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RAYA UNIVERSITY

COLLEGE OF ENGINEERING AND TECHNOLOGY

DEPARTMENT OF MANUFACTURING

A BUSINESS PLAN ON COFFEE

MELES ZENAWI BUSINESS ENTERPRISE

PREPARED BY: - ECONOMICS STUDENTS

Group members Id No

1, Hagos Baraki ……………………………………….……00233/10

2, Selemon Hluf ……….………………………………….. 00335/10

3, Sara Gorfu ………………..…………………………….….00328/10

4, Mebrhit Chekole …………………………………………00287/10

5, Melat Tsegay ……………..………………………………00283/10

Maichew, Ethiopia

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Contents
2I Executive summery.................................................................................................................................3
1. IROUDUCTION.........................................................................................................................................4
2. Objective of the project...........................................................................................................................5
2.1 Short term objectives........................................................................................................................5
2.2Long term objectives..........................................................................................................................5
3. Project Location.......................................................................................................................................5
4. Scope of the project................................................................................................................................6
5. Significance of the project.......................................................................................................................6
6. Market analysis........................................................................................................................................6
6. 1 Overall market..................................................................................................................................6
6.2 specific markets.................................................................................................................................7
6.3 competitors analysis..........................................................................................................................7
7. Demand analysis......................................................................................................................................7
7.1 Past Supply and Present Demand......................................................................................................7
7.2 Demand projection............................................................................................................................8
8. Supply analysis.........................................................................................................................................9
8.1 Over all concept and orientation.....................................................................................................10
8.2 marketing strategy...........................................................................................................................10
8.2.1 Distribution:..............................................................................................................................10
8.2.2 Promotion:................................................................................................................................10
8.2.3 Pricing strategy:........................................................................................................................10
8.3 sales forecast....................................................................................................................................10
9. SWOT Analysis.......................................................................................................................................11
10.Technical aspect of the project.............................................................................................................12
10.1 Production Process............................................................................................................................12
11.Plant capacity and production program.............................................................................................13
11.1 Plant Capacity................................................................................................................................14
12. Man power requirement...................................................................................................................14
14. Forms of ownership.............................................................................................................................15

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15. Total investment..................................................................................................................................16
16. Total fixed cost....................................................................................................................................16
17 Cost summery of investment................................................................................................................16
18. Financial plan......................................................................................................................................18
18.1 Financial statement........................................................................................................................18
18.2 Financial resources........................................................................................................................21
18.3 Financial strategies....................................................................................................................21
1.9 Appraisal criteria..................................................................................................................................21
19.1 Financial criteria................................................................................................................................21
20. Implementation schedule....................................................................................................................23
21. Source of finance and bank loan repayment schedule of the firm......................................................23
22. Conclusion...........................................................................................................................................24
Appendixes:...............................................................................................................................................24

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Executive summery
MELES ZENAWI COFFEE ENTERPRISE is a partnership type of business enterprise which is going
to supply two types of product to its targeted customers. The first type of product is roared and
packed coffee and the second one is grinded and packed coffee. The business is located in
Bonga Town (The administrative center of Kafa Zone.

The main objective of our business in the short run is to obtain acceptance from customers (have
a public image to our product) and penetrate to the market by providing the product with
relatively low price compared to our competitors that only cover the cost of production. But as
time goes on or in the long run the venture has the objective of maximizing profit especially
through service quality and mass production for both high income and low income group of the
society. The venture will require skilled and experienced labor who had worked in similar
business activity for a long period of time. Our primary target customer will be those who are
busy of work and unable to roar and grind coffee at their home.

The business requires 300,000ETB, out of which 70% will be covered by the partners of the
venture and the rest of 30% will be financed through borrowing from microfinance institutions.
Additionally, we planned to reinvest some proportion of the earnings initial period in order to
expand our business. At the first phase of operation (2011 E.C.), the business will have an annual
sales forecast of 664,300ETB and a net income of 82670ETB. By the end of 2013E.C,the
business will have sales forecast 148250ETB and a net income of 94570ETB. This estimation is
based on considering the three scenarios, best case, likely case, worst case of sales forecast.

The business also expects risks and makes a necessary preparation to cope with such unforeseen
event.

