ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on Generating and distributing

Electric power

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....................................................................................................3
3.1.3 Pricing and Distribution...........................................................................................3
3.2 Plant Capacity..................................................................................................................3
3.3 Production Program.........................................................................................................3
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...............................................................................................4
6 Technology and Engineering............................................................................4
6.1 Production Process...........................................................................................................4
6.2 Machinery and Equipment...............................................................................................5
6.3 Civil Engineering Cost....................................................................................................6
7 Human Resource and Training Requirement................................................6
7.1 Human Resource..............................................................................................................6
7.2 Training Requirement......................................................................................................6
8 Financial Analysis.............................................................................................7
8.1 Underlying Assumption...................................................................................................7
8.2 Investment........................................................................................................................7
8.3 Production Costs..............................................................................................................8
8.4 Financial Evaluation........................................................................................................9
9 Economic and Social Benefit and Justification.............................................10
ANNEXES...............................................................................................................11
 1. Executive Summary
This project profile deals with generating and distributing of electric power in Amhara National
Regional State. The following presents the main findings of the study

Demand projection divulges that there is growing demand for electric power and is increasing
with time. Accordingly, the planned plant is set to produce 600 kwh annually. The total
investment cost of the project including working capital is estimated at Birr 701.14 thousand and
creates 8 job opportunity and Birr 124.56 thousand.

The financial result indicates that the project will generate profit beginning from the second year
of operation. Moreover, the project will break even at 47.5% of capacity utilization and it will
payback fully the initial investment less working capital in 4 years. The result further show that
the calculated IRR of the project is 18.2% and NPV discounted at 18% of Birr 4,359.17
indicating that the project is not that much attractive.

The proposed project possesses some economic and social benefits such as increasing the level
of investment, tax revenue and employment creation.

2. Product Description and Application

Electric power is a form of energy which could be produced by diesel, hydropower and other
sources. The electric energy is used for producing electric lights and electric power which are
consumed by residential, commercial and by other entities which consume power. This project
profile deals with the production and distribution of electric power and light in small urban area
of Amhara region using diesel generators. A diesel generator is the combination of a diesel
engine with an electrical generator to generate electric energy. Diesel generators are used in
places without connection to the power grid

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 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The Ethiopian situation reveals that currently only 22% of the population has access to electricity
where the supply of electric power is essentially confined to the main urban areas of the country. The
population’s limited access to electricity constitutes a major barrier to economic development and to
the provision of social services in rural areas

The government has taken several measures to address the power sector issues. Among other things, this
includes permitting the participation of domestic private investors in the production and supply of
electrical energy with an installed capacity of up to 25 mega-watts. On the other hand, production and
supply of electrical energy with an installed capacity of above 25 mega-watts is open to foreign investors.
The provision embraces the development of small and medium scale capacity plants from diesel, coal,
gas, hydro and other sources. Nonetheless, so far it is the Ethiopian Electric and Power Corporation
(EEPCO) engaged in the generation and distribution of electric power in the country. The
corporation derives the electricity from two sources: hydro and diesel. According to a report
from the corporation in 2005/06, the majority of the electricity has been derived from hydro
power (98.5%) while the remaining (1.5%) was secured from diesel power.

In 2005 the government has set up Rural Electrification Program with the aim of lighting
numerous rural townships and localities. Basically, the objective of the program is to increase
coverage of electrification to 50% in the year 2011. If the trend of rural electrification continues
in this pattern, almost all rural towns of Amhara region would benefit from electricity supply
within the coming few years. Such possible outcome suggests that private investment in
electricity generation and distribution using diesel power may not be a feasible option from a
long run point of view.

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 3.1.2 Projected Demand

According to a report obtained from EEPCO, at present the annual growth rate of electric
demand is about 17 percent. Judged by any standard, this indicates the presence of ample
demand for a small scale power generation and distribution plant.

The envisaged plant is set to provide the service in the small towns of the region that are not yet
covered by the rural electrification program of the government. As small towns are
intermediaries between the rural hinterland and the large urban centers, they perform a number
of functions related to collection, distribution and production. Thus, it is believed that such towns
do have ample and growing demand for electric power.

3.1.3 Pricing and Distribution

Based on the capacity of the envisaged plant, the price is set to be one Birr per kwh. This price is
very expensive when we compare it with the current price set by EEPCO. That is, the maximum
rate that EEPCO currently charges for residential houses is Birr 0.55/kwh. This maximum fare is
set only on those that consume more than 450 kwh per month. The envisaged plant set a
relatively higher price so as to obtain the minimum feasible return.

