Investment Office ANRS

Project Profile on the Establishment

of Plastic Containers Making Plant
by blow molding

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.....................................................................................5
6 Technology and Engineering..................................................................6
6.1 Production Process...............................................................................................6
6.2 Machinery and Equipment...................................................................................6
6.3 Civil Engineering Cost........................................................................................7
7 Human Resource and Training Requirement......................................7
7.1 Human Resource..................................................................................................7
7.2 Training Requirement..........................................................................................8
8 Financial Analysis...................................................................................8
8.1 Underlying Assumption.......................................................................................8
8.2 Investment............................................................................................................9
8.3 Production Costs................................................................................................10
8.4 Financial Evaluation..........................................................................................11
9 Economic and Social Benefit and Justification..................................12
ANNEXES....................................................................................................13
 1. Executive Summary

This project profile deals with the establishment of Plastic Container Making Plant by Blow
Molding in Amhara National Regional State. The following presents the main findings of the
study

Demand projection divulges that the domestic demand for plastic containers is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 115,000 units of various
types and sizes annually. The total investment cost of the project including working capital is
estimated at Birr 3.96 million and creates 31 job opportunity and Birr 396.72 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 24.6% of capacity utilization and it will
payback fully the initial investment less working capital in 2 years and six months. The result
further show that the calculated IRR of the project is 30.6% and the net present value at 18 %
discount is Birr 1,890,964.24

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

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

2. Product Description and Application

Plastic is a common name for Polymers: materials made of long strings of carbon and other
elements. The varied use of plastic in our everyday life has made it an integral component in
almost everything. Plastic is used in everyday items like buckets, cups, water pipes and the like.
The numerous properties of plastics have made it possible to virtually make every product
conceivable one of which is plastic containers usually used by households. Some properties of

1
such containers that distinguish them from other materials are: attractive, hard, easy to clean,
light weight and economical. Apart from some of the properties mentioned above, one important
feature of plastic containers is that it is a non-rusting material which makes it a very usable
commodity. With such a high ratio of usage, plastic containers have become a cheap but an
important commodity to all consumers in both the rural and urban dwellers.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

It is believed that Ethiopia is one of the countries that do have the lowest per capita consumption
of plastic materials in the world. Partly this is because the local industries are not developing as
rapidly as they are growing in the other parts of the world. According to CSA (2007), there are
more than 50 medium and large firms engaged in the manufacturing of rubber and plastic
products. Although it is not documented, a number of small scale manufacturing units also
operate mainly in the capital city of the country.

Data obtained from Customs Authority revealed that in 2007 alone about 613.8 tons of plastic
containers, buckets, and household and toilet articles of plastic have been imported into the
country. If we conservatively assume that 5 household plastic containers on average weighs one
kilo gram, the total import of 2007 is estimated to be more than 3 million units. This, however, is
believed to highly understate the total amount of import of plastic items under consideration
since a sizable amount of information is not accounted in our computation due to data
aggregation problem.

Therefore, to estimate the current annual demand for plastic containers used by households in the
Amhara region the following proxy approach is employed. The estimated population of Amhara
region in 2005/06 was 19.1 million of which 2.2 million lives in the urban area while the
remaining 16.9 resides in the rural part (ANRS, BoFED, 2007). Assuming a family size of 5
individuals the population number would translate into 440 thousand families and 3.38 million

2
families in the urban and rural part of the region respectively. Furthermore, conservatively
assuming that 50% of the urban and 5% of the rural families buy one plastic container once in a
year, the annual demand of the region would be about 389 thousand units. In general, the
foregoing analysis divulge that there is huge demand for plastic materials which is mainly
supplied from foreign sources

3.1.2 Projected Demand

Although there is strong competition from imported items, many plastic manufacturers still enjoy
good business in the country since they are able to anticipate and understand the market
dynamics that helps them to relate to the demand supply gap quickly than the rest of the
producers. The future demand for plastic containers is believed to be influenced by the income
and population growth. In forecasting the future demand for the products in the region, a
conservative annual growth rate of 3 percent is considered even though income is growing at
about 10 percent for the last 5 years. Accordingly, the following forecast is obtained.

