Investment Office ANRS

Project Profile on the Establishment

of computer Assembly plant

Development Studies
Associates (DSA)

October 2008
Addis Ababa
 Table of Contents

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

Demand projection divulges that the domestic demand for personal computer is substantial and is
increasing significantly with time. Accordingly, the planned plant is set to produce 5,500 units
annually. The total investment cost of the project including working capital is estimated at Birr
9.97 million and creates 29 job opportunity and Birr 645.84 thousand of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 10.8% of capacity utilization and it will
payback fully the initial investment less working capital in one year. The result further show that
the calculated IRR of the project is 27.7% and NPV discounted at 18% of Birr 1,668,310.87

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

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

2. Product Description and Application

A computer is a device that accepts information (in the form of digitalized data) and manipulates
it for some result based on a program or sequence of instructions. In other words, a computer is
an electronic machine that (i) takes in data and instructions (ii) works with the data (iii) puts out
information (output). Computers are made of hardware and software. A personal computer (PC)
is a computer intended to be operated directly by an end user, with no intervening computer
operator. It may be a home computer, or may be found in an office, and business places.

3
 3. Market Study, Plant Capacity and Production Program
3.1 Market Study
3.1.1 Present Demand and Supply
Computers were introduced into Ethiopia nearly half a century ago in the early 1960's.
Organizations that introduced computers into their operations in the early period of the
introduction of the technology included the Ethiopian Airlines, the Economic Commission for
Africa (ECA), Ethiopian Electric Light and Power Authority, Central Statistical Office and some
others.

Currently, Ethiopia relies mainly on imported computers to meet the local demand as there is no
real computer hardware production project that can benefit from the available knowledge and
expertise.

There are limited number of companies and several computer shops that produce locally
assembled computers in the country. At the same time huge number of branded computers are
imported into the country. Nonetheless, the number of computers in Ethiopia is very low when
compared to many African countries. According to UN Common Database (2002), Ethiopia
ranked as 111th in the number of computers in the world. The country, however, is registering a
year to year increase in the number of computers as shown in table 1 below.

Table 1: Number of Computers in Ethiopia

Year 2000 2001 2002 2003 2004
Computer per
1000
population 0.93316 1.14020 1.48770 2.18620 3.21610
Population 63,495,000 65,344,000 67,220,000 69,127,000 73,043,500
Computer
Number 59,251 74,505 100,003 151,125 234,915
Source: World Bank Africa Database, 2006

According to table 1, the number of computers has increased on average by 41.6% within the
period under consideration. Although the position of the country is very low when compared to
even other African countries, such average growth can be considered as very strong and
promising. Taking this growth percentage the estimated number of computers in the country in
2007 reaches to 667,386.

4
Although there is no available detailed data, it can be argued that the main users of the machine
are schools & universities, banks, ministries, internet users and households.

3.1.2 Projected Demand

In view of the recent past performance, one can stress that there is high demand for the machine.
In this connection the future is expected to be very promising for the sector for the following
reasons

 Population annual growth rate in Ethiopia is about 3%.

 There is annual increase of internet users
 Universities are implementing information systems to accomplish e-learning programs,
which affects demand positively.
 Banks are looking for E-Banking Information Systems to benefit from the E-
Commerce era.
 The Ministry of Education is planning to enhance IT laboratories at Schools, and

 Many university students are looking for having personal computers at home.

All this suggest that the future demand for the machinery is going to be substantial. Accordingly,
it is conservatively assumed that the number of computers imported and assembled in the
country will increase by about 10 percent in the coming years as shown in table 2 here under.

5
 Table 2: Projected Demand for Computers

Year Projected Demand

2007/08 806,302
2008/09 886,932
2009/10 975,625
2010/11 1,073,188
2011/12 1,180,507
2012/13 1,298,557
2013/14 1,428,413
2014/15 1,571,254
2015/16 1,728,380
2016/17 1,901,218

The forecasted figure divulge that the future bring forth substantial demand for the machine. At
the same time it suggests the relevance of establishing an assembly plant that

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price of a
personal computer is set to be Birr 3800 per unit. In supplying the output, the plant shall make
use of the available sales network.

