ETHIOPIAN CIVIL SERVICE UNIVERSITY/ECSU

DEPARTMENT OF PROJECT LEADERSHIP AND MANAGEMENT

Project Finance: Theory and Practice (PLMT 522)

GROUP ASSIGNMENT ON PRE-FEASIBILITY AND FEASIBILITY STUDY ANALYSIS

SECTION-2

NAME OF MEMBERS ID.No

1. Firaol Bekele………………………………………………………….ECSU2202775

2. Gabeyehu Chalchisa…………………………………………………..ECSU2202850

3. Genzebe Korra………………………………………………………..ECSU2202859

4. Haile Hanebore……………………………………………………….ECSU2203388

5. Israel Bekele………………………………………………………….ECSU2202819

Submitted To: Dr. Tarekegn D.

Submission Date: June, 2023

ECSU, Addis Ababa

Table of Contents
1. OVERVIEW ......................................................................................................................................... 1
2. MARKET ANALYSIS ......................................................................................................................... 1
3. TECHNICALANAYSIS ....................................................................................................................... 2
3.1. Planned Investment Items ............................................................................................................. 2
3.1.1. Machinery and Equipment .................................................................................................... 2
4. FINANCIAL STUDY ........................................................................................................................... 2
4.1. Financial Feasibility Analysis ....................................................................................................... 3
4.2. Source of Finance ......................................................................................................................... 3
5. SOCIAL ANALYSIS ........................................................................................................................... 4
5.1. Socio- economic benefits .............................................................................................................. 4
6. ENVIRONMENTAL IMPACT ASSESSMENT ................................................................................. 4
STRENGTHEN AND WEAKNESS ............................................................................................................ 5
FEASIBILITY STUDY TO OPEN PRIMARY AND SECONDARY SCHOOL ....................................... 1
1. OVERVIEWS ....................................................................................................................................... 1
2. MARKET ANALYSIS ............................................................................................................................ 1
2.1. Current Demand and Supply Gap ............................................................................................. 1
2.2. Project demand.......................................................................................................................... 1
3. TECHNICAL ANALYSIS ................................................................................................................... 2
3.1. Materials and Input ........................................................................................................................... 2
3.1.1. Raw Materials ............................................................................................................................... 2
3.2. Manpower & Training Requirement ............................................................................................. 2
3.2.1. Manpower Requirement ........................................................................................................ 2
4. FINANCIAL ANALYSIS .................................................................................................................... 2
4.1. Financial Evaluation ..................................................................................................................... 2
4.1.1. Profitability ........................................................................................................................... 2
4.1.2. Key Ratios Analysis .............................................................................................................. 3
4.1.3. Break-even Analysis ............................................................................................................. 3
4.1.4. Payback Period...................................................................................................................... 3
4.1.5. Internal Rate of Return.......................................................................................................... 3
4.1.6. Net Present Value.................................................................................................................. 3
5. SOCIO-ECONOMIC ANALYSIS ....................................................................................................... 3
STRENGETH AND WEAKNESS ............................................................................................................... 3

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PRE-FEASIBILITY STUDY TO UPGRADING BIAFI CONSTRUCTION PLC FROM G-V TO G-III

1. OVERVIEW
 Annually revenue 29,800,000 twenty nine million eight hundred thousand ETB.
 The legality of the company is explained.
 Status of the company is there
 Technological development of the company is briefed
Capital structure of company
The establishment means of company and its capital is discussed.
Country profile
It based on revivals of the country to the urbanization and economic revolution and also readies
itself as entirely international growth move on.
As a construction industry it focuses on socio-economic development without exclusiveness of
uneducated /unskilled person and also it plays its role in economic development of a country by
supporting the government as its financing of public service such as schools and health
institution among others. The contribution and share of the construction industry in GDP of a
country is explained. The contribution of construction industry regarding to the improvement of
the employment is gradually increasing and it has had significant share.