Table 1: Projected Demand for Plastic Containers in Amhara Region

Year Projected Demand

2008/09 425,071
2009/10 437,823
2010/11 450,958
2011/12 464,486
2012/13 478,421
2013/14 492,774
2014/15 507,557
2015/16 522,783
2016/17 538,467
2017/18 554,621

The projected demand indicates the presence of growing demand for the product under
discussion and therefore, suggests the importance of establishing plastic containers
manufacturing plant.

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 3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price is
set to be

 Birr 25 for Water Bucket (20 liters capacity)

 Birr 35 for Water Bucket (40 liters capacity)
 Birr 20 for Wash Tubs (24 liters capacity)
 Birr 25 for Wash Tubs (30 liters capacity)
 Birr 20 for Waste Bin (Normal Size)

In distributing the product, the firm shall make use of the available retail and wholesale network.

3.2 Plant Capacity

In consideration of the expected demand for plastic containers as presented earlier, and the
planned technology, the envisaged plant is set to produce 60 thousand units of various plastic
containers as stated in the following table.

Table 2: Proposed Product Mix

Item Size Quantity Colour

20 liters 15,000 Blue and Red
Water Bucket 40 liters 40,000 Blue and Red
24 liters 20,000 Blue and Red
Wash Tubs 30 liters 30,000 Blue and Red
Dust Bin Normal Size 10,000 Black and Grey

3.3 Production Program

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

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

The main raw material in the production of plastic containers is high density polyethylene
(HDPE) which is imported from abroad. Depending on the required quality, colour pigments can
be acquired from local sources or 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.
HDPE 40 ton 600,000
Colour Pigments 2 ton 60,000
Bucket Handler (iron) 30,000 pcs 15,000
Total Material Cost 15,000 660,000
Utility
Electricity 230,000 kwh 126,500
Water 5,000 m3 13,250
Total Utility Cost 139,750

The full capacity requirement of material and utility is estimated at Birr 814,750 per year.

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of infrastructure as
well as market for the output are major towns of the region mainly Bahir Dar, Dessie and Gonder
towns

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6 Technology and Engineering
6.1 Production Process
The theory of blow molding can be reduced to four simple individual steps: Plasticizing,
Blowing, Chilling, and Ejection. Each of those steps is distinct from the others and correct
control of each is essential to the success of the total process.

A. Plasticizing: This describes the conversion of the polymer material from its normal hard
granular form at room temperatures, to the liquid consistency necessary for blowing at its
correct melt temperature. It is in this stage that the required pigment is mixed with the
molten plastic material.

B. Blow molding: In the molding process, melted plastic is extruded in a tube like condition
from the extruder, and held by the metal mould. Then compressed air is injected causing
the plastic to have the required shape. Flashes caused during production are collected,
fine crushed and reclaimed for re-use.

C. Chilling - is the action of removing heat from the melt to convert it from a liquid
consistency back to its original rigid state. As the material cools, it also shrinks.

D. Ejection - is the removal of the cooled, molded part from the mold cavity and from any
cores or inserts.

6.2 Machinery and Equipment

The machineries and equipment required for producing plastic containers by blow molding is
detailed in table 4 below
Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Resin Coloring Machine 1
Blow Molding Machine 2
Metal Mold (for Blow Molding) 10
Crushing Machine 1
Water Chiller 1

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The total cost of machinery and equipment including freight insurance and bank cost is estimated
to be about Birr 1,650,000

The following is machineries suppliers’ address for the envisaged project

TA AI MACHINERY CO., LTD.

Address: 39 Chunghsing Rd., Sec. 2, Wuku Hsiang, Taipei Hsien, Taiwan
Telephone: 886-2-2985-3438
Fax: 886-2-2980-2475
E-Mail:http://www.marlow.com
URL: http://www.chinese-machinery.com/taai

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 700m 2 where 350m2 is allocated to
the production place and the remaining space is left for stores (250m 2), office buildings and
facilities (100m2).