The owners of the venture expect that there will be challenges of paid up capital scarcity,
difficulties of having significant market share and expansion of the firm. Taking the above
challenges under consideration, we will try to regulate these futures by delegation of
responsibilities, producing quality coffee and through fair pricing and other mechanisms.

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1. IROUDUCTION
Ethiopia is the birth place of the Arabica coffee tree, coffee Arabica, which is vital to the cultural
and socio-economic life of around 20 million peoples of Ethiopia. The green Coffee contributes
more than 25% of the country’s foreign exchange earnings. Ethiopia is the only country in the
world which has an estimated treasure of more than 10,000 genetically differentiated varieties of
coffee. These untapped resources of varieties of green coffee is processed can produce different
tastes, aromas and flavors popular with foreign and domestic consumers.

Ethiopia is the world's seventh largest producer of coffee, and Africa's top producer, with
260,000 metric tons in 2006. Half of the coffee is consumed by Ethiopians, and the country leads
the continent in domestic consumption. The major markets for Ethiopian coffee are the EU
(about half of exports), East Asia (about a quarter) and North America. The total area used for
coffee cultivation is estimated to be about 4,000 km2 (1,500 sq mi), the size is unknown due to
the fragmented nature of the coffee farms. The way of production has not changed much, with
nearly all work, cultivating and drying, still done by hand.

The revenues from coffee exports account for 10% of the annual government revenue, because
of the large share the industry is given very high priority, but there are conscious efforts by the
government to reduce the coffee industry's share of the GDP by increasing the manufacturing
sector.

The Coffee and Tea Authority, part of the federal government, handles anything related to coffee
and tea such as fixing the price at which the washing stations buy coffee from the farmers. This
is a legacy from a nationalization scheme set in action by the previous regime that turned over all
the washing stations to farmers’ cooperatives. The domestic market is heavily regulated through
licenses, with the goal of avoiding market concentration

In addition to its origin of the worldly known famous Arabica Coffee, it is also the home of
diversified coffee trees with mosaic cups and joyful coffee ceremony. Approximately coffee
trees cover about 320,000 hectares of land and produce about 250,000 metric tons. (3.8 million
Bags, 1 bag is 60kg) of wonderful coffee annually (USAID, GEM Report).

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Various studies and reports indicate that there are three ways of coffee grow under: semi forest/
forest system (35%), cottage coffee (60%) and large Estate plantation (5%). Ethiopia shares 3%
of the world production, third in Africa and 8-10 th in global coffee export, washed by high land
spring water and dried steadily under tropical sun. The Ethiopian coffee about 30% is dry and
close to 5% under the 3rd window as certified organic coffee. About 109,000 metric tons of
Ethiopian coffee is exported per year to different countries of the world. Out of total coverage of
coffee tree in Ethiopia, southern region takes its share about 58% and annual average export of
washed and unwashed clean coffee 67% & 29 % respectively is from the southern region.

2. Objective of the project

The roasting, grinding and packing coffee help to saves consumers time from spending extra
time in such activities and raise consumer’s utilities. Here the main objective of this project is to
supply roasted, grinded and packed coffee for domestic consumers through both price reduction
and quality services to maximize customer’s satisfaction.

2.1 Short term objectives

In the short run, our objective is to penetrate in to the market through quality and mass
production with low and affordable price .this will be achieved using different advertisement and
promotion strategies.

2.2Long term objectives

In the long run the objective of the firm is to maximize profit and inter into wider national and
international markets as well as regional market through production of a high quality product.

3. Project Location
Raw material and infrastructure access, availability of labor and potential market are major
factors in selection of a location for a certain project. Taking in to account these main factors for
its success Bonga Town (The administrative center of Keffa zone) is the ideal location proposed
for under taking the project in the region.

Bonga town has all infrastructure facilities vital for the implementation and operation of
industrial activities. Presently the town receives an electric supply from hydroelectric power
source. It has a pipe water supply, banking and digital telecommunication facilities. The main

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Asphalt high road that stretches from Jima, to Mizan town passes via Bonga town. Bonga town is
located at the south western part of Addis Ababa which’s a distance of 446 km.

Kaffa zone has a total area of 1060.27 square Kilometers & it lies at an altitude ranging from
500-3500 meters above sea level. The total population of the zone is 789818 (1996) with a
population density of 74 persons per kilometers square the zone is sub divided in to ten woredas
namely. Gesha , Chena, Gimbo, Menjieo, Tello, Cheta, Bita, Gewata, Saylem&Dechaworeda.

