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AUGUST, 2016
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
TABLE OF CONTENTS
TABLE OF CONTENTS ...................................................................................................................................... 0
BACKGROUND ................................................................................................................... 5
TECHNICAL STUDY......................................................................................................... 27
4.3.3 GUEST HOUSE FURNITURE AND FIXTURE AND OFFICE FURNITURE ........... 30
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
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1 EXECUTIVE SUMMARY
Due to the growing economic and business activity of the capital city Addis Ababa
including special towns surrounding the capital city and the country’s overall assets of
enormous value, both private and public business activities with the respective market
structure of the country is growing fast in recent years. The growth trend of well-built
multi-purpose commercial buildings in easily accessible location is low compared to
the highly expanding business operations. Viewing the above facts, the project
promoter reviewed the business performance and demand for commercial building
and identified that there is unsatisfied need in the sector to meet the demands of the
business society other organs those demanding premises for office and several other
use to the required standards in the country.
The total investment cost of the project is estimated at Birr 52,941,437. From the total
investment cost, Birr 52,070,137 is accounted by fixed investment cost and Birr
871,300 is accounted by initial working capital .Of the total fixed investment cost of
Birr 33.8 Million, is accounted by building & civil works and about Birr 19.1 will be for
machinery, equipment, Guest house furniture & fixture, vehicles, Guest house office
furniture, Pre-operating expense & interest and other fixed investments.
The project will have a total of 7 story building’s basement, ground, first and second
floors will be used to rent for shops & other commercial purposes including café &
restaurant, bank; whereas, the remaining third & fourth floors for various office types.
The 7 story commercial building will generate a net profit of Birr 12.2 million during
its first year of operation and Birr 16.33 million during the second year. The project
will generate Birr 20.78 million, Birr 23.91 million and Birr 29.10 million during its 3rd,
4th and 5th year of operation, respectively. The Commercial Building will generate
revenue for the government in the form of profit tax of Birr 5.2 million and Birr 12.5
million in its 1st and 5th year of operations.
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The commercial building will generate an acceptable internal rate of return (IRR). The
IRR for the Furnished guest house & commercial building is 46% and the Net present
value (NPV) at a discount rate of 10 % is Birr 121,322,973.
The 7 story commercial building will be located in Addis Ababa. Its location
accessibility, visibility and the surrounding area characteristics contribute to
conducive environment for the business.
The project will create job opportunities for 28 employees and among the total job
positions will be management & administrative professional and operations
department and the remaining will be service workers.
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2 BACKGROUND
The promoter of the project; has been engaged on different successful private
businesses for many years by taking part in national development strategy. These
businesses are major source of experience to start the project under consideration.
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3 MARKET ANALYSIS
3.1 INTRODUCTION
Ethiopia tourism introduces to a mystic destination of discovery; a land of brilliance
and beautiful; a country boasting an extraordinary antiquity with a rich culture dating
back more than 3,000 years.
Often described as the ‘real Africa’, Ethiopia has something for every tourist and never
fails to impress its visitors. First time travelers should expect a lot of options for
tourism while celebrating holidays on their travel to Ethiopia. Most Ethiopia tours are
flavored adventurous travel experiences that create everlasting and pleasant
memories for many of the country’s visitors. Ethiopia tour operators expertly arrange
indulging itineraries that have comprehensive Ethiopia tourist information ranging
from adventure, Wildlife, historical sites, Cultural Heritage and sites etc. They also
arrange excellent accommodation for the country’s adventurous tourists with several
Ethiopia lodges.
The country has many national parks: Awash, Omo, Mago, Gambella, Yangudi-Rassa,
Bale Mountain, Abiyata Shalla, Nech Sar, Simien Mountains each with its particular
attraction such as bird watching, trekking, rafting, baths in hot spring natural water,
wild life camping and so much more. Dallol depression is the most impressive sight of
earth cracking and volcanic activity which forms an unforgettable landscape with
basaltic lava and beds of salt. Sof Omar Cave the second largest underground cave in
the world is a spectacular sight, caverns and wide chambers have been formed by the
river with nature’s breathtaking architectural touch.
