182.

PROFILE ON THE PRODUCTION OF PRINTED

CIRCUIT BOARD
 182-1

TABLE OF CONTENTS

PAGE

I. SUMMARY 182-2

II. PRODUCT DESCRIPTION & APPLICATION 182-3

III. MARKET STUDY AND PLANT CAPACITY 182-3

A. MARKET STUDY 182-3
B. PLANT CAPACITY & PRODUCTION PROGRAMME 182-6

IV. MATERIALS AND INPUTS 182-6

A. RAW & AUXILIARY MATERIALS 182-6
B. UTILITIES 182-7

V. TECHNOLOGY & ENGINEERING 182-8

A. TECHNOLOGY 182-8
B. ENGINEERING 182-9

VI. HUMAN RESOURCE & TRAINING REQUIREMENT 182-13

A. HUMAN RESOURCE REQUIREMENT 182-13
B. TRAINING REQUIREMENT 182-13

VII. FINANCIAL ANLYSIS 182-14

A. TOTAL INITIAL INVESTMENT COST 182-15
B. PRODUCTION COST 182-16
C. FINANCIAL EVALUATION 182-16
D. ECONOMIC AND SOCIAL BENEFITS 182-18
 182-2

I. SUMMARY

This profile envisages the establishment of a plant for the production of printed circuit board
with a capacity of 300,000 pieces per annum. Printed circuit board is an electronic device in
which the circuit is plated onto a laminated board and is used in military, civilian and domestic
products.

The demand for printed circuit board is met entirely through import. The present (2012) demand
for printed circuit board is estimated at 1,510 kgs. The demand for printed circuit board is
projected to reach 2,432 kgs and 3,916 kgs by the year 2017 and 2022, respectively.

The principal raw materials required are bare printed circuit boards, electronic components-axial
(e.g. Resistor), radial (e.g. Diodes), integrated circuits and surface mount components, and solder
paste flux epoxy adhesives which have to be imported.

The total investment cost of the project including working capital is estimated at Birr 33.98
million. From the total investment cost the highest share (Birr 22.33 million or 65.72%) is
accounted by fixed investment cost followed by initial working capital (Birr 8.58 million or
25.24%) and pre operation cost (Birr 3.07 million or 9.04%). From the total investment cost Birr
14.38 million or 42.32% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 29.63% and a net present
value (NPV) of Birr 36.25 million discounted at 10%.

The project can create employment for 51 persons. The establishment of such factory will have
a foreign exchange saving effect to the country by substituting the current imports. The project
will also create forward linkage with the electrical and electronic equipments manufacturing sub
sector and also generates income for the Government in terms of tax revenue and payroll tax.
 182-3

II. PRODUCT DESCRIPTION AND APPLICATION

An assembled printed circuit board (PCB) is an electronic device in which the circuit is plated
onto a laminated board. The board then has holes drilled into it, into which conventional
electronic components are placed and soldered to complete the circuit. Small ‘surface mount’
components can also be mounted directly onto the circuit. Advances in printed circuit board
technology have enabled many military, civilian and domestic products to be greatly reduced in
size over the last decade.

The assembled and testing of printed circuit board used to be highly labor intensive and therefore
electronic goods were manufactured in countries where labor is chip and efficient. There are now
highly automated machines for component insertion, soldering and testing of PCBs, so it is
economic to have centralized PCB assembly and testing, servicing the assembly of various
products. Freed from the labor intensive operation of component insertion and soldering, the
final assembly of products can also be carried out close to the market.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Printed circuit board (PCB) is base of any electronics/electrical equipment. A PCB provides the
connectivity to the electronic component such as resistor, capacitor, coils, pots, diodes, FET,
transistor, ICs, transformer etc. to form a complete electronic circuit. In the present scenario, the
existence of electronics equipments cannot be imagined without a PCB. The PCBs are not only
providing the connectivity among the electronic components but also reduces the size and
increases the efficiency of the electronic equipment.