As regards the Agro climatic condition, out of the total area that the zone has, Dega sheres
3.24%. The mean annual temperature of the zone ranges from 12 to 26 c0 aand the mean annual
rein fall of the zone ranges, from 1400 to 2200 mm.

4. Scope of the project

The scope of this project is primarily penetrate and increases the share of the domestic market in
the short run through price reduction and quality product and service. But, in the long run, this
project expands its product and service in to international market.

5. Significance of the project

The realization of this project will have important economic implication for the individual, social
and government. The project highly benefits the farmers who engaged in the production of
coffee bean, and encourage farmers’ effort in the production due to the creation of market for
their product by this project. The project also important in creating employment opportunities for
the society. In addition to this it is important for the government by paying tax both from the
project owners and the employees.

6. Market analysis
6. 1 Overall market
As we allays the coffee market, business who engaged in setting roared and packed as well as
grinded packed coffee are profitable. This profit is mainly generated from mass selling wider
area coverage. However they do not consider people having less purchasing power as they
packed a half or a kilo of coffee as a minimum amount which may not be affordable by less
income earners.

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Therefore this venture will pack and sell from 1/4th kilo of coffee and below this to take under
consideration of people with low purchasing power.

6.2 specific markets

Our business focuses in Addis Ababa were the demand for roared and grinned coffee is high. in
addition to this we will also consider our target customers’ needs and income levels.

6.3 competitors analysis

There are no significant monopoly firms in this type of business. Most of them are small and
micro enterprises which can’t affect our business as such. Thus they can’t even fulfill the need of
people for roared and grinned coffee in a packed form. By considering this we will try the gap in
demand supply for roared and grinned coffee, enabling our customer’s transaction cost,
transportation cost and time.

7. Demand analysis
7.1 Past Supply and Present Demand
A coffee bean (green coffee) has very high domestic and export demand. Coffee consumption in
Ethiopian society is not only used for personal satisfaction but also includes some traditional
ceremonies and group enjoyments with family members and neighbors.

Supply of roasted coffee has been both from local and imports of different origins. There is also
some amount of export. For domestic production see tables 7.1, while for import & export see
table 7.1.

Domestic production of roasted coffee (tones)

Year production
2001 300
2002 115
2003 259
2004 563
2005 16317
2006 1544
2007 2767
2008 1984
2009 1708
Source: - CSA, Large and Medium Scale Manufacturing and Electricity Industries Survey,
Various Issues. As can be seen from Table 7.1, domestic production of roasted coffee which was
300 tons at the beginning of the period (2001) has grown to 1,708 tons at the close of the period
(2009). It can also be observed that exports amounted in the hundredth’s (309 tons on average) in
2001- 2005 interval while starting 2005 it amounted in thousands (2000 tons on average after
excluding the outlier value of 2005). There were also fluctuations within these intervals. So, it
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will be more appropriate to take the average of last three years in estimating the year 2012
production level. Accordingly, the year 2011 domestic production of roasted coffee is estimated
at 2,153 tons.

Table 7.2 Import and export of roasted coffee (tones)

Year Import Export

1999 3 0.5
2000 5 19
2001 4.3 -
2002 1 1.5
2003 16 1.5
2004 13 1
2005 96 48
2006 61 2
2007 44 3
2008 66 6
2009 23 7
Source: - Ethiopian Revenue and Customs Authority.

It can be seen from Table 7.2 that import and export have been small in amount as compared to
domestic production. The pattern with imports and exports has shown more or less similar
situations to that of domestic production. In estimating the 2011 import and export levels the
average of last three years has been taken. Accordingly, import and export of roasted coffee for
2012 has been estimated at 44 tons and 5 tons, respectively.

Thus, adding domestic production and that of import, the present effective demand of roasted
coffee for 2011 is estimated at 2,197 tons.

