1.

EXECUTIVE SUMMARY
Investment in manufacturing is able to give higher benefit beside of its high uncertainty. The uncertainty
depends on many factors. The influence of the identified risk then has to be evaluated and calculated towards
the project feasibility. Before investment, the feasibility of the project has to be done that gives figures of cash
flow on the following years. This can be one of the considerations for making a decision whether this project
is feasible or not. Risks that overshadow the manufacture have to be calculated as an influential factor towards
the failure of a business. This study aims to know the feasibility of the project investment by calculating all
factors and treatment. Starting from Technical then continued with financial analysis for the feasibility study
and also sensitivity analysis. The study shows that the parameter investment value will be increased when
treatment is done on risk.

Every manufacturing project should give benefits for the investor. These benefits consist of profit, business
development, resources utilization, job opportunities, etc. Profits are achieved in long period and should have
an accurate investment forecast so the investors still have willingness to invest their money. Effective and
efficient use of resource not only reduces the routine expenditures but also exchange into income source.
Project feasibility study is used to get the alternatives of optimal resource use that give the highest profits.
Feasibility study analysis also gives information about the value of investment and the benefits that investors
will get. Definite return of investment can be seen from feasibility study. Commonly, Net Present Value
(NPV), Internal Rate of Return (IRR) and Payback Period are value that used by investor to consider this
project is feasible or not. According to the characteristic of manufacturing industry, this has high uncertainty,
so it will be occurs many risks during construction phase and or operational building. Risks can influence the
profit and it will decrease the feasibility parameter until infeasible condition for investing the project. To
those assumption, risks should have been anticipated and calculate it into the feasibility analysis so the not
happening for risks will be the addition advantage for the investor.
Lucy Industry PLC is established by six friend shareholders namely Dawit G/anenia, Fitsum G/cherkos,
Menbere Wendemagegne, Mekdes Zewdu, Hailegergois Mogos and Yodit werku with paid up Capital of Birr
6,000,000. The company is established with the objectives of involving in manufacturing and establishing
factories preferable in productions and distribution of potato chips mainly for the local market due to its
durability, environmental friendly, cost effectiveness, etc, it used widely for the living in cities.
The market and pricing strategy of the project is a mix of market penetration and competitive pricing strategy.
This to be supported by the marketing mixes of channel of distribution and promotion. The company will
involve in export market to the following nearby East Africa countries like Sudan, south Sudan, Djibouti,
Kenya, Eritrea and Somalia after some periods.
The basic raw materials and inputs required for the production of Potato and oil are identified and described in
this study, their availability and supply, as well as the method of estimating the resulting operating cost, are
analyzed and described.

Accordingly, the total investment cost is determined to be birr 59 million of which of Birr 34 million is
allocated for fixed asset investment while Birr 25 million goes for working capital need for the project. Out of
the total investment cost Birr 53,440,164 (90%) will be covered from Bank Loan while the remaining Birr 6
million (10%) will be covered by the promoters.

Furthermore, the project is also financially viable and capable to achieve its objective covering all its costs
even in adverse condition that can possible affect either project cost or revenue. Based on projections made
the project will generate net profit of birr 34 million during the projected year.

The cash flow projection also shows a positive growth in cumulative cash balance Birr 24 million project
years. This implies that the project will not face liquidity constrain in finance its operational cost and service
its debt obligation.

The internal rate of return (IRR) of the project is 25% before tax and 15% after tax, which is much above the
cost of capital. Besides, an after tax net present value (NPV) of the project is determined to be Birr 53.9
million at discount rate of 8%.

The sensitivity of the project viability for 10% revenue decrease, 10% incremental for operating cost and 10%
investment cost incremental for the after tax benefit are found to be 12%, 13% and 13% respectively which
shows that the project has the capacity to absorb external shock and attain its objective of its establishment.

The project also has great contribution for Socio economic development of the country by creating permanent
and temporary employment opportunity for professional, skilled, semi skilled as well as unskilled workers. In
addition, the project plays crucial role in contribution of the government income through profit tax. Moreover,
the project will also decrease the outflow of foreign currency as an import substitution industry.
 1.1 BACKGROUND INFORMATION
1.1 THE PROMOTER AND SHAREHOLDER PROFILE
Lucy Industry PLC was established in December 01,2022G.C as family based business entity according to
commercial code of Ethiopia with TIN certificate; Trade Registration Number and its investment licenses
number with an investment capital of birr 120,800. The company main office is founded in Addis Ababa City
Administration BOLE sub city wereda 01 Zemen Building office number 303.
Table-1 Owners and their Shareholding
No Name Number of shares Par Value Total paid
1 Dawit G/anenia 1,000 1,000 1,000,000
2 Fitsum G/cherkos 1,000 1,000 1,000,000
3 Menbere Wendemagegne 1,000 1,000 1,000,000
4 Mekdes Zewdu 1,000 1,000 1,000,000
5 Hailegergois Mogos 1,000 1,000 1,000,00
6 Yodit werku 1,000 1,000 1,000,000
Total 6,000 6,000,000

1.2 PROJECT BACKGROUND AND BASIC IDEA

The Federal Democratic Republic of Ethiopia is located in the eastern part of the African continent,
commonly referred to as the Horn of Africa. In the past the country was facing Saudi Arabia across the Red
Sea, but with the independence of the State of Eritrea, the country became landlocked. The country borders
the Republic of Djibouti to the east, the Republic of the Sudan to the west, the Republic of Kenya to the south,
the Somali Democratic Republic to the southeast, and Eritrea to the North.
The total area of the country is 1.12 million square kilometers, which is roughly three times of Japan. The
total population is 120 million.
About two-third of total area lies on the 1,500-3,000m high African plateau therefore, the country has a
variety of climates due to altitude and geographical conditions, broadly classified into cold, mild, and hot
districts. The capital Addis Ababa is located at 2,400m above sea level with an average yearly temperature of
10-26ºC in the middle of cold and mild district, and has rainy seasons twice a year.
Back in 1853, George Crum took a thinly-sliced Yukon Gold potato, fried it in cottonseed oil, and added some
sea salt and invented what I’d say is now America’s favorite snack. I imagine he’d be proud to see that his
creation is once again available for consumption in its original form.
As reported on FoodProcessing.com, the resurrected Moon Brand Original Saratoga Chips is the brainchild of
Saratoga Specialties Co., Saratoga Springs, N.Y., which spent a great deal of time and money researching and
replicating the flavor and packaging of the first potato chip. The original Moon Brand Original Saratoga Chips
remained popular for more than 50 years, owner Dan Jameson told Food Processing. It was important for us to
stay true to the original recipe so that our chips taste exactly as they did in 1853. The chips are made by hand,
using just those three original ingredients: Yukon Gold potatoes, Tran’s fat-free cottonseed oil and sea salt.

Most potato chips contain high levels of sodium, from salt. This has been linked to health issues such as
high blood pressure. However, researchers at Queen Mary University of London in 2004 have noted that a
small "bag of ready-salted crisps" contains less salt than a serving of many breakfast cereals, including "every
brand of cornflakes on sale in the UK.

Some potato chip companies have responded to the long-standing concerns by investing in research and
development to modify existing recipes and create health-conscious products. PepsiCo research shows that
about 80% of salt on chips is not sensed by the tongue before being swallowed. Frito-Lay spent $414 million
in 2009 on product development, including development of salt crystals that would reduce the salt content
of Lay's potato chips without adversely affecting flavor.

Unsalted chips are available, e.g. the longstanding British brand Salt 'n' Shake, whose chips are not seasoned,
but instead include a small salt sachet in the bag for seasoning to taste. Many other popular brands in the
United States, such as Frito-Lay, also offer such a product.

