ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on the Establishment

of Socks producing plant

Development Studies
Associates (DSA)

July/2016 (revised)
Bahir Dar
 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 Production Process...........................................................................................................6
6.2 Machinery and Equipment...............................................................................................7
6.3 Civil Engineering Cost....................................................................................................8
7 Human Resource and Training Requirement................................8
7.1 Human Resource..............................................................................................................8
7.2 Training Requirement......................................................................................................9
8 Financial Analysis..............................................................................9
8.1 Underlying Assumption...................................................................................................9
8.2 Investment......................................................................................................................10
8.3 Production Costs............................................................................................................11
8.4 Financial Evaluation......................................................................................................11
9 Economic and Social Benefit and Justification.............................12
ANNEXES.............................................................................................14
 1. Executive Summary
The project envisages the establishment of a plant for the manufacturing of about 82, 500 dozens
of socks in Amhara Region.

The present demand for socks at country and Amhara Region level is estimated at about 873,800
dozens and 177,500 dozens per annum respectively. The demand is expected to increase from
908,798 in 2001 to 1,293,486 in 2010 at national level.

The total initial investment requirement is estimated at birr 12.80 million of which 47.5% is
for machinery and equipment and 60% is in foreign currency.

The project will create employment opportunities for 39 persons.

The project is financially viable with an internal rate of return (IRR) of 23.1% and a net present
value ( NPV) of Birr 1,970,827 discounted at 18% .

2. Product Description and Application

Socks are protective knit wear for the foot which exhibit elastic and plastic characteristic. Socks
are one of the essential clothing items in developed societies. They are like under wears, shirts,
trousers or skirts.

Socks could be knitted from natural fiber (cotton, wool, silk) or man made textured yarn of
nylon, mixed spun yarn of synthetic fiber, and mixed knit of synthetic filament. Socks are mostly
used by men of all ages and children.

1
 3. Market Study, Plant Capacity and Production Program
3.1Market Study
3.1.1 Present Demand and Supply

The use of socks is related with the use of shoes. In today’s Ethiopia in general and Amhara land
in particular, at least people who live in urban areas wear shoes and socks. Generally more men
wear socks with shoes than women. In the last 25 years, due to urbanization and demonstration
effects, increasing number of rural people have started wearing socks and shoes in the country.
The demand for socks in Ethiopia has been mainly met from foreign sources through import,
largely from China and India. Although there is no apparent trend in the growth of imports,
imports of socks has continuously been appearing in import statistics together with other articles
(under the title men’s or boys’ under pants and briefs of cotton or other textiles, knitted or
crocheted).
1
For the last ten years (from 1990 to 1999), about 81,900 kg of such items have been imported
at CIF value of about Birr 3.0 million annually on the average. Of these commodities it is
conservatively assumed that about 25% (20,475 kg, which is equivalent to about 40,950 dozens
or 491, 4000 pairs) are to bee socks of different sizes.

On the other hand, it has also been observed that a considerable volume of socks have been
entering the country through unofficial channels or illicit trade. It was learnt that this unofficial
import according to knowledgeable persons in the field is about ten times higher than the legal
imports. Taking the average official import figure for socks between 1990 and 1999, i.e. 40,950
dozens the illicit import of these items is estimated to be 409,500 dozens giving the total volume
of imports to be 450,450 dozens of socks.

Moreover, as far as local production and marketing of socks is concerned there are few privately
owned knitting factories that knit socks as subsidiary output to their underwear garments.
However, the share of these factories altogether is assumed to account 5% of the total supply
(22,522 dozens). Accordingly, the current supply is estimated to be 472,972 dozens or 5,675,664
pairs of socks.

1
Years in this document are in Ethiopian Calendar.

2
In the absence of consumer survey on the consumption of socks in Ethiopia, some conservative
assumptions are used to reach at crude estimate of demand for the proposed product.
The assumptions are:

- The 2000 projected population of Ethiopia (medium variant) is taken as base year
-Socks are usually consumed by both urban and rural male population in the following
proportions:
-70% of the urban population i.e. 4,415 million consumers use 2 pairs of socks each per
annum.
- 5% of the rural population i.e. 1,656 million consumers use 1 pair of socks per annum.

Accordingly the current effective demand is estimated to be about 10, 486,000 pairs or 873,833
dozens of socks.