PCBs are used in each and every electronic and most of the electrical equipments. The working
of any electronic equipments such as home appliances, entertainment equipment, testing, medical
equipments or even defense electronic equipment etc. cannot be imagined without a PCB. The
small, medium and large scale units have Nos. of vendors to carry out the specific job. The
 182-4

mounting of electronic components on PCB is also a one of the ancillary job. With proper
marketing, high quality and competitive price this type of units have sufficient scope in the
present scenario.

The demand for PCBs is fully met through import. Table 3.1 shows the country’s import of
PCBs during the period 2002 – 2011.
Table 3.1

IMPORT OF PCBS (K.GS)

Years Quantity
2002 1,210
2003 1,014
2004 739
2005 1,889
2006 213
2007 177
2008 1,303
2009 4,486
2010 1,163
2011 421
Source: Ethiopian Revenue and Customs Authority

As can be seen from Table 3.1 import of PCBs fluctuates from year to year. However, a general
growth trend can be observed. The yearly average quantity imported during the first five years in
the data set (2002-2006) was around 1,013 kgs and grew to 1,510 kgs during the second five
years of 2007--2011.

In estimating the present demand for the product it is assumed that the recent five years average
(2007-2011) is a reasonable approximate of current level of demand. Accordingly, current
(2012) demand for PCBs is estimated at 1,510 kgs.
 182-5

2. Demand Projection

The demand for PCBs is directly related with the development of the various sub sectors of the
manufacturing sector. According to the Growth and Transformation Plan (GTP), the industrial
sector is expected to grow at an average annual growth rate of 20% during the period 2011 –
2015. Taking this in to account and to be conservative an annual average growth rate of 10% is
assumed for projecting the demand for PCBs (see Table 3.2.).

Table 3.2
PROJECTED DEMAND FOR PCBs (KGs)

Year Projected Demand

2013 1,661
2014 1,827
2015 2,010
2016 2,211
2017 2,432
2018 2,675
2019 2,942
2020 3,237
2021 3,560
2022 3,916
2023 4,308
2024 4,739
2025 5,213

3. Pricing and Distribution

The price of PCBs varies greatly according to use, design and other factors. For the purpose of
this project the average import value of the recent two years plus 30% for various costs is taken.
Accordingly, Birr 175 per pieces is recommended. The product will be sold directly to the end
user.
 182-6

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study, and capital requirement, the envisaged PCBs manufacturing plant
will have a capacity of producing 300,000 per annum operating in one shift/day (8 hours/shift)
and 300 days/annum. The capacity can be doubled or further increased, without increasing any
significant fixed investment cost, by increasing the number of shifts.

2. Production Programme

The production program is based on the time required for the adjustment of feedstock, labour and
equipment to the technology selected. Accordingly capacity utilization is set as follows:

- 75% of plant capacity during the 1st year

- 85% of plant capacity during the 2nd year
- 100% of plant capacity during the 3rd year

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The principal raw materials required for printed circuit board assembly are bare printed circuit
boards- bought in specialist suppliers (could be established locally), electronic components-axial
(e.g. resistor), radial (e.g. diodes), integrated circuits and surface mount components, solder
,paste flux and epoxy adhesives. The annual requirement of these raw materials and their costs
are shown in Table 4.1.
 182-7

Table 4.1
ANNUAL CONSUMPTION FOR RAW AND AUXILIARY MATERIALS AND COST

Sr. Description Unit of Annual Cost in '000 Birr

No. Measure Consumption FC LC TC
1. bare printed circuit pcs 315,000 5,500 - 5,500
boards
2. Electrical lmpsum - 4,650 - 4,650
components
3. solder Tones 45 5,450 - 5,450
4. Solder paste Tones 22 2,680 - 2,680
5. flux Lt. 550 4,340 - 4,340
6. Epoxy adhesives Tones 25 2,200 - 2,200
7. Packing material Tones 24 2,430 - 2,430
Total 27,250 9,083 36,333

B. UTILITIES

Industrial water of 200 m3 and electric power of 15,000 kWh are consumed in this plant per
annum. The total cost of utilities is estimated to be Birr 10,667. Details of utility consumption
and cost are shown in Table 4.2.
Table 4.2
ANNUAL REQUIREMENT OF UTILITIES AND COST