7 Human Resource and Training Requirement

7.1 Human Resource

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

7
Table 5: Human Resource Requirement

Monthly Total Annual

Position No. Required Salary Salary
Manager 1 4500 54000
Accountant 1 1200 14400
Secretary 1 850 10200
Sales Clerk 2 800 19200
Chemist 1 1600 19200
Store Keeper 3 800 28800
Technician 1 1200 14400
Supervisor 2 1500 36000
Operators 8 800 76800
Laborers 5 400 24000
Cleaners 2 400 9600
Driver 1 800 9600
Guards 3 400 14400
Benefit (20%) 66120
Total 31 396720

The envisaged plant creates 31 job opportunity and about Birr 396.72 thousand of income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. Birr 35,000 will be allocated as training expense.

8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of plastic containers making plant by blow molding is based on the data
provided in the preceding chapters and the following assumptions.

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 A. Construction and Finance

Construction period 2 year

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

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 3.96
million as shown in table 6 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60% is to be financed by bank loan.

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 Table 6: Total initial investment

Items L.C F.C Total

Land
2,100 2,100
Building and civil works
1,400,000 1,400,000
Office equipment
50,000 50,000
Vehicles
200,000 200,000
Plant machinery & equipment
0 1,650,000 1,650,000
Total fixed investment cost
1,652,100 1,650,000 3,302,100
Pre production capital
expenditure* 165,105 165,105
Total initial investment
1,817,205 1,650,000 3,467,205
Working capital at full capacity
205,575 288,000 493,575
Total 2,022,780 1,938,000 3,960,780
*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 48.9% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 1.86 million as detailed in
table 7below.

Table 7: Production Cost

Items Cost
1. Raw materials 675,000
2. Utilities 139,750
3. Wages and Salaries 396,720
4. Spares and Maintenance 99,063
Factory costs 1,310,533
5. Depreciation 313,021
6. Financial costs 237,647
Total Production Cost 1,861,201

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 8.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 16%, 22% and 26% 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 24.6% of capacity utilization.

III. Payback Period

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

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 28.5%

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
30.6% and the net present value at 18 % discount is Birr 1,890,964.24

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector. This result is accompanied with payback period of 2 years and 9 months.

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

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 9.76 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 3.6 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. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of US Dollar
2.98 million will be saved as a result of the proposed project. This will create room for the saved
hard currency to be allocated on other vital and strategic sectors

D. 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 31 professionals as well as support
stuffs. Consequently the project creates income of Birr 396.72 thousands per year. This would be
one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

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ANNEXES

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

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

1. Total Inventory 0.00 0.00 507280.89 615983.94 724686.99 724686.99

Raw Materials in Stock- Total 0.00 0.00 202745.45 246190.91 289636.36 289636.36

Raw Material-Local 0.00 0.00 1145.45 1390.91 1636.36 1636.36

Raw Material-Foreign 0.00 0.00 201600.00 244800.00 288000.00 288000.00

Factory Supplies in Stock 0.00 0.00 1239.80 1505.48 1771.15 1771.15

Spare Parts in Stock and Maintenance 0.00 0.00 7564.81 9185.84 10806.87 10806.87

Work in Progress 0.00 0.00 30995.12 37636.93 44278.75 44278.75

Finished Products 0.00 0.00 61990.24 75273.87 88557.49 88557.49

2. Accounts Receivable 0.00 0.00 238636.36 289772.73 340909.09 340909.09

3. Cash in Hand 0.00 0.00 40966.80 49745.40 58524.00 58524.00

CURRENT ASSETS 0.00 0.00 584138.60 709311.16 834483.71 834483.71

4. Current Liabilities 0.00 0.00 238636.36 289772.73 340909.09 340909.09

Accounts Payable 0.00 0.00 238636.36 289772.73 340909.09 340909.09

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 345502.24 419538.43 493574.62 493574.62

INCREASE IN NET WORKING CAPITAL 0.00 0.00 345502.24 74036.19 74036.19 0.00

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

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

1. Total Inventory 724686.99 724686.99 724686.99 724686.99 724686.99 724686.99

Raw Materials in Stock-Total 289636.36 289636.36 289636.36 289636.36 289636.36 289636.36

Raw Material-Local 1636.36 1636.36 1636.36 1636.36 1636.36 1636.36

Raw Material-Foreign 288000.00 288000.00 288000.00 288000.00 288000.00 288000.00

Factory Supplies in Stock 1771.15 1771.15 1771.15 1771.15 1771.15 1771.15

Spare Parts in Stock and Maintenance 10806.87 10806.87 10806.87 10806.87 10806.87 10806.87