One health scare related to potato chips focused on acrylamide, which is produced when potatoes are fried or
baked at high temperatures. This discovery in 2002 led to international health concerns. Subsequent research
has however found that it is not likely that the acrylamides in burnt or well-cooked food cause cancer in
humans; Cancer Research UK categorizes the idea that burnt food causes cancer as a "myth".

In August 2008, California Attorney General Jerry Brown announced a settlement with Frito-Lay, Kettle
Foods, and Lance Inc., the makers of Cape Cod Potato Chips, for violating the state's Safe Drinking Water and
Toxic Enforcement Act. The state had alleged in 2005 that potato chips from these companies failed to
document that they contained high levels of acrylamide, which is listed by California since the 1990s as
a carcinogen. These companies paid fines and agreed to reduce acrylamide levels to be less than 275 parts per
billion. Many potato chip manufacturers attempt to remove burned and thus potentially acrylamide-rich chips
before the packaging process. Large scanners are used to eliminate chips worst affected by heat.
 2. MARKET STUDY
2.1 OVERVIEW

This potato chips initial target market will be the affordable for those whom take snack in Addis Ababa
Ethiopia. Since minimal data exists on this specific segment, the market research portion of this report will be
divided into Two parts: first, the general manufacturing market in Ethiopia; second, the public user within
living in Addis Ababa.
Our Research Idea lies at the Living in Addis Ababa, it is rather hard not to notice the growing number of
street French fries vendors which are becoming as ubiquitous as Adey Ababa in September. While walking
around the city, if one happens to pass by any road of the city, one will encounter three or four street French
fries vendors.
French fries are one of the ‘street-vended foods’, which are defined as “foods and beverages prepared and sold
by vendors in streets and other public places for immediate consumption, or consumption at a later time
without further processing or preparation,” World Health Organization (WHO), 1996. Urbanization and
population growth are major causes for the increase in the number of street-vended foods, according to the
WHO. The business is a source of food security for the low income urban population, and provides a
livelihood for a large number of workers, giving them a chance to establish a business in a small capital, the
publication goes on to say.
Vendor1 is one such benefactor of a street-vended food business, who would otherwise be unable to establish
a business for want of capital. She started the business with only 1,700 Br, of this 1,500 Br was used to buy
the deep fat fryer, and the rest was used for plates, forks and miscellaneous items, according to vendor2. The
influx of cheap Chinese deep fat fryers has made it easier to start up the business, stated a salesperson at
Shalom International Trading Plc.
There are two prominent deep fat fryers in the market, the Korean’s and the Chinese, according to the sales
person. The deep fat fryers imported from China can be bought for 1,500 to 1,800 Br, if it is a single tank and
5,500 Br to 6,000 Br for the dual tank deep fat fryer. The Korean made fryer is better quality and costs 1,000
Br to 1,500 Br more. The deep fat fryer is easy to operate, there is one handle to turn it on and off, and to
increase or decrease the heat, stated a vendor.
Vendor 2 has used eight deep fat fryers to serve his customers, and 20 liters of food oil, and around two
quintals of potatoes per day. His business opens from 6:30 in the morning until 10 in the evening, serving
mostly students of the city. People who take leisure walking in the evening and workers that pass by from
work to home are also major French fries consumers, said vendor2. She mostly serves them from 4:30pm to
8:00 pm.
The cheap price of the food is one factor that attracts people, stated customer1. There are also customers like
customer 2 and customer3, a three year old toddler that came yelling for “two birr chips” that crave the taste
of the chips, which Fortune met while interviewing vendor2. Street French fries can be bought from two Birr
in some places.
It takes on average around 11 minutes to make potato chips, according to vendor2. Most of the vendors buy
the potatoes from AtikiltTera and the edible oil from consumers associations’ stores. The preferred potato for
fries is the Shashemene potato. At this time a five litter packing of edible oil is sold for 1150 Br and a kilo of
potato costs around twenty four Birr. But the tight oil supply is making it difficult to work uninterrupted, said
vendor3, married father of one. He used to work as a security guard before starting this business, which he
conducts from a small corner in front of Semen Hotel, renting electric power from a nearby house for 350 Br a
month. Electric power interruptions and high rent are other down sides to the business, stated vendor3.
Last year FMHACA published an article about the growing number of street-vended foods in the city, and
concerns of public health risks that comes with it. One concern was that the business had little awareness of
safe food handling, said Food, Medicine & Health Care Administration & Control Authority (FMHACA),
food registration and licensing directorate, director.
Street-vended foods should be prepared in a location that is clean and as far as possible from waste drainages,
according to the article, and water and food oil sanitation must also be given due attention. Furthermore, the
vegetables used in the process must be stored at an appropriate temperature, in clean and fresh state, the article
goes to explain. The handling and serving of end products, as well as hygiene of the vendors must be kept at a
high standard in order to prevent an outbreak of widespread food borne diseases, the article states. Most of the
vendors told Fortune they recycle the oil which has been used to fry once and use it for up to three days.
Vendor2 boils the potato with salt and lemon before she fries the potato, to keep the goods sanitary. But, this
does not mean all vendors have good habits, said vendor2. “If a community is to have the full benefit of street-
vended foods, with minimal risk of food borne diseases, governments intervention is required to ensure that
food safety standards are the best possible in the context of the prevailing local situation,” according to the
WHO.
Addis Ababa Food, Medicine & Health Care Administration & Control Authority (AAFMHACA) is the body
responsible for the quality, safety and healthy control of food and beverage in the Addis Ababa jurisdiction.
AAFMHACA gives a working license to food and beverage companies after inspection. It also takes the
initiative to train or, in some cases close businesses that fail to meet the standards it sets. It has an enforcement
body that extends to Woreda levels. However, since street vended foods business is an emerging new
business, and because of the lack of human resources, it is difficult for the authority to train them all or even
to incorporate them into the inspection system, said AAFMHACA, director intersection of these two
segments.
Ethiopia as a being a country where there is huge unmated demand for packed food manufacturing ,large
government as well as privet investment huge amount of budget is being channeled to the sector. This turn is
demand to be a key driving force for the demand of packed snack goods. To put the matter in prospect
according to AAFMHACA (2010) the government of Ethiopia estimates the demand to be between 900,000
and 1,000,000 units in urban areas in Addis Ababa alone 400,000 units were required to meet the deficit.

2.2 FACTORS AFFECTING DEMAND OF POTATO CHIPS

GDP economic growth

The last ten years the Ethiopian economy has been showing a growth of double digits. According to the
Ministry of Finance and Economy Development (MOFED), the growth of real GDP in 2017/18 is estimated to
be 10.4%. Whereas the estimation of IMF and international agencies was around 8.5% per annum in real
terms. The growth of the Ethiopian economy is directly related to the growth of the manufacturing sector
which in turn affecting the raw material likes oil.

Population growth

According to CSA, the Ethiopian population is predicted to reach 110 million in these days. This prediction is
made based on the finding of the 2007 population and hosing census. According this prediction, the
population growth was about 2.6% annually. According to this prediction Addis Ababa is the most densely
populated place with more than 4.5 million people.

As per the census result the distribution of the national population by broad age groups shows that the
proportion of young population under age 15 is about 40% while the proportion of the working age group 15-
64 is estimated to be 57%. Elder persons (65+) composition accounts 3% of the total population being the
lowest.

In this case being the population growth was about 2.6% while the major proportion has from the young
population which has no own hosing the demand for potato chips products are expected to grow in
tremendously the future.