2. MARKET ANALYSIS
Strategies Pricing and Value
Pricing: - At this point there is a certain amount of price inelasticity in this service. Customers
are very sensitive to pricing changes. With the current level of competition the company must be
careful not to price themselves out of the market. On the other hand, if they offer additional
services they can open up other opportunities to increase income. Pricing will be reviewed on a
monthly basis.
Selling tactics: The Company’s marketing strategy will incorporate plans to promote line of
services through several different channels and on different levels of use. They plan to utilize
website as a selling tool: Advertising tools will utilize include brochures, catalogs, targeted
advertisements, internet, promotions, lead generation, lead referral and follow-up systems,
information gathering, and dissemination. To better reach the local market will meet with
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concerned stakeholders and major road infrastructure funding and supporting bodies to present
track record of success.

3. TECHNICALANAYSIS
Geographical Location and Accessibility
Input Requirement and Availability :-The major equipment’s which are standard criteria used for
the service of GIII road construction service are different RC excavator, Crawler; Grader Cat,
Roller Vibrator, Roller Vibratory, Cushier, Panel Framework and logistics supporting trucks and
Vans .
Based on Detail list of Ministry Of Urban Development and Construction (2013) requirements
reports the BIAFI Construction existing Machineries and planned investments for Machinery and
equipment for Upgrading to GIII road construction plc.
3.1. Planned Investment Items
3.1.1. Machinery and Equipment
Main machinery and equipment required for the up grading are Dozer, 200 HP, Loader, 1.6m3
Crusher, 60TPH, Grader, 100 HP, Roller, 16T, Dump Truck, 16m3, 4W Drive, Pick Up The total
cost of machineries and equipment of the company is estimated to be Birr 49,400,000.00. They
walk to GIII is feasible considering 49,400,000.00 birr committed investment on equipment and
machinery. The total planned investment is not more than 50% government standard requirement
of BIAFI company because of from 49,400,000bir the have only expenses 21,800,000 birr other
are under expectation of companies.

4. FINANCIAL STUDY
BIYAFI construction Plc. will be seeking birr 172, 500, 000 in additional funding to the total
paid up capital of birr 1,723,125.
This capital may come from either investor s or from additionally loan.
The additional fund obtained will be for working capital and advertising
By changing the way of pays its subcontractor and suppliers and collects payment from customer
the amount of need funds specified above may be reduced dramatically.
The BIYAFI construction yearly income summarized and displayed in table. Since its
establishment the company has registered significantly growth on cash flow. The average yearly
income growth from 2005 to 2009E.C is 66%. The growth of operating profit or growth profit is
62%.

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It is after 2005 EC the company registered significant and sustainable normal growth. The
average growth of net income before tax is 109%. The very strategic intervention must be
developed by the company is on the area of administrating the company administration cost
which significantly higher the operating equal to 207%.
4.1. Financial Feasibility Analysis
Assumption definition and notes
The company takes the world following assumptions in its financial feasibility analysis.
The inflation rate will be increased by 5%. Yearly income will grow 66%.
The registration cost a company to register G4 to G3 will be birr 76,000,000 to 225,000,000 the
company revenue base will increase by 11%.
Giant project will provide the company economy advantage and the company will reduce cost to
significant level equal to 30%. Robust national and local economy. The interest rate that remains
that basically unchanged.
Cost of sale will grow by 62%. Cost of administration expense will grow by 207%.
Contingency and miscellaneous expenses are set at 5% of total income.
The summary of BIYAFI construction income for 2010/ 2017 or 2018 to 2013(2021/2022) is
displayed by table. By adding 20% depreciation on 49,400,000 back to the above statement
company cash flow during the project period.
In its financial feasibility analysis the company consider
 the interest rate
 depreciation
 tax
 inflation
4.2. Source of Finance
The company’s sources of finance are bank loan and equity contribution to 50% loan and 50%
equity.
Expected Financial result
Profitability: - the projected profit loss statement is for the 10 years. It shows that will earned a
net profit of birr 26,000,000 during first year and 53,000,000 in the end of fifth year. These
imply that the project will run profitable business venture provided that all investments and
operational activities performed as planned.