If one applies the same assumption to the projected urban and rural male population of Amhara
Region (for year 2000), the total demand for socks could be about 2,130,000 pairs or 177,500
dozens, which is about 20% of the estimated national demand for socks. If there is such a huge
market for socks, there is a great opportunity to exploit this market by establishing small scale
socks making plants in three or four urban centers of the region.

3.1.2 Projected Demand

Assuming the demand for socks increases inline with the urban population growth rate, i.e., 4%,
the likely future demand for socks at country level is projected as shown below on Table 1. It
indicates that demand for socks will increase from 908,786 dozen in year 2001 to 1,293,486
dozen in 2010.

3
 Table 1
DEMAND FORECAST FOR SOCKS (In Dozen)
Year Socks
2001 908,786
2002 945,137
2003 982,943
2004 1,022,261
2005 1,063,151
2006 1,105,677
2007 1,149,905
2008 1,195,900
2009 1,243,738
2010 1,293,486

3.1.3 Pricing and Distribution

The financial viability of a given project depends partly on unit selling price of its output. The
current market price for synthetic made pairs of socks ranges from Birr 5 to 12. In this regard,
the proposed project is conservatively assumed to market its product at Birr 6 per pair of socks.
Since the proposed products are consumer goods their sales and distribution in Ethiopia is made
both through wholesale and retail outlets. However, the proposed project is proposed to sell and
distribute its output through wholesale network.

3.2 Plant Capacity

Employing a Single cylinder double welt socks knitting machine with 12 sets and a Double
cylinder socks knitting machine with 12 sets, total 24 sets of machines, the envisaged plant
would have a capacity to produce 1,000,000 pairs (83,333 dozens) of socks per year working in
two shifts of 8 hours each and 275 days per year. Even if the proposed capacity seems small
when compared to the demand, the demand could be met by installing additional plants later on
after achieving experience.

3.3Production Program

The plant is expected to start at 80% of its capacity during the first year of operation and reach
90% in the second year and 100% thereafter.

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

The major raw materials for the production of socks are dyed nylon stretch, cotton, woolen and
acrylic yarn. The other major input is rubber trend latex. Cotton yarn can be obtained from the
textile factories of the country while woolen and acrylic yarn will be imported. However, for
practical purposes the plant is assumed to use synthetic materials.

4.2 Annual Requirement and Cost of Raw Materials and

Utilities

The raw material consumptions and their respective cost per year are depicted on Table 2. The
plant is expected to use imported synthetic inputs. The cost is about Birr 3,719,000, of which
14,000 is in foreign currency.

Table 2
ANNUAL RAW MATERIAL CONSUMPTION AND COST
(Birr ’000')

No Description Unit Qty FC LC Total

1 Nylon stretch (nylon 110/2 Ton 39 4503.33 _ 4503.33

2 Acrylic yarn Ton 39 4503.33 4503.33

3 Latex (Rubber thread) Ton 2 461.88 461.88

4 Dyestuff Ton 1 38.49 - 38.49

5 Packing materials Pcs - _ 35.924 35.924

9507.03 35.924 9542.954

Materials total

Utilities

1 Electric Power Kwh 176,000 97 97

5
 2 Water M2 8,100m3 21 21
3 Fuel Lt Lt 17 17

Utilities total 135 135

5 Location and Site

For efficient marketing purposes socks manufacturing plant could be located in one or two towns
of the region, like Bahir Dar, Combolcha, Gondar or Dessie.

6 Technology and Engineering

6.1 Production Process
The production process of socks follows the following main steps.
a) Winding. The raw material, yarn is wound onto cones that are most suitable for knitting. The
yarn is oiled while being wound onto the cone.

b) Knitting. The yarn wound on the cone is set on the designated socks knitting machine and
knitted into the shape of socks. Socks knitting machines are classified into Single Cylinder
Machine (plain stitch type) and Double cylinder machine (rib and links type).

In the single cylinder socks knitting machine, the completed socks come out separately one
foot (piece) at a time. This is called the separate method. In the double cylinder knitting
machine one piece of the socks is completed; then, a drawn thread makes its entry and
knitting begins continuously from the welt of the next piece of socks. Therefore, socks will
continuously run through the knitting machine in a cylindrical shape.

c) Linking the toe .This is the linking of the open part of the toe of the knitted socks. Linking is
done with the socks turned inside out. After linking is completed, the drawn yarn thread
stitches is drawn out, and one piece of socks is completed.

d) Soaping and dyeing. Soaping is done to remove the oil stains and dust; then, the socks are
dyed.