Year 2016 2017 2018 2019 2020 2021

Population 100,000,000 102,600,000 105,267,000 108,004,558 110,812,676 113,693,806

number

Total country’s 2,200,000 2,283,200 2,368,563 2,456,146 2,546,006 2,638,702

demand in kg

DEMAND ANALYSIS
DEMAND PROJECTION

By considering the above we forecast the demand for the next 10 years as follows

Year Demand for potato chips in KG

2023 829,848,

2024 929,424,

2025 1,031,589

2026 1,136,410

2027 1,243,957

2028 1,354,300

2029 1,467,511

2030 1,583,667

2031 1,702,842

2032 1,825,116

SUPPLY ANALYSIS

Year Supply of potato chip forecast in KG Our Company production Total Supply
in KG Forecast

2023 235,204 114,000 349,204

2024 291,182 114,000 405,182

2025 360,484 114,000 474,484

2026 446,279 114,000 560,279

2027 552,494 114,000 666,494

2028 683,987 114,000 797,987

2029 846,776 114,000 960,776

2030 1,048,309 114,000 1,162,309

 2031 1,297,806 114,000 1,411,806

2032 1,606,684 114,000 1,720,684

DEMAND SUPPLY GAP

By considering the above demand and supply projection we can analyze the demand supply gap for the
next ten years

Year Demand in KG Supply in KG Demand – supply Gap

2023 829,848 349,204 480,644

2024 929,424 405,182 524,242

2025 1,031,589 474,484 557,105

2026 1,136,410 560,279 576,131

2027 1,243,957 666,494 577,463

2028 1,654,300 797,987 856,313

2029 1,867,511 960,776 906,735

2030 2,083,667 1,162,309 921,358

2031 2,356,842 1,411,806 945,036

2032 2,725,116 1,720,684 1,004,432

As it is seen in the above table the demand for potato chips is much more than the supply so that it even
welcomes other companies to involve in potato chips manufacturing.
2.3 MARKETING MIX

CHANNEL OF DISTRIBUTION

The marketing mix channel of distribution is about the company will distribution the product to the end users.
The company must distribute the product to the users at right the place at the right time. Efficient and effective
distribution is important if the company to make its overall marketing objective.

Ideally the channel of the product distribution can be made in different ways

➢ Directly selling to consumer: the factory directly sell to consumer

➢ Indirect selling to consumers: the factory indirectly sell to consumer through a medium of third party
as Agent, Wholesaler and Retailer
➢ A combination of both direct and indirect scale

The distribution system has economic benefits for the factory and the end consumer and it involves the
manufacturing or the intermediaries offering the right product in the right quantities at the reasonable prices
and at the right time.

The envisaged project could have a significant market share in the countries potato chips market. There could
be sales areas in the factory in Addis Ababa and in all other regional capital cities in collaboration of its
trading partners.

Promotion

A successful product or service means nothing unless the benefit of such a service can be communicated
clearly to the target market. Promotion is any activity to raise awareness of a product or to encourage
customers to purchase a product.

Promotion is a big tool to introduce new emerging companies in to the market. The envisaged project will
work a big job in promotion. It will require aggressive promotion and advertising through different mass
Medias such as TV, Radio, Magazines, calendar and others means. It also important to participate in different
trade fairs, bazaars of local and continental and do door to door promotion and target group workshop,
seminar and discussion with other demand needers.
The table below summarizes some of the promotion method.

Types of promotion Explanation

Advertising ➢ Door to door advertising and making target

group
➢ Communication through mass media the firm
will usually pay for this type of communication.
Eg. Through TV and Radio programs

Public Relations Developing a positive relationship between the

organization and the media and the public.

Good public relationship involves minimizing the

impact of negative situations.

Eg. Participating in different public programs such as

holiday programs

Internet Marketing Placing adverts on interest pages

Eg. Creating own website on internet

Social Media Placing periodic messages on social media such as face

book and telegram to keep customers interested in their
organization.

Sponsorship Sponsorship is commonly used in sporting events;

players clothing and stadiums will be covered in the
firms branding and even the tournament may be named
after the firm.

Pricing

The competition between potato chips producing and importing companies will be fierce in price, quality and
delivery time. The selling prices of potato chips are critical parameter for the existence and sustainability of
the company. A reasonable and competitive price will be set to compete in the market.
For the first years of production it will be very efficient to have a little bit lower selling prices than the other
competitors to introduce the product to the consumers. But in later years the price can be increased accordance
to the market conditions.

2.4 MARKETING AND PRICING STRATEGY

The project can adopt a number of pricing strategies the; the pricing strategy will usually be based on
company objective.

Market penetration pricing: Here the organization sets a low price to increases sales and market shares. Once
market share has been captured and when the number of customers increases the company can then increases
the prices. Since there are some other potato chips producers and importers to the Ethiopia market it will be
import to use the market penetration pricing strategy for a minimum of six months to one year. This will help
the customers to know the company and its product quality, delivery time and reliability.

Competition Pricing: this is setting of a price in comparison with other competitors. In reality a firm has three
options namely lower price, same price or higher prices than competitors. This is setting a selling price
assessment of other competitors will be required. Depending on the results of the prices assessment the
company can adjust the selling price.

As discussed above the prices strategy of product is important because it is an income source which
determinants how much profit the company can make. However, the challenge in here is the setting the right
pricing strategy and ensuring that the pricing strategy doesn’t turn customers way instead should attractive
new additional customers.

Therefore, the project will follow both the penetration pricing and competition pricing strategies and the year
one price will be Birr 1,500 per KG.

2.5 LOCAL AND EXPORT MARKET SHARE

The project is targeting its market initially in the local market while during time passes it will expand its
market to nearby African countries. The African countries in which the project is supporting to exports its
potato chips are Sudan, South Sudan, Kenya, Somalia, Djibouti and other East and Central African Countries
through the scheme of African free Trade Agreements. For the export market it will require further detail
market assessment when the plant is in operation and it is also important to assess and select reliable agents to
distribute the product in their respective countries and areas. If this is so the company will generate foreign
currency from the export proceeds, thus it will not have serious foreign currency problem to purchase spare
parts and other consumable materials from abroad. In this feasibility study it is considered that all the
products will be sold in local market. If the intended quantity of the product is sold to export market the
quantity put in the demand supply gap of the local market will be increased by the same amount.
 3. RAW MATERIAL
The raw materials we use to produce potato chips is depicted in the table here under. The main raw material is
potato which is founded 100% locally especially in the southern and northern part of our country. While the
rest materials used as ingredient are imported from abroad or purchased locally from suppliers and actually it
is found in the market easily.

Table: Raw material cost required

For production of one KG potato chips

Raw material UOM Quantity Price per Unit Total (Birr)

(Birr)

Potato KG 3.5KG 25 87.5

Oil L 0.5L 850 425.00

Flavor KG 0.05g 450 22.5

salts KG 0.005g 70 3.5

Plastic packaging PKT 20pkt 15 300.00

Total 839.00

RAW MATERIAL, CONSUMABLES AND UTILITIES

The basic raw material in the production of potato chips are potato its self, oil, flavor, salt and carton. Potato
vegetable is adequately available in the region of south and north part of Ethiopia. Most of our raw materials
came from the farmers association and some suppliers of potato. As well as Oil seeds and flavor came from
outside of Ethiopia which means fully purchased from importer suppliers. Carton and salts are produced on
Ethiopia so we can easily access the raw material consumption of the project.
 4. LOCATION