Sr. Description Qty. Unit Price Cost

No. (Birr) ('000 Birr)
1 Electricity (kWh) 15,000 0.58 8.667
2 Water (m3) 200 10.00 2.000
Total 10.667
 182-8

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

There are three levels of technology available for the assembly of printed circuit boards:
 Hand assembly
 Conventional component insertion machine
 Surface mount component (SMC) placement machine.
The conventional components are assembled onto the board by automatic component insertion
machine (ACI). Each shape of components requires a different machine.
 Dual-inline-package (D.I.P) Insertion Machine
 Radial Insertion Machine
 Axial Insertion machine
 Sequencer
 Screen printer
 Chip placement machine
 Reflow machine
 Flow track machine
 Flow solder machine
 Heat cycle oven
 Automatic electrical inspection

2. Environmental Impact

The envisaged PCBs manufacturing plant use assembly process which does not create any
negative impact on the environment.
 182-9

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment required for the manufacture of printed circuit board is
given in Table 5.1. Total cost of machinery and equipment is estimated at Birr 16.632 million,
out of which Birr 14.382 million is required in foreign currency.

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENTS AND COST

Sr. Description Qty. Cost in '000 Birr

No. FC LC TC
1. Dual-inline-package 1 2,400 - 2,400
(D.I.P) Insertion Machine
2. Radial Insertion Machine 1 1,350 - 1,350
3. Axial Insertion machine 1 950 - 950
4. Sequencer 1 1,250 - 1,250
5. Screen printer 1 1,100 - 1,100
6. Chip placement machine 1 1,300 - 1,300
7. Reflow machine 1 1,350 - 1,350
8. Flow track machine 1 550 - 550
9. Flow solder machine 1 1,400 - 1,400
10. Heat cycle oven 1 1,530 - 1,530
11 Automatic electrical 1,200 - 1,200
inspection, Hard pallet
truck
Total 14,382 2,250 16,632

2. Land, Building and Civil Works

A total site area of about 2,000 square meters will be required for the plant. The total built-up
area is estimated to be about 1,000 square meters. Of this area, about 120 square meters is for
 182-10

office complex. The average unit cost for factory shed, office complex and store is Birr 4,500
per m2. Accordingly, the total cost of building and civil work is estimated at Birr 4.5 million.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.

In Addis Ababa, the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
City Administration for the promotion of the sector and all manufacturing projects are assumed
to be located in the developed industrial zones.

Regarding land allocation of industrial zones if the land requirement of the project is below
5,000 m2, the land lease request is evaluated and decided upon by the Industrial Zone
 182-11

Development and Coordination Committee of the City’s Investment Authority. However, if the
land request is above 5,000 m2, the request is evaluated by the City’s Investment Authority and
passed with recommendation to the Land Development and Administration Authority for
decision, while the lease price is the same for both cases.

Moreover, the Addis Ababa City Administration has recently adopted a new land lease floor
price for plots in the city. The new prices will be used as a benchmark for plots that are going to
be auctioned by the city government or transferred under the new “Urban Lands Lease Holding
Proclamation.”

The new regulation classified the city into three zones. The first Zone is Central Market District
Zone, which is classified in five levels and the floor land lease price ranges from Birr 1,686 to
Birr 894 per m2. The rate for Central Market District Zone will be applicable in most areas of the
city that are considered to be main business areas that entertain high level of business activities.
The second zone, Transitional Zone, will also have five levels and the floor land lease price
ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are surrounding the city
and are occupied by mainly residential units and industries.

The last and the third zone, Expansion Zone, is classified into four levels and covers areas that
are considered to be in the outskirts of the city, where the city is expected to expand in the future.
The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191 per m2 (see
Table 5.2).
 182-12

Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA

Floor
Zone Level price/m2
1st 1686
2nd 1535
Central Market
District 3rd 1323
4th 1085
5th 894
1st 1035
2nd 935
Transitional zone 3rd 809
4th 685
5th 555
1st 355
2nd 299
Expansion zone
3rd 217
4th 191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all
new manufacturing projects will be located in industrial zones located in expansion zones.
Therefore, for the profile a land lease rate of Birr 266 per m2 which is equivalent to the average
floor price of plots located in expansion zone is adopted.