6
e) Setting and finishing. Shaping of socks is done in this process to give a good look by steam
setting. Careful inspection should be made at each step to keep the quality of the socks.
Alternatively, the project can employ only a single cylinder machine which will knit 40 - 140
pairs of socks per 10 hours or double cylinder machine which will knit 40 - 80 pairs per 10 hours
depending on the cost benefit analysis of the project to be made during the feasibility study.

6.2 Machinery and Equipment

The major machines in socks manufacturing are the knitting machines. The list of and cost of
machinery and equipment is presented in Table 3.75% of the machinery cost could be in foreign
currency. The project will require about Birr 250,000 and Birr 10,000 to purchase a pick-up
vehicle and office furniture and equipment, respectively.
Table 3
LIST OF MACHINERY AND EQUIPMENT

No Description Qty. FC LC TC
Single cylinder double welt socks knitting 12 2,909,844 2,909,844
m/c
4-14 pairs/hr each
Double cylinder sock knitting machine 4-8 12 2,106,173 2,106,173
pairs/hr each
cone winder 24 219,393 219,393
Linking machine, 2/20 pairs/hr each 6 217,084 217,084
Setting machine /240 pairs/hr (automatic) 1 76,210 76,210
Dying machine, 50kg operation 1 219,393 219,393
Steam iron 2 1755.144 1755.144
Boiler for Steam 1 203299.34 203299.34
Total 5,953,151 - 5,953,151

The promoter can contact a machinery supplier through the following address.

Company Name: Grand Hosiery Co., Ltd.

Company Address: Ningbo, Zhejiang, China
City/Province: Ningbo/Zhejiang
Country/Region: China
Zip/Postal Code: 315012
Telephone Number: 86-574-87452321
Fax Number: 86-574-87452509

7
 6.3Civil Engineering Cost

The plant will require a total land area of about 1000m 2 of which 450m2 will be for office and
plant work shade .The cost of building including civil works is estimated to be Birr 675,000.

7 Human Resource and Training Requirement

7.1 Human Resource
The plant will employ a total of 75 workers. Of which, 69 workers would be involved in direct
production activities while the remaining 6 would be administrative staff. The list of manpower
and annual cost of salary is presented in Table 4.
Table 4
LIST OF MANPOWER AND ANNUAL SALARY (IN BIRR)

No. Description No. of Monthly Annual

persons Salary/head Salary

1 Plant Manager 1
6,415 76,980
2 technical Head 1
3,849 46,188
3 Secretary 1
1,796 21,554
4 Sales and purchase 1
3,079 36,950
5 Accountant 1
2,566 30,792
6 Production Foreman 1
2,566 30,792
7 Store keeper 1
2,053 24,634
8 Winder 3
1,026 36,950
9 knitting machine 6
operator 2,053 147,802
10 Linking section 7
operator 2,053 172,435
11 inspectors, menders 2
1,796 43,109
12 dying room operators 3
1,925 69,282
13 setting room operators 3 1,925

8
 69,282
14 Packer 1
1,026 12,317
15 Boiler operators 1
2,053 24,634
16 Maintenance 2
1,925 46,188
17 Guards 3
1,026 36,950
18 Cleaners 1
1,026 12,317

Total 39 939,15
6
Employee’s Benefits 187,83
(20%0 1
Total 1,126,98
7

7.2 Training Requirement

The technical head and the operators (particularly knitting machine operators) should have some
industrial experience and some vocational training in knitting, prior their employment. On the
job training in the operation and maintenance of the machines should be given by an expert from
the supplier of the machinery and equipment during the erection and trial-run period total cost of
the expert is estimated to be Birr 10,000.

8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of socks producing plant is based on the data provided in the preceding
sections and the following assumptions.

A. Construction and Finance

Construction period 2 years

Source of finance 30% equity and 70% loan
Tax holidays 2 years
Bank interest rate 12%

9
 Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

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

C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 5.0 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.
The foreign component of the project accounts for Birr 3.0 million or 60% of the total
investment cost.
Table 5: Total initial investment
LC FC Total
Land 3,0 3,0
00 - 00
Building 1,732,05 1,732,05
0 - 0
Office equipment 25,6 25,66

10
 60 - 0
Vehicles
- -
machinery & equipment 1,519,57 4,558,72 6,078,30
5 5 0
Total Fixed Investment 3,284,98 4,558,72 7,843,70
3 5 8
Pre production 392,18 392,18
7 - 7
Total Initial Investment 3,677,17 4,558,72 8,235,89
0 5 5
Working capital 1,447,27 3,123,14 4,570,42
3 8 1
Total
5,124,443 7,681,873 12,806,316
*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.

