Investment Office ANRS

Project Profile on the Establishment of paints,

varnishes and pigments making plant

Development Studies Associates

(DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary..........................................................................................1
2. Product Description and Application..............................................................1
3. Market Study, Plant Capacity and Production Program..............................2
3.1 Market Study...................................................................................................................2
3.1.1 Present Demand and Supply....................................................................................2
3.1.2 Projected Demand....................................................................................................2
3.1.3 Pricing and Distribution...........................................................................................3
3.2 Plant Capacity..................................................................................................................3
3.3 Production Program.........................................................................................................4
4. Raw Materials and Utilities..............................................................................4
4.1 Availability and Source of Raw Materials.......................................................................4
4.2 Annual Requirement and Cost of Raw Materials and Utilities.......................................4
5 Location and Site...............................................................................................5
6 Technology and Engineering............................................................................5
6.1 Production Process...........................................................................................................5
6.2 Machinery and Equipment...............................................................................................6
6.3 Civil Engineering Cost....................................................................................................7
7 Human Resource and Training Requirement................................................8
7.1 Human Resource..............................................................................................................8
7.2 Training Requirement......................................................................................................8
8 Financial Analysis.............................................................................................9
8.1 Underlying Assumption...................................................................................................9
8.2 Investment........................................................................................................................9
8.3 Production Costs............................................................................................................10
8.4 Financial Evaluation......................................................................................................11
9 Economic and Social Benefit and Justification.............................................12
ANNEXES...............................................................................................................13
 1. Executive Summary
This project profile deals with the establishment of paints making plant in Amhara National
Regional State. The following presents the main findings of the study

Demand projection divulges that the domestic demand for paint is substantial and is increasing
with time. Accordingly, the planned plant is set to produce 200 thousand liters of paint annually.
The total investment cost of the project including working capital is estimated at Birr 2.9 million
and creates 39 jobs opportunity and 398,160 Birr of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 22.2% of capacity utilization and it will
payback fully the initial investment less working capital in 2 years. The result further show that
the calculated IRR of the project is 36.7 and NPV discounted at 18% of Birr 2,024,062.84

In addition to this, the proposed project possesses wide range of economic and social benefits
such as increasing the level of investment, tax revenue, employment creation and import
substitution

Generally’ the project is technically feasible, financially and commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Product Description and Application

Paint is a fluid suspension of finely ground pigments in a resinous liquid known as the "vehicle."
When applied to a surface as a thin liquid film, it changes to solid. Generally, paint is largely
organic coatings applied to surfaces to provide both protective and decorative functions

Paint is made in batches because the huge variety of uses and variation in raw materials require
adjustments of its properties. The kind of plant varies somewhat according to the kinds and
amounts of paint to be made and whether the process starts with raw or partially processed
materials.
Varnish ;---------

1
Pigments;---------

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

At present there are 9 firms engaged in the production of paint (CSA, Annual abstract 2006). The
outputs are used to decorate walls of buildings and metallic materials such as doors, window
frames and the like. Table 1 shows the annual domestic demand for the products.

Table 1: Domestic Demand for Paints (in liters)

Year Demand
1997/98 4,086,000
1998/99 4,621,000
1999/00 4,715,000
2000/01 4,362,000
2001/02 8,924,000
2002/03 8,394,000
2003/04 8,950,000
2004/05 8,187,000
2005/06 10,349,000

Source: CSA, (various yeas)

The above table shows that there is huge demand for paint where the demand has grown by
about 153% from 4.086 million liters in 1997/98 to 10.349 million litters in 2005/06. In general,
the performance reveals that the sector is growing on average by 16.4% every year. Measured by
any standard, this growth rate is very substantial and pinpoints the relevance of establishing a
small scale plant.

3.1.2 Projected Demand

The future demand for the product mainly depends on the expansion in the construction of new
residential and business complexes as well as repair of the existing ones. Currently the country is
witnessing a boom in the construction sector throughout the country. Especially in Addis Ababa

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a number of high rise buildings are under construction in a number of locations. This promising
growth of the sector is expected to continue in the future as well. In projecting the future demand
for the product, 10% growth rate is assumed conservatively although, the average annual growth
rate has been 16.4% for the past several years under consideration. Accordingly, the forecasted
demand is presented in table 2 below.