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Tourism exports account for as much as 30% of the world’s exports of commercial
services and 6% of overall exports of goods and services. Globally, as an export
category, tourism ranks fourth after fuels, chemicals and automotive products. For
many developing countries it is one of the main sources of foreign exchange income
and the number one export category, creating much needed employment and
opportunities for development.
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International tourism receipts are estimated to have reached USD 919 with 940 Million
tourist arrivals in 2010, up from USD 851 billion in the previous year. Growth in
international tourism receipts is estimated at 4.7% in 2010. All regions registered
positive growth, with the exception of Europe (-0.4%). The Middle East (+14%) and
Asia and the Pacific (+13%) showed the strongest growth, while the Americas (+5%)
and Africa grew (+3%).
Statistics show that the growth in tourist arrivals has been faster in developing
countries like Africa than in the developed countries as a whole. As depicted in the
table below, international tourist arrival to Africa has registered a continuous growth
rate for the period under consideration. While reviewing the growth trend of tourist
arrivals in 2010 to 2009 Sub-Saharan Africa performed best of all the regions in the
world. In the years 2005 to 2010 the average growth rate of tourist arrivals in Africa is
18% and Sub-Saharan Africa are same 18% in particular. With respect to market
share, Africa contributes only 5.3% to the world market of tourism.
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In 2010, travel for leisure, recreation and holidays accounted for just over half of all
international tourist arrivals (51% or 480 Million arrivals). Some 15% of international
tourists reported travelling for business and professional purposes and another 27%
travelled for other purposes, such as visiting friends and relatives (VFR), religious
reasons and pilgrimages, health treatment, etc. The purpose of visit for the remaining
7% of arrivals was not specified.
Slightly over half of travellers arrived at their destination by air transport (51%) in
2010, while the remainder travelled over the surface (49%) – whether by road (41%),
rail (2%), or over water (6%). Over time, the trend has been for air transport to grow
at a faster pace than surface transport, so the share of air transport is gradually
increasing. (WTO).
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Tourism 2020 Vision is the World Tourism Organization’s long-term outlook and
assessment of the development of tourism up to the first 20 years of the new
millennium.
UNWTO’s Tourism 2020 Vision projects that international arrivals are expected to
reach nearly 1.6 billion by the year 2020. Of these worldwide arrivals in 2020, 1.2
billion will be intraregional and 0.4 billion will be long-haul travellers.
East Asia and the Pacific, South Asia, the Middle East and Africa are forecast to grow at
over 5% per year, compared to the world average of 4.1%. More mature regions
Europe and the Americas are anticipated to show lower-than-average growth rates.
Europe will maintain the highest share of world arrivals, although this share will
decline from 60% in 1995 to 46% in 2020.
The total tourist arrivals by region shows that, by 2020, the top three receiving
regions will be Europe (717 Million tourists), East Asia (397 Million) and the Americas
(282 Million), followed by Africa, the Middle East and South Asia.
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The Saca, Awash, Genale, the Wabishebelle, Omo, Tekeze and Baro rivers are among
the few and the most useful rivers for the country's socio-economic development. The
most known natural lakes are also found in the main rift valley region of Ethiopia. Lake
Langano, Abyata, Shala, Abaya, Chamo, Awassa and others are among the potential
ones for the development of tourism.
Among other things, the eight world heritage sites namely the Axum obelisks, the
castles of Gondar, the Semen mountain national park, the rock-hewn churches of
Lalibella, the stealea of Tiya, Hadar (where Lucy was found) the lower Omo valley,
Gambela, Benshagul – Gumuz. Paleontological site and the walled city of Harar
registered by UNESCO as world heritages, testify Ethiopia's might of ancient times and
the endowment of the country with significant tourist attractions site.
Because it is believed that tourism has the power and capacity to assist in the on-going
effort to eliminate poverty and accelerate development sustainably, provided
Ethiopia’s attractions are appropriately developed and put into service, tourism has
been included as one of the means of implementing the country’s Growth and
Transformation Plan (GTP).