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Liquidity: the cumulative net cash balance show a positive balances of birr 35,000,000 in the
first year which will increase to birr 63,000,000 at the end of the fifth year. It was indicating that
the projects will not liquidity constraints/its investment and operational cost while meeting its
debt obligation simultaneously.

5. SOCIAL ANALYSIS
5.1. Socio- economic benefits
The project will have different socio-economic benefit to the surrounding and to the country at
large.
Some of them are:-
Expected to new employment opportunity for at least 44 skilled and unskilled labor in the
first year.
The industrial sector plays a vital role for economic progress and transformation of
economic system. So the establishment of this project increases the share of sector to the
GDP and achievement of growth and transformation plan to the country.
The project plays equity distribution by providing income for unemployed labor and tax
to the government it will be used for development of infrastructure for further
industrialization.
It will serve the society by supplying quality of GIII road construction service and
important substitutions.

6. ENVIRONMENTAL IMPACT ASSESSMENT

BIYAFI construction Plc. has planned to be environmental friendly project from the start of
construction work to final service process. Thus, the company has to be cautious during the
construction phase of the construction with relation to dust that might affect the surrounding
residents as well as train the workers before the start of service to prevent occupational safety
hazards. Generally, the company needs to follow mitigation measures for the impacts that the
project might create. In addition, the project will result a very positive impact in utilizing the
readily available raw material, create employment opportunity, and supply the unsatisfied
demand of high grade road construction service. This project is environmentally sustainable

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STRENGTHEN AND WEAKNESS
Strength
The history of the company, capital structure of the company, country profile about the
construction industry and plan of the company are stated in the overview.
The contents (focused area) of the feasibility study (like market analysis, technical
analysis, financial analysis, socio-economic analysis and environmental analysis are
addressed and briefed by well-organized form.
The company set its goal i.e. to reach the advanced status (to upgrade its level)
The company studied the SWOT analysis and also PEST analysis to identity its obstacles
during the working the working time.
Weakness
o There is the duplication of idea or sub-titles. These are the socio-economic, environment,
technology have to be explained under their topic i.e. socio-economic analysis,
environmental analysis and technical analysis respectively, while they are explained in
two places in this document.
o The technical analysis are not full acceptable because of most machines are not owned
by the company, they are under bank and licensed and also under the expectation.
o Generally support systems are weak such as Purchasing, Finance, Human resource, Store
administrations
o Lack of enough asset ownership ( Equity Capital, Preference Capital, Retained Earnings,
Convertible Debentures and Venture Fund or Private Equity)

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FEASIBILITY STUDY TO OPEN PRIMARY AND SECONDARY SCHOOL

1. OVERVIEWS
The factor that increase the market demands of pre-primary education are new initiatives ,
accessibility, Mother tongue , parents participation and teacher education are highlighted under
the policy. And also the framework which was considered phenomenal in the history of pre-
primary education in the country national early childcare and education policy framework
(NECCEP) was endorsed and signed by focal minsters and affairs.
Following the policy and implementation strategic plan (MOE,2010), new initiative such as “O”
class in (school readiness program), child to child and accelerated learning readiness have been
initiated by the MOE in collaboration with UNICEFin the country and this is essence of increase
of demands.

2. MARKET ANALYSIS
2.1. Current Demand and Supply Gap
Based on the standard parameters acquired from the Addis Ababa Bureau of Education, it can be
concluded that there is a supply gap in education service facilities supply in the City to provide
education at acceptable level of standard. The analyses indicate that the supply of education
facility at kindergarten and primary level is short of the demand by 5.2%. In other words, the city
needs additional KG schools that may have 80 sections to achieve the required education quality
standard.
The supply gap of education facility at Primary level is 1,087 sections, and at secondary level.1,
024 sections. In other words, the city needs additional primary schools with 1,087 sections, and
secondary schools with 1,024 sections to achieve the required education quality standard.
Demand for primary and secondary school grows at annual average growth rate 2.9% which is
equivalent to the growth rate of population, the present (2008) supply gap of education facility at
primary level is 4843 sections, and at secondary level 3408 sections
2.2. Project demand
The demand level for schools from KG to primary level for the coming ten years is estimated
based the standard established by the Ministry of Education and the City population growth rate.
The demand for preprimary, primary and secondary and preparatory education will reach to
3340, 5789 and 4998 respectively.