3.2 Plant Capacity

The envisaged plant is set to produce 600,000 kwh annually. The capacity of the plant is
developed based on the assumption that there are 1000 families/homes that each demand 50kwh
per month for lighting purpose.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will generate and
distribute electric power every day throughout the year from 6:30PM up to 10:00PM. During the
first year of operation the plant will operate at 80 percent capacity and then it grows to 90
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 the demand already exists and logistics
barriers would take place for the first two years of operation.

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 4. Raw Materials and Utilities
4.1 Availability and Source of Raw Materials

For the proposed service, the main inputs are diesel fuel and lubricant oil. These two inputs are
needed for the smooth operation of the generators. These inputs will be obtained from the nearby
local fuel station.

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 1 here under

Table 1: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Diesel 36,500 lit 255,500
Lubricant Oil 250 lit 6,000
Total Material Cost 261,500

Based on table 1, the annual material cost of production is estimated to be Birr 261,500

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of market for the
output are small towns of the region that are not covered with electric power.

6 Technology and Engineering

6.1 Production Process

The process of generating and distributing electric power is very simple. It simply needs
generator, electric cables and transmitting poles. Once these machines and equipments are in
place the next step is extending the transmission lines to houses and operating the generator.

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 6.2 Machinery and Equipment

The machineries and equipment required for generating and distributing electric power is
detailed in table 2 below

Table 2: Machinery and Equipment

Machinery and Equipment Quantity

Generator (Medium Scale) 1
Electric Poles 100
Electric wires (Low Voltage ) 2,000 mt
Cross Arms 100

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 suppliers for the envisaged plant

Guangzhou Panyu Saonon Electric & Machine Co., Ltd

Tel: 86-20-8466-6588
Fax: 86-20-8466-3988
285 Yingbin Road, Panyu District,
Guangzhou City, China, Guangzhou, Anhui, China

Taizhou Fengde Mechanical＆Electrical Manufacturing Co., Ltd

Tel: 86-523-8608-2598
Fax: 86-523-8622-5700
Zhanbei Road, Agriculture Development Zone Taizhou，
Jiangsu province, R. P. China, Jiangsu, China

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 6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 100m 2 where 50m2 is allocated to the
generator house and the remaining space is left for stores (30m 2), office buildings and facilities
(20m2).

7 Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 3 below

Table 3: Human Resource Requirement

No. Monthly Total Annual

Position Required Salary Salary
Manager/Skilled Electrician 1 3500 42000
Store Keeper 1 700 8400
Electrician 2 1000 24000
Cash Collector 3 750 27000
Guards 1 350 4200
Benefit (20%) 21120
Total 8 126720

The envisaged plant creates 8 jobs opportunity and about Birr 126.72 thousand of income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

7.2 Training Requirement

On job training of personnel shall be conducted that primarily focuses on the production
technology, machinery maintenance and trouble shooting. To realize this Birr 5,000 will be
allocated as training expense.

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8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of generating and distributing electric power 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 1% 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
Spare Parts in Stock and Maintenance 30
Cash in Hand 30

8.2 Investment

The total investment cost of the project including working capital is estimated at Birr 701.14
thousand as shown in table 4 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 4: Total initial investment

Items L.C F.C Total

Land
300 300
Building and civil works
100,000 100,000
Office equipment
10,000 10,000
Vehicles
0 0
Plant machinery & equipment
130,000 350,000 480,000
Total fixed investment cost
240,300 350,000 590,300
Pre production capital
expenditure* 66,800 66,800
Total initial investment
307,100 350,000 657,100
Working capital at full capacity
44,048 0 44,048
Total 351,148 350,000 701,148
*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 49.9% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 501.39 thousand as
detailed in table 5 below.

Table 5: Production Cost

Items Cost
1. Raw materials 261,500
2. Wages and Salaries 124,560
3. Spares and Maintenance 5,903
Plant Costs 391,963
4. Depreciation 67,360
5. Financial costs 42,069
Total Production Cost 501,392

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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 second year of operation. Ratios such as the percentage
of net profit to total sales, return on equity and return on total investment are 12%, 23% and 17%
in the second 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 47.5% 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 4 years.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 14.7%

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
18.2% and the net present value at 18 % discount is Birr 4,359.17

VI. Sensitivity Analysis

The envisaged plant is sensitive to an increase in cost of production. That is when cost increases
by 10%, the payback period of the plant will jump to almost 5 years.