A diverse group of industries which are essential component of the economy are
included in tourism such as air lines, travel agents, tour operators, tour agents’, car
renters, planners, restaurants, resorts, parks, camping and recreational areas, natural
attractions found in parks and forests. In general the political, social and economic
climate of the country has created favorable conditions for development of tourism.
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In 2009, around 330 thousand tourists arrived in Ethiopia, a 7% increase from the
previous year arrival of 312 thousand tourists with total receipt of. Out of the total
tourist arrivals the majority of them (86%) arrive through bole airport while the
remaining 14% enter via other ports. Tourist receipts reached USD 1.2 billion in 2008,
a 49% increase from year 2008 tourist related income of USD 790 Million.
However the above figures are minimal when compared with tourism receipts of 10.3
billion USD by Africa’s leading tourist destination South Africa. Thus, Ethiopia with its
diversified natural and manmade tourist attractions has performed poorly in this
sector due to constraints like insufficient quality accommodations and inadequate
infrastructure facilities like Guest houses.
Hence, Fitsum Getuplans to establish a full-fledged mixed use building with guest
house at the naturally gifted area of Bole international Airport of Addis to help meet
this growing demand for quality accommodation for international and local tourists.
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The main consumers for guest house in Ethiopia are both local and international
vacation, business & conference tourists including members of Ethiopian Diaspora
permanently residing outside their country. Based on the services provided by the
center, the users can be divided into three groups;
INTERNATIONAL AND LOCAL TOURISTS who stay longer in the guest house to
have extended break while admiring and enjoying the service, beautiful
environment and nature. Those customers can alternatively utilize the cultural
rooms, restaurants, amusement park facilities, Horse racing, ground tennis,
swimming, Camping, Spa & beauty centers, cinema and golf courses in the city.
INTERNATIONAL AND LOCAL TOURISTS who stay one night in the center to have a
short break admiring and enjoying the service, beautiful environment and
nature. Those customers can alternatively utilize the cultural rooms and
restaurants.
LOCAL TOURISTS who visit the center on day time to enjoy the service and
admire beautiful environment and nature. Those customers can alternatively
utilize the restaurants.
In order to identify the demand of customers for guest house two groups of segments
will be assessed in the following section i.e. international tourist and local tourists.
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The current peaceful situation in the country and the government’s commitment for
the promotion of tourism and other investment activities are expected to contribute
much for the increase in the inflow of tourists in the country.
Moreover, the gradual integration of the country with the global economy and the
growing inflow of foreign direct investment, a large number of business people are
coming to the country. The number is believed to grow significantly, as the country’s
investment climate is becoming attractive. These situations are also expected to stir up
the demand for standard guest houses.
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In general, the growth rate is expected to increase even by greater level due to the
government’s commitment to develop the tourism sector and the growing level of
development and awareness towards the country.
In this instance, as indicated in the table below International tourist arrival to the
country has shown growth reaching 330,000 tourists in 2009 with 49% average
growth rate from year 2008. Among the total tourist arrival to Ethiopia, 42,355 (13%)
arrive for business, 85,551 (26%) for vacation, 66,768 (20%) for transit, 21,933 (7%)
visiting relatives.
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In terms of continent of origin, 36% of tourists arrive from Africa followed by Europe
(27%), America (18%), Middle East (9%), Asia (9%) and Oceania (1%). In terms of
arrival’s country of residence 15% or 49,678 tourists enter from USA, UK (6%), China
(4%), Germany (4%), Italy (3.4%), India (3.2%), Kenya (3.2%), Sudan (3%), Nigeria
(3%), France (2.7%) and other countries.
Leisure visitors segment consist primarily individuals or groups coming for vacation.
This segment also includes visitors passing through the country to other destinations,
usually named as transistors. This group constitutes the least number of arrivals. But,
among the other groups the fast growing segment is the tourists coming for the
purpose of leisure. During the year 1995 G.C-2005 G.C. an average growth rate of 29%
is exhibited for tourist arrivals coming for the purpose of leisure.
The business & conference segment represent individuals or groups coming for
conducting business in the area. It also includes officials and experts coming to attend
international and national meetings and conferences. The inflow of these groups
shows a dramatic increase in recent years.