4.1 FACILITY LOCATION AND LAYOUT

FACILITY LOCATION
The strategic agendas of contemporary manufacturing particularly in this age of global markets and global
production; Dramatic changes in international trade agreements have made the world truly a “global factory,”
allowing our companies greater flexibility in their location choices.
Issues in Facility Location
The problem of facility location is faced by both new and existing businesses, and its solution is critical to a
company’s eventual success. An important element in designing a company’s supply chain is the location of
its facilities.
Proximity to customers: ensure that customer needs are incorporated into products being developed and
built.
Business climate: A favorable business climate can include the presence of similar-sized businesses, the
presence of companies in the same industry, and, in the case of international locations, and the presence of
other foreign companies. Pro business government legislation and local government intervention to facilitate
businesses locating in an area via subsidies, tax abatements, and other support are also factors.
Total costs: The objective is to select a site with the lowest total cost. This includes regional costs, inbound
distribution costs, and outbound distribution costs. Land, construction, labor, taxes, and energy costs make up
the regional costs. In addition, there are hidden costs that are difficult to measure. These involve (1) excessive
moving of preproduction material between locations before final delivery to the customers and (2) loss of
customer responsiveness arising from locating away from the main customer base.
Infrastructure: Adequate road, rail, air, and sea transportation are vital. Energy and telecommunications
requirements also must be met. In addition, the local government’s willingness to invest in upgrading
infrastructure to the levels required may be an incentive to select a specific location.
Quality of labor: The educational and skill levels of the labor pool must match the company’s needs. Even
more important are the willingness and ability to learn.
Suppliers: A high-quality and competitive supplier base makes a given location suitable. The proximity of
important suppliers’ plants also supports lean production methods.
Other Facilities: The location of other plants or distribution centers of the same company may influence a
new facility’s location in the network. Issues of product mix and capacity are strongly interconnected to the
location decision in this context.
Political risk: The fast-changing geopolitical scenes in numerous nations present exciting, challenging
opportunities. But the extended phase of transformation that many countries are undergoing makes the
decision to locate in those areas extremely difficult. Political risks in both the country of location and the host
country influence location decisions.
Government barriers: Barriers to enter and locate in many countries are being removed today through
legislation. Yet many non-legislative and cultural barriers should be considered in location planning.
Trading blocs: Firms typically locate, or relocate, within a bloc to take advantage of new market
opportunities or lower total costs afforded by the trading agreement. Other companies (those outside the
trading bloc countries) decide on locations within the bloc so as not to be disqualified from competing in the
new market.
Environmental regulation: The environmental regulations that impact a certain industry in a given location
should be included in the location decision. Besides measurable cost implications, these regulations influence
the relationship with the local community.
4.2 LOCATION MODELS
Various models are available which help to identify the ideal location. Some of the popular models are: factor
rating method
Factor rating method
Factor Factor Factor score at each Location Weighted score for each Location
Weight Factor Weight * (Factor score)
Location Location Location Location Location Location
sululta Alemgena Sebeta Sululta Debrezeyt Sebeta
Appearance 20 5 3 2 100 60 40
Ease of expansion 10 4 4 2 40 40 20
Proximity to market 20 2 3 5 40 60 100
Customer parking 15 5 3 3 75 45 45
Access 15 5 2 3 75 30 45
Competition 10 2 4 5 20 40 50
Labor supply 10 3 3 4 20 30 40
Total 100 380 305 340
When Considers both facility appearance and proximity to market the two most important factors, because has
rated each of these with a 20. Other factors are slightly less important. Note that shareholders selected the
factors first. Then decided weight them based on perception of their importance. He then computed a factor
score for each factor at each location. Looking at the factor scores selected, it appears that location of Sululta
is excellent based on appearance, parking, and access, but poor based on closeness to the market. Location
Sebeta is just the opposite, being excellent based on closeness to the market but poor based on facility
appearance. Location of Debrezeyt appears to be somewhere in the middle. To evaluate which location
alternative is best, shareholders needed to multiply the factor weight by the factor score for each factor at each
location and then sum them. The best location alternative is that with the highest factor rating score which
means Sululta .
4.3FACILITY LAYOUT
Facility Layout refers to the configuration of departments, work centers, and equipment, with particular
emphasis on movement of work (customers or materials) through the system. This section describes the main
types of layout designs and the models used to evaluate design alternatives.
4.4 LAYOUT PLANNING
Deciding on the best physical arrangement of all resources that consume space within a facility; these
resources might include a desk, a work center, a cabinet, a person, an entire office, or even a department.
Decisions about the arrangement of resources in a business are not made only when a new facility is being
designed; they are made any time there is a change in the arrangement of resources, such as a new worker
being added, a machine being moved, or a change in procedure being implemented. Also, layout planning is
performed any time there is an expansion in the facility or a space reduction.
The arrangement of resources in a facility can significantly affect the productivity of a business. A lot of
wasted time, energy, and confusion can result from a poor layout. There are also other reasons layout planning
is important. In many work environments, such as office settings, face-to-face interaction between workers is
important. Proper layout planning can be critical in building good working relationships, increasing the flow
of information, and improving communication. Similarly, in retail organizations layout can affect sales by
promoting visibility of key items and contributing to customer satisfaction and convenience. As you can see,
layout planning affects many areas of a business, and its importance should not be underestimated.
4.5 SIZE OF LAND AND OWNERSHIP
The company has will be leased a plot land measuring 3,000 m2 from Oromo Regional National State
Government around Sululta area. The total cost of the land is birr 2,600,000 and with advance payment of Birr
260,000 which is 10% of the total cost of the lease cost. The land lease payment per year is 48,800 for 50
years payment period.
5. PRODUCT DESCRIPTION AND APPLICATION
5.1 PRODUCT AND SERVICE DESIGN

Most of us might think that the design of a product is not that interesting. After all, it probably involves
materials, measurements, dimensions, and blueprints. When we think of design we usually think of car design
or computer design and envision (imagine) engineers working on diagrams. However product design is much
more than that. Product design brings together marketing analysts, art directors, sales forecasters, engineers,
finance experts, and other members of a company to think and plan strategically. It is exciting and creative,
and it can spell success or disaster for a company.

Product design is the process of defining all the features and characteristics of just about anything you can
think of. Product design also includes the design of services. Consumers respond to a product’s appearance,
color, texture, performance. All of its features, summed up, are the product’s design. Someone came up with
the idea of what this product will look like, taste like, or feel like so that it will appeal to you. This is the
purpose of product design. Product design defines a product’s characteristics, such as its appearance, the
materials it is made of, its dimensions and tolerances, and its performance standards.

5.2 THE PRODUCT DESIGN PROCESS

Certain steps are common in the development of most product designs. They are idea generation, product
screening, preliminary design and testing, and final design.

Idea Development

All product designs begin with an idea. The idea might come from a product manager who spends time with
customers and has a sense of what customers want, from an engineer with a talent for inventions, or from
anyone else in the company. To remain competitive, companies must be innovative and bring out new
products regularly. In some industries, the cycle of new product development is predictable.

In other industries, new product releases are less predictable but just as important. The Body Shop, retailer of
plant-based skin care products, periodically comes up with new ideas for its product lines. The timing often
has to do with the market for a product, and whether sales are declining or continuing to grow.

The first source of ideas is Customers, the driving force in the design of goods and services. Marketing is a
vital link between customers and product design. Market researchers collect customer information by studying
customer buying patterns and using tools such as customer surveys and focus groups. Management may love
an idea, but if market analysis shows that customers do not like it, the idea is not viable. Analyzing customer
preferences is an ongoing process. Customer preferences next year may be quite different from what they are
today. For this reason, the related process of forecasting future consumer preferences is important, though
difficult.

Competitors are another source of ideas. A company learns by observing its competitors’ products and their
success rate. This includes looking at product design, pricing strategy, and other aspects of the operation.
Studying the practices of companies considered “Best in Class” and comparing the performance of our
company against theirs is called Benchmarking.