On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.
 182-13

Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment Down
Grace Completion
Scored point period Period Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The land lease period for industry is 60
years.

Accordingly, the total land lease cost at a rate of Birr 266 per m2 is estimated at Birr 532,000 of
which 10% or Birr 53,200 will be paid in advance. The remaining Birr 478,800 will be paid in
equal installments with in 28 years i.e. Birr 17,100 annually.

VI. HUMAN RESOURCE AND TRAINING REQUIREMENTS

A. HUMAN RESOURCE REQUIREMENT

The plant will require a total of 51 workers. The plant manager will have to be a mechanical
engineer having sufficient experience in the field. The detail of human resource requirement is
given in Table 6.1.

B. TRAINING REQUIREMENT

All operators need basic training so that they can be acquainted to the operation. This can be
done during the commissioning period of the plant. The cost of such training is estimated at Birr
150,000.
 182-14

Table 6.1
HUMAN RESOURCE REQUIRMENT AND COST
Sr. Req. Salary Monthly Salary Annual
No Description No. (Birr) (Birr)
1 Plant Manager 1 8,000 96,000
2 Secretary 1 1,000 12,000
3 Store Man 1 2000 24,000
4 Sales Man 1 3,000 36,000
5 Accountant 1 3,000 36,000
6 Clerk 1 1000 12,000
7 General Services 4 1750 84,000
1 Supervisor 1 5,000 60,000
2 Skilled workers 25 2,500 750,000
3 Semi-skilled workers 10 1,500 180,000
4 Helpers 5 1,000 60,000
Sub-total 51 29,750 1,350,000
8 Workers Benefit 25%
of basic Salary 7,438 337,500
Grand Total 51 37,188 1,687,500

VII. FINANCIAL ANALYSIS

The financial analysis of the printed circuit board project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity and 70% loan
Tax holidays 3 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material imported 120 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost
 182-15

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 33.98
million (See Table 7.1). From the total investment cost the highest share (Birr 22.33 million or
65.72%) is accounted by fixed investment cost followed by initial working capital (Birr 8.58
million or 25.24%) and pre operation cost (Birr 3.07 million or 9.04%). From the total
investment cost Birr 14.38 million or 42.32% is required in foreign currency.

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Local Foreign Total %

No Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 53.20 53.20 0.16
1.2 Building and civil work 4,500.00 4,500.00 13.24
1.3 Machinery and equipment 2,250.00 14,382.00 16,632.00 48.94
1.4 Vehicles 900.00 900.00 2.65
1.5 Office furniture and equipment 250.00 250.00 0.74
Sub total 7,953.20 14,382.00 22,335.20 65.72
2 Pre operating cost *
2.1 Pre operating cost 848.96 848.96 2.50
2.2 Interest during construction 2,223.35 2,223.35 6.54
Sub total 3,072.31 3,072.31 9.04
3 Working capital ** 8,578.00 8,578.00 25.24
Grand Total 19,603.51 14,382.00 33,985.51 100

* 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 12.33 million. However,
only the initial working capital of Birr 8.57 million during the first year of production 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 7.A.1).
 182-16

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 45.30 million (see Table
7.2). The cost of raw material account for 80.20% of the production cost. The other major
components of the production cost are depreciation, financial cost, direct labour, cost of
marketing and distribution, and repair and maintenance which account for 8.57%, 4.72%, 2.98%,
1.10 and 1.10% respectively. The remaining 1.33% is the share of utility, labour overhead and
administration cost. For detail production cost see Appendix 7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (year three)

Items Cost
(000 Birr) %
Raw Material and Inputs 36,333 80.20
Utilities 11 0.02
Maintenance and repair 499 1.10
Labour direct 1,350 2.98
Labour overheads 338 0.75
Administration Costs 250 0.55
Land lease cost 0 0.00
Cost of marketing and distribution 500 1.10
Total Operating Costs 39,281 86.71
Depreciation 3,881 8.57
Cost of Finance 2,140 4.72
Total Production Cost 45,302 100.00

C. FINANCIAL EVALUATION

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 5.25 million to Birr 9.10 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
 182-17

flow amounts to Birr 81.52 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.