7.2 Demand projection

Demand for roasted coffee has two sources; domestic component and export. The domestic
demand (D) is obtained by the formula: D= PD + I-E where PD is domestic production, I is
import and E export thus for year 2011 it is 2,192 tons. The domestic demand for roasted coffee
depends on level of income and population growth rates. Moreover, the product’s superior
convenience will have a positive effect on the level of demand. Since the product is high valued

type, major consumers are expected to be urban dwellers and those prosperous among the rural
society. However, it has been assumed for this purpose that the urban residents will be major
target consumers of the product. According to CSA (2007) the urban population is growing at
more than 4% per annum. The country’s economy is growing at 11%, the population and income
effects are also similar. With such understanding 4% is used to project demand growth. Domestic
production is expected to remain at year 2011 level (2,153 tons). Export is forecasted to grow by
its average growth rate of the last four years i.e., 55%. The demand projection for roasted coffee
is depicted in Table 7.3

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Table 7.3 Demand projection for roasted coffee (tones)

Year Domestic Export Total demand Domestic Total

demand demand production unsatisfied
demand
2011 2280 8 2288 2153 135
2012 2371 12 2383 2153 230
2013 2466 19 2485 2153 332
2014 2564 29 2593 2153 441
2015 2667 45 2712 2153 559
2016 2774 70 2844 2153 691
2017 2885 108 2993 2153 840
2018 3000 167 3167 2153 1014
2019 3120 159 3279 2153 1226
2020 3245 246 3491 2153 1338

8. Supply analysis
The decision of the price of the product is based on the current market price. However, as a new
firm, we will primarily focus penetrating into the market by selling at lowest price which can
cover only our costs of production (having zero economic profit at the beginning).

The current market price of roared coffee is ETB 120 per kilo and the price of grinned coffee is
ETB 130 per kilo. We will make a 25%-30% deduction on the current market price by assuming
that we can cover our costs on production at this low price.

Item Current market Price per kilo

price per kilo
Roasted and 120 110
packed coffee

Grinding and 130 120

packed coffee

8.1 Over all concept and orientation

Meles zenawi coffee business enterprise plans to supply its product with mass quantity and better
quality both at the site of the business and mobile through different channels so as to teach at the
houses of the customers.

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8.2 marketing strategy

The marketing strategy of this venture is going to be achieved through the following
mechanisms.

8.2.1 Distribution:
This coffee firm will distributes product in Addis Ababa from its main location around Bonga to
other region and cities where the demand for roared and grinned coffee is high.

8.2.2 Promotion:
Promotion plays an important role in attracting new customers since our business is new to the
market. So we will use different advertising mechanisms such as radio transmission, newspapers,
creating internet address, personal visits and exhibitions. Additionally we will use informal
means of advertisement like asking customers who use our product about the quality of the
product and as how much they are satisfied by our product’s quality.

8.2.3 Pricing strategy:

We will use a customer driven price strategy. This means we may increase or decrease our price
depending on the customers demand for our product.

8.3 sales forecast

The following table shows our business’s sales forecast for the first phase operation year

No Product to be Unit of quantity Unit price Total

sold measurement Price
1 Roared and Kilogram 3650 110 401500
packed coffee
2 Grinded and Kilogram 2190 120 262800
packed coffee
Total 5840 664,300

9. SWOT Analysis
Strength
The production and supply of roasted, grinded and packed coffee in this company will be
performed more efficiently and effectively than our rivals by using technological economies of

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production with skillful and experienced manpower. This increase the quality and quantity of our
product. We attach ourselves to this work and arrange good condition for increasing the output of
the business. Moreover we are highly interested to make favorable condition to our customers to
purchase our product.
Weakness
As a business work, our company begins with a limited capital due to this, it is difficult to
produce a mass and we cannot able to satisfy our customer at a time.
Opportunity
The opportunity of our business is that the input we required can get at a lower cost and easily.
So we can start our production without any input constraints. The business is managed by the
owners of the company to avoid carelessness in the working time. For the future if we increase
our capital we will diversify our business in the production and supply not only for domestic
market but also supply to international market. This is a great opportunity for us.
Threat
The major threat of our business is that there is a competitor that produces similar products with
us in our destination and this may shift the consumers’ preference from our product to the
competitors’ product.
This can be solved by reducing the price and making with unique incentives for the customers.

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10.Technical aspect of the project

10.1 Production Process

Purchasing raw coffee

drying up the
washed coffee

Washing coffee

Roaring and
packing coffee
Selling
coffee

Grinning and Packing

coffee to be sold

The main processing steps in the manufacture of roasted ground coffee are blending, roasting,
grinding and packing. Green coffee is cleaned of string, lint, dust, hulls and other foreign matter.
The post – cleaning operations of the production process are stated briefly hereunder.