Reverse Engineering another way of using competitors’ ideas is to buy a competitor’s new product and study
its design features. Using a process called Reverse Engineering; a company’s engineers carefully disassemble
the product and analyze its parts and features. Product design ideas are also generated by a company’s R & D
(Research and Development) department, whose role is to develop product and process innovation.
Suppliers are another source of product design ideas. To remain competitive many companies are developing
partnering relationships with their suppliers, to jointly satisfy the end customer.

5.3 PRODUCT SCREENING

After a product idea has been developed it is evaluated to determine its likelihood of success. This is called
product screening. The company’s product screening team evaluates the product design idea according to the
needs of the major business functions. In their evaluation, executives from each function area may explore
issues such as the following:

Operations: What are the production needs of the proposed new product and how do they match our existing
resources? Will we need new facilities and equipment? Do we have the labor skills to make the product? Can
the material for production be readily obtained?

Marketing: What is the potential size of the market for the proposed new product? How much effort will be
needed to develop a market for the product and what is the long-term product potential?

Finance: The production of a new product is a financial investment like any other. What is the proposed new
products’ financial potential, cost, and return on investment?

Unfortunately, there is no magic formula for deciding whether or not to pursue a particular product idea.
Managerial skill and experience, however, they are a key. Companies generate new product ideas all the time,
whether for a new brand of cereal or a new design for a car door. Approximately 80 percent of ideas do not
make it past the screening stage. Management analyzes operations, marketing, and financial factors, and then
makes the final decision.

5.4 PRELIMINARY DESIGN AND TESTING

Once a product idea has passed the screening stage, it is time to begin preliminary design and testing. At this
stage, design engineers translate general performance specifications into technical specifications. Prototypes
are built and tested. Changes are made based on test results, and the process of revising, rebuilding a
prototype, and testing continues. For service companies this may entail testing the offering on a small scale
and working with customers to refine the service offering. Fast-food restaurants are known for this type of
testing, where a new menu item may be tested in only one particular geographic area. Product refinement
(modification) can be time consuming, and there may be a desire on the part of the company to hurry through
this phase to rush the product to market. However, rushing creates the risk that all the “bugs” have not been
worked out, which can prove very costly.

5.5 FINAL DESIGN

Following extensive design testing the product moves to the final design stage. This is where final product
specifications are drawn up. The final specifications are then translated into specific processing instructions to
manufacture the product, which include selecting equipment, outlining jobs that need to be performed,
identifying specific materials needed and suppliers that will be used, and all the other aspects of organizing
the process of product production.

Potato chips are a convenience food that is made of fresh potatoes as raw material, then through cleaning, peeling,
slicing and flavoring, and other processes. Potato chips are popular among people for crispy, flavorful, nutritious,
inexpensive, and suitable for both young and old.
Potato chips are very thin slices of potato that have been fried until they are hard, dry, and crisp, and are eaten cold as a
snack. Potato chips are long, thin pieces of potato fried in oil or fat and eaten hot, usually with a meal.

For marketing purpose potato chips size range can be given different denominations. For example the following size
related to marketing terms for potato chips have become established.

• Potato size: long oval shape and at least diameter of 50mm and length can be longer than 80mm.
• 80mm to 100mm maximum diameter

• It is certainly not 4 kg of potatoes per kg of chips. Because a chip contains a lot of fat, around 35%, so
you need a bit less potatoes.

• Chips are made by frying potatoes, so the only addition is fat.

• A chip contains around 53 grams of sugar per 100gr, while potatoes contain around 17 grams of crabs
per 100gr. So we need 53/17 - which is roughly 3kg of potato to make one kg of chips.

5.6 STRATEGIC CAPACITY PLANNING IN OPERATIONS

The process of establishing the output rate that can be achieved a facility of planning. If a company does not
plan its capacity correctly, it may find that it either does not have enough output capability to meet customer
demands or has too much capacity sitting idle. In our university example, that would mean either not being
able to offer enough courses to accommodate all students or having too few students in the classrooms. Both
cases are costly to the university. Another example is a bakery. Not having enough capacity would mean not
being able to produce enough baked goods to meet sales. The bakery would often run out of stock, and
customers might start going somewhere else. Also, the bakery would not be able to take advantage of the true
demand available. On the other hand, if there is too much capacity, the bakery would incur the cost of an
unnecessarily large facility that is not being used, as well as much higher operating costs than necessary.
5.7 TIME HORIZONS FOR CAPACITY PLANNING
Capacity planning is generally viewed in three time durations:
• Long range-greater that one year: Where productive resources (such as buildings, equipment, or
facilities) take a long time to acquire or dispose of, long-range capacity planning requires top
management participation and approval.
• Intermediate range-monthly or quarterly plans for the next 6 to 18 months. Here, capacity may be
varied by such alternatives as hiring, layoffs, new tools, minor equipment purchases, and
subcontracting.
• Short range-less than one month: This is tied into the daily or weekly scheduling process and
involves making adjustments to eliminate the variance between planned and actual output. This
includes alternatives such as overtime, personnel transfer, and alternative production routings.
6. TECHNICAL STUDY
6.1 TECHNOLOGY SELECTION PROCESS

Potato Chips Machinery/French Fries and Chips Production Line

Automatic Potato Chips Plant

Introduction of Automatic Potato Chips Plant

The fully automatic potato chips production line is specially designed for processing potatoes into delicious
potato chips, with excellent quality.

Different capacities can be customized based on your own need.

Be assured that our potato chips manufacturing machine unit will help your commercial potato chip
manufacturing a profitable business and ensure a good margin.

☞ Capacities for choice: 100-150kg/hr, 200-250kg/hr, 350-400kg/h, and 400-500kg/hr.

☞ the proportion of potatoes and output potato chips is about 4:1.

☞ the automatic potato chips production line is fully automatic, which only need 6-8 persons to operate, so it
improves the production efficiency and reduces the cost of production largely.
 Model Capacity Electricity consumption Plant area

APC-100 100-150 kg/h 155.8 KWh 200 m²

APC-200 200-250 kg/h 209.7 KWh 300 m²

APC-350 350-400 kg/h 270.4 KWh 400 m²

APC-500 400-500 kg/h 380 KWh 600 m²

Automatic Potato Chips/Crisps Line Equipment

The automatic potato chips production line is a whole set of potato chips machinery. It consists of 10 main
machines and some auxiliary machines.

1. Potato washing and peeling machine

• This potato washing peeling machine is for medium and large potato chips plants.
• It integrates the function of washing and peeling.
• Equipped with a spiral discharge and spraying device, the machine has a strong cleaning ability,
without damage to materials.
• And it can be used for processing potatoes, carrots, cassava, and other root vegetables.

2. Potato slicing machine

• Used for cutting the potatoes into slices, and also suitable for other root vegetables, like carrots,
cassava, etc.
• With a large slicing capacity, this potato slicing machine can increase the potato chips line throughput
and save time and money.
• The thickness of the chips is adjustable.
3. Potato blanching machine

• This blanching machine is to blanch the chips or fries to protect chips or fries from changing color and
protect the natural taste
• Made of stainless steel which makes cleaning easier.
• Adjustable blanching time, automatically controlled water temperature, and double insulation material.

4. Vibration dewatering machine

• It can remove the extra water of potato chips by high-frequency vibration after blanching, its bottom is
with water discharging plate.
• Also to prevent the potato slices from sticking together, transport the potato slices uniformly into the
next machine at the same time.
• This vibrating dewatering screen is specially designed for processing fragile materials such as potato
chips and has a wide range of applications.
5. Air-blowing potato slices dewatering machine
• This potato dewatering machine is an air-blowing type, which can dewater continuously.
• The machine can remove the water from the surface of potato slices or potato strips by using strong air
at normal temperature.
• The dewatering step is prepared for the frying part, which shortens the frying time and perfects the
taste of the potato chips, potato crisps, or French fries.