Ethiopia is among the few countries in the continent that endowed with unique
combination of natural and cultural heritage, impressive scenery, suitable climate
(referred as 13 months of sunshine), rich flora and fauna and recognized
archaeological sites.
To this end, the government of Ethiopia has already given due attention to maximize
the economic and political advantages of the sector. The high rate of inflow in the
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recent years explains the special effort given to the sector. Therefore, the historical
market performance which is explained by the arrival of tourists in the country shows
in general the direction of the movement of these factors.
Based on the above facts, the future demand for the market is examined by analyzing
the sensitivity of the demand to the various factors that directly or indirectly affect the
demand for the market. Accordingly, the size of the future demand is estimated using
statistical techniques that implicitly or explicitly show the above major variables,
which have a strong influence on the size of the demand.
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Regression analyses were performed to see the effect of the independent variable in
our case GDP on the dependent variable (International tourist arrivals). The
relationship of the above variables has been found to be linear and is expressed by the
following equations:
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It can be seen from the above table that the projected tourist arrival rises significantly.
The number of tourist arrivals based on GDP will grow from 370,000 in 2010 to
874,978 in 2020 or shows an overall increase by 137 percent.
For the purposes of this analysis, the local market area was expanded to include all of
Addis Ababa and neighboring cities. Therefore, the "defined market area" used to
assess the current competitive position from demand perspective will be Addis Ababa
city. However, we have also examined other guest house in the country in general
analyzing the supply side.
Addis Ababa is considered to be the political capital of Africa and is home of African
Union (AU) and the United Nations Economic Commission for Africa (UNECA). More
than 95 embassies from all over the world have their missions in Ethiopia which
makes Addis Ababa, a city with the highest concentration of embassies in the world
after Washington DC, New York and London. This creates a huge demand for guest
houses at an international standard and a further increase in such a demand is
expected in the future because the importance of Ethiopia has been growing and many
international organizations have been continuously strengthening their institutions
and augmenting their personnel in Ethiopia.
Despite population and income increase in Addis Ababa and neighboring cities,
establishments of guest houses has been limited in the last years.
The domestic demand for recreation center is anticipated to increase in the years to
come, due to persistent increase in income of the population and establishment of
international organizations in Addis Ababa.
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SOURCE: MOCT
Addis Ababa, The capital city of Ethiopia is busy with the construction of new buildings
including many star rated hotel/guest houses. Most of the Hotels/guest houses
currently under construction are expected to be operational within the next year, with
the capacity of over 1,500 rooms. List of the forth coming Hotel/guest houses with
their respective number of rooms is depicted on table 3 below.
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Studies made on the star rated Hotel/guest houses in Addis Ababa indicate strengths
and weakness of the existing Hotel/guest houses facilities. Insufficiency of trained man
power in the sector, Inadequacy of research and development at business and public
sector level and Low infrastructural facilities for star rated Hotel/guest houses
projects are some of the problem areas of the sector. All Star rated Hotel/guest houses
in Addis fulfill the basic required facilities and most of 5 and 4 star rated guest houses
have additional amenities including catering services, in room modem access,
transportation, saunas, beauty salon, credit card facilities, large vehicle parking, coin-
operated laundry facilities, cultural showrooms, ticket office, furnished kitchen, safe
deposit box, and, safety locks.
The current average availability of beds in star rated Hotel/guest houses with
respective ownership is depicted below.
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Ownership
Star Guest No of No of
Number
houses Rooms Beds
Gov't Private
The annual average occupancy rate in Addis Ababa guest houses is in the range of 75 to
85 percent. Ministry of Culture and Tourism report indicates that among government
owned guest houses, the average occupancy rate is about 50% and more than 50% of
bookings are walk-ins. On the other hand, the private guest houses have a relatively
high in occupancy rate registering as much as 85% average annual occupancy.
For most government owned guest houses, prices are fixed for the whole year and do
not adjust according to market demand. Only the five star Hotel/guest houses
(Sheraton & Hilton) and some private guest houses adjust pricing based on demand.
Travel agents and frequent customers enjoy discount rates as provided by the various
guest houses in competition for business. The average room rates for different star
Hotel/guest houses are provided below in table.