Work in Progress 44278.75 44278.75 44278.75 44278.75 44278.75 44278.75

Finished Products 88557.49 88557.49 88557.49 88557.49 88557.49 88557.49

2. Accounts Receivable 340909.09 340909.09 340909.09 340909.09 340909.09 340909.09

3. Cash in Hand 58524.00 58524.00 58524.00 58524.00 58524.00 58524.00

CURRENT ASSETS 834483.71 834483.71 834483.71 834483.71 834483.71 834483.71

4. Current Liabilities 340909.09 340909.09 340909.09 340909.09 340909.09 340909.09

Accounts Payable 340909.09 340909.09 340909.09 340909.09 340909.09 340909.09

TOTAL NET WORKING CAPITAL REQUIRMENTS 493574.62 493574.62 493574.62 493574.62 493574.62 493574.62

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 1733602.50 2227177.12 2426136.36 2707386.36 3176136.36 3125000.00
1. Inflow Funds 1733602.50 2227177.12 238636.36 51136.36 51136.36 0.00
Total Equity 693441.00 890870.85 0.00 0.00 0.00 0.00
Total Long Term Loan 1040161.50 1336306.27 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 238636.36 51136.36 51136.36 0.00
2. Inflow Operation 0.00 0.00 2187500.00 2656250.00 3125000.00 3125000.00
Sales Revenue 0.00 0.00 2187500.00 2656250.00 3125000.00 3125000.00
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 1733602.50 1733602.50 2110342.23 1883994.86 2414403.79 2255960.69
4. Increase In Fixed Assets 1733602.50 1733602.50 0.00 0.00 0.00 0.00
Fixed Investments 1651050.00 1651050.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 82552.50 82552.50 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 584138.60 125172.56 125172.56 0.00
6. Operating Costs 0.00 0.00 893412.38 1077568.21 1261724.04 1261724.04
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 393782.45 408041.26
8. Interest Paid 0.00 0.00 632791.26 285176.13 237646.78 190117.42
9.Loan Repayments 0.00 0.00 0.00 396077.96 396077.96 396077.96
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 493574.62 315794.13 823391.50 761732.57 869039.31
Cumulative Cash Balance 0.00 493574.62 809368.75 1632760.25 2394492.83 3263532.14

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00
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 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00
Sales Revenue 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00
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 2222690.14 2211325.89 2178055.34 1748706.83 1748706.83 1748706.83
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 1261724.04 1261724.04 1261724.04 1261724.04 1261724.04 1261724.04
7. Corporate Tax Paid 422300.07 458465.17 472723.98 486982.79 486982.79 486982.79
8. Interest Paid 142588.07 95058.71 47529.36 0.00 0.00 0.00
9. Loan Repayments 396077.96 396077.96 396077.96 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 902309.86 913674.11 946944.66 1376293.17 1376293.17 1376293.17
Cumulative Cash Balance 4165842.00 5079516.12 6026460.78 7402753.95 8779047.12 10155340.29

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 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 2187500.00 2656250.00 3125000.00 3125000.00

1. Inflow Operation 0.00 0.00 2187500.00 2656250.00 3125000.00 3125000.00

Sales Revenue 0.00 0.00 2187500.00 2656250.00 3125000.00 3125000.00

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 1733602.50 1733602.50 1238914.61 1151604.40 1729542.69 1669765.30

3. Increase in Fixed Assets 1733602.50 1733602.50 0.00 0.00 0.00 0.00

Fixed Investments 1651050.00 1651050.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 82552.50 82552.50 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 345502.24 74036.19 74036.19 0.00

5. Operating Costs 0.00 0.00 893412.38 1077568.21 1261724.04 1261724.04

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 393782.45 408041.26

NET CASH FLOW -1733602.50 -1733602.50 948585.39 1504645.60 1395457.31 1455234.70

CUMMULATIVE NET CASH FLOW -1733602.50 -3467205.00 -2518619.61 -1013974.02 381483.30 1836717.99

Net Present Value (at 18%) -1733602.50 -1469154.66 681259.25 915773.76 719761.36 636096.50