Table 2: Projected Demand for Paints

Year Projected Demand

2007/08 12,522,290
2008/09 13,774,519
2009/10 15,151,971
2010/11 16,667,168
2011/12 18,333,885
2012/13 20,167,273
2013/14 22,184,001
2014/15 24,402,401
2015/16 26,842,641
2016/17 29,526,905

As shown in table 2 above, demand for the product attractively increases in the future
highlighting the relevance of establishing a small scale plant.

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price of
washable plastic emulsion paint is set to be Birr 13 per litter and Birr 25 per liter of metallic
(synthetic enamel) paint. In distributing the output the firm shall use the available retail and
wholesale networks

3.2 Plant Capacity

Thus, given the expected demand for paints as presented earlier, and the planned technology, the
envisaged plant is set to produce 200 thousand litters annually of which 140 thousand is
washable plastic emulsion paint while the remaining 60 thousand is metallic paint. The capacity

3
of the envisaged plant is only 1.3% of the forecasted demand in 2009/10. The proposed plant
shall mainly produce paint colors that do have high demand in the market.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 70 percent capacity and then it grows to 85
percent in the 2nd year. The capacity will grow to 100 percent starting from the 3 rd year. This
consideration is developed based on the assumption that there is a high and growing demand for
the product so that market and logistics barriers would be eliminated within the first two years of
operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The main raw materials used in the production process are pigments, solvents, resins, vegetable
oils, varnishes, alkyds and polyvinyl acetate (PVA) emulsions. Some of the raw materials
(pigments, solvents, polyvinyl acetate emulsions and resins) are imported from abroad because
the manufacturing requires complex, capital-intensive operations. The other inputs (vegetable
oils, varnishes and alkyds) are purchased from domestic sources.

4.2 Annual Requirement and Cost of Raw Materials

and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 here under

4
 Table 3 Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Pigments 20,000 lit 180,000
Solvents 5,000 lit 90,000
Resins 5,000 lit 125,000
Polyvinyl acetate emulsions 10,000 lit 120,000
Vegetable oils 5,000 lit 60,000
Varnishes 10,000 210,000
Alkyds 15,000 lit 300,000
Packages-Tin 50,000 120,000
Packages-Carton 12,5000 25,000
Total Material Cost 655,000 575,000
Utility
Electricity 185,000 101,750
Water 7,000 m3 18,550
Total Utility Cost 120,300

According to the above table, the total cost of material and utility at full capacity of operation is
estimated to be Birr 1,350,300

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of infrastructure as
well as market for the output are Bahir Dar and Combolcha

6 Technology and Engineering

6.1 Production Process

For both large and small plants the main steps in paint manufacture are as follows.
I. Mixing and dispersion.
Pigments are usually added to the vehicle by blending the ingredients in a paste mixer. The paste
that is formed consists of poorly mixed aggregates of pigment and vehicle; this paste is brought
to a specified fineness and uniformity by using an appropriate mill. "Grinding" or shearing wets
the individual pigment particles with the liquid vehicle and further reduces the size of the

5
pigment aggregates. For emulsion paints, such as the PVA's, the pigments must be dispersed
separately in a mixture of surface-active agents and hydrophilic gums.

II. Thinning down and adjusting.

The paste is usually further blended with vehicle, driers, fungicides, and other additives. It is
then tinted with colored dispersions to match a desired color standard.

III. Testing
The paint is tested against standards for color, application properties, and other features. It is
then adjusted to meet agreed specifications and released for marketing.

IV. Filtration and packaging.

Filtration is often performed at the time of packaging to remove lumps from the product.

The alternative technological option available is related to the production of some part of the inputs used in the
production process. This however, requires huge capital investment and is not recommended in the short and
medium stage of the plant life.

6.2 Machinery and Equipment

The machineries and equipment required for producing paints is detailed in table 4 below

Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Steel tanks or drums (200-L) 1
Mixing tank (400 Lit) 1
Mixing tank (1,200 Lit) 1
Portable mixers (several) 1
large paddle mixer 1
Pebble mill (about 1,200 Lit capacity) 1
Sand mill (about 120 L/h capacity) 1
Small 3-roll mill 1
Several pumps 1
Filter press or centrifugal filter 1
Lift trucks 1
Stand-by electric generator 1
Storage tanks and filling line 1
Scales of different sizes 1

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The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 450,000

The following are some of the machineries suppliers’ address for the envisaged project
Universal Engineering Systems

Address: 16, K. K. Gupta Industrial Estate, Mulund West,

Mumbai, Maharashtra - 400 080, India
Phone: +(91)-(22)-25677581/55974236

Irsha Engineers Pvt. Ltd.