8.3 Production Costs

The summary of the production costs at full capacity is show in Table 6. The total production
cost including depreciation will amount to Birr 5..0 million. Of the total production cost,
materials will account for 74.4%.

Table 6

Total Production Cost at full Capacity

Items Cost
1. Raw materials
9,542,954
2. Utilities
142,000
3. Wages and Salaries

11
 1,126,987
4. Spares and Maintenance
235,312
Factory costs
11,047,254
5. Depreciation
775,438
6. Financial costs
768,381
Total Production Cost
12,591,072

8.4 Financial Evaluation

I. Profitability
The financial projections made reveal that the project is economically viable and social desirable.
According to the income statement of the plant the project will generate profit beginning from
first year operation. Important ratios such as the percentage of net profit to equity (return on
equity) and net profit and interest on total investment (return on total investment) are 11% and
21% respectively in the first year and are gradually increasing.

II. Breakeven Analysis

The break even point of the project is estimated by using income statement projection. The
project will break even at 27.9% of capacity utilization.

III. Payback Period

The Initial investment of the project will be recovered with in two and half year's operation.

12
 IV. Simple Rate of Return
It is a ratio of net profit and interest to total capital invested for a single year at full capacity
utilization. Thus the simple rate of return of the project is about 19.6%

V. Internal Rate of Return and Net Present Value

Based on the cash fallow statement, the project is anticipated to have a net present value of Birr
126 thousand when discounted at 18% whereas its IRR is 23.1%.

VI. Sensitivity Analysis

An increase in costs of raw materials by 10% will not affect the profitability of the pant.

9 Economic and Social Benefit and Justification

Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State. These benefits are listed as follows

A. Profit Generation

The project is found to be financially viable and earns on average a profit of birr 2.07 million per
year and birr 20.21 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 602.61 thousand from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result creates
additional fund for the regional government that will be used in expanding social and other basic
services in the region.

13
 C. Import Substitution and Foreign Exchange Saving

As there is no local production of socks powder in the country, the commencement of this
project relieves a portion of the import burden. That is, based on the projected figures we learn
that in the project life an estimated amount of US Dollar 6.5 million will be saved as a result of
the proposed project. This will create room for the saved hard currency to be allocated to other
vital and strategic sectors.

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to 39 professionals as well as support
staff. Consequently the project creates income of birr 1.12 million per year. This would be one
of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

ANNEXES

14
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION
Year 1 Year 2 1 2 3 4
Capacity Utilization (%) 0 0 80% 90% 100% 100%
6,232,91 7,012,02 7,791,13 7,791,13
1. Total Inventory 0 0 0 4 8 8
2,706,72 3,045,07 3,383,41 3,383,41
Raw Materials in Stock- Total 0 0 9 0 1 1
208,21 234,23 260,26 260,26
Raw Material-Local 0 0 0 6 2 2
2,498,51 2,810,83 3,123,14 3,123,14
Raw Material-Foreign 0 0 9 4 9 9
10,51 11,82 13,14 13,14
Factory Supplies in Stock 0 0 2 6 0 0
20,53 23,10 25,67 25,67
Spare Parts in Stock and Maintenance 0 0 6 3 0 0
262,80 295,65 328,50 328,50
Work in Progress 0 0 1 2 2 2
525,60 591,30 657,00 657,00
Finished Products 0 0 3 3 3 3
1,343,65 1,511,60 1,679,56 1,679,56
2. Accounts Receivable 0 0 1 7 4 4
130,15 146,42 162,69 162,69
3. Cash in Hand 0 0 5 4 4 4
4,999,98 5,624,98 6,249,98 6,249,98
CURRENT ASSETS 0 0 7 6 4 4
1,343,65 1,511,60 1,679,56 1,679,56
4. Current Liabilities 0 0 1 7 4 4
1,343,65 1,511,60 1,679,56 1,679,56
Accounts Payable 0 0 1 7 4 4
3,656,33 4,113,37 4,570,42 4,570,42
TOTAL NET WORKING CAPITAL REQUIRMENTS 0 0 6 8 0 0
3,656,33 457,04 457,04
INCREASE IN NET WORKING CAPITAL 0 0 6 2 2 -