3.2 Plant Capacity

Considering the expected demand for personal computer as presented earlier, and the planned
technology, the envisaged plant is set to produce 5,500 units annually.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shifts, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 70 percent capacity and then it grows to 80
percent in the 2nd year. The capacity will grow to 90 percent in the 3 rd year and then to 100
percent starting from the 4 th year. This consideration is developed based on the assumption that
market and logistics barriers would be eliminated gradually within the first three years of
operation.

6
 4. Raw Materials and Utilities
4.1 Availability and Source of Raw Materials

The basic materials used in the production process are: computer case with power supply,
motherboard , central processing unit (processor), hard disk , keyboard, mouse, fan and visual
display unit (monitor) and other items. All the items shall be imported from abroad.

4.2 Annual Requirement and Cost of Raw Materials

and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 here under
Table 3: Material and Utility Requirement
Total Cost
Material and Input Quantity L.C. F.C.
Computer Case with Mother Board
(Pentium IV) and Power Supply 5500 units 561,000
CPU fan 5500 units 165,000
Hard Disk (80GB) 5500 units 2,200,000
Keyboard 5500 units 275,000
Optical Mouse 5500 units 137,500
CPU (2 GHz) 5500 units 7,425,000
Modem 5500 units 440,000
RAM (512 MB) 5500 units 770,000
Monitor (17”) 5500 units 3,465,000
Speaker 5500 units 121,000
Floppy Drive 5500 units 302,500
CD drive 5500 units 1,127,500
Total Material Cost 16,989,500
Utility
Electricity 25,000 kwh 13,750
Water 1000m3 2,650
Total Utility Cost 16,400

According to the above table the annual material and utility cost at full capacity of operation is
estimated to be Birr 17,005,900

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5 Location and Site

The appropriate locations for the envisaged project in view of the availability of infrastructure as
well as market for the output is mainly Bahir Dar

6 Technology and Engineering

6.1 Assembly Process

The steps followed in assembling a personal computer are stated as follows.

Step I. Open the computer case and install the mother board
Step II. Install the CPU
Step III. Attach the power supply and other connectors
Step IV. Install the floppy drive. Then install the hard disk as well as the cd-rom.
Step V Install additional cards on demand.
Step VI. Install the required software

6.2 Machinery and Equipment

The assembly of personal computers does not require machineries. It only needs equipment like
screw drivers and related items as well as some softwares. The estimated cost of these items is
Birr 25,000. The equipments and softwares can be easily accessed from local suppliers operating
in Addis Ababa.

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 350m 2 where 100m2 is allocated to
the assembly place and the remaining space is left for stores (150m 2), sales and show
room(50m2), Office and other facilities (50m2).

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7 Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 4 below

Table 4: Human Resource Requirement

No. Monthly Total Annual

Position Required Salary Salary
General Manager 1 4500 54000
Computer/Electrical Engineers 2 4000 96000
Software Expert 2 3500 84000
Administration/Finance 1 3000 36000
Accountant 1 1200 14400
Secretary 1 850 10200
Marketing Expert 1 1500 18000
Sales Clerk 3 800 28800
Store Keeper 1 800 9600
Technician 8 1500 144000
Laborers 3 400 14400
Cleaners 1 400 4800
Driver 1 800 9600
Guards 3 400 14400
Benefit (20%) 107640
Total 29 645840

The envisaged plant creates 29 job opportunity and about Birr 645.84 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 key personnel shall be conducted on the technology, maintenance and trouble
shooting. For this Birr 25,000 will be allocated as training expense.

8 Financial Analysis

9
 8.1 Underlying Assumption
The financial analysis of computer assembly 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
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
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

8.2 Investment

The total investment cost of the project including working capital is estimated at Birr 9.97
million as shown in table 5 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.