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.

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 22,050,000
Variable Margin ratio (%)

Break Even Capacity utilization = Break even Sales Value X 100 = 31.94%
Sales revenue

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 3 years.
 182-18

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
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 29.63% indicating the viability of the
project.

6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to 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
non-negative. Accordingly, the net present value of the project at 10% discount rate is found to
be Birr 36.25 million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 51 persons. The project will generate Birr 23.17 million
in terms of tax revenue. The establishment of such factory will have a foreign exchange saving
effect to the country by substituting the current imports. The project will also create forward
linkage with the electrical and electronic equipments manufacturing sub sector and also
generates other income for the Government.
 182-19

Appendix 7.A

FINANCIAL ANALYSES SUPPORTING TABLES

 182-20

Appendix 7.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
6,358.2
Total inventory 8 8,174.93 9,083.25 9,083.25 9,083.25 9,083.25 9,083.25 9,083.25 9,083.25 9,083.25
2,303.8
Accounts receivable 9 2,950.24 3,273.42 3,273.42 3,274.84 3,274.84 3,274.84 3,274.84 3,274.84 3,274.84

Cash-in-hand 23.69 30.46 33.85 33.85 34.08 34.08 34.08 34.08 34.08 34.08
CURRENT 8,685.8 11,155.6 12,390.5 12,390.5 12,392.1 12,392.1 12,392.1 12,392.1 12,392.1 12,392.1
ASSETS 6 3 1 1 8 8 8 8 8 8

Accounts payable 107.86 138.68 154.08 154.08 154.08 154.08 154.08 154.08 154.08 154.08

CURRENT
LIABILITIES 107.86 138.68 154.08 154.08 154.08 154.08 154.08 154.08 154.08 154.08
TOTAL
WORKING 8,578.0 11,016.9 12,236.4 12,236.4 12,238.0 12,238.0 12,238.0 12,238.0 12,238.0 12,238.0
CAPITAL 0 5 3 3 9 9 9 9 9 9
 182-21

Appendix 7.A.2
PRODUCTION COST ( in 000 Birr)

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

Raw Material and Inputs 25,433 32,700 36,333 36,333 36,333 36,333 36,333 36,333 36,333 36,333

Utilities 8 10 11 11 11 11 11 11 11 11

Maintenance and repair 349 449 499 499 499 499 499 499 499 499

Labour direct 945 1,215 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350

Labour overheads 237 304 338 338 338 338 338 338 338 338

Administration Costs 175 225 250 250 250 250 250 250 250 250

Land lease cost 0 0 0 0 17 17 17 17 17 17

Cost of marketing
and distribution 500 500 500 500 500 500 500 500 500 500

Total Operating Costs 27,647 35,403 39,281 39,281 39,298 39,298 39,298 39,298 39,298 39,298

Depreciation 3,881 3,881 3,881 3,881 3,881 205 205 205 205 205

Cost of Finance 0 2,446 2,140 1,834 1,529 1,223 917 611 306 0

Total Production Cost 31,528 41,730 45,302 44,996 44,708 40,726 40,420 40,115 39,809 39,503
 182-22

Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)

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

Sales revenue 36,750 47,250 52,500 52,500 52,500 52,500 52,500 52,500 52,500 52,500
Less variable costs 27,147 34,903 38,781 38,781 38,781 38,781 38,781 38,781 38,781 38,781

VARIABLE MARGIN 9,603 12,347 13,719 13,719 13,719 13,719 13,719 13,719 13,719 13,719
in % of sales revenue 26.13 26.13 26.13 26.13 26.13 26.13 26.13 26.13 26.13 26.13
Less fixed costs 4,381 4,381 4,381 4,381 4,398 722 722 722 722 722