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)

5 6 7 8 9
Capacity Utilization (%) 100% 100% 100% 100% 100%
7,791,13 7,791,13 7,791,13 7,791,13 7,791,13
1. Total Inventory 8 8 8 8 8
3,383,41 3,383,41 3,383,41 3,383,41 3,383,41
Raw Materials in Stock-Total 1 1 1 1 1
260,26 260,26 260,26 260,26 260,26
Raw Material-Local 2 2 2 2 2
3,123,14 3,123,14 3,123,14 3,123,14 3,123,14
Raw Material-Foreign 9 9 9 9 9
13,14 13,14 13,14 13,14 13,14
Factory Supplies in Stock 0 0 0 0 0
25,67 25,67 25,67 25,67 25,67
Spare Parts in Stock and Maintenance 0 0 0 0 0
328,50 328,50 328,50 328,50 328,50
Work in Progress 2 2 2 2 2
657,00 657,00 657,00 657,00 657,00
Finished Products 3 3 3 3 3
1,679,56 1,679,56 1,679,56 1,679,56 1,679,56
2. Accounts Receivable 4 4 4 4 4
162,69 162,69 162,69 162,69 162,69
3. Cash in Hand 4 4 4 4 4
6,249,98 6,249,98 6,249,98 6,249,98 6,249,98
CURRENT ASSETS 4 4 4 4 4
1,679,56 1,679,56 1,679,56 1,679,56 1,679,56
4. Current Liabilities 4 4 4 4 4
1,679,56 1,679,56 1,679,56 1,679,56 1,679,56
Accounts Payable 4 4 4 4 4
4,570,42 4,570,42 4,570,42 4,570,42 4,570,42
TOTAL NET WORKING CAPITAL REQUIRMENTS 0 0 0 0 0
INCREASE IN NET WORKING CAPITAL - - - - -

2
 Annex 2: Cash Flow Statement (in Birr)

Year 1 Year 2 1 2 3 4
4,117,96 8,688,38 14,024,35 15,563,95
TOTAL CASH INFLOW 0 0 13,660,451 6 6 15,396,000
4,117,96 8,688,38 167,95 167,95
1. Inflow Funds 0 0 1,343,651 6 6 -
1,647,18 3,475,35
Total Equity 4 2 - - - -
2,470,77 5,213,02
Total Long Term Loan 6 8 - - - -
167,95 167,95
Total Short Term Finances - - 1,343,651 6 6 -
13,856,40 15,396,00
2. Inflow Operation - - 12,316,800 0 0 15,396,000
13,856,40 15,396,00
Sales Revenue - - 12,316,800 0 0 15,396,000

Interest on Securities - - - - - -

3. Other Income - - - - - -
4,117,96 4,117,96 12,949,07 14,695,46
TOTAL CASH OUTFLOW 0 0 15,968,963 0 8 13,962,896
4,117,96 4,117,96
4. Increase In Fixed Assets 0 0 - - - -
3,921,86 3,921,86
Fixed Investments 7 7 - - - -
196,09 196,09
Pre-production Expenditures 3 3 - - - -
624,99 624,99
5. Increase in Current Assets - - 4,999,987 8 8 -
6. Operating Costs - - 9,005,905 10,121,38 11,236,85
1 8

3
 11,236,858
784,59
7. Corporate Tax Paid - - - - 7 830,700
922,05 768,38
8. Interest Paid - - 1,963,071 7 0 614,704
1,280,63 1,280,63
9. Loan Repayments - - - 4 4 1,280,634

10. Dividends Paid - - - - - -

4,570,42 (2,308,512 1,075,28 868,48
Surplus(Deficit) - 0 ) 6 9 1,433,104
4,570,42 3,337,19 4,205,68
Cumulative Cash Balance - 0 2,261,909 5 3 5,638,787