10
 Table 5: Total initial investment
Items L.C F.C Total
Land
1,050 1,050
Building and civil works
700,000 700,000
Office equipment
40,000 40,000
Vehicles
200,000 200,000
Plant machinery & equipment
25,000 25,000
Total fixed investment cost
966,050 0 966,050
Pre production capital
expenditure* 48,303 48,303
Total initial investment
1,014,353 0 1,014,353
Working capital at full capacity
1,547,255 7,413,600 8,960,855
Total 2,561,607 7,413,600 9,975,207
*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 74.3% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 18.35 million as detailed
in table 6 below.

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 Table 6: Production Cost
Items Cost
1. Raw materials 16,989,500
2. Utilities 16,400
3. Wages and Salaries 645,840
4. Spares and Maintenance 9,661
Factory costs 17,661,401
5. Depreciation 91,161
6. Financial costs 598,512
Total Production Cost 18,351,073

8.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 5%, 17% and 28% in
the first year and are gradually rising. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 10.8% 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 one year.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 21.9%

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 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
27.7% and the net present value at 18 % discount is Birr 1,668,310.87

VI. Sensitivity Analysis

As the production cost of the proposed computer assembly is high, the envisaged plant incurs
loss for the first year of operation when 10% cost increment takes place in the sector. The plant
will obtain profit beginning from the second year.

9 Economic and Social Benefit and Justification

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

A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 1.76 million per
year and Birr 17.64 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.

B. Tax Revenue
In the project life under consideration, the region will collect about Birr 6.57 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region.

C. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 29 professionals as well as support
stuffs. Consequently the project creates income of Birr 645.84 thousands per year. This would be
one of the commendable accomplishments of the project.
D. Pro Environment Project
The proposed production process is environment friendly.

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ANNEXES

14
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTIO
N PRODUCTION
Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0.00 0.00 70% 80% 90% 100%

11411547.2 13041768.2 14671989.2 16302210.3
1. Total Inventory 0.00 0.00 2 5 8 1

Raw Materials in Stock- Total 0.00 0.00 5189520.00 5930880.00 6672240.00 7413600.00

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 0.00 0.00 5189520.00 5930880.00 6672240.00 7413600.00

Factory Supplies in Stock 0.00 0.00 13556.50 15493.14 17429.79 19366.43

Spare Parts in Stock and Maintenance 0.00 0.00 2213.13 2529.29 2845.46 3161.62

Work in Progress 0.00 0.00 338912.53 387328.60 435744.68 484160.75

Finished Products 0.00 0.00 677825.06 774657.21 871489.36 968321.51

2. Accounts Receivable 0.00 0.00 1596000.00 1824000.00 2052000.00 2280000.00

3. Cash in Hand 0.00 0.00 50571.05 57795.49 65019.93 72244.36

10116769.2 11240854.6
CURRENT ASSETS 0.00 0.00 7868598.27 8992683.74 1 8

4. Current Liabilities 0.00 0.00 1596000.00 1824000.00 2052000.00 2280000.00

Accounts Payable 0.00 0.00 1596000.00 1824000.00 2052000.00 2280000.00

TOTAL NET WORKING CAPITAL REQUIREMENTS 0.00 0.00 6272598.27 7168683.74 8064769.21 8960854.68

INCREASE IN NET WORKING CAPITAL 0.00 0.00 6272598.27 896085.47 896085.47 896085.47

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

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

16302210.3 16302210.3 16302210.3 16302210.3 16302210.3 16302210.3
1. Total Inventory 1 1 1 1 1 1

Raw Materials in Stock-Total 7413600.00 7413600.00 7413600.00 7413600.00 7413600.00 7413600.00

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 7413600.00 7413600.00 7413600.00 7413600.00 7413600.00 7413600.00

Factory Supplies in Stock 19366.43 19366.43 19366.43 19366.43 19366.43 19366.43

Spare Parts in Stock and Maintenance 3161.62 3161.62 3161.62 3161.62 3161.62 3161.62