TABLE 3.6: AVERAGE ROOM RATES OF DIFFERENT STAR HOTEL/GUEST HOUSES
According to the data compiled by Japanese embassy, the average occupancy rate of
star rated Hotel/guest houses in Addis Ababa is higher than that of Paris which is 72%.
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It can even go up to 90% occupancy in some higher level star rated Hotel/guest houses
and in some cases there are situations in which regular customers are even forced to
leave rooms they have rented. The demand for star rated Hotel/guest houses in
Ethiopia is mostly from two sources local and foreigners and is justified as follows. The
significance of domestic and foreign tourists as a source of demand varies in
accordance with the level of star rating of the Hotel/guest houses. As per the data
collected from sampled star rated Hotel/guest houses in Addis Ababa, the occupancy
rate of star rated Hotel/guest houses is dominated by foreign tourists as the level of
the star rating increases and on the contrary, dominated by Ethiopians as the level of
the star rating decreases.
To differentiate the demand of local from foreign tourists for star rated Hotel/guest
houses in Addis Ababa based on the occupancy rate of star rated Hotel/guest houses in
Addis Ababa ,there are 2,858 star rated beds per day which will sum up to give a total
of 1,043,170 bed nights per year. From the total annual bed nights in A.A. 84% or
876,263 is occupied out of which 54% or 473182 are foreign tourists while (46%)
403,081 are local customers.
TABLE 1: STAR RATED GUEST HOUSES OCCUPANCY RATE
Level of Name of Guest Total Bed No of Bed Occupancy Total No of Foreign Ethiopian % of % of
Stare house Night Occupied Rate Customers Origin Origin Foreigners Ethiopians
Star 1 G.G. Guest house 5,475 4,530 83% 4,530 600 3,930 13% 87%
Star 2 Holiday 9,125 7,247 79% 7,332 1,184 5,623 16% 77%
Star 3 Axum 21,672 18,821 87% 18,821 10,625 8,796 56% 47%
SOURCE: VARIOUS
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B. PRICING
Pricing a service is an important and critical activity since it is the major factor in
determining revenue. If a lower price is fixed, it will affect the profitability of the guest
house, and if a higher price is fixed, the guest house will not be able to stand in market
competition and may be forced out of the market. Therefore, the right price has to be
fixed.
The guest house is recommended to set prices that change over time depending on the
market situation. A differentiation pricing strategy is recommended to be
implemented based on the paying ability of the customer. In general, the price that
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meets the standard of the guest house should be implemented which will provide an
added value for a reasonable rate as opposed to discounting and devaluing services.
C. PROMOTION
As the guest house is a new entrant into the market it requires intensive promotional
activity using different promotional tools. The primary focus will be using the mass
communication via print ads in trade publications and on the Internet, direct mail
campaigns and personal selling in the local market.
Personal selling provides the means to develop relationships within the local
community and generate high levels of corporate activity through the business
community. Public relations plays an important role in the marketing mix, presenting
the guest house as a supportive member of the community and participating in
significant local events to assist in developing ongoing cooperation, assures repeat
business and good working relationships.
3.5.2 COMPETIOIN
There are only few star rated guest houses in Ethiopia which mainly serves the foreign
tourists and the Ethiopian Diaspora coming to the country for various purposes as
discussed in the earlier parts of this study. The guest house is expected to face light
competition from these guest houses mainly due to the high demand existing in the
country which is not expected to be satisfied in the short run.
3.6.1 OPPORTUNITES
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3.6.2 THREATS
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4 TECHNICAL STUDY
INFRASTRUCTURE SERVICES
Currently the country has maintained to have a comprehensive infrastructure
development, roads, airport, and telecommunication networks, electric power
generation and water works etc. Conductive opportunities being created by the
economic policy for private investment in guest houses and international restaurants
has improved the availability of vital services necessary for tourists.
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ROAD
The proposed project site has first grade class asphalt international standard road.
WATER SUPPLY
The project will get from the municipality a piped water supply that would provide
adequate water for the project and the inhabitants.
POWER SUPPLY
The guest house