Address: 8, Aradhana, Pandit Deendayal Marg,

Dombivli (W), Thane, Maharashtra - 421 202, India
Phone: +(91)-(251)-2488262
Fax: +(91)-(251)-2484814
Website: http://www.indiamart.com/company

Raymer Engineering

Address: 20, Thakkar Ind. Estate, 3rd- Floor, Unit No. 7,

Chapsi Bhimji Road, Mazgaon, Mumbai, Maharashtra - 400 010, India
Phone: +(91)-(22)-23774333
Fax: +(91)-(22)-23729904
Website: http://www.raymerengineering.com

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 1500m 2 where 750m2 is allocated to
the production place and the remaining space is left for stores (50m 2), office buildings and
facilities (50m2). The remaining space is left for future expansion.

7
7 Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 5 below

Table 5: Human Resource Requirement

No. Monthly Total Annual

Position Required Salary Salary
Manager/Chemical Engineer 1 4000 48000
Administration and Finance 1 2000 24000
Accountant 1 1000 12000
Secretary 1 850 10200
Sales Clerk 1 600 7200
Chemist 1 1000 12000
Store Keeper 1 600 7200
Technician 2 1000 24000
Supervisor 2 1200 28800
Operators 15 600 108000
Laborers 6 300 21600
Cleaners 2 300 7200
Driver 1 600 7200
Guards 4 300 14400
Benefit (20%) 66360
Total 39 398160

The envisaged plant creates 39 job opportunity and about Birr 398.16 thousand of income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. Birr 30,000 will be allocated as training expense.

8
8 Financial Analysis
8.1 Underlying Assumption
The financial analysis of paint producing plant is based on the data provided in the preceding
chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

Building 5%
Machinery and equipment 10%
Office furniture 10%
Vehicles 20%
Pre-production (amortization) 20%

C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 2.9 million
as shown in table 6 below. The Owner shall contribute 40% of the finance in the form of equity
while the remaining 60% is to be financed by bank loan.

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 Table 6: Total initial investment

Items L.C F.C Total

Land 4,500 4,500
Building and civil works 1,500,000 1,500,000
Office equipment 40,000 40,000
Vehicles 250,000 250,000
Plant machinery & equipment 0 450,000 450,000
Total fixed investment cost 1,794,500 450,000 2,244,500
Pre production capital expenditure* 112,225 112,225
Total initial investment 1,906,725 450,000 2,356,725
Working capital at full capacity 298,471 250,909 549,380
Total 2,205,196 700,909 2,906,105

*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.

The foreign component of the project accounts for 24.1% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 2.14 million as detailed in
table 7 below.

Table 7: Production Cost

Items Cost
1. Raw materials 1,230,000
2. Utilities 120,300
3. Wages and Salaries 398,160
4. Spares and Maintenance 22,445
Factory costs 1,770,905
5. Depreciation 196,445
6. Financial costs 174,366
Total Production Cost 2,141,716

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 8.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 17%, 35% and 32% in
the first year and are gradually rising. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 22.2% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in 2 years time.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 33.1%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
36.7% and the net present value at 18 % discount is Birr 2,024,062.84

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector. This result is accompanied with payback period of 2 months and 4 years.

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9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that help promote the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It also
plays positive role in diversifying the economic activity by enhancing the industrial sector of the
region. The other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 8.63 million within the
project life. Such result induces the project promoters to reinvest the profit which, therefore,
increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 5.85 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

C. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 26 professionals as well as support
stuffs. Consequently the project creates income of Birr 2,282 thousands per year. This would be
one of the commendable accomplishments of the project.

12
ANNEXES

13
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0.00 0.00 70% 85% 100% 100%

1. Total Inventory 0.00 0.00 570628.88 692906.49 815184.11 815184.11

Raw Materials in Stock- Total 0.00 0.00 225654.55 274009.09 322363.64 322363.64

Raw Material-Local 0.00 0.00 50018.18 60736.36 71454.55 71454.55

Raw Material-Foreign 0.00 0.00 175636.36 213272.73 250909.09 250909.09

Factory Supplies in Stock 0.00 0.00 1502.34 1824.27 2146.20 2146.20

Spare Parts in Stock and Maintenance 0.00 0.00 5141.95 6243.79 7345.64 7345.64

Work in Progress 0.00 0.00 37558.50 45606.75 53655.00 53655.00

Finished Products 0.00 0.00 75117.00 91213.50 107310.00 107310.00

2. Accounts Receivable 0.00 0.00 253527.27 307854.55 362181.82 362181.82

3. Cash in Hand 0.00 0.00 39591.49 48075.38 56559.27 56559.27

CURRENT ASSETS 0.00 0.00 638093.09 774827.33 911561.56 911561.56

4. Current Liabilities 0.00 0.00 253527.27 307854.55 362181.82 362181.82

Accounts Payable 0.00 0.00 253527.27 307854.55 362181.82 362181.82

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 384565.82 466972.78 549379.75 549379.75