Work in Progress 484160.75 484160.75 484160.75 484160.75 484160.75 484160.75

Finished Products 968321.51 968321.51 968321.51 968321.51 968321.51 968321.51

2. Accounts Receivable 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00

3. Cash in Hand 72244.36 72244.36 72244.36 72244.36 72244.36 72244.36

11240854.6 11240854.6 11240854.6 11240854.6 11240854.6 11240854.6
CURRENT ASSETS 8 8 8 8 8 8

4. Current Liabilities 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00

Accounts Payable 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00

TOTAL NET WORKING CAPITAL
REQUIREMENTS 8960854.68 8960854.68 8960854.68 8960854.68 8960854.68 8960854.68

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 507176.25 9468030.93 16226000.00 16948000.00 19038000.00 21128000.00
1. Inflow Funds 507176.25 9468030.93 1596000.00 228000.00 228000.00 228000.00
Total Equity 202870.50 3787212.37 0.00 0.00 0.00 0.00
Total Long Term Loan 304305.75 5680818.56 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 1596000.00 228000.00 228000.00 228000.00
2. Inflow Operation 0.00 0.00 14630000.00 16720000.00 18810000.00 20900000.00
Sales Revenue 0.00 0.00 14630000.00 16720000.00 18810000.00 20900000.00
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 507176.25 507176.25 21737766.02 17113392.84 19395765.55 21187022.40
4. Increase In Fixed Assets 507176.25 507176.25 0.00 0.00 0.00 0.00
Fixed Investments 483025.00 483025.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 24151.25 24151.25 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 7868598.27 1124085.47 1124085.47 1124085.47
6. Operating Costs 0.00 0.00 12490645.18 14273571.74 16056498.30 17839424.86
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 619148.63 747181.41
8. Interest Paid 0.00 0.00 1378522.57 718214.92 598512.43 478809.94
9.Loan Repayments 0.00 0.00 0.00 997520.72 997520.72 997520.72
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 8960854.68 -5511766.02 -165392.84 -357765.55 -59022.40
Cumulative Cash Balance 0.00 8960854.68 3449088.66 3283695.82 2925930.27 2866907.87

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00
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 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00
Sales Revenue 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00
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 19979145.19 19910251.60 19826459.86 18745147.40 18745147.40 18745147.40
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 17839424.86 17839424.86 17839424.86 17839424.86 17839424.86 17839424.86
7. Corporate Tax Paid 783092.15 833901.05 869811.80 905722.54 905722.54 905722.54
8. Interest Paid 359107.46 239404.97 119702.49 0.00 0.00 0.00
9. Loan Repayments 997520.72 997520.72 997520.72 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 920854.81 989748.40 1073540.14 2154852.60 2154852.60 2154852.60
Cumulative Cash Balance 3787762.68 4777511.08 5851051.22 8005903.82 10160756.42 12315609.02

4
 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 14630000.00 16720000.00 18810000.00 20900000.00

1. Inflow Operation 0.00 0.00 14630000.00 16720000.00 18810000.00 20900000.00

Sales Revenue 0.00 0.00 14630000.00 16720000.00 18810000.00 20900000.00

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 507176.25 507176.25 18763243.45 15169657.21 17571732.40 19482691.74

3. Increase in Fixed Assets 507176.25 507176.25 0.00 0.00 0.00 0.00

Fixed Investments 483025.00 483025.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 24151.25 24151.25 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 6272598.27 896085.47 896085.47 896085.47

5. Operating Costs 0.00 0.00 12490645.18 14273571.74 16056498.30 17839424.86

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 619148.63 747181.41

NET CASH FLOW -507176.25 -507176.25 -4133243.45 1550342.79 1238267.60 1417308.26

CUMMULATIVE NET CASH FLOW -507176.25 -1014352.50 -5147595.95 -3597253.16 -2358985.55 -941677.29

Net Present Value (at 18%) -507176.25 -429810.38 -2968431.09 943586.49 638684.65 619518.50

