PROJECT PROPOSAL FOR:

NORTH STAR INTERNATIONAL SCHOOL

PROJECT LOCATION:

MEKELLE

PROMOTER:

XXX PLC

April 2021
 EXECUTIVE SUMMARY

1. Project name: SeEB CHIZAW School complex (KG-Highschool)

2. Project Type : School complex (KG-High school)
3. Nationality: Ethiopian company owned
4. Project Owner: Awel Warga and Mohammed Kedir PLC
5. Project location: Mekelle, Hawelti or Hadinet sub city
6. Project composition: two Primary school Buildings (G+4) each , one High school
building (G+3), One library building (G+3), one Kindergarten building (G+0), one
administration building (G+0)
7. Premises Required: 10,000 m2 (total)
8. Total investment Cost: 175.4 million ETB is required from this amount 30% or
52.62 million ETB from owner equity and the rest 70% 122.78 million ETB from
bank loan.
9. Employment opportunity: 353 individuals on permanent 199 on casual basis at
construction phase and 154 at operational phase.
10. Social and Economic Benefit: provide better Schooling service, employment
opportunities, generation of income and benefits for the local area and people via
library.
11. The project is financially viable with an internal rate of return (IRR) of 22 % and
a net present value (NPV) of Birr 231.8 million discounted at 10%.
12. The project will provide better Schooling service, employment opportunities,
generation of income and benefits for the local area and people via the library and
also generates income for the Government in terms of tax revenue and payroll tax.

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 TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................................ ii

TABLE OF CONTENTS ............................................................................................................... iii
1. INTRODUCTION ................................................................................................................... 4
2. ENVIRONMENTAL STUDY ................................................................................................ 5
3. MARKETING STUDY ........................................................................................................... 6
4. TECHNICAL STUDY ............................................................................................................ 7
5. PLANNING ............................................................................................................................. 9
5.1 Land Use Plan ................................................................................................................ 10
5.2 Construction work and Technology ............................................................................... 11
5.3 Utilities ........................................................................................................................... 14
5.4 Project implementation .................................................................................................. 14
5.5 Administrative and organizational study ........................................................................ 14
6. FINANCIAL REQUIREMENT AND ANALYSIS.............................................................. 15
6.1 Fixed Investment ............................................................................................................ 15
6.2 Working Capital ............................................................................................................. 18
6.3 Total initial investment cost ........................................................................................... 20
6.4 Financial analysis and Statements .................................................................................. 21
6.5 Sources of Fund .............................................................................................................. 21
6.6 Financial evaluation ....................................................................................................... 22
7. ENVIRONMENTAL IMPACT OF THE PROJECT ............................................................ 23
8. CONCLUSIONS AND RECOMMENDATION .................................................................. 24
8.1 Conclusion...................................................................................................................... 24
8.2 Recommendations .......................................................................................................... 24
APPENDIX A ............................................................................................................................... 26
Financial Analyses Supporting Table ........................................................................................... 26

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 1. INTRODUCTION
Like any other business venture, opening a new school requires a feasibility study. The
requirements for opening a school are not exactly the same as those of other businesses, as many
other aspects must be taken into consideration. The success of a society is related to the success of
its schools. Schools are the institutions in which future leaders are produced for every walk of life.
These leaders can take the society to new heights of prosperity and development. The products of
schools are not commodities, but human beings and every individual is different. Due to the
commoditization of education, outcomes at different schools will significantly vary, as will the
quality of higher education, even if the degree offered is the same.

The owners of the proposed North Star international School in this feasibility study is “XXX PLC”.
These owners will handle all investment issues and are able to guarantee quality education by
providing the best services in the bethel area, Hawelti or Hadinet sub city which is the targeted
community in this project. The owners assigned the researchers to conduct this feasibility study
for their proposed project. North Star international School is intended to provide education to the
highest standard of academic excellence. This will be duly approved by the Tigray Education
Bureau, the licensing authority of school education in the selected area. The curriculum is expected
to enable individual students to utilize their full potential within a stimulating, secure, and caring
e4nvironment. There will be an age requirement for admission to any grade, as per the stipulations
of the Tigray Education Bureau. English language, and social studies will be included as a part of
the curriculum in all grades to comply with Tigray Education Bureau requirements. It is expected
that the proposed project will offer a range of job opportunities and adequate salaries, as well as
providing a reasonable profit to the owners. The targeted population is expatriates of various
nationalities, and local citizens of the city of Mekelle.

Attractive features of the school in addition to those mentioned above will include its location. The
school will be situated within the 10.000 m2 area. Thus, students will be able to receive high-
quality education at moderate fees in a prime location, and within the environment of nature, which
will be a good for many of them. The expertise available from the area will also help to ensure a
high-quality system. To ensure an ideal learning environment, the location of the school should be
carefully chosen to minimize traffic-related issues. It is recommended that the site be situated away
from high-traffic areas in the district of Mekelle, thus reducing the number of cars approaching
and departing during school hours, which can contribute to noise disturbances. A well-considered
location can serve as a key factor in attracting parents to enroll their children and ultimately
contribute to the overall success of the project.
In addition, many parents wish their children to be educated through English medium of
instruction. The project will have a large market, particularly in terms of the numerous children
living in Mekelle area. The study of this project has a good reason that supports it. We believe that
the key issues are identified in this study, and that the findings of the study can be viewed with a
good degree of confidence.

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 2. ENVIRONMENTAL STUDY
As progress in education is directly linked with the economic development of a country,
consequently, a highly-educated person will be offered a high salary, which in turn, will increase
the level of economic output of that country. This can be seen as a justification of investment in
education industry. Ethiopia has been witnessing dramatic changes in all sectors, including
economy, infrastructure, environment, social development, and so on. It gives a strong indication
that the investment climate is promising to attract new national and international investors.

A positive relationship between education and economic growth has been well established. For
this reason, private education is receiving great attention from the Ethiopian government. A large
portion of immigrants from different cities lives in Mekelle. The city provides them all sort of
safety, security and liberty. Thus, it is very important to provide those people with suitable
education for their children. Although there are many government schools for poor students, the
primary level of private schools still comprises a considerable number of students whose parents
want their children to master the English language and computers. For this reason, the Ethiopian
government is always trying to help and support the private education sector to prosper by
providing a stable climate and advice.

To have a well-equipped labor force available in the job market for the economic development of
the country, a constant updating approach and timely investment in infrastructure are needed in
the educational sector. For that reason, the Ethiopian government has already chalked out a plan
for educational development which is to be achieved by the end of 2030.

Education is an important sector in the economy. People who work in teaching represented 2.3%
of the total employed workforce in Ethiopia in 2012. The number of schools increased by 4.7% in
2011/2012, while the number of classrooms increased by 14% and the number of students by 11%.
The number of classrooms and students is growing faster than the number of schools (not including
colleges and other higher-education institutes), and there is strong evidence of a perceived demand
for new schools. Educational services are controlled by the private sector. Since the owner of the
proposed school is a public limited company, the school will legally be treated as a company.

In order to get a license for the establishment of a private school, the company must meet the
following requirements:
 The company must be a financially stable;
 The company must be registered with a competent entity; and
 The company must be able to meet all financial requirements
The proposed school location offers a strategic advantage by being situated away from the traffic
hazards prevalent in congested roadways, providing a safe and hassle-free environment for parents
and students alike. During the initial stages, the key stakeholders involved will primarily include
the owners and administrative staff of North Star international School, enabling streamlined

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decision-making and efficient implementation. Additionally, the school's commitment to
supporting its faculty members through education allowances for their children fosters a seamless
process, wherein tuition fees can be directly paid by the school.

Upon inauguration, North Star international School will be capable of accommodating

approximately 2100 students, catering to a diverse group of learners seeking quality education.
Addressing environmental and community service concerns stands as a core objective for leading
educational institutions, and North Star international School strives to play an active role in
achieving these goals. The success of a school is no longer solely measured by the standard of
education provided to students but also by the positive impact it generates within the community.
As an educational institution, North Star international School dedicates itself to nurturing and
maximizing human intellect, fostering an environment that empowers students to reach their full
potential.

3. MARKETING STUDY
Since the North Star international School will provide educational services to students, it is
considered to fall within the service sector, specifically education. As a private school in Mekelle
City, it will be categorized under general social services, with potential customers drawn from the
large number of children who wish to attend private, rather than government, schools. The North
Star international School target market will be the population of Mekelle City, Ethiopia. Students
will include both males and females, starting from the age of three up to 18. The school will be
open to all social classes and to people from all backgrounds. The type of education offered is
intended to satisfy this broad range of customers. The North Star international School will strive
to satisfy customer needs and demands through a set of activities known collectively as customer
services. The level and quality of education and services that the school management aims to
provide for its customers will be based on high customer service standards. Many companies claim
that customer services are their top priority, and clearly, without customers, there would be no
sales or profits. Services may therefore be as important in attracting customers and developing
sales as the cost and quality of the organization’s products are.

The school will hire a public relations officer from the area who will look after the publicity and
marketing areas of the school. Advertisements will be posted on the school’s website, Facebook,
and other social media for the following offers: free education to one sibling when at least three
are registered at the school; a 50% fee reduction for distinctive students; competitive fees; and
special discounts for low-income families.
There are plenty of competitors in the private educational sector in Mekelle. Taking this into
consideration, the school’s management will aim to overcome the competition by:
 Providing a variety of services. At the basic level, they will provide fair prices and high
quality. Quality is an important dimension of customer services and often determines
customer satisfaction.

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  Addressing the varied service needs of customers. In order to do this the school must
analyze, and adapt to, customer preferences. Attention to customer needs and desires is
crucial in increasing customer satisfaction. A school’s failure to provide the desired level
of services may result in a loss of customers.
 Developing measurable standards of services through which the school may examine the
service levels that competitors offer. The school should aim to match or exceed those
standards (or expectations) when the costs of providing related services can be justified.
This will enable the school to guarantee a high service performance that will attract
customers.
 Clearly communicating standards to both customers and employees, and enforce them
diligently.

4. TECHNICAL STUDY
Operations management in the school can be described as follows:
 Input: Admission to North Star international School will start from kindergarten. The child
must be three years old by Sept 11th of the year admission in which admission is sought.
The school will accept transfers from other schools to grades up to 12, taking into
consideration an admission examination.
 Process: By employing experienced teachers and providing different types of labs and
furnished classrooms, the school will provide students with the highest standards of
academic excellence. In addition, the students will obtain the knowledge, skills, and tools
they will need to meet the challenges of the future.
 Output: After taking their grade 12 examination at the age of 18, students will be prepared
for and can transfer to universities. Transfers for all levels in each academic year will
commence on July 13th each year. In all cases of admissions, process laid down by the
Ministry of Education will be adhered to. The last date of admission into lower
kindergarten and grade -1 will be on Sept 15th of each year, except in the case of transfer
from another school with a valid transfer certificate.

The North Star international School will initially provide two different levels of education:
primary and secondary. The primary level will be divided into three stages:
I. Early Years, i.e. kindergarten classes
II. Key Stage One, i.e. years 1 and 4
III. Key Stage two, i.e. years 5 to 8
The primary level will incorporate early learning goals and a baseline assessment, which is in line
with current Mekelle practices. The school will encourage children to achieve their best and
become independent learners. Care and tolerance for others will be fostered, along with an
understanding of making positive contributions to society and the world we live in.

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The secondary level will be divided into two Key Stages:

I. Key Stage Three years 9-10

II. Key Stage Four year 11-12

Specialized subject teachers and laboratory technicians will teach all subjects. Throughout the
primary and secondary school, a broad and balanced curriculum will be offered, which
encompasses the aims and objectives of the national curricula of Ethiopia. According to this
system, students at the age of 18 will sit for the 12th-grade exams. The school will place great
value on non-core subjects, such as music, art and physical education. It will encourage the use of
information technology wherever possible, and will have a suite containing a network of 60
Pentium computers. The school will encourage tolerance and respect for the individuality and
uniqueness of others, as well as fostering in students a desire to continue contributing positively
to society upon graduation.

Promoting a blend of traditional values, universal brotherhood, and progressive attitudes, the
school will prepare students to become active members of the global community. It will provide
opportunities for students to realize their all-round development through a rich variety of co-
curricular activities and school events. The school will serve the needs of a multicultural
community. Students from different backgrounds will learn and play together, and in doing so,
will learn how to co-exist in a cosmopolitan environment, which calls for understanding and
tolerance of differences.

The school will also provide a strong foundation for the development of leadership qualities in
pupils by involving them in a well-structured program that will help them learn how to take on
responsibilities and make important decisions. With a variety of co-curricular activities and a
holistic approach, the students will grow into outstanding, well-balanced, and competent
individuals who will be able to confidently face future problems with great ease.
The school will provide a solid academic foundation and a rich co-curricular program
complemented by a focus on four core values: global outlook, universal values, leadership
qualities, and critical thinking. These will be carefully blended as a part of the planned curriculum
from the kindergarten to the senior years, and will be woven throughout the fabric of school life.
In the modem age, it is vital to keep pace with the fast-developing human knowledge and modem
technology, and with continuously accelerating scientific achievements. This, in turn, emphasizes
the need for lifelong learning across all community groups and classes. It is of vital importance to
offer continuing education services in order to establish closer ties with the community. This also
constitutes a significant part of North Star international School’s mission; that is, to become a
leading institution that provides a high standard of education and a source of cultural and scientific
knowledge, and that is committed to undertaking the burden of educating and developing
individuals in all areas. Before starting any business, start-up costs must be met via investment.

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The school should immediately start to design and develop a website and obtaining the relevant
licenses and permits from the education bureau of Mekelle will cost 480,000 Birr.

To start operations, the school will need 28 classrooms for the students and 22 extra rooms for
other facilities. Although there is already land available in the premises, it will be necessary to
acquire more for construct buildings for the school is 105.8 million Birr, assuming the cost per
square meter is 6,400 Birr. 1,080,000 Birr will be allocated to purchase textbooks and stationery.
The school will need to spend an extra 220,000 Birr for learning resources, even though it already
has reference books. Prior to the first operating year, funds will be needed as working capital. A
sum of 1,224,000 Birr will be allocated for this purpose. The total estimated start-up costs will
thus be 175.4 million.

5. PLANNING
Planning for this business commenced on April 2021 and we intend bringing it to actual fruition
on the 1st august. 2023 (A month before the start of a fresh term). Within this period, logistics
have been collected, inquiries made as to the requirements for starting up a school. The school will
be owned by the two partners, while the human resource and academic aspects will be run by the
academic board. Sales division will run the sales and marketing and business/ investment arm for
the school. Our short-term business goal is to be a good and affordable service provider in the
education sector, make enough funds to reinvest in our school and develop it to the next level.

This also reflects in our long term business goal, and makes enough funds to veer into basic adult
education.

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 5.1 Land Use Plan
The total land required for the envisioned project is estimated to be 10,000m2.

Table 1 land utilization Plan

SN DESCRIPTION LAND M2

Basements Ground 1st - 4th TOTAL OF

3rd floor BUILDING
floor
1 Primary School Building 0 662 662 662 3310
1 (G+4)
2 Primary School Building 0 662 662 662 3310
2 (G+4)
3 Kindergarten (G+0) 0 1035 0 0 1035

4 Administration building 0 1439 0 0 1439

(G+0)
5 Library and Lab building 0 833 833 0 3332
(G+#)
6 High school building G+3 0 942 942 0 3768

TOTAL BUILT UP 16,194

AREA

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Figure 1: presents a 3D perspective showcasing the school buildings

5.2 Construction work and Technology

5.2.1 Construction schedule
The proposed construction project is scheduled to commence in August 2024 with an anticipated
completion date of September 2026. As evident from the condensed construction timeline
provided, the schedule primarily revolves around five crucial activities: Concrete, Building
Enclosure, Masonry, Mechanical and HVAC, and Electrical Installations. Concrete-related tasks
encompass foundational work and the placement of the slab on the deck. The Building Enclosure
Phase entails the assembly of scaffolding to facilitate the installation of exterior sheathing,
bricklaying, and aluminum works. Mechanical and Electrical installations are synchronized,
necessitating close coordination between these two divisions. Throughout the schedule, there are
periods when multiple construction activities occur simultaneously, enhancing overall efficiency.

The construction site must be organized accordingly as these processes take place. As with any
construction project, the goal of the schedule was to complete all construction activities before the
required Date of completion. This date of completion is practical based on the time of year in which
the building will be completed. The team allowed a two week contingency for any setbacks.
Typically, winter construction tends to cause unforeseen delays that negatively impact a
construction project. These conditions can and will almost undoubtedly impact the project schedule
by causing unforeseen delays and project inefficiency.

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Figure 2: 3D view of the secondary school building

Architectural Design & Layout

Although functional spaces for the project were laid out in significant detail, the rest of the building
had designated spaces. It was at the discretion of the project promoter to devise typical layouts for
the non-detailed landscaping. To make sure that the building’s layouts were practical, the project
owner researched typical architectural layouts for laboratory and learning spaces.

The walls and partitions throughout the floor were congruent with the structural frame and column
locations.

Structural design
One of principle deliverables of our project is the structural design of the building. The structural
elements were coordinated with the layout of the building adjustments were made to the columns
if specific layouts are necessary. The frame was 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 was completed for two frames; one of structural steel and
one of reinforced concrete. Reinforced concrete frame was chosen for further design based on cost
per square foot, local availability of material and constructability considerations, such as erection
and casting. The concrete system was then designed for lateral loading with necessary adjustment
being made to framing.

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Reinforced concrete
The project group prepared hand structural design calculations for a typical bay of a reinforced
concrete frame. In all reinforced concrete designs, a superimposed dead load of 800kN per square
meter was assumed for mechanical equipment, floor coverings and ceilings.

Similarly, the design of the typical bay accounted for the use of different school space, in which a
live load of 300 kilos per square meter was assumed. Loads were calculated based on the
requirements of the minimum Design loads for Buildings and other Structures.

Foundation Design
Since foundation design are site and material specific, the promoter is holding off on the design of
the foundations.

Construction Plan and process

The project team developed a coordinated project schedule and construction plans that would
reflect the expectations for an actual construction project. The project schedule was developed
using the preliminary designs given to the project team.
Additionally, the group considered typical construction activities and durations taken from similar
construction projects as well as realistic constraints on building development. For instance, it is
necessary for the structural frame to be completed before concrete can be placed for the slab on
deck. Hand drawn construction plans detailing site entrances and storage areas were coordinated
with the project schedule to give the reader visualizations of the construction site set up through
various periods of the construction process.

Based on a general program of the project owners 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 will be done in the first
phase of the project which is the design stage after the document are produced by the designers
have been received, and the works secured the project is supposed to enter the tendering stage. At
this stage contractors study the project document analyze and subsequently determine the
construction methods, built up their unit rates and submit their bids for the works. The promoter of
this project intends to compare the bids and award the contract for the lowest responsible bidder.
This, is of course, presupposes that the favorable proposal does not exceed the allocated budget.

After the award is made and the contract signed between this project owner and the contractor, the
project constructor is expected to prepare and submits a detailed construction program which
includes material schedule, manpower requirement and cash flow forecast.

After the award is made and the contract signed between this project owner and the contractor, the
project constructor is expected to prepare and submits a detailed construction program which
includes material schedule, manpower requirement and cash flow forecast.

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 5.3 Utilities
A number of utilities would be put in place in order to ensure smooth functioning of the project.
These utilities include:

 Water Supply,
 Solar powered offices
 Supplementary Electricity supply.
 Telephone line Internet Broadband
 Well landscaped areas
 Responsible waste removal
 Well thought about site arrangement

5.4 Project implementation

The project’s implementation is expected to take 24 months. The major activities include Bank
loan processing, construction of the building, cleaning the area around the building, Procurement
of equipment and start rendering services. The time schedule for the above matured major activities
is presented below:

Table 2 project Implementation schedule

SN ACTIVITIES Date
1 Land Request Processing April – Dec, 2024
2 Land Approval Dec 2024
3 Bank Loan Processing June-July 2025
4 Site Development July 2025
5 Building And Construction Work August 2025-December 2026
6 Preparation For Service January, 2026
7 Service Execution February, 2026

5.5 Administrative and organizational study

Based on North Star international School proposal, it will be implemented a three-tier management
system inwhich there will be a board of directors, a school principal, and teaching and non-teaching
staff. The board of directors will be led by the owner of North Star international School, who will
evaluate the performance of the school’s management and set the strategic goals of the school.

A highly-experienced person will be employed as principal, and will be given full authority over
the school, and a good salary to incentivize high performance. He/She will report to the board of
directors, who will evaluate his/her performance as principal. He/She will be responsible for hiring
an adequate number of teaching and non-teaching staff, and will follow up on the performance of

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all staff and the financial situation of the institution, and school services such as transportation,
catering, and maintenance.

In the first year of FULL functionality, North Star international School will appoint 75 teachers for
different subjects at maximum student capacity of 2100 students. A public relations officer will
also be hired; their main responsibility will be to deal and comply with officials and government
requirements, and he/she will also conduct advertising and marketing strategies. A counselor will
be hired to help resolve students’ problems and communicate with students’ parents in such a way
that they feel as though the school is a second home. Some courses will require demonstrations ina
lab, so two laboratory technicians will be appointed for practical experiments in the sciences and
using computers.

Other supportive staff, such as a secretary, an accountant, bus drivers, office assistants, and security
guards, will also be recruited. Teachers and all supportive staff will report to the school principal.
The owner of North Star international School will deal with all issues required for any project of
theschool and bear all expenses incurred in relation to this. As stated in the marketing study, the
school’s management expects initial registration of about 1100 students in the very first operating
year. If the average tuition fee is 7133 Birr per student, this will generate revenue of 29 million in
the first year. As shown in appendix A.3, at full capacity utilization, revenues will increase
accordingly.

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 500.4 million ETB is required. From this 30% 150.1 million birr
will be covered by the promoter of the project while the rest 70% will be covered through loan
from bank at the prevailing interest rate. Therefore the said amount of finance is needed for
undertaking the following.

6.1 Fixed Investment

A. Land, Building & Construction

Table 3 Land, Building & Construction

S.N Description of works Total Cost in birr(000)
1 Building construction 105,246,000

2 Site Development 248,000

3 Design and supervision 480,000

4 1st Year land lease & (10%) down payment 3,070,000

Total 109,044,000

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 B. Building Machineries and Equipment

Table 4 Building Machineries and Equipment

SN Description Measurement Qty Unit cost in Total cost in
Birr Birr.
1 Generator Unit 1 4000000 4000000
2 Playground equipment Set 1 444008 444008
Total 4,444,008

C. Vehicle

Table 5 Vehicle cost birr (000)

SN Description UOM Qty Unit Cost in Total cost in Remark

Fr. Birr

1 Mini-Bus Unit 2 3,550,000 7100000 Duty Free

2 Student bus Unit 1 3,400,000 3400000 Duty Free

Total 10,500,000

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 D. Office Equipment

Table 6 Office Equipment

SN Description Measurement Qty Unit cost in Total cost in
birr Birr
1 Managerial tables Unit 5 5200 26000

2 Managerial chairs Unit 5 3900 19500

3 Office table with chair Unit 15 2700 40500

4 Secretarial table with chairs Unit 5 2900 14500

5 Computer with chairs Unit 100 30000 3000000

6 Shelf Unit 32 7000 224000

7 Filing cabinets Unit 30 3000 90000

8 Guest chairs Unit 15 1800 27000

9 Fax & Telephone machine Unit 5 2600 13000

10 Carpet and Curtain LS 1 0

11 Class room chair and table Unit 2100 5000 10500000

12 printer Unit 5 700000 3500000

13 Laptop Unit 10 48400 484000

14 White board Unit 60 3600 216000

15 Books and teaching Aid LS 1 1080000 1080000

16 Laboratory Equipment LS 1 270000 270000

Total 19,504,500

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 6.2 Working Capital
6.2.1 Operating Expense at full Capacity

A. Salary Expense

Table 7 salary Expense

SN Position No Monthly salary in Annual salary in
Birr Birr
1 Administrator 5 17000 1020000

2 Nurse 3 12000 432000

3 Guard 15 6000 1080000

4 Accountant 4 15000 720000

5 Teacher 75 27000 24300000

6 assistant teacher 34 13000 5304000

7 Driver 4 10000 480000

8 Library assistant 10 11000 1320000

9 Library head 2 26000 624000

10 baby sitter 10 12400 1488000

11 chef 3 10000 360000

12 Custodial 20 7000 1680000

13 maintenance 6 9000 648000

14 Secretarial 8 9000 864000

Total 199 40,320,000

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 6.2.2 Operating Expenses
The annual operating cost at full operation capacity is estimated at Birr 33.8 million (see Table 10).
The cost of stationary account for 4% of the operating cost. The other major components of
operating cost are Labor direct (59.6 %). For detail production cost see Appendix A.2.

Table 8 Annual Operating Cost At Full Capacity (Year Two)

Items Cost %
Office stationary 2700000 4.0%
Utilities 802000 1.2%
Maintenance and repair 402400 0.6%
Labor direct 40320000 59.6%
Administration Costs 149000 0.2%
Land lease cost 1771875 2.6%
Cost of marketing 108640 0.16%
Total Operating Costs 46253916 68.4%
Depreciation 729000 1.07%
Cost of Finance 22119536 32.7%
Total Production Cost 67644450 100.0%

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 6.3 Total initial investment cost
The total investment cost of the project including working capital is estimated at Birr 87.28 million
(See Table 10). From the total investment cost the highest share (Birr 52.98 million or 60.7 %) is
accounted by Building and civil work cost followed by initial working capital (Birr 0.56 million or
0.66 %).

Table 9 initial investment cost

Local Foreign Total %

SN Cost Items
Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 3,070,000 3,070,000 1.75%

1.2 Building and civil work 105,974,000 105,974,000 60.42%

1.3 Machinery and equipment 4,444,008 4,444,008 2.53%

1.4 Vehicle cost 10,500,000 10,500,000 6%

Office, office furniture 19,504,500 19,504,500 11.12%

1.5 and equipment

Sub total 143,492,508.00 143,492,508.00 81.80%

2 Pre operating cost *

2.1 Pre operating cost 23,228,000 23,228,000 13.25%

2.2 Interest during construction 8,130,000 8,130,000 4.64%

Sub total 31,358,000.00 31,358,000.00 17.90%

3 Working capital ** 549,492 549,492 0.30%

Grand Total 175,400,000 175,400,000 100%

* N.B: Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc. and capitalized interest during
construction.

** The total working capital required at full capacity operation is Birr 3 million. However, only the initial
working capital of Birr 549,492 during the first year of operation is assumed to be funded through
external sources. During the remaining years the working capital requirement will be financed by funds
to be generated internally (for detail working capital requirement see Appendix .A.1).
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 6.4 Financial analysis and Statements
6.4.1 Underlying Assumption
The financial analysis of the mixed use building is based on the data provided in the preceding
sections and the following assumptions.

A. Construction and Finance

Construction period 2 Years
Source of finance 30% equity and 70 loan
Bank interest rate 10%

B. Depreciation
Building 3% after 5 year
Building machinery and equipment 10%
Office Equipment 10%

6.5 Sources of Fund

The source of fund to finance the project is planned to be from two sources. These are promoter’s
equity and bank loan. The loan is expected to be obtained from one of the local lending institutions.
Since the project is expected to take some times to repay all its debts, the bank loan is assumed to
obtain on long term credit basis. Taking the financial position of the promoters into account, equity
contribution and bank loan to finance the total investment outlays of the project are assumed to be
30% and 70% respectively.
Accordingly, the total financial requirement from the two sources willbe;

Table 10 Source of fund

SN Description Percentage share Amount in ETB

Owners Share 30% 52,620,000

Bank Loan 70% 122,780,000

Total 100% 175,400,000

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 6.6 Financial evaluation
6.6.1 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 17.87 million 36.07 million during
the life of the project. Moreover, at the end of the project life the accumulated net cash flow
amounts to Birr 340.1 million.
For profit and loss statement and cash flow projection see Appendix A.3 and A.4, respectively.

6.6.2 Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. 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 assets (operating income divided by assets), 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.

6.6.3 Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even point
for capacity utilization and sales value estimated by using income statement projection are
computed as followed.

Break- Even Sales Value = Fixed Cost + Financial Cost = Birr 35,902,703.6
Variable Margin ratio (%)

Break- Even Capacity utilization = Break -even Sales Value X 100 = 62 %

Sales revenue

6.6.4 Pay-back Period

The pay-back period, also called pay – off period is defined as the period required for 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 4 years.

6.6.5 Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate

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of return for an investment is the discount rate that makes the net present value of the investment's
income stream total to zero. It 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 this project
is computed to be 22 % indicating the viability of the project.

7. ENVIRONMENTAL IMPACT OF THE PROJECT

The EIA of the project activities was determined by identifying the environmental aspects and then
undertaking an environmental risk assessment to determine the significant environmental aspects.
The environmental impact assessment has included all phases of the project namely construction
phase and operational phase. The building has both positive and negative impact

The positive impact of the project is:-

 Generation of employment opportunity
 Source income for the government through business income tax
 Income generation for the promoter
 Being exemplary for other investors who want to engage in the same business line. Negative
impact of the project

The project has the following negative impacts:

1. Noise and Dust emission during Construction
There are some noises during the construction due to the construction operation and the
company will use construct the construction during the day time. Again there is the
emission of dust which will be mitigated by sprinkling water on the service.
2. Problem on workers on construction
During construction there are some problems that will materialize on workers. These are:
damage on operation by using machines, construction materials and others. To mitigate
such impact the company will provide safety insurance and safety equipment.

3. Swages during operation

During operation there are some wastes emitting from the school complex. These are
wastes from the latrine and will be mitigated by using modern waste treatment technology.

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 8. CONCLUSIONS AND RECOMMENDATION
8.1 Conclusion
 The current paper provides an initial feasibility study for setting up a private school in
Mekelle
 Mekelle economy has a promising investment climate, along with a relatively high income
per household
 The number of classrooms and students is growing faster than the number of schools. For
this reason, there is a demand for new schools.
 The project is expected to achieve a negative net income in the first four years; however,
this will become positive with a growing trend in subsequent years. The project will provide
positive cash flows from the fifth year of business activities.
 The NPV is decidedly positive at a discount rate of 10%. The internal rate of return is about
22%, which is very promising at almost twice of the weighted average of cost of capital.

8.2 Recommendations
 It is recommended that the proposal for North Star international School be accepted, since
all the analysis techniques suggest that it will be successful.
 Once the proposal has been initially accepted, a detailed feasibility study should be
conducted for the school.
 The Mekelle market can absorb new schools. It is advised that investors invest in the
profitable education sector.
 The feasibility study can be improved in further research by providing investment risk
analyses such as a break even analysis and decision trees.

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25 | P a g e
 APPENDIX A
Financial Analyses Supporting Table

Appendix 9.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Total inventory 112 179 224 224 224 224 224 224 224 224

Accounts receivable 646 1,033 1,292 1,292 1,292 1,292 1,292 1,292 1,292 1,292

Cash-in-hand 32 52 65 65 65 65 65 65 65 65

CURRENT ASSETS 790 1,264 1,580 1,580 1,580 1,580 1,580 1,580 1,580 1,580

Accounts payable 178 285 356 356 356 356 356 356 356 356

CURRENT
178 285 356 356 356 356 356 356 356 356
LIABILITIES
TOTAL WORKING
612 979 1,224 1,224 1,224 1,224 1,224 1,224 1,224 1,224
CAPITAL

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 Appendix 9.A.2 OPERATION COST ( in Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Office stationary 675 1,080 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350

Utilities 201 321 401 401 401 401 401 401 401 401

Maintenance and repair 101 161 201 201 201 201 201 201 201 201

Labor direct 10,080 16,128 20,160 20,160 20,160 20,160 20,160 20,160 20,160 20,160

Administration Costs 37 60 75 75 75 75 75 75 75 75

Land lease cost 493 493 493 493 493 493 493 493 493 493

Cost of marketing 27 43 54 54 54 54 54 54 54 54

Total Operating Costs 11,614 18,286 22,734 22,734 22,734 22,734 22,734 22,734 22,734 22,734
Depreciation 450 405 365 328 295 266 239 215 194 192
Cost of Finance 12,220.3 11,609.3 10,998.2 10,387.2 9,776.2 9,165.2 8,554.2 7,943.2 7,332.2 6,721.1

Total Production Cost 23,384 29,490 33,368 32,794 32,215 31,634 31,049 30,462 29,873 29,264

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 Appendix 9.A.3
INCOME STATEMENT ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
Sales revenue 29,040 46,464 58,080 58,080 58,080 58,080 58,080 58,080 58,080 58,080

Less variable costs 11,056 17,690 22,112 22,112 22,112 22,112 22,112 22,112 22,112 22,112

VARIABLE MARGIN 17,984 28,774 35,968 35,968 35,968 35,968 35,968 35,968 35,968 35,968
in % of sales revenue 62% 62% 62% 62% 62% 62% 62% 62% 62% 62%

Less fixed costs 12,778 12,206 11,620 11,009 10,398 9,787 9,176 8,565 7,954 7,343

OPERATIONAL
5,206 16,569 24,347 24,958 25,569 26,180 26,791 27,402 28,013 28,624
MARGIN
in % of sales revenue 18% 36% 42% 43% 44% 45% 46% 47% 48% 49%

Financial costs 12,220 11,609 10,998 10,387 9,776 9,165 8,554 7,943 7,332 6,721

GROSS PROFIT -7,014 4,959 13,349 14,571 15,793 17,015 18,237 19,459 20,681 21,903
in % of sales revenue 55% 54% 53% 58% 59% 59% 60% 60% 61% 61%

Income (corporate) tax -2,455 1,736 4,672 5,100 5,528 5,955 6,383 6,811 7,238 7,666

NET PROFIT -4,559 3,224 8,677 9,471 10,266 11,060 11,854 12,649 13,443 14,237
in % of sales revenue -16% 7% 15% 16% 18% 19% 20% 22% 23% 25%

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 Appendix 9.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in Birr)
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
TOTAL CASH INFLOW 82,611 30,019 46,571 58,151 58,080 58,080 58,080 58,080 58,080 58,080 58,080
Inflow funds 82,611 979 107 71 - - - - - - -
Inflow operation 0 29,040 46,464 58,080 58,080 58,080 58,080 58,080 58,080 58,080 58,080
Other income 0 0 0 0 0 0 0 0 0 0 0
TOTAL CASH
82,611 26,960 36,945 43,581 43,153 42,969 42,786 42,603 42,420 42,236 29,833
OUTFLOW
Increase in fixed assets 82,611 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 612.04 367.22 244.82 - - - - - - -
Operating costs 0 11,056 17,690 22,112 22,112 22,112 22,112 22,112 22,112 22,112 22,112
Marketing and 0 27 43 54 54 54 54 54 54 54 54
Income tax 0 -2,455 1,736 4,672 5,100 5,528 5,955 6,383 6,811 7,238 7,666
Financial costs 0 11,609 10,998 10,387 9,776 9,165 8,554 7,943 7,332 6,721 0
Loan repayment 0 6,110 6,110 6,110 6,110 6,110 6,110 6,110 6,110 6,110
SURPLUS (DEFICIT) 0 3,060 9,626 14,570 14,927 15,111 15,294 15,477 15,660 15,844 28,247
CUMULATIVE CASH 0 3,060 12,686 27,256 42,183 57,294 72,588 88,065 103,725 119,569 147,816

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 Appendix 9.A.5 DISCOUNTED CASH FLOW ( in Birr)
1 2 3 4 5 6 7 8 9 10

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

TOTAL CASH INFLOW 0

29,040.00 46,464.00 58,080.00 58,080.00 58,080.00 58,080.00 58,080.00 58,080.00 58,080.00 58,080.00
Inflow operation 0 29,040 46,464 58,080 58,080 58,080 58,080 58,080 58,080 58,080 58,080

Other income 0 0 0 0 0 0 0 0 0 0 0

TOTAL CASH OUTFLOW 82,611 8,628 19,469 26,839 27,266 27,694 28,122 28,550 28,977 29,405 29,833

Increase in fixed assets 82,611 0 0 0 0 0 0 0 0 0 0

Increase in net working capital 0 0 0 0 0 0 0 0 0 0 0

Operating costs 0 11,056 17,690 22,112 22,112 22,112 22,112 22,112 22,112 22,112 22,112

Marketing and Distribution cost 0 27 43 54 54 54 54 54 54 54 54

Income (corporate) tax -2,455 1,736 4,672 5,100 5,528 5,955 6,383 6,811 7,238 7,666

Loan repayment 0 6,110 6,110 6,110 6,110 6,110 6,110 6,110 6,110 6,110 0
NET CASH FLOW -82,611 20,412 26,995 31,241 30,814 30,386 29,958 29,530 29,103 28,675 28,247

CUMULATIVE NET CASH

-82,611 -62,199 -35,204 -3,963 26,851 57,237 87,195 116,725 145,828 174,503 202,751
FLOW
Net present value -82,611 19,076 23,579 25,502 23,508 21,665 19,962 18,390 16,938 15,597 14,360

Cumulative net present value -82,611 -63,534 -39,956 -14,454 9,054 30,719 50,681 69,071 86,009 101,607 115,966

NET PRESENT VALUE 115,966

IRR 22%

NORMAL PAYBACK 5 years

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A