6. Continuous potato chips frying machine

• Adopts oil-water mixing technology, so the sediment can be cleaned easily.
• Besides, the service time of the oil is prolonged.
• The cost is cut largely by making use of the oil-water mixing technology.
• Equipped with a mesh lifting system, easy to clean.
7. Vibration potato chips de-oiling machine
• By high-frequency vibration, this vibration deoiling machine can remove extra oil on fried potato
chips and French fries in an effective and efficient way.
• It can also prevent fried potato chips from sticking together.

8. Potato chips de-oiling cooling machine

• Widely used for removing the extra oil to ensure the potato chips, potato crisps or French fries taste
good and healthier for the human.
• While for further deoiling, the process can cool down the chips or fries, to prevent the chips or French
fries from clogging together for there is oil on the surface after vibrating the deoiling process. Besides,
after being cooled down, the potato snacks can be conveyed for the following processes, such as
flavoring and packaging.
 9. Potato chips flavoring machine
• The flavoring machine is made of stainless steel, it’s a fully automatic flavoring machine, has a big
seasoning rotary drum for continuous working.
• It can season all kinds of puffed food, fried food, potato chips, French fries, beans, nuts, snacks,
and so on.
• It can make slated/sweet/spicy flavors, colorful, and so on.

10. Automatic potato chips packing machine

• It can complete the whole procedure of feeding, measuring, bagging, date printing, nitrogen filling (if
need), finished product out-putting automatically.
• This vertical packing machine is the most popular packaging machine in the medium & large potato
chips/ French fries plant.
• Improves the packing efficiency and saves a lot of time.
• As fried potato chips are fragile, nitrogen is necessary to keep food fresh, tasty, and without damage.
Automatic Potato Chips/Crisps Plant Features
Potato Chips

★ Frying time: 3 minutes

★ Frying temperature: 180℃

★ Blanching time: 7-15 minutes

★ Blanching temperature: 70℃

French Fries

★ Frying time: 8-10 minutes

★ Frying temperature: 180℃

★ Blanching time: 7-15 minutes

★ Blanching temperature: 70℃

1 .High efficiency: the whole production line is easy to operate with high productivity.

2. Reliable performance: the potato chips and crisps have a good shape with a smooth surface and uniform
thickness. Besides, the thickness could be adjusted according to your requirements.

3. Multi-functional: potatoes, carrots, cassava, and other root-stem vegetables could be processed as raw
materials.

4. Safe: All the machines are made of stainless steel which accords with the healthy standards well.

5. Different capacities can be customized.

6. Heating methods for choice: electric heating or gas heating.

Potato chips production process
6.2 PLANT CAPACITY
Among the various raw materials used potato is one of the basic material that is used for the production of the
chips like which came to the company attention to acquire a production line for the manufacturing of potato
Chips with continuous process with a capacity of producing Potato size: long oval shape and at least diameter
of 50mm and length can be longer than 80mm. Regarding the availability of the raw materials the envisaged
project will use potato vegetable mainly which is highly available in our country as much as possible in plenty
amount particularly in the southern and northern part of the country.

Hence, the overall capacity of the plant will be 60%in the first year, 70%, 80%, and 90% in the second, third
and fourth and then after years productions respectively.
6.3 PROJECT CIVIL WORK AND ENGINEERING

The envisaged project building and construction consists of factory production building, different stories,
offices and service building, workshops and different infrastructure. The total area of these building and
construction is 3,000 m2 with estimated cost of Birr 12,699,343.00

The following table shows the detailed type of buildings and their respective value.

No Block Type/ Typology Quantity Total Amount

1 Office building 01 1,714,462

2 Main
2. production block two(2) 01 4,126,157

Main production and storage block three(3)

3 Septic
3. Tank 01 257,937

4 Guard House 2 950,000

5 Dressing
7. and Bath rooms 01 1,589,226

6 Energy plant space 01 542,964

7 Power house 02 248,357

8 Cafeteria 01 619,254

9 Raw material Store 01 989,678

10 Fence work 649,734

11 Pump house 01 254,678

12 Water Treatment 01 756,896

Total 12,699,343

Based on the specification of the envisage plant machinery and projects internal requirements the planned
project will undertakes different building and civil works such as land clearing and leveling, sub structure and
supper structure of production hall and support facility.
6.4 PROJECT MACHINERY AND EQUIPMENT REQUIREMENT
The machinery and equipment required for potato chips production line shown in table below. Production line
for the manufacturing of potato chips with continues press type
S/
N Description of machines/equipment Unit Required Total Cost
1 Potato washing and peeling machine 01 01
2 Potato slicing machine 01 01
3 Potato blanching machine 01 01
4 Vibration dewatering machine 01 01
5 Air-blowing potato slices dewatering 01 01
machine
6 Continuous potato chips frying machine 01 01
7 Vibration potato chips de-oiling machine 01 01
8 Potato chips de-oiling cooling machine 01 01
9 Potato chips flavoring machine 01 01
10 Automatic potato chips packing machine 01 01
Total 13,756,000
 7. ORGANIZATION AND MANAGEMENT
7.1 ORGANIZATIONAL STRUCTURE
The organizational structure of the companies depends on the type of the project and its objectives; hence, the
envisaged company organizational structure is designed to enable the full achievement of the project objective
and to support the administrative and operational task of the project. Further in particular structure
demonstrates how members are accepted how leadership is chosen and how decision is made. In relation to
this the management has to be effectively organized in direction that eases communication and task in line of
order. The figure depicts organization structure of the envisaged project. The General Manager is the apex
followed by three department production and technical, Finance and Administration and Marketing
Department. General Manager is responsible for the overall organization management direction and control of
all factory function units and to ensure that outputs meet objective and required standards of the company. In
order to achieve an effective operation of the firm it is necessary to have a realistic arrangement between
section as well as the employees; accordingly, the organizational structure of the envisaged project is shown
as below:

General Manager

External auditor Secretary

Marketing
Finance & Production
Manager
Administration Manager

Casher Accountant Store Keeper Personnel

The company is operated by employed professionals. The professionals manage the company and share all
managerial, administrative marketing, design, layout, and product development function. Effective planning
and estimating plus a clean and organized facility production combine to turn out high quality products on a
consistent basis. Lucy Industry PLC team of dedicated managers, planners and production staff work to gather
to consistently build quality products everyone on board works to find new of improving efficiency,
researching the latest in machinery, cabinet hardware and new materials to provide with quality products.
Health and safety conditions are always top of mind.

The management of the company is currently undertaking comprehensive plan to back up the factories with
trained man power and modern machinery and equipment to scale up the capacity of production both in
volume and quality.

7.2 HUMAN RESOURCES AND TRAINING PLAN

One of the factors behind organizations giving a lot of attention to their people is the nature of the firms in the
current business environment. Given the fact that there has been a steady movement towards an economy
based on services, it becomes important for firms engaged in the service sector to keep their employees
motivated and productive.

Even in the manufacturing and the traditional sectors, the need to remain competitive has meant that firms in
these sectors deploy strategies that make effective use of their resources. This changed business landscape has
come about as a result of a paradigm shift in the way businesses and firms view their employees as more than
just resources and instead adopt a “people first” approach. Organizational Culture need from the company will
be Strong sense of purpose, Focus on individual development, Trust and openness, Employee empowerment,
and toleration of employee expression.