Cumulative Net present Value -507176.25 -936986.63 -3905417.72 -2961831.23 -2323146.58 -1703628.08

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00

1. Inflow Operation 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00

Sales Revenue 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00

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 18622517.01 18673325.91 18709236.66 18745147.40 18745147.40 18745147.40

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 17839424.86 17839424.86 17839424.86 17839424.86 17839424.86 17839424.86

6. Corporate Tax Paid 783092.15 833901.05 869811.80 905722.54 905722.54 905722.54

NET CASH FLOW 2277482.99 2226674.09 2190763.34 2154852.60 2154852.60 2154852.60

CUMMULATIVE NET CASH
FLOW 1335805.70 3562479.79 5753243.13 7908095.73 10062948.33 12217800.92

Net Present Value (at 18%) 843651.53 699008.74 582826.66 485824.60 411715.76 348911.66

Cumulative Net present Value -859976.55 -160967.81 421858.85 907683.45 1319399.21 1668310.87

Net Present Value (at 18%) 1,668,310.87

Internal Rate of Return 27.7%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 70% 80% 90% 100% 100%

1. Total Income 14630000.00 16720000.00 18810000.00 20900000.00 20900000.00

Sales Revenue 14630000.00 16720000.00 18810000.00 20900000.00 20900000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 12299650.73 14056743.69 15813836.65 17570929.61 17570929.61
VARIABLE MARGIN 2330349.27 2663256.31 2996163.35 3329070.39 3329070.39
(In % of Total Income) 15.93 15.93 15.93 15.93 15.93
3. Less Fixed Costs 282154.95 307988.55 333822.15 359655.75 359655.75
OPERATIONAL MARGIN 2048194.32 2355267.76 2662341.20 2969414.64 2969414.64
(In % of Total Income) 14 14 14 14 14
4. Less Cost of Finance 1378522.57 718214.92 598512.43 478809.94 359107.46
5. GROSS PROFIT 669671.75 1637052.85 2063828.77 2490604.70 2610307.18
6. Income (Corporate) Tax 0.00 0.00 619148.63 747181.41 783092.15
7. NET PROFIT 669671.75 1637052.85 1444680.14 1743423.29 1827215.03
RATIOS (%)
Gross Profit/Sales 5% 10% 11% 12% 12%
Net Profit After Tax/Sales 5% 10% 8% 8% 9%
Return on Investment 28% 29% 23% 22% 22%
Return on Equity 17% 41% 36% 44% 46%

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

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

1. Total Income 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00

Sales Revenue 20900000.00 20900000.00 20900000.00 20900000.00 20900000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 17570929.61 17570929.61 17570929.61 17570929.61 17570929.61
VARIABLE MARGIN 3329070.39 3329070.39 3329070.39 3329070.39 3329070.39
(In % of Total Income) 16 16 16 16 16
3. Less Fixed Costs 309995.25 309995.25 309995.25 309995.25 309995.25
OPERATIONAL MARGIN 3019075.14 3019075.14 3019075.14 3019075.14 3019075.14
(In % of Total Income) 14 14 14 14 14
4. Less Cost of Finance 239404.97 119702.49 0.00 0.00 0.00
5. GROSS PROFIT 2779670.17 2899372.65 3019075.14 3019075.14 3019075.14
6. Income (Corporate) Tax 833901.05 869811.80 905722.54 905722.54 905722.54
7. NET PROFIT 1945769.12 2029560.86 2113352.60 2113352.60 2113352.60
RATIOS (%)
Gross Profit/Sales 13% 14% 14% 14% 14%
Net Profit After Tax/Sales 9% 10% 10% 10% 10%
Return on Investment 22% 22% 21% 21% 21%
Return on Equity 49% 51% 53% 53% 53%

Annex 5: Projected Balance Sheet (in Birr)