INCREASE IN NET WORKING CAPITAL 0.00 0.00 384565.82 82406.96 82406.96 0.00

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 815184.11 815184.11 815184.11 815184.11 815184.11 815184.11

Raw Materials in Stock-Total 322363.64 322363.64 322363.64 322363.64 322363.64 322363.64

Raw Material-Local 71454.55 71454.55 71454.55 71454.55 71454.55 71454.55

Raw Material-Foreign 250909.09 250909.09 250909.09 250909.09 250909.09 250909.09

Factory Supplies in Stock 2146.20 2146.20 2146.20 2146.20 2146.20 2146.20

Spare Parts in Stock and Maintenance 7345.64 7345.64 7345.64 7345.64 7345.64 7345.64

Work in Progress 53655.00 53655.00 53655.00 53655.00 53655.00 53655.00

Finished Products 107310.00 107310.00 107310.00 107310.00 107310.00 107310.00

2. Accounts Receivable 362181.82 362181.82 362181.82 362181.82 362181.82 362181.82

3. Cash in Hand 56559.27 56559.27 56559.27 56559.27 56559.27 56559.27

CURRENT ASSETS 911561.56 911561.56 911561.56 911561.56 911561.56 911561.56

4. Current Liabilities 362181.82 362181.82 362181.82 362181.82 362181.82 362181.82

Accounts Payable 362181.82 362181.82 362181.82 362181.82 362181.82 362181.82

TOTAL NET WORKING CAPITAL REQUIRMENTS 549379.75 549379.75 549379.75 549379.75 549379.75 549379.75

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 1178362.50 1727742.25 2577527.27 2876327.27 3374327.27 3320000.00
1. Inflow Funds 1178362.50 1727742.25 253527.27 54327.27 54327.27 0.00
Total Equity 471345.00 691096.90 0.00 0.00 0.00 0.00
Total Long Term Loan 707017.50 1036645.35 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 253527.27 54327.27 54327.27 0.00
2. Inflow Operation 0.00 0.00 2324000.00 2822000.00 3320000.00 3320000.00
Sales Revenue 0.00 0.00 2324000.00 2822000.00 3320000.00 3320000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 1178362.50 1178362.50 2359441.11 2164080.23 2741368.81 2580223.29
4. Increase In Fixed Assets 1178362.50 1178362.50 0.00 0.00 0.00 0.00
Fixed Investments 1122250.00 1122250.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 56112.50 56112.50 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 638093.09 136734.23 136734.23 0.00
6. Operating Costs 0.00 0.00 1262275.95 1527495.98 1792716.00 1792716.00
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 346941.81 357403.79
8. Interest Paid 0.00 0.00 459072.06 209239.54 174366.28 139493.03
9. Loan Repayments 0.00 0.00 0.00 290610.47 290610.47 290610.47
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 549379.75 218086.17 712247.05 632958.46 739776.71
Cumulative Cash Balance 0.00 549379.75 767465.91 1479712.96 2112671.42 2852448.13

Annex 2: Cash Flow Statement (in Birr): Continued

3
 PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00
Sales Revenue 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 2555812.01 2553134.23 2528722.95 2213701.20 2213701.20 2213701.20
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 1792716.00 1792716.00 1792716.00 1792716.00 1792716.00 1792716.00
7. Corporate Tax Paid 367865.77 400061.25 410523.22 420985.20 420985.20 420985.20
8. Interest Paid 104619.77 69746.51 34873.26 0.00 0.00 0.00
9. Loan Repayments 290610.47 290610.47 290610.47 0.00 0.00 0.00
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 764187.99 766865.77 791277.05 1106298.80 1106298.80 1106298.80
Cumulative Cash Balance 3616636.12 4383501.88 5174778.93 6281077.73 7387376.53 8493675.33

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

4
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 2324000.00 2822000.00 3320000.00 3320000.00