Cumulative Net present Value -1733602.50 -3202757.16 -2521497.91 -1605724.14 -885962.79 -249866.29

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

5
 PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00

1. Inflow Operation 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00

Sales Revenue 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00

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 1684024.11 1720189.21 1734448.02 1748706.83 1748706.83 1748706.83

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 1261724.04 1261724.04 1261724.04 1261724.04 1261724.04 1261724.04

6. Corporate Tax Paid 422300.07 458465.17 472723.98 486982.79 486982.79 486982.79

NET CASH FLOW 1440975.89 1404810.79 1390551.98 1376293.17 1376293.17 1376293.17

CUMMULATIVE NET CASH FLOW 3277693.89 4682504.67 6073056.65 7449349.82 8825642.99 10201936.17

Net Present Value (at 18%) 533782.92 441005.27 369939.89 310293.65 262960.72 222848.07

Cumulative Net present Value 283916.63 724921.90 1094861.80 1405155.45 1668116.17 1890964.24

Net Present Value (at 18%) 1,890,964.24

Internal Rate of Return 30.6%

Annex 4: NET INCOME STATEMENT ( in Birr)

6
 PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 70% 85% 100% 100% 100%

1. Total Income 2187500.00 2656250.00 3125000.00 3125000.00 3125000.00

Sales Revenue 2187500.00 2656250.00 3125000.00 3125000.00 3125000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 748312.28 908664.91 1069017.54 1069017.54 1069017.54
VARIABLE MARGIN 1439187.72 1747585.09 2055982.46 2055982.46 2055982.46
(In % of Total Income) 65.79 65.79 65.79 65.79 65.79
3. Less Fixed Costs 458121.10 481924.30 505727.50 505727.50 505727.50
OPERATIONAL MARGIN 981066.62 1265660.79 1550254.96 1550254.96 1550254.96
(In % of Total Income) 45 48 50 50 50
4. Less Cost of Finance 632791.26 285176.13 237646.78 190117.42 142588.07
5. GROSS PROFIT 348275.36 980484.66 1312608.18 1360137.54 1407666.89
6. Income (Corporate) Tax 0.00 0.00 393782.45 408041.26 422300.07
7. NET PROFIT 348275.36 980484.66 918825.73 952096.28 985366.83
RATIOS (%)
Gross Profit/Sales 16% 37% 42% 44% 45%
Net Profit After Tax/Sales 16% 37% 29% 30% 32%
Return on Investment 26% 33% 29% 29% 28%
Return on Equity 22% 62% 58% 60% 62%

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

PRODUCTION

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

1. Total Income 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00

Sales Revenue 3125000.00 3125000.00 3125000.00 3125000.00 3125000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 1069017.54 1069017.54 1069017.54 1069017.54 1069017.54
VARIABLE MARGIN 2055982.46 2055982.46 2055982.46 2055982.46 2055982.46
(In % of Total Income) 66 66 66 66 66
3. Less Fixed Costs 432706.50 432706.50 432706.50 432706.50 432706.50
OPERATIONAL MARGIN 1623275.96 1623275.96 1623275.96 1623275.96 1623275.96
(In % of Total Income) 52 52 52 52 52
4. Less Cost of Finance 95058.71 47529.36 0.00 0.00 0.00
5. GROSS PROFIT 1528217.25 1575746.60 1623275.96 1623275.96 1623275.96
6. Income (Corporate) Tax 458465.17 472723.98 486982.79 486982.79 486982.79
7. NET PROFIT 1069752.07 1103022.62 1136293.17 1136293.17 1136293.17
RATIOS (%)
Gross Profit/Sales 49% 50% 52% 52% 52%
Net Profit After Tax/Sales 34% 35% 36% 36% 36%
Return on Investment 29% 29% 29% 29% 29%
Return on Equity 68% 70% 72% 72% 72%

Annex 5: Projected Balance Sheet (in Birr)