8
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 507176.25 9975207.18 12240878.93 13108411.06 13783570.48 14757473.05
1. Total Current Assets 0.00 8960854.68 11317686.93 12276379.56 13042699.48 14107762.55
Inventory on Materials and Supplies 0.00 0.00 5205289.63 5948902.44 6692515.24 7436128.05
Work in Progress 0.00 0.00 338912.53 387328.60 435744.68 484160.75
Finished Products in Stock 0.00 0.00 677825.06 774657.21 871489.36 968321.51
Accounts Receivable 0.00 0.00 1596000.00 1824000.00 2052000.00 2280000.00
Cash in Hand 0.00 0.00 50571.05 57795.49 65019.93 72244.36
Cash Surplus, Finance Available 0.00 8960854.68 3449088.66 3283695.82 2925930.27 2866907.87
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 507176.25 1014352.50 923192.00 832031.50 740871.00 649710.50
Fixed Investment 0.00 483025.00 966050.00 966050.00 966050.00 966050.00
Construction in Progress 483025.00 483025.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 24151.25 48302.50 48302.50 48302.50 48302.50 48302.50
Less Accumulated Depreciation 0.00 0.00 91160.50 182321.00 273481.50 364642.00
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 507176.25 9975207.18 12240878.93 13108411.06 13783570.48 14757473.05
5. Total Current Liabilities 0.00 0.00 1596000.00 1824000.00 2052000.00 2280000.00
Accounts Payable 0.00 0.00 1596000.00 1824000.00 2052000.00 2280000.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 304305.75 5985124.31 5985124.31 4987603.59 3990082.87 2992562.15
Loan A 304305.75 5985124.31 5985124.31 4987603.59 3990082.87 2992562.15
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 202870.50 3990082.87 3990082.87 3990082.87 3990082.87 3990082.87
Ordinary Capital 202870.50 3990082.87 3990082.87 3990082.87 3990082.87 3990082.87
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 669671.75 2306724.60 3751404.74
9.Net Profit After Tax 0.00 0.00 669671.75 1637052.85 1444680.14 1743423.29
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 669671.75 1637052.85 1444680.14 1743423.29

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

9
 PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 15587167.36 16535415.76 17567455.90 19680808.50 21794161.10 23907513.69
1. Total Current Assets 15028617.36 16018365.76 17091905.90 19246758.50 21401611.10 23556463.69
Inventory on Materials and Supplies 7436128.05 7436128.05 7436128.05 7436128.05 7436128.05 7436128.05
Work in Progress 484160.75 484160.75 484160.75 484160.75 484160.75 484160.75
Finished Products in Stock 968321.51 968321.51 968321.51 968321.51 968321.51 968321.51
Accounts Receivable 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00
Cash in Hand 72244.36 72244.36 72244.36 72244.36 72244.36 72244.36
Cash Surplus, Finance Available 3787762.68 4777511.08 5851051.22 8005903.82 10160756.42 12315609.02
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of
Depreciation 558550.00 517050.00 475550.00 434050.00 392550.00 351050.00
Fixed Investment 966050.00 966050.00 966050.00 966050.00 966050.00 966050.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 48302.50 48302.50 48302.50 48302.50 48302.50 48302.50
Less Accumulated Depreciation 455802.50 497302.50 538802.50 580302.50 621802.50 663302.50
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 15587167.36 16535415.76 17567455.90 19680808.50 21794161.10 23907513.69
5. Total Current Liabilities 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00
Accounts Payable 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00 2280000.00
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1995041.44 997520.72 0.00 0.00 0.00 0.00
Loan A 1995041.44 997520.72 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 3990082.87 3990082.87 3990082.87 3990082.87 3990082.87 3990082.87
Ordinary Capital 3990082.87 3990082.87 3990082.87 3990082.87 3990082.87 3990082.87
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 5494828.03 7322043.05 9267812.17 11297373.03 13410725.63 15524078.22
9. Net Profit After Tax 1827215.03 1945769.12 2029560.86 2113352.60 2113352.60 2113352.60
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 1827215.03 1945769.12 2029560.86 2113352.60 2113352.60 2113352.60

10