Roasting: Coffee from different varieties or sources is usually blended before or after roasting in
order to achieve good taste coffee as well as low cost production.

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Roasting by hot combustion gases in roasting cylinders requires 8-15 minutes. The bean charge
absorbs heat at a fairly uniform rate and most moisture is removed during the first two-thirds of
this period. As the temperature of the coffee increases rapidly during the last few minutes, the
beans swell and unfold with a noticeable cracking sound, like that of popping corn, indicating a
reaction change from endothermic to exothermic. This stage is known as development of the
roast. The final bean temperature, 200-220ºc, is determined by the blend, variety, and flavor
development desire. A water or air quench terminates the roasting reaction. Most, but not all, of
any added water is then evaporated.

The bean temperature, correlated to the color of ground coffee measured by a photometric
reflectance instrument, determines the quench end point of a roast. At the final bean temperature,
the firing shuts down automatically, followed by water spraying for a timed period and finally,
discharge of the coffee.

Air must be circulated through the beans to remove excess heat before the finished and quenched
roasted coffee is conveyed to storage bins. Residual foreign matter such as stones and tramp
iron, which may have passed through the initial green coffee cleaning operation, must be
removed before grinding. This is accomplished by an air lift adjusted to such a high velocity that
the roasted coffee beans are carried over into bins above the grinders, and heavier impurities left
behind. The coffee beans flow by gravity to mills where they are ground to the desired particle
size.

Grinding: Roasted coffee beans are ground to improve the extraction efficiency in the
preparation of the beverage. Particle size distributions ranging from about 1100µm average (very
coarse) to about 500µm average (very fine) are tailored by the manufacturer to the various kinds
of coffee makers used in households, hotels, restaurants and institutions. Coffee is ground in
mills that use multiple steel cutting rolls to produce the most desirable uniform particle size
distribution. After passing through cracking rolls, the broken beans are fed between two or more
rolls, one of which is cut or scored longitudinally, the other, circumferentially. The paired rolls
operate at differential speeds to cut, rather than crush, the coffee particles. A second pair of more
finely scored rolls, installed below the main grinding rolls and running at higher speeds, is used
for finer grinds.

Packaging: - After roasting and grinding, the coffee is conveyed, usually by gravity, to weighing
and filling machines that achieve the proper fill by tapping or vibrating. The ground coffee is
vacuum packed in flexible paper bag and placed in a paperboard carton that helps shape the bag
into a hard brick form during the vacuum process. The carton also protects the package from
physical damage during handling and transportation. This type of package provides a barrier to
moisture and oxygen.

11.Plant capacity and production program

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11.1 Plant Capacity
Meles zenawi coffee venture production plan is based on the size of the firm. The enterprise’s
assumption is to start by having 500 KGs of raw coffee and 85,000 ETB cost roared and grinner
of coffee machines. In such away the firm plans to produce 6 KGs of roared and packed coffee,
8KGs of grinned and packed coffee per day on average for the first year of operating period
which is 2011 E.C.

11.2 production program

As a new business, Meles zenawi coffee venture plans to buy locally produced equipments
having a relatively lower price than imported ones. However, we will purchase highly qualified
equipments and machineries to increase productivity.

Items Unit of Quantity Unit Total

measurement costs costs
Coffee roared and Number 1 85000 85000
grinder
Laminator/packaging Number 2 500 1000
machine
Plastics and hard Number 14 2 28
papers

12. Man power requirement

The Meles zenawi firm will hire four persons initially. Additionally some of the parents and
others also be hired in the business.

No Rank Sex Quantity Qualification Remark

description

1 General M 1 BA degree in Partner

manager economics

2 Guard M 1 Grade 8thand above Contract

3 Packager F 1 Grade 10th Regular

employee

4 Grinder and F 1 Grade 10th Regular

Roared employee

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13. The organizational structure
Partners

The general manager

Sales person

Purchasing department

Equipments
technician

14. Forms of ownership

Meles zenawi coffee is a partnership type of business enterprise .The partners’ contribution is
presented as follows:

Number Name Sex Contribution Contribution Qualification

In (%) in ETB
1 Alemu M 15 45000 BA degree in
Wederufael economics
2 Gebre Arega M 20 60000 BA degree in
economics
3 Melkamu M 5 15000 BA degree in
Kasahun economics
4 Mulat Amare M 10 30000 BA degree in

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 economics
5 Tamrie Mulu F 20 60000 BA degree in
economics

15. Total investment

The financial requirement for this coffee firm at the start up is 300,000 out of which 70% is
covered by partner’s contribution and the remaining 30% is going to be financed by micro
finance institution through borrowing.