8
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 1733602.50 3960779.62 4547691.35 5183234.41 5757118.54 6313136.85
1. Total Current Assets 0.00 493574.62 1393507.35 2342071.41 3228976.54 4098015.85
Inventory on Materials and Supplies 0.00 0.00 211550.07 256882.23 302214.39 302214.39
Work in Progress 0.00 0.00 30995.12 37636.93 44278.75 44278.75
Finished Products in Stock 0.00 0.00 61990.24 75273.87 88557.49 88557.49
Accounts Receivable 0.00 0.00 238636.36 289772.73 340909.09 340909.09
Cash in Hand 0.00 0.00 40966.80 49745.40 58524.00 58524.00
Cash Surplus, Finance Available 0.00 493574.62 809368.75 1632760.25 2394492.83 3263532.14
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 1733602.50 3467205.00 3154184.00 2841163.00 2528142.00 2215121.00
Fixed Investment 0.00 1651050.00 3302100.00 3302100.00 3302100.00 3302100.00
Construction in Progress 1651050.00 1651050.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 82552.50 165105.00 165105.00 165105.00 165105.00 165105.00
Less Accumulated Depreciation 0.00 0.00 313021.00 626042.00 939063.00 1252084.00
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 1733602.50 3960779.62 4547691.35 5183234.41 5757118.54 6313136.85
5. Total Current Liabilities 0.00 0.00 238636.36 289772.73 340909.09 340909.09
Accounts Payable 0.00 0.00 238636.36 289772.73 340909.09 340909.09
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 1040161.50 2376467.77 2376467.77 1980389.81 1584311.85 1188233.89
Loan A 1040161.50 2376467.77 2376467.77 1980389.81 1584311.85 1188233.89
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 693441.00 1584311.85 1584311.85 1584311.85 1584311.85 1584311.85
Ordinary Capital 693441.00 1584311.85 1584311.85 1584311.85 1584311.85 1584311.85
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 348275.36 1328760.02 2247585.75
9.Net Profit After Tax 0.00 0.00 348275.36 980484.66 918825.73 952096.28
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 348275.36 980484.66 918825.73 952096.28

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

PRODUCTION

9
 5 6 7 8 9 10
TOTAL ASSETS 6902425.72 7576099.83 8283044.49 9419337.66 10555630.83 11691924.01
1. Total Current Assets 5000325.72 5913999.83 6860944.49 8237237.66 9613530.83 10989824.01
Inventory on Materials and Supplies 302214.39 302214.39 302214.39 302214.39 302214.39 302214.39
Work in Progress 44278.75 44278.75 44278.75 44278.75 44278.75 44278.75
Finished Products in Stock 88557.49 88557.49 88557.49 88557.49 88557.49 88557.49
Accounts Receivable 340909.09 340909.09 340909.09 340909.09 340909.09 340909.09
Cash in Hand 58524.00 58524.00 58524.00 58524.00 58524.00 58524.00
Cash Surplus, Finance Available 4165842.00 5079516.12 6026460.78 7402753.95 8779047.12 10155340.29
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 1902100.00 1662100.00 1422100.00 1182100.00 942100.00 702100.00
Fixed Investment 3302100.00 3302100.00 3302100.00 3302100.00 3302100.00 3302100.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 165105.00 165105.00 165105.00 165105.00 165105.00 165105.00
Less Accumulated Depreciation 1565105.00 1805105.00 2045105.00 2285105.00 2525105.00 2765105.00
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 6902425.72 7576099.83 8283044.49 9419337.66 10555630.83 11691924.01
5. Total Current Liabilities 340909.09 340909.09 340909.09 340909.09 340909.09 340909.09
Accounts Payable 340909.09 340909.09 340909.09 340909.09 340909.09 340909.09
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 792155.92 396077.96 0.00 0.00 0.00 0.00
Loan A 792155.92 396077.96 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 1584311.85 1584311.85 1584311.85 1584311.85 1584311.85 1584311.85
Ordinary Capital 1584311.85 1584311.85 1584311.85 1584311.85 1584311.85 1584311.85
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 3199682.03 4185048.85 5254800.93 6357823.55 7494116.72 8630409.89
9. Net Profit After Tax 985366.83 1069752.07 1103022.62 1136293.17 1136293.17 1136293.17
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 985366.83 1069752.07 1103022.62 1136293.17 1136293.17 1136293.17

10