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9 Economic and Social Benefit and Justification

The envisaged project possesses some benefits that promote the socio-economic goals and
objectives stated in the strategic plan of the Amhara National Regional State. These benefits are
listed as follows

A. Profit Generation

The project earns a profit of Birr 765.06 thousand within the project life.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 308.44 from corporate
tax payment alone. 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 8 professionals as well as support
stuffs. Consequently the project creates income of Birr 124.56 thousands per year. This would be
one of the commendable accomplishments of the project.

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ANNEXES

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 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 80% 90% 100% 100%

1. Total Inventory 0.00 0.00 47189.15 53087.79 58986.44 58986.44

Raw Materials in Stock- Total 0.00 0.00 22821.82 25674.55 28527.27 28527.27

Raw Material-Local 0.00 0.00 22821.82 25674.55 28527.27 28527.27

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 0.00 0.00 0.00 0.00 0.00 0.00

Spare Parts in Stock and Maintenance 0.00 0.00 1545.51 1738.70 1931.89 1931.89

Work in Progress 0.00 0.00 0.00 0.00 0.00 0.00

Finished Products 0.00 0.00 0.00 0.00 0.00 0.00

2. Accounts Receivable 0.00 0.00 0.00 0.00 0.00 0.00

3. Cash in Hand 0.00 0.00 10870.69 12229.53 13588.36 13588.36

CURRENT ASSETS 0.00 0.00 35238.02 39642.77 44047.53 44047.53

4. Current Liabilities 0.00 0.00 0.00 0.00 0.00 0.00

Accounts Payable 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL NET WORKING CAPITAL REQUIREMENTS 0.00 0.00 35238.02 39642.77 44047.53 44047.53

INCREASE IN NET WORKING CAPITAL 0.00 0.00 35238.02 4404.75 4404.75 0.00

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 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 58986.44 58986.44 58986.44 58986.44 58986.44 58986.44

Raw Materials in Stock-Total 28527.27 28527.27 28527.27 28527.27 28527.27 28527.27

Raw Material-Local 28527.27 28527.27 28527.27 28527.27 28527.27 28527.27

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 0.00 0.00 0.00 0.00 0.00 0.00

Spare Parts in Stock and Maintenance 1931.89 1931.89 1931.89 1931.89 1931.89 1931.89

Work in Progress 0.00 0.00 0.00 0.00 0.00 0.00

Finished Products 0.00 0.00 0.00 0.00 0.00 0.00

2. Accounts Receivable 0.00 0.00 0.00 0.00 0.00 0.00

3. Cash in Hand 13588.36 13588.36 13588.36 13588.36 13588.36 13588.36

CURRENT ASSETS 44047.53 44047.53 44047.53 44047.53 44047.53 44047.53

4. Current Liabilities 0.00 0.00 0.00 0.00 0.00 0.00

Accounts Payable 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL NET WORKING CAPITAL REQUIREMENTS 44047.53 44047.53 44047.53 44047.53 44047.53 44047.53

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

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 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 328550.00 372597.53 480000.00 540000.00 600000.00 600000.00
1. Inflow Funds 328550.00 372597.53 0.00 0.00 0.00 0.00
Total Equity 131420.00 149039.01 0.00 0.00 0.00 0.00
Total Long Term Loan 197130.00 223558.52 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 0.00 0.00 480000.00 540000.00 600000.00 600000.00
Sales Revenue 0.00 0.00 480000.00 540000.00 600000.00 600000.00
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 328550.00 328550.00 467032.33 482635.53 541448.81 531154.42
4. Increase In Fixed Assets 328550.00 328550.00 0.00 0.00 0.00 0.00
Fixed Investments 295150.00 295150.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 33400.00 33400.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 35238.02 4404.75 4404.75 0.00
6. Operating Costs 0.00 0.00 318568.08 357633.41 396698.73 396698.73
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 28161.73 30685.86
8. Interest Paid 0.00 0.00 113226.23 50482.62 42068.85 33655.08
9.Loan Repayments 0.00 0.00 0.00 70114.75 70114.75 70114.75
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 44047.53 12967.67 57364.47 58551.19 68845.58
Cumulative Cash Balance 0.00 44047.53 57015.20 114379.66 172930.85 241776.43