4
 Annex 2: Cash Flow Statement (in Birr): Continued

5 6 7 8 9 10
TOTAL CASH INFLOW 15396000 15396000 15396000 15396000 15396000 15396000
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 15396000 15396000 15396000 15396000 15396000 15396000
Sales Revenue 15396000 15396000 15396000 15396000 15396000 15396000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 13855322.72 13771280.65 13663707.38 12275500.1 12275500.1 12275500.1
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 11236857.72 11236857.72 11236857.72 11236857.72 11236857.72 11236857.7
7. Corporate Tax Paid 876802.6875 946436.7171 992539.5515 1038642.36 1038642.36 1038642.36
8. Interest Paid 461028.2676 307352.1699 153676.0978 0 0 0
9. Loan Repayments 1280634.045 1280634.045 1280634.045 0 0 0
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 1540677.284 1624719.352 1732292.615 3120499.898 3120499.898 3120499.9
Cumulative Cash Balance 7179464.721 8804184.073 10536476.66 13656976.56 16777476.49 19897976.4

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

5
 Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW - - 12,316,800 13,856,400 15,396,000 15,396,000
1. Inflow Operation - - 12,316,800 13,856,400 15,396,000 15,396,000
Sales Revenue - - 12,316,800 13,856,400 15,396,000 15,396,000
Interest on Securities - - - - - -
2. Other Income - - - - - -
TOTAL CASH OUTFLOW 4,117,960 4,117,960 12,662,241 10,578,423 12,478,497 12,067,558
3. Increase in Fixed Assets 4,117,960 4,117,960 - - - -
Fixed Investments 3,921,867 3,921,867 - - - -
Pre-production Expenditures 196,093 196,093 - - - -
4. Increase in Net Working Capital - - 3,656,336 457,042 457,042 -
5. Operating Costs - - 9,005,905 10,121,381 11,236,858 11,236,858
6. Corporate Tax Paid - - - - 784,597 830,700
NET CASH FLOW (4,117,960) (4,117,960) (345,441) 3,277,977 2,917,503 3,328,442
CUMMULATIVE NET CASH FLOW (4,117,960) (8,235,920) (8,581,361) (5,303,385) (2,385,882) 942,561
Net Present Value (at 18%) (4,117,960) (3,489,797) (248,091) 1,995,078 1,504,816 1,454,893
Cumulative Net present Value (4,117,960) (7,607,757) (7,855,847) (5,860,769) (4,355,954) (2,901,061)

6
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

5 6 7 8 9 10
15,396,00 15,396,00 15,396,00 15,396,00 15,396,00
TOTAL CASH INFLOW 0 0 0 0 0 15,396,000
15,396,00 15,396,00 15,396,00 15,396,00 15,396,00
1. Inflow Operation 0 0 0 0 0 15,396,000
15,396,00 15,396,00 15,396,00 15,396,00 15,396,00
Sales Revenue 0 0 0 0 0 15,396,000

Interest on Securities - - - - - -

2. Other Income - - - - - -
12,113,66 12,183,29 12,229,39 12,275,50 12,275,50
TOTAL CASH OUTFLOW 0 4 7 0 0 12,275,500

3. Increase in Fixed Assets - - - - - -

Fixed Investments - - - - - -

Pre-production Expenditures - - - - - -

4. Increase in Net Working Capital - - - - - -

11,236,85 11,236,85 11,236,85 11,236,85 11,236,85
5. Operating Costs 8 8 8 8 8 11,236,858
876,80 946,43 992,54 1,038,64 1,038,64
6. Corporate Tax Paid 3 7 0 2 2 1,038,642
3,282,34 3,212,70 3,166,60 3,120,50 3,120,50
NET CASH FLOW 0 6 3 0 0 3,120,500
4,224,90 7,437,60 10,604,20 13,724,70 16,845,20
CUMMULATIVE NET CASH FLOW 0 6 9 9 9 19,965,709

7
 1,215,88 1,008,54 842,43 703,53 596,21
Net Present Value (at 18%) 2 9 7 6 7 505,268
(1,685,17 (676,63 165,80 869,34 1,465,55
Cumulative Net present Value 9) 0) 7 3 9 1,970,828
Net Present Value (at 18%) 1,970,827.74 0
Internal Rate of Return 23.10%