1. Inflow Operation 0.00 0.00 2324000.00 2822000.00 3320000.00 3320000.00

Sales Revenue 0.00 0.00 2324000.00 2822000.00 3320000.00 3320000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 1178362.50 1178362.50 1646841.77 1609902.94 1875122.96 2150119.79

3. Increase in Fixed Assets 1178362.50 1178362.50 0.00 0.00 0.00 0.00

Fixed Investments 1122250.00 1122250.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 56112.50 56112.50 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 384565.82 82406.96 82406.96 0.00

5. Operating Costs 0.00 0.00 1262275.95 1527495.98 1792716.00 1792716.00

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 0.00 357403.79

NET CASH FLOW -1178362.50 -1178362.50 677158.23 1212097.06 1444877.04 1169880.21

CUMMULATIVE NET CASH FLOW -1178362.50 -2356725.00 -1679566.77 -467469.71 977407.33 2147287.54

Net Present Value (at 18%) -1178362.50 -998612.29 486324.50 737719.69 745251.50 511365.42

Cumulative Net present Value -1178362.50 -2176974.79 -1690650.29 -952930.60 -207679.10 303686.32

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

5
 PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00

1. Inflow Operation 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00

Sales Revenue 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 2160581.77 2192777.25 2203239.22 2213701.20 2213701.20 2213701.20

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 1792716.00 1792716.00 1792716.00 1792716.00 1792716.00 1792716.00

6. Corporate Tax Paid 367865.77 400061.25 410523.22 420985.20 420985.20 420985.20

NET CASH FLOW 1159418.23 1127222.75 1116760.78 1106298.80 1106298.80 1106298.80

CUMMULATIVE NET CASH FLOW 3306705.77 4433928.52 5550689.30 6656988.10 7763286.90 8869585.70

Net Present Value (at 18%) 429485.08 353863.44 297100.99 249421.78 211374.39 179130.84

Cumulative Net present Value 733171.40 1087034.84 1384135.83 1633557.61 1844932.00 2024062.84

Net Present Value (at 18%) 2,024,062.84

Internal Rate of Return 36.7%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 70% 85% 100% 100% 100%

1. Total Income 2324000.00 2822000.00 3320000.00 3320000.00 3320000.00

Sales Revenue 2324000.00 2822000.00 3320000.00 3320000.00 3320000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1126208.65 1367539.08 1608869.50 1608869.50 1608869.50
VARIABLE MARGIN 1197791.35 1454460.93 1711130.50 1711130.50 1711130.50
(In % of Total Income) 51.54 51.54 51.54 51.54 51.54
3. Less Fixed Costs 332512.30 356401.90 380291.50 380291.50 380291.50
OPERATIONAL MARGIN 865279.05 1098059.03 1330839.00 1330839.00 1330839.00
(In % of Total Income) 37 39 40 40 40
4. Less Cost of Finance 459072.06 209239.54 174366.28 139493.03 104619.77
5. GROSS PROFIT 406206.99 888819.48 1156472.72 1191345.97 1226219.23
6. Income (Corporate) Tax 0.00 0.00 346941.81 357403.79 367865.77
7. NET PROFIT 406206.99 888819.48 809530.90 833942.18 858353.46
RATIOS (%)
Gross Profit/Sales 17% 31% 35% 36% 37%
Net Profit After Tax/Sales 17% 31% 24% 25% 26%
Return on Investment 32% 39% 34% 33% 33%
Return on Equity 35% 76% 70% 72% 74%

7
 Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00

Sales Revenue 3320000.00 3320000.00 3320000.00 3320000.00 3320000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1608869.50 1608869.50 1608869.50 1608869.50 1608869.50
VARIABLE MARGIN 1711130.50 1711130.50 1711130.50 1711130.50 1711130.50
(In % of Total Income) 52 52 52 52 52
3. Less Fixed Costs 307846.50 307846.50 307846.50 307846.50 307846.50
OPERATIONAL MARGIN 1403284.00 1403284.00 1403284.00 1403284.00 1403284.00
(In % of Total Income) 42 42 42 42 42
4. Less Cost of Finance 69746.51 34873.26 0.00 0.00 0.00
5. GROSS PROFIT 1333537.49 1368410.74 1403284.00 1403284.00 1403284.00
6. Income (Corporate) Tax 400061.25 410523.22 420985.20 420985.20 420985.20
7. NET PROFIT 933476.24 957887.52 982298.80 982298.80 982298.80
RATIOS (%)
Gross Profit/Sales 40% 41% 42% 42% 42%
Net Profit After Tax/Sales 28% 29% 30% 30% 30%
Return on Investment 35% 34% 34% 34% 34%
Return on Equity 80% 82% 85% 85% 85%