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 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00
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 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00
Sales Revenue 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00
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 525264.78 523383.14 517493.50 441489.11 441489.11 441489.11
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 396698.73 396698.73 396698.73 396698.73 396698.73 396698.73
7. Corporate Tax Paid 33209.99 39742.12 42266.25 44790.38 44790.38 44790.38
8. Interest Paid 25241.31 16827.54 8413.77 0.00 0.00 0.00
9. Loan Repayments 70114.75 70114.75 70114.75 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 74735.22 76616.86 82506.50 158510.89 158510.89 158510.89
Cumulative Cash Balance 316511.65 393128.50 475635.00 634145.89 792656.78 951167.67

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 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 480000.00 540000.00 600000.00 600000.00

1. Inflow Operation 0.00 0.00 480000.00 540000.00 600000.00 600000.00

Sales Revenue 0.00 0.00 480000.00 540000.00 600000.00 600000.00

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 328550.00 328550.00 353806.11 362038.16 429265.21 427384.59

3. Increase in Fixed Assets 328550.00 328550.00 0.00 0.00 0.00 0.00

Fixed Investments 295150.00 295150.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 33400.00 33400.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 35238.02 4404.75 4404.75 0.00

5. Operating Costs 0.00 0.00 318568.08 357633.41 396698.73 396698.73

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 28161.73 30685.86

NET CASH FLOW -328550.00 -328550.00 126193.89 177961.84 170734.79 172615.41

CUMMULATIVE NET CASH FLOW -328550.00 -657100.00 -530906.11 -352944.27 -182209.47 -9594.06

Net Present Value (at 18%) -328550.00 -278432.20 90630.49 108313.07 88063.11 75451.79

Cumulative Net present Value -328550.00 -606982.20 -516351.71 -408038.64 -319975.54 -244523.75

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 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00

1. Inflow Operation 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00

Sales Revenue 600000.00 600000.00 600000.00 600000.00 600000.00 600000.00

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 429908.72 436440.85 438964.98 441489.11 441489.11 441489.11

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 396698.73 396698.73 396698.73 396698.73 396698.73 396698.73

6. Corporate Tax Paid 33209.99 39742.12 42266.25 44790.38 44790.38 44790.38

NET CASH FLOW 170091.28 163559.15 161035.02 158510.89 158510.89 158510.89

CUMMULATIVE NET CASH FLOW 160497.22 324056.37 485091.39 643602.28 802113.17 960624.06

Net Present Value (at 18%) 63007.18 51345.31 42841.46 35737.24 30285.80 25665.93

Cumulative Net present Value -181516.57 -130171.26 -87329.80 -51592.56 -21306.76 4359.17

Net Present Value (at 18%) 4,359.17

Internal Rate of Return 18.2%

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 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 80% 90% 100% 100% 100%

1. Total Income 480000.00 540000.00 600000.00 600000.00 600000.00

Sales Revenue 480000.00 540000.00 600000.00 600000.00 600000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 272663.38 306746.31 340829.23 340829.23 340829.23
VARIABLE MARGIN 207336.62 233253.69 259170.77 259170.77 259170.77
(In % of Total Income) 43.20 43.20 43.20 43.20 43.20
3. Less Fixed Costs 113264.70 118247.10 123229.50 123229.50 123229.50
OPERATIONAL MARGIN 94071.92 115006.59 135941.27 135941.27 135941.27
(In % of Total Income) 20 21 23 23 23
4. Less Cost of Finance 113226.23 50482.62 42068.85 33655.08 25241.31
5. GROSS PROFIT -19154.31 64523.97 93872.42 102286.19 110699.96
6. Income (Corporate) Tax 0.00 0.00 28161.73 30685.86 33209.99
7. NET PROFIT -19154.31 64523.97 65710.69 71600.33 77489.97
RATIOS (%)
Gross Profit/Sales -4% 12% 16% 17% 18%
Net Profit After Tax/Sales -4% 12% 11% 12% 13%
Return on Investment 14% 17% 15% 15% 15%
Return on Equity -7% 23% 23% 26% 28%

Annex 4: NET INCOME STATEMENT (in Birr):Continued

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 PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 600000.00 600000.00 600000.00 600000.00 600000.00