8
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 80% 90% 100% 100% 100%
1. Total Income 12316800 5400000 6000000 6000000 6000000
Sales Revenue 4800000 5400000 6000000 6000000 6000000
Other Income 0 0 0 0 0
2. Less Variable Cost 3337169 3754315 4171461 4171461 4171461
VARIABLE MARGIN 1462831 1645685 1828539 1828539 1828539
(In % of Total Income) 30.48 30.48 30.48 30.48 30.48
3. Less Fixed Costs 474734.3 492302.3 509870.3 509870.3 509870.3
OPERATIONAL MARGIN 988096.9 1153383 1318669 1318669 1318669
(In % of Total Income) 21 21 22 22 22
4. Less Cost of Finance 765031.4 359336.1 299446.8 239557.4 179668.1
5. GROSS PROFIT 223065.5 794046.7 1019222 1079111 1139001
6. Income (Corporate) Tax 0 0 305766.6 323733.4 341700.2
7. NET PROFIT 223065.5 794046.7 713455.4 755377.9 797300.5
RATIOS (%)
Gross Profit/Sales 5% 15% 17% 18% 19%
Net Profit After Tax/Sales 5% 15% 12% 13% 13%
Return on Investment 21% 24% 20% 20% 20%
Return on Equity 11% 40% 36% 38% 40%

9
 Annex 4: NET INCOME STATEMENT (in Birr):Continued

6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%
1. Total Income 15,396,000 15,396,000 15,396,000 15,396,000 15,396,000
Sales Revenue 15,396,000 15,396,000 15,396,000 15,396,000 15,396,000
Other Income - - - - -
2. Less Variable Cost 10,703,969 10,703,969 10,703,969 10,703,969 10,703,969
VARIABLE MARGIN 4,692,031 4,692,031 4,692,031 4,692,031 4,692,031

(In % of Total Income) 77 77 77 77 77

3. Less Fixed Costs 1,229,890 1,229,890 1,229,890 1,229,890 1,229,890
OPERATIONAL MARGIN 3,462,141 3,462,141 3,462,141 3,462,141 3,462,141

(In % of Total Income) 56 56 56 56 56

4. Less Cost of Finance 307,352 153,676 - - -
5. GROSS PROFIT 3,154,789 3,308,465 3,462,141 3,462,141 3,462,141
6. Income (Corporate) Tax 946,437 992,540 1,038,642 1,038,642 1,038,642
7. NET PROFIT 2,208,352 2,315,926 2,423,499 2,423,499 2,423,499
RATIOS (%)
Gross Profit/Sales 20% 21% 22% 22% 22%
Net Profit After Tax/Sales 14% 15% 16% 16% 16%
Return on Investment 20% 19% 19% 19% 19%
Return on Equity 43% 45% 47% 47% 47%

10
 Annex 5: Projected Balance Sheet (in Birr)

Year 1 Year 2 1 2 3 4
4,117,96 12,806,34 14,722,37 15,647,22 16,365,27
TOTAL ASSETS 0 0 8 4 2 17,022,938
4,570,42 7,261,89 8,962,18 10,455,66
1. Total Current Assets - 0 6 0 7 11,888,771
2,737,77 3,079,99 3,422,22
Inventory on Materials and Supplies - - 7 9 1 3,422,221
328,50
Work in Progress - - 262,801 295,652 2 328,502
657,00
Finished Products in Stock - - 525,603 591,303 3 657,003
1,343,65 1,511,60 1,679,56
Accounts Receivable - - 1 7 4 1,679,564
162,69
Cash in Hand - - 130,155 146,424 4 162,694
4,570,42 2,261,90 3,337,19 4,205,68
Cash Surplus, Finance Available - 0 9 5 3 5,638,787

Securities - - - - - -
4,117,96 8,235,92 7,460,48 6,685,04 5,909,60
2. Total Fixed Assets, Net of Depreciation 0 0 2 3 5 5,134,167
3,921,86 7,843,73 7,843,73 7,843,73
Fixed Investment - 7 3 3 3 7,843,733
3,921,86 3,921,86
Construction in Progress 7 7 - - - -
196,09 392,18
Pre-Production Expenditure 3 392,187 392,187 392,187 7 392,187
1,550,87 2,326,31
Less Accumulated Depreciation - - 775,438 7 5 3,101,753

3. Accumulated Losses Brought Forward - - - - - -

11
4. Loss in Current Year - - - - - -
4,117,96 12,806,34 14,722,37 15,647,22 16,365,27
TOTAL LIABILITIES 0 0 8 4 2 17,022,938
1,343,65 1,511,60 1,679,56
5. Total Current Liabilities - - 1 7 4 1,679,564
1,343,65 1,511,60 1,679,56
Accounts Payable - - 1 7 4 1,679,564