Based on that the total manpower requirement is 26 the required skilled and experienced human resources.
About 45% of the workers will be engaged in production activity while the remaining will be involved in
service giving and administrative works. The list of required manpower and annual labor cost including fringe
benefits is given in table below. The annual expenditure for human resource for this envisaged business is
estimated at Birr 2,441,760.
 Basic
No. Position Grade salary Remark

1 General manager XI 28,000.00

1.Finance and Administration Department

Manager

2 2.Commercial Department Manager

3.Factory Department manager

4. Internal Audit Service Head IX 22,000.00

1.General Accounts Division Head

3 2.HRM and Property Admin Division Head

3.Production division Head VIII 11,000.00

1.Internal Auditor

2.Senior Accountant Officer

3.Senior purchaser and property Admin Officer

4 4. Senior marketing Officer VII 8,750.00

1.Factory Supervisor

2.HRM and Property Admin

VI
3. Senior Quality Controller

4.Marketing Officer

5 5.Accountant 6,200.00

6 1.Junior Accountant officer V 5,120.00

 2.Junior Marketing Officer

3. Truck Driver

4.Mechanic

5.General Service I

6.Junior Quality Control

1.Mini bus Driver & Auto Mobile driver

2.Operator for Press Machine

3. Junior Factory Supervisor

4. Store Keeper

5.Secretary

7 6.Junior HRM and Property Admin IV 4,500.00

1. Assistant Store Keeper

2. General Service II

3.Assistant Machine Operator

8 4. Junior Marketing Officer III 3,320.00

1. Oil Section &packing section

9 2.Guard II 2400.00

10 1.Janitor I 1200.00
Up on the grade scale here the detail specification of the man power need to the work force of the company
during the opening of the production.
Description of the required No. of Employee’s Monthly gross Salary Annual Gross salary
position in birr in birr

General Manager 01 18,000 216,000

Secretary 01 4,500 54,000

Finance Manager 01 14,000 168,000

Accountant 02 8,750 210,000

Marketing Manager 01 12,000 144,000

Purchaser 01 8,750 105,000

Production Manager 01 11,000 132,000

Supervisor 01 8,750 105,000

Quality controller 01 6,200 74,400

Operator 02 4,500 108,000

Assistance Operator 03 2,400 86,400

Janitor 02 1,200 28,800

Security 03 2,000 72,000

Store 01 4,500 54,000

Driver 03 5,120 184,320

HRM 01 8,750 105,000

Property Administration 01 8,750 105,000

Casher 01 3,320 39,840

Other fringe benefits of staffs 450,000

Total 2,441,760
TRAINING REQUIREMENT

Training and Development is one of the main functions of the human resource management department.
Training refers to a systematic setup where employees are instructed and taught matters of technical
knowledge related to their jobs. It focuses on teaching employees how to use particular machines or how to do
specific tasks to increase efficiency.

The two production shift leaders should be given a ten days theoretical and practical/on job training during
commissioning by knowledgeable technical personnel of the machinery supplier. Cost of training, at a rate of
about birr 6000 per day per trainee, is estimated at Birr 120,000.

7.4 RECRUITMENT PROCESS

There are two sources of recruitment in the firm, internal sources and external sources. Recruitment refers to
the process of searching for potential employees and influencing them to work for their organization.

The purpose of the recruitment process is to find talented and qualified individuals for the growth and
development of their organization. It is part of the human resource management (HRM) department. As new
company the firm focus on hiring of employee’s through out of the external source regarding on the
establishment. Some of the external source of requirements is:-

• People joining an organization, specifically through recommendations.

• Employment agencies or employment exchanges.
• Advertising
• Institutes like colleges and vocational schools (e.g. campus selection)
• Contractors
• Hiring unskilled labor
• List of applications
• Temporary workers.

7.5 SOCIO-ECONOMIC AND CULTURE ENVIRONMENT

The economy of Ethiopia and per capita income are growing according to the influence of agricultural yield.
In the past eight years, however, the gross domestic product (GDP) has been sluggish, with its growth being
lower than that of the population. As a principal cause of this phenomenon, the influence of the drought in
1997 can be identified but the feasibility study of the company shows the sector of manufacturing give the
economic condition of the society more than the other sector which involved on the business.
Manufacturing sector in Ethiopia has vital role in contribution for the nation’s economic growth and will have
the following specific socio economic benefits:

Sources of Government Income: the company will provide tax income to the governments.
Create job opportunity: this sub sector requires many human resources and hence increase job
opportunities for both skilled and unskilled laborers. This project expected to creates job opportunities
for 65 skilled and semi skilled individuals.
GDP Contribution: potato chips manufacturing plays major roles for the development of industries and
hence contribution to the GDP of the country.
Technology and Knowledge Transfer: the development of this subsector will transfer new technology
and knowhow by introducing modern manufacturing techniques that optimize yield and quality of
potato chips that are competitive in the international market in terms of price and quality.

Generally, the envisaged project will play a remarkable role in the process of developing a strong socio
economic advantage in the region in particular and the country economic development in general.

7.6 ENVIRONMENTAL IMPACT ASSESSMENT

The biggest threat of the conventional potato chips is the most likely deforestation of the environment. In this
case the company committed to purchase its potato vegetable from farmers privately owned and government
owned. The company will also committed to work with veteran farmers in re a forestation works in order to
have plenty raw material sources in collaborations of the stake holders. For more details please refer to
environmental impact assessment of the envisaged project.
8. FINANCIAL STUDY

8.1 TOTAL INVESTMENT COST

The total investment cost of the project is estimated to be Birr 59.4 million. From the total investment cost the
fixed cost accounts Birr 34 million that is 60 % of the total investment while working capital and pre
production expense (including pre operating interest and pre operating costs) 38 % and 2 % respectively.
The detail of total investment outlays are presented in the table below;

No Items Investment cost share

Land lease (advance payment) 430,000

Building and civil works 12,699,343

Borehole and submersible( water pump) 185,258

Potato chips making machine 13,756,000

Power installation and ELPA cost 758,256

Vehicles 2,568,731

Transformer cost 1,698,423

Offices furniture and equipment 507,183

Computer and its accessories 102,897

Generator 847,521

Working capital 25,458,175

Pre production costs 500,000

Pre production interest 1,076,173

Total 59,440,164
 8.2 SOURCE OF FINANCE

The project investment cost will be source and covered from owner’s equity and bank loan. The total
investment cost of the project is projected to be Birr 58.3 million. From estimated total project cost 90% or
Birr 54.4 million will be part of loan and the remaining 10% or Birr 6million proportionate for equity
component. The detail of project finance (fund allocation) by each investment activity is stated in the table
below.

No Description Total cost Loan Equity

Land lease (advance payment) 430,000 - 430,000

Building and civil works 12,699,343 12,699,343

Borehole and submersible( water pump) 185,258 - 185,258

Potato chips making machine 13,756,000 13,756,000

Power installation and ELPA cost 758,256 - 758,256

Vehicles 2,568,731 - 2,568,731

Transformer cost 998,423 998,423

Offices furniture and equipment 507,183 - 507,183

Computer and its accessories 102,897 - 102,897

Generator 847,521 - 847,521

Working capital 25,458,175 25,485,175

Pre production costs 500,000 - 500,000

Pre production interest 1,076,173 -

Total cost 59,440,164 53,440,164 6,000,000

Debit/ Equity Ratio 100% 90% 10%

8.3 FINANCIAL RESULTS
I. Profitability:- The projected profit and loss statement forecasted for 10 project years shows that the net
profit of the project in the first year of operation will be Birr 16 million and Birr million in the last
projection period showing that the project able to turn profitability business venture.
II. Liquidity:- the cash flow projection also shows a cumulative cash balance from Birr 16.9 million in
the first project year to Birr 24.9 million in the last projection period. This signifies that the projection
will not face liquidity constrain to finance its operational cost and meeting its debt obligation.
III. Financial Internal Rate of Return:- before and after tax IRR computed based on five years projection
period is 25% and 15% respectively.
IV. Sensitivity Analysis: the project sensitivity its sales revenue increasing its operating cost and
investment cost by 10%. The result indicates that IRR after tax decrease to 22%, 26%, and 26%
respectively. This result shows that the project will not be adversely affected by any financial shocks
throughout the project life.