16. Total fixed cost

The total fixed investment is estimated at birr 86,028, which is out of total is allocated to fixed
investment (i.e. equipment, and machinery).

17 Cost summery of investment

17.1 Production cost
The annual production cost at full operation capacity is estimated at Birr 136200(see the following Table).
Annual production cost (in birr)
Item Cost
Raw material and in 59000
put
Wage and salary 60600
Utility 600
Advertising cost 2500
Miscellaneous 1200
Rent 9600
Interest 4500
Total production cost 136200

17.2 Initial investment

The total investment cost of the project including working capital is estimated at birr 300,000.
The major breakdowns of the total initial investment cost are shown the table below.
No Item of cost Total cost in birr
1 Plant Machinery 86028
and Equipment
2 Land lease value 6000

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3 Building and Civil 18000
Work
4 Office Furniture 11000
and Equipment
5 Pre-production 23000
Expenditure
6 Working Capital 166972
Total investment 300000

N.B Pre-production expenditure includes costs of interest, costs of registration, licensing and formation of
the company including legal fees, commissioning expenses, etc.
C. Raw materials and input costs
The principal raw material for coffee roast, grind and pack production is coffee bean. The raw coffee is
available within short distance. The required amount is described in the following table

No. Description Unit of Qty. Cost (Birr)

Measures

1 Coffee Kilo 500 50000

D. Utilities
The major utilities required by the plant are electricity and water. The estimated annual
requirement at full production capacity of the plant and the corresponding cost are given in
Table below. The total annual cost of utilities is estimated as Birr 600.

Sr. Description Unit of Qty. Unit price Cost in birr

No. Measure (Birr)
1. Electricity kWh 500 0.4736 236.8
2. Water m3 72.64 5.5 363.2
Total 600

E. Machinery and Equipment

Machinery and equipment required by the envisaged plant is given in Table below. The total cost of
machineries and equipment processing 500 kg of cofee annually to produce the required amount is
estimated at 86028.

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no Description Quantity
1 Coffee roared and 1
grinder
2 Laminator/packaging 2
machine
3 Plastics and hard 14
papers

18. Financial plan

18.1 Financial statement
PROJECTED INCOME STATEMENT:

2011 E.C. annual 2012E.C. annual 2013 E.C. annual

Sales 664300 832000 148250
Cost of goods sold 467200 580400 525600
Gross profit 197100 251600 222650
Operating expense
Wage and salary 60600 63250 65320
expense
Advertising expense 2500 1800 2100
Utility expense 600 850 1100
Rent expense 9600 11500 13000
Miscellaneous 1200 1450 1530
expense
Total operating 74500 78850 83050
expense
Earnings before 122600 172750 139600
interest and tax
Interest expense 4500 4500 4500
Earnings before tax 118100 168250 135100
Tax 35430 50475 40530
Net income 82670 117775 94570

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PROJECT CASH FLOW:

2011 2012 2013

Cash inflow

Cash sales 664300 832000 148250

Total cash collection 664300 832000 148250

Cash outflow

Investment expense 110000 50000 100000

Operating expense 74500 78850 83050

Direct costs 467200 580400 525600

Interest payments 4500 4500 4500

Total cash outflow 656200 713750 713150

Net cash flow 8100 118250 35100

Beginning cash 8100 126350

balance

Cash balance 8100 126350 161450

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PROJECT BALANCE SHEET:

2011 E.C. 2012 E.C 2013E.C.

Cash 8100 126350 161450
Accounts receivable
Inventories 116900 41425 8120
Total current assets 125000 167775 169570
Long term assets 95000
Capital investment 80000 40000 15000
Total asset 300000 207775 184570
Liability and capital
Loans from 90000 90000 90000
microfinance
institutions

Total liabilities 90000 90000 90000

Capital 210000 117775 94570
Total liability and 300000 207775 184570
capital

18.2 Financial resources

The financial requirement for M/Z coffee firm at the start up is 300,000 out of which 70% is
covered by partner’s contribution and the remaining 30% is going to be financed by micro
finance institution through borrowing.