8
 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 1178362.50 2906104.75 3565839.01 4218375.29 4791622.99 5334954.69
1. Total Current Assets 0.00 549379.75 1405559.01 2254540.29 3024232.99 3764009.69
Inventory on Materials and Supplies 0.00 0.00 232298.83 282077.15 331855.47 331855.47
Work in Progress 0.00 0.00 37558.50 45606.75 53655.00 53655.00
Finished Products in Stock 0.00 0.00 75117.00 91213.50 107310.00 107310.00
Accounts Receivable 0.00 0.00 253527.27 307854.55 362181.82 362181.82
Cash in Hand 0.00 0.00 39591.49 48075.38 56559.27 56559.27
Cash Surplus, Finance Available 0.00 549379.75 767465.91 1479712.96 2112671.42 2852448.13
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 1178362.50 2356725.00 2160280.00 1963835.00 1767390.00 1570945.00
Fixed Investment 0.00 1122250.00 2244500.00 2244500.00 2244500.00 2244500.00
Construction in Progress 1122250.00 1122250.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 56112.50 112225.00 112225.00 112225.00 112225.00 112225.00
Less Accumulated Depreciation 0.00 0.00 196445.00 392890.00 589335.00 785780.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 1178362.50 2906104.75 3565839.01 4218375.29 4791622.99 5334954.69
5. Total Current Liabilities 0.00 0.00 253527.27 307854.55 362181.82 362181.82
Accounts Payable 0.00 0.00 253527.27 307854.55 362181.82 362181.82
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 707017.50 1743662.85 1743662.85 1453052.37 1162441.90 871831.42
Loan A 707017.50 1743662.85 1743662.85 1453052.37 1162441.90 871831.42
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 471345.00 1162441.90 1162441.90 1162441.90 1162441.90 1162441.90
Ordinary Capital 471345.00 1162441.90 1162441.90 1162441.90 1162441.90 1162441.90
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 406206.99 1295026.47 2104557.37
9. Net Profit After Tax 0.00 0.00 406206.99 888819.48 809530.90 833942.18
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 406206.99 888819.48 809530.90 833942.18

9
 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 5902697.68 6545563.45 7212840.49 8195139.29 9177438.09 10159736.89
1. Total Current Assets 4528197.68 5295063.45 6086340.49 7192639.29 8298938.09 9405236.89
Inventory on Materials and Supplies 331855.47 331855.47 331855.47 331855.47 331855.47 331855.47
Work in Progress 53655.00 53655.00 53655.00 53655.00 53655.00 53655.00
Finished Products in Stock 107310.00 107310.00 107310.00 107310.00 107310.00 107310.00
Accounts Receivable 362181.82 362181.82 362181.82 362181.82 362181.82 362181.82
Cash in Hand 56559.27 56559.27 56559.27 56559.27 56559.27 56559.27
Cash Surplus, Finance Available 3616636.12 4383501.88 5174778.93 6281077.73 7387376.53 8493675.33
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 1374500.00 1250500.00 1126500.00 1002500.00 878500.00 754500.00
Fixed Investment 2244500.00 2244500.00 2244500.00 2244500.00 2244500.00 2244500.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 112225.00 112225.00 112225.00 112225.00 112225.00 112225.00
Less Accumulated Depreciation 982225.00 1106225.00 1230225.00 1354225.00 1478225.00 1602225.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 5902697.68 6545563.45 7212840.49 8195139.29 9177438.09 10159736.89
5. Total Current Liabilities 362181.82 362181.82 362181.82 362181.82 362181.82 362181.82
Accounts Payable 362181.82 362181.82 362181.82 362181.82 362181.82 362181.82
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 581220.95 290610.47 0.00 0.00 0.00 0.00
Loan A 581220.95 290610.47 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 1162441.90 1162441.90 1162441.90 1162441.90 1162441.90 1162441.90
Ordinary Capital 1162441.90 1162441.90 1162441.90 1162441.90 1162441.90 1162441.90
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 2938499.55 3796853.01 4730329.25 5688216.77 6670515.57 7652814.37
9. Net Profit After Tax 858353.46 933476.24 957887.52 982298.80 982298.80 982298.80
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 858353.46 933476.24 957887.52 982298.80 982298.80 982298.80

10