Bank Overdraft - - - - - -
2,470,77 7,683,80 7,683,80 6,403,17 5,122,53
6. Total Long-term Debt 6 4 4 0 6 3,841,902
2,470,77 7,683,80 7,683,80 6,403,17 5,122,53
Loan A 6 4 4 0 6 3,841,902

Loan B - - - - - -
1,647,18 5,122,53 5,122,53 5,122,53 5,122,53
7. Total Equity Capital 4 6 6 6 6 5,122,536
1,647,18 5,122,53 5,122,53 5,122,53 5,122,53
Ordinary Capital 4 6 6 6 6 5,122,536

Preference Capital - - - - - -

Subsidies - - - - - -
2,609,91
8. Reserves, Retained Profits Brought Forward - - - 572,386 0 4,440,636
2,037,52 1,830,72
9. Net Profit After Tax - - 572,386 4 6 1,938,300

Dividends Payable - - - - - -
2,037,52
Retained Profits - - 572,386 4 1,938,300

12
 Annex 5: Projected Balance Sheet (in Birr): Continued

5 6 7 8 9 10
17,788,17 18,715,89 19,751,18 22,174,68 24,598,18
TOTAL ASSETS 7 5 7 6 5 27,021,683
13,429,44 15,054,16 16,786,46 19,906,96 23,027,46
1. Total Current Assets 9 8 1 1 0 26,147,960
3,422,22 3,422,22 3,422,22 3,422,22
Inventory on Materials and Supplies 1 1 3,422,221 1 1 3,422,221
328,50 328,50 328,50
Work in Progress 328,502 2 328,502 2 2 328,502
657,00 657,00 657,00
Finished Products in Stock 657,003 3 657,003 3 3 657,003
1,679,56 1,679,56 1,679,56 1,679,56
Accounts Receivable 4 4 1,679,564 4 4 1,679,564
162,69 162,69 162,69
Cash in Hand 162,694 4 162,694 4 4 162,694
7,179,46 8,804,18 10,536,47 13,656,97 16,777,47
Cash Surplus, Finance Available 5 4 7 7 6 19,897,976

Securities - - - - - -
4,358,72 3,661,72 2,267,72 1,570,72
2. Total Fixed Assets, Net of Depreciation 8 7 2,964,726 5 4 873,723
7,843,73 7,843,73 7,843,73 7,843,73
Fixed Investment 3 3 7,843,733 3 3 7,843,733

Construction in Progress - - - - - -
392,18 392,18 392,18
Pre-Production Expenditure 392,187 7 392,187 7 7 392,187
3,877,19 4,574,19 5,968,19 6,665,19
Less Accumulated Depreciation 2 3 5,271,194 5 6 7,362,197

3. Accumulated Losses Brought Forward - - - - - -

13
4. Loss in Current Year - - - - - -
17,788,17 18,715,89 19,751,18 22,174,68 24,598,18
TOTAL LIABILITIES 7 5 7 6 5 27,021,683
1,679,56 1,679,56 1,679,56 1,679,56
5. Total Current Liabilities 4 4 1,679,564 4 4 1,679,564
1,679,56 1,679,56 1,679,56 1,679,56
Accounts Payable 4 4 1,679,564 4 4 1,679,564

Bank Overdraft - - - - - -
2,561,26 1,280,63
6. Total Long-term Debt 8 4 - - - -
2,561,26 1,280,63
Loan A 8 4 - - - -

Loan B - - - - - -
5,122,53 5,122,53 5,122,53 5,122,53
7. Total Equity Capital 6 6 5,122,536 6 6 5,122,536
5,122,53 5,122,53 5,122,53 5,122,53
Ordinary Capital 6 6 5,122,536 6 6 5,122,536

Preference Capital - - - - - -

Subsidies - - - - - -
6,378,93 8,424,80 10,633,16 12,949,08 15,372,58
8. Reserves, Retained Profits Brought Forward 6 9 1 7 6 17,796,085
2,045,87 2,208,35 2,423,49 2,423,49
9. Net Profit After Tax 3 2 2,315,926 9 9 2,423,499

Dividends Payable - - - - - -
2,045,87 2,208,35 2,423,49 2,423,49
Retained Profits 3 2 2,315,926 9 9 2,423,499

14