331,023 51,331,023 9,404,004 9,404,004 9,899,496 19,303,500 41,927,020 32,027,524
9 53,897,575 53,897,575 9,874,204 9,874,204 10,471,800 20,346,004 44,023,370 33,551,571
10 56,592,453 1,034,057 55,000,000 112,626,511 10,367,914 10,367,914 11,072,719 21,440,633 102,258,596 91,185,878

IRR Before Tax 29%

IRR After Tax 26%
NPV Before Tax 101,830,206
NPV After Tax 74,296,875

6.8 Net present value

Net present value (NPV) is defined as the total present (discounted) value of a

time series of cash flows. NPV aggregates cash flows that occur during different

periods of time during the life of a project into a common measuring unit i.e.

present value. It is a standard method for using the time value of money to asses’

[36]
long-term projects. NPV is an indicator of how much value an investment or

project adds to the capital invested. In principle a project is accepted if the NPV

is non-negative. Accordingly, the net present value of the project at 15% discount

rate is found to be Birr 74,296,875 which is acceptable.

6.9. Loan repayment program

Commission fee 9%
Loan Amount 60,000,000
Payment Year 10
Number of
4
payment/year
Instalment 1,500,000.0

payment 0
6,000,000.0
Yearly Payment
0
Beginning Commissio Ending
Pmt. No. Payment Year Principal
Balance n Balance

60,000,00 54,000,00
Year 1 2024 6,000,000 2,171,846
0 0

54,000,00 48,000,00
Year 2 2025 6,000,000 2,305,931
0 0

48,000,00 42,000,00
Year 3 2026 6,000,000 2,446,721
0 0

42,000,00 36,000,00
Year 4 2027 6,000,000 2,594,550
0 0

36,000,00 30,000,00
Year 5 2028 6,000,000 2,749,771
0 0

Year 6 2029 30,000,00 6,000,000 2,912,752 24,000,00

[37]
 0 0

24,000,00
Year 7 2030 6,000,000 3,083,883 18,000,000
0

Year 8 2031 18,000,000 6,000,000 3,263,570 12,000,000

Year 9 2032 12,000,000 6,000,000 3,452,242 6,000,000

Year 10 2033 6,000,000 6,000,000 3,650,347 -

60,000,00
Total
0

For any project that implemented with partial finance of financial institution, it is

also common and interesting to schedule the period of loan repayment after the

commissioning and start of operation. With this regard the project is planned that

start repaying its loan borrowed from financial institution within 10 years starting

from 2024 G.C. The loan is planned to be paid quarterly/ four times per year and

Birr 6M yearly

[38]
7 CONCLUSIONS AND RECOMMENDATIONS

Conclusion

Besides, the government polices and incentives for the private sector investment

are very promising that motivates the promoter to engaged in mixed use building

business. The objective of this proposed feasibility study is primarily to facilitate

the entrepreneur with the investment information and provide an overview about

project. The proposed feasibility may form the basis of an important investment

decision and in order to serve this objective, the document covers various aspects

of Concept Development, Start-up, Production, Marketing, Finance and Business

Management.

The feasibility is based on the information obtained from various agricultural

sources as well as discussions with businessmen. For financial model, since the

forecast/projections relate to the future periods, actual results are likely to

differ because of the events and circumstances that don’t occur frequently as

expected.

[39]
Whilst due care and attention has been taken in performing the exercise, no

liability can be inferred for any in-accuracy or omissions reported from the results

thereof. It is essential that our report be read in its entirety with financial model

in order to fully comprehend the impact of key assumptions on the range of values

determined.

The project is accessible and has the necessary infrastructure such as road,

telephone, water and electric power. The proposed project clearly identifies all the

necessary equipment, inputs, management of the company and the required man

power. The highest authority in the project will be vested in the hand of the

owner. He will control the overall activities of the proposed project. Demand

projection divulges that there is high demand for feed production in the country.

Accordingly, the planned project is set to provide quality products in the area.

The proposed project possesses wide range of economic and social benefits such as

increasing the level of investment, tax revenue and employment creation for both

women and youths. It will have also environmental concerns to protect it by

planting trees around its working area and by utilizing environmental friendly raw

materials. Generally, the project is technically feasible, financially and

commercially viable as well as socially and economically acceptable. Hence the

project is worth implementing.

Recommendations

Financial sensitivity analysis shows that the project is highly sensitive to decrease

in sales revenue but relatively less sensitive to increase in raw material and

investment costs. Therefore, it is recommended that the company should give a

great attention for the possible reasons for sales reduction. In this case,

[40]
different mechanisms should be selected and implemented to increase sales/rental

revenue. In addition to this, the company should decrease its cost that lowers

profitability. The project must utilize modern promotional styles to capture the

planned market share. To do so, it has to design effective strategy to achieve this

plan.

Although, due care and diligence has been taken to compile this document, the

contained information may vary due to any change in any of the concerned factors,

and the actual results may differ substantially from the presented information. In

this case, any delaying to implement the project creates some problem on its

profitability as there is always change like change in price of services and goods,

cost of raw materials, customer’s preference and purchasing power etc. So, it is

recommended that investors should implement the project as soon as possible

before any social, economic and political change occurred.

Finally, it is recommended that every investor or entrepreneur in order to realize

its investment or innovation idea there should be credit service/financial support.

Hence, the project need Birr 60M to completed the first phase of construction in

order to start generating revenue partially. Therefore, it has to get mentioned

amount of financial support by collateralizing the building itself.

[41]