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18.3Financial strategies
The financial resource available for the business at the beginning, which will be contributed by
partners and loan from micro finance institutions, will be used as a financial start up cost and will
be, monitored by the general manager of the firm. The operation profit of the firm will be
reinvested to the expansion of the business.

1.9 Appraisal criteria

19.1 Financial criteria

Profitability
According to the projected income statement, the project will start generating profit in the first
year of operation. Moreover, at the end of three year project life the accumulated cash flow
amounts to birr 161450. And show an increasing trend during the life-time of the project.
The income statement and the other indicators of profitability show that the project is viable.

Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues. It
indicated the level at which costs and revenues are at equilibrium. To this end, the break even
analysis point of the project including cost of finance when it starts to operate at full capacity is
estimated by using income statement projection.

BE = Fixed Cost121028 = 22.9%

Sales – Variable Cost 664,300 – 136200

Pay Back Period

The payback period, also called payoff period required recovering the original investment
borrowing capital through the accumulated net cash flows earned by the project. According to
the investments cost and income statement projection are used to project the pay-back period and
the project’s initial investment will be fully recovered within three years.

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Internal Rate of Return (IRR)
The IRR is the annualized effective compounded return rate that can be earned on the invested
capital i.e. the yield on investment. Put another way, the IRR for an investment is the discount
rate that makes the NPV of investment income stream total to zero. A project is a good
investment proposition if its IRR is greater than the rate of return that could be earned by
alternative investments or putting the money in a bank account. Based on the cash flow
statement, the calculated IRR of the project is between 11%>10% (which makes NPV=0),
indicating the viability of the project.
Net present value (NPV)
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 appraise long term projects. NPV is an indicator of how much value an investment or
project adds to the capital invested. In principal a project is accepted if the NPV is positive.
Accordingly, the NPV of the project at 10% discount rate is found to be birr 7363.63 for the first
year. Look the following illustrations:

Cash inflow for the 1st year =664300 = NPV = Present cash inflow / (1+r) t
=

/
664300 (1+0.1)=603909.09

/
Cash outflow for the 1st year=656200=NPV=656200 (1+0.1)=596545.45

Net NPV = 603909.09-596545.45= 7363, which is positive, the same for all the rest years, and
this shows that the project is viable.
Benefit cost ratio
It refers the ratio of the present value of cash inflow and cash out flow during the planned period
which means: BCR= PresentCash inflow/PresentCash outflow=603909.09/596545.45=1.01, it is
greater than one so we can accept the project.

Economic and social benefit

The project can create employment opportunity for 4 persons. The project will generate Birr
126,435 in terms of tax revenue for the government. The project will also create backward
linkage with the agricultural sector and forward linkage with the hotel and tourism sector and
also generates income for the Government in terms of payroll tax.

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20. Implementation schedule
By using network manner interdependence of different activities we plan our products on
launching, process, and implementation. The following activities that are undertake by our
project.

Activities Description Immediate Duration in month

predecessor
A Specification company objective and - 1
development
B Design manufacturing process A 2
C Source & purchase materials A 1
D Source & purchase tooling equipment B 2
E Receive initial tooling & equipment D 3
F Receive materials C 1
G Production run E &F 3
H Evaluate production design G 1
I Evaluate process performance - ½
J Prepare documentation report H&I ½
k Marketing G 2

21. Source of finance and bank loan repayment schedule of the firm
The source the income left for the operation of M/Z coffee Company is from partner contribution
and bank loan at 10% rate loan interest payment and the principal will be started to pay after the
production started. According to its sale forecast, total revenue and estimated net income of this
coffee company can repay its loan within its schedule.

22. Conclusion
The realization of this project helps to produce and supply roasted, grinded and packed coffee for the
domestic consumer. This project highly depends on agricultural input, and it has high benefit to the
farmers who engaged in the production of coffee.
To sum up, the project starts with production capacity of 500 kilo of coffee bean at the introduction
period and increasing its supply depending on the demand. The projected demand also shows increase
demand for the proposed project.

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Appendixes:
“Quality product with a time saving machine.”

Price list:

Items Unit of measurement Unit price

Roared and packed coffee Kilogram 110 ETB.
Grinded and packed coffee Kilogram 120 ETB.

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