Financial Analysis & Projection

Funding
Lucy potato chips industry Plan will need a total of 59,440,164 Birr in initial funding to begin its
operations. These funds will be collected from three main sources during the first year:

1) Paid-in capital: The owners and partners will contribute 6,000,000 Birr

2) Long-term bank loan: The company will request 53,440,164.00 Birr to be

repaid in five years at an interest rate of 8%

Sales Forecast
The sales forecast, including total revenue, has been calculated for 2024 through 2028 and is
computed based on the estimated number of packed potato chips multiplied by the value of each
packed potato chips for that year; we assume that no packed potato chips will be executed in the first
year. The estimated number of packed potato chips has been forecasted based on our market research
outlined in.

The annual revenue, with an average growth of 15%, will reach its highest point at 24,930,558.52 birr
in 2028. Although this might seem like an impressive growth rate at first glance, approximately one
fifth of its value can be accounted for by inflation. We also strongly believe that Potato chips plan’s
growth will be strictly limited by the supply of potato and oil as we optimize our supply chain and
build relationships with suppliers. Therefore, we are staying extremely conservative in our early
years, as we estimate that our productivity will be extremely low at first and will take some time to
build up.
Income Statement
The income statement reflects all income from the sale of our units. Potato chips plan has a healthy
gross profit of between 2024 and 2028 there is 15% of gross profit which is from 14,266,843.5birr to
24,930,558.52 birr. Although the company become profitable until year one due to a high initial
investment and sales during the first year, gross revenue will increase by 15% at 2024 from 2028 and
eventually it will increase to 40% by 2029 to 2032 that will be over achieving. Some expenses
increase with time, which we believe to be in line with Potato chips plan’s growth plan. Others are
maintained fairly consistently,

Annual depreciation expense

Straight line depreciation = (Cost of the Asset – Salvage value)

(Cost of the Asset – Salvage value)

Annual depreciation expense = Useful life of the asset
YEAR end 0 2024 2025 2026 2027 2028
Revenues 52,662,720 56,875,737.6 61,425,798 66,399,859.68 71,647,048.45
Expenses:
Labor 736,520 810,172 891,189.20 980,308.81 1,078,338.93
Material 22,942,857 24,439,999.85 25,661,998.84 26,945,098.75 28,292.353.72
Selling and Admi Cost 6,292,653 5,778,187.43 4,963,821.32 4,244,878.05 3,443,650.38
Overhead 263,700 276,885 349,602.50 367,082.63 385,436.76

478,000 478,000 478,000 478,000 478,000

Depreciation

Taxable Income 21,948,990 25,092,493.32 29,081,186.14 33,384,491.44 38,354,705.42

Income Taxes 7,682,146.5 8,782,372.66 10,178,415.15 11,684,572 13,424,146.89

(35%)

Net Income 14,266,843.5 16,310,120.65 18,902,771 21,699,919.46 24,930,558.52

Table 7.1 Income statement summary

 LOAN REPAYMENT SCHDUEL

• Where, P is the principal amount borrowed,

• R = installment payment or amortization payment,
• n = the number of periods over which the loan is amortized.
Amortization (R) = 53,440,164.00x [0.08 ÷ (1 – (1 + 0.08)-5 ]
= 53,440,164.00x [0.08 ÷ (1 – (1.108)-5)]
= 53,440,164.00x [0.08 ÷ (1 – (1/1.108)5]
= 53,440,164.00x [0.08 ÷ 0.3194]
= 53,440,164.00x 0.25045646
=13,384,434.29Bir

End of Principal Payment Balance Ending

Balance Beginning payment Interest Payment
Year

1 53,440,164.00 13,384,434.29 4,275,213.12 9,109,221.17 44,330,942.83

2 44,330,942.83 13,384,434.29 3,546,475.43 9,837,958.86 34,492,983.97
3 34,492,983.97 13,384,434.29 2,759,438.72 10,624,995.57 23,867,988.39
4 23,867,988.39 13,384,434.29 1,909,439.07 11,474,995.22 12,392,993.18
5 12,392,993.18 13,384,434.29 991,439.45 12,392,994.84 (0.00)

Table 7.2 Loan Repayment Schedule

 Cash Flow Statement

YEAR end 0 1 2 3 4 5
Income Statement
Revenues 52,662,720 56,875,737.6 61,425,798 66,399,859.68 71,647,048.45
Expenses:
Labor 736,520 810,172 891,189.20 980,308.81 1,078,338.93
Material 22,942,857 24,439,999.85 25,661,998.84 26,945,098.75 28,292.353.72
Selling and Admi 6,292,653 5,778,187.43 4,963,821.32 4,244,878.05 3,443,650.38
Cost
Overhead 263,700 276,885 349,602.50 367,082.63 385,436.76
Depreciation
478,000 478,000 478,000 478,000 478,000

Taxable Income 21,948,990 25,092,493.32 29,081,186.14 33,384,491.44 38,354,705.42

Income Taxes 7,682,146.5 8,782,372.66 10,178,415.15 11,684,572 13,424,146.89

(35%)

Net Income 14,266,843.5 16,310,120.65 18,902,771 21,699,919.46 24,930,558.52

Cash flow
statement
Operating
activities
Net income
14,266,843.5 16,310,120.65 18,902,771 21,699,919.46 24,930,558.52
Depreciation 478,000 478,000 478,000 478,000 478,000
Investment
activities
Initial
59,440,164
investment
Working capital
6,000,000 6,000,000
Loan payment 53,440,164 13,384,434.29 13,384,434.29 13,384,434.29 13,384,434.29 13,384,434.29
Net cash flow 59,440,164 28,129,277.79 30,172,554.94 32,765,205.29 35,562,353.75 44,792,992.81
NET PRESENT VALUE
NPV is the present value of an investment project’s net cash flows minus the project’s initial cash
outflow.

This method takes into consideration the time value of money and attempts to calculate the
return on investments by introducing the factor of time element. Accept the project when NPV
is positive (NPV>0)

Year Operating income Discount Factor (8%) Present Value

0 59,440,164 1 (59,440,164)
1 14,266,843.5 0.9259 13,209,670.40
2 16,310,120.65 0.8573 13,982,666.43
3 18,902,771 0.7938 15,005,019.62
4 21,699,919.46 0.7350 15,949,440.8
5 24,930,558.52 0.6805 16,952,779.79

NB. The net present value of the project will be the positive 15,709,413.04 so we can accept the
project.
Annexes
Reference
✓ conduct a feasibility study by Jennifer Bridges
✓ The Ethiopian manufacturing sector: Productivity, export orientation, and
competitiveness1 Admasu Shiferaw and Måns Söderbom
✓ Ethiopia Economic Update: A Flourishing Manufacturing Industry Will Help More
Ethiopians, world Bank
✓ project management click up
✓ Financial Planning & Analysis (FP&A): Practices, Roles, Responsibilities, and Functions
Senior Product Marketing Manager
✓ Location Strategy in Operations Management mbankol.com
✓ The importance of human resource management in modern work place; MARYIVILLE
UNIVERSTY