Sales Revenue 600000.00 600000.00 600000.00 600000.00 600000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 340829.23 340829.23 340829.23 340829.23 340829.23
VARIABLE MARGIN 259170.77 259170.77 259170.77 259170.77 259170.77
(In % of Total Income) 43 43 43 43 43
3. Less Fixed Costs 109869.50 109869.50 109869.50 109869.50 109869.50
OPERATIONAL MARGIN 149301.27 149301.27 149301.27 149301.27 149301.27
(In % of Total Income) 25 25 25 25 25
4. Less Cost of Finance 16827.54 8413.77 0.00 0.00 0.00
5. GROSS PROFIT 132473.73 140887.50 149301.27 149301.27 149301.27
6. Income (Corporate) Tax 39742.12 42266.25 44790.38 44790.38 44790.38
7. NET PROFIT 92731.61 98621.25 104510.89 104510.89 104510.89
RATIOS (%)
Gross Profit/Sales 22% 23% 25% 25% 25%
Net Profit After Tax/Sales 15% 16% 17% 17% 17%
Return on Investment 16% 15% 15% 15% 15%
Return on Equity 33% 35% 37% 37% 37%

Annex 5: Projected Balance Sheet (in Birr)

8
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 328550.00 701147.53 701147.53 676402.44 671998.38 673483.96
1. Total Current Assets 0.00 44047.53 92253.22 154022.44 216978.38 285823.96
Inventory on Materials and Supplies 0.00 0.00 24367.33 27413.25 30459.16 30459.16
Work in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Finished Products in Stock 0.00 0.00 0.00 0.00 0.00 0.00
Accounts Receivable 0.00 0.00 0.00 0.00 0.00 0.00
Cash in Hand 0.00 0.00 10870.69 12229.53 13588.36 13588.36
Cash Surplus, Finance Available 0.00 44047.53 57015.20 114379.66 172930.85 241776.43
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 328550.00 657100.00 589740.00 522380.00 455020.00 387660.00
Fixed Investment 0.00 295150.00 590300.00 590300.00 590300.00 590300.00
Construction in Progress 295150.00 295150.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 33400.00 66800.00 66800.00 66800.00 66800.00 66800.00
Less Accumulated Depreciation 0.00 0.00 67360.00 134720.00 202080.00 269440.00
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 19154.31 0.00 0.00 0.00
TOTAL LIABILITIES 328550.00 701147.53 701147.53 676402.44 671998.38 673483.96
5. Total Current Liabilities 0.00 0.00 0.00 0.00 0.00 0.00
Accounts Payable 0.00 0.00 0.00 0.00 0.00 0.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 197130.00 420688.52 420688.52 350573.76 280459.01 210344.26
Loan A 197130.00 420688.52 420688.52 350573.76 280459.01 210344.26
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 131420.00 280459.01 280459.01 280459.01 280459.01 280459.01
Ordinary Capital 131420.00 280459.01 280459.01 280459.01 280459.01 280459.01
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 -19154.31 45369.66 111080.35
9.Net Profit After Tax 0.00 0.00 0.00 64523.97 65710.69 71600.33
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 0.00 64523.97 65710.69 71600.33

Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION
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TOTAL ASSETS 680859.17 703476.03 731982.53 836493.42 941004.31 1045515.20
1. Total Current Assets 360559.17 437176.03 519682.53 678193.42 836704.31 995215.20
Inventory on Materials and Supplies 30459.16 30459.16 30459.16 30459.16 30459.16 30459.16
Work in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Finished Products in Stock 0.00 0.00 0.00 0.00 0.00 0.00
Accounts Receivable 0.00 0.00 0.00 0.00 0.00 0.00
Cash in Hand 13588.36 13588.36 13588.36 13588.36 13588.36 13588.36
Cash Surplus, Finance Available 316511.65 393128.50 475635.00 634145.89 792656.78 951167.67
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 320300.00 266300.00 212300.00 158300.00 104300.00 50300.00
Fixed Investment 590300.00 590300.00 590300.00 590300.00 590300.00 590300.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 66800.00 66800.00 66800.00 66800.00 66800.00 66800.00
Less Accumulated Depreciation 336800.00 390800.00 444800.00 498800.00 552800.00 606800.00
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 680859.17 703476.03 731982.53 836493.42 941004.31 1045515.20
5. Total Current Liabilities 0.00 0.00 0.00 0.00 0.00 0.00
Accounts Payable 0.00 0.00 0.00 0.00 0.00 0.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 140229.51 70114.75 0.00 0.00 0.00 0.00
Loan A 140229.51 70114.75 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 280459.01 280459.01 280459.01 280459.01 280459.01 280459.01
Ordinary Capital 280459.01 280459.01 280459.01 280459.01 280459.01 280459.01
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 182680.69 260170.66 352902.27 451523.52 556034.41 660545.30
9. Net Profit After Tax 77489.97 92731.61 98621.25 104510.89 104510.89 104510.89
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 77489.97 92731.61 98621.25 104510.89 104510.89 104510.89

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