OPERATIONAL MARGIN 5,222 7,966 9,338 9,338 9,321 12,997 12,997 12,997 12,997 12,997
in % of sales revenue 14.21 16.86 17.79 17.79 17.75 24.76 24.76 24.76 24.76 24.76
Financial costs 2,446 2,140 1,834 1,529 1,223 917 611 306 0
GROSS PROFIT 5,222 5,520 7,198 7,504 7,792 11,774 12,080 12,385 12,691 12,997
in % of sales revenue 14.21 11.68 13.71 14.29 14.84 22.43 23.01 23.59 24.17 24.76
Income (corporate) tax 0 0 0 2,251 2,338 3,532 3,624 3,716 3,807 3,899
NET PROFIT 5,222 5,520 7,198 5,252 5,455 8,242 8,456 8,670 8,884 9,098
in % of sales revenue 14.21 11.68 13.71 10.00 10.39 15.70 16.11 16.51 16.92 17.33
 182-23

Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 23,184 47,659 47,281 52,515 52,500 52,500 52,500 52,500 52,500 52,500 52,500 17,215
Inflow funds 23,184 10,909 31 15 0 0 0 0 0 0 0 0
Inflow operation 0 36,750 47,250 52,500 52,500 52,500 52,500 52,500 52,500 52,500 52,500 0
Other income 0 0 0 0 0 0 0 0 0 0 0 17,215
TOTAL CASH
OUTFLOW 23,184 38,556 43,375 45,713 46,423 46,223 47,110 46,896 46,682 46,468 43,197 0
Increase in fixed assets 23,184 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 8,686 2,470 1,235 0 2 0 0 0 0 0 0
Operating costs 0 27,147 34,903 38,781 38,781 38,798 38,798 38,798 38,798 38,798 38,798 0
Marketing and
Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0
Income tax 0 0 0 0 2,251 2,338 3,532 3,624 3,716 3,807 3,899 0
Financial costs 0 2,223 2,446 2,140 1,834 1,529 1,223 917 611 306 0 0
Loan repayment 0 0 3,057 3,057 3,057 3,057 3,057 3,057 3,057 3,057 0 0
SURPLUS (DEFICIT) 0 9,103 3,905 6,802 6,077 6,277 5,390 5,604 5,818 6,032 9,303 17,215
CUMULATIVE CASH
BALANCE 0 9,103 13,009 19,811 25,888 32,165 37,554 43,158 48,976 55,007 64,310 81,525
 182-24

Appendix 7.A.5
DISCOUNTED CASH FLOW ( in 000 Birr)

Year Year Year Year Year

Item Year 1 2 Year 3 4 Year 5 6 Year 7 8 Year 9 10 Year 11 Scrap
TOTAL CASH INFLOW 0 36,750 47,250 52,500 52,500 52,500 52,500 52,500 52,500 52,500 52,500 17,215

Inflow operation 0 36,750 47,250 52,500 52,500 52,500 52,500 52,500 52,500 52,500 52,500 0

Other income 0 0 0 0 0 0 0 0 0 0 0 17,215

TOTAL CASH OUTFLOW 31,762 30,086 36,622 39,281 41,534 41,636 42,830 42,922 43,014 43,105 43,197 0

Increase in fixed assets 23,184 0 0 0 0 0 0 0 0 0 0 0

Increase in net working capital 8,578 2,439 1,219 0 2 0 0 0 0 0 0 0

Operating costs 0 27,147 34,903 38,781 38,781 38,798 38,798 38,798 38,798 38,798 38,798 0

Marketing and Distribution cost 0 500 500 500 500 500 500 500 500 500 500 0

Income (corporate) tax 0 0 0 2,251 2,338 3,532 3,624 3,716 3,807 3,899 0

NET CASH FLOW -31,762 6,664 10,628 13,219 10,966 10,864 9,670 9,578 9,486 9,395 9,303 17,215
-
CUMULATIVE NET CASH FLOW -31,762 25,098 -14,470 -1,251 9,715 20,579 30,249 39,827 49,313 58,708 68,011 85,225

Net present value -31,762 6,058 8,783 9,932 7,490 6,746 5,458 4,915 4,425 3,984 3,587 6,637
-
Cumulative net present value -31,762 25,704 -16,921 -6,989 501 7,247 12,705 17,620 22,046 26,030 29,617 36,254

NET PRESENT VALUE 36,254

INTERNAL RATE OF RETURN 29.63%
NORMAL PAYBACK 3 years