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 3. TECHNICAL ANALYSIS

3.1. Materials and Input

3.1.1. Raw Materials

The major raw materials required for the envisaged service are sanitary materials (corrosive
agent, pesticides, bleaches, detergent, cleansers, polishes, sheet tight –fitting mattress made of
water proof, etc.). Most of the raw materials and inputs required for running of the kindergarten
and primary are locally available. The estimated annual raw and auxiliary materials cost at full
capacity is about Birr 36,000.
Utilities: The utilities required for the envisaged project are electricity and water.
3.1.2. Machinery and Equipment
The total machinery and equipment cost is estimated at Birr 513,700, which is totally required in
local currency.
The initial land lease rate ranges from Birr 1,167.3 to132.3 per m2 .Currently, most of the
educational facilities in Addis Ababa are located on the central business zones of the city.
Therefore, expansion zones are recommended as the best locations for the project. Accordingly,
the average of the land lease rates in the expansion zones which is Birr 183.8 m2 is adopted.
Moreover, advance payment of lease based on the type of investment ranges from 5% to10%.
3.2. Manpower & Training Requirement
3.2.1. Manpower Requirement
The plant will require 41 workers. The annual labor cost is estimated at Birr 729,750.
Training Requirement It is suggested to train teachers and assistant teachers for a period of three
month. The training will be given by one of the institutions available locally. The cost of such
training is estimated at Birr 50,000.

4. FINANCIAL ANALYSIS
4.1. Financial Evaluation
4.1.1. Profitability
Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax will grow from birr 800 thousand to birr 1.7 million
during the life of the project. Moreover, at the end of the project life the accumulated cash flow
amounts to Birr 13 million.

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 4.1.2. Key Ratios Analysis
Using the year-end balance sheet figures and other relevant data, the most important ratios such
as return on sales which is computed by dividing net income by revenue, return on equity (net
profit divided by equity) and return on total investment (net profit plus interest divided by total
investment) has been carried out over the period of the project life and all the results are found to
be satisfactory.
4.1.3. Break-even Analysis
The break-even point of the project including cost of finance when it starts to operate at full
capacity (year 3) is estimated by using income statement projection.
4.1.4. Payback Period
The projected cash flow is estimated that the project’s initial investment will be fully recovered
within 2 years.
4.1.5. Internal Rate of Return
The IRR of this project is computed to be 17.32 % indicating the viability of the project.
4.1.6. Net Present Value
The net present value of the project at 13% discount rate is found to be Birr 9.75million which is
acceptable.

5. SOCIO-ECONOMIC ANALYSIS
The project can create employment for 41 persons. In addition to supply of the domestic needs,
the project will generate birr close to birr 1 million in terms of tax revenue.

STRENGETH AND WEAKNESS

Strengthen
 It studied all about the country’s history education status of the generation in years.
 It gathered the recorded data from secondary source and institutions which related with
education and/or working on education.
 It addressed the contents of feasibility study viz. market analysis, technical analysis,
financial analysis, and social analysis (socio- economic) deeply.
 For overall, the study is focused on the identification of the gaps in education and
analyzed how to improve or fill the gaps.

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Weakness
o The overview of the study is not well organized and also it is vast and complex.
o The objective is not clearly set.
o It did not define the reserved demand.
o It did not point out the share of others about the present and future demand i.e. who
covered or will have to cover the rest of them.
o There is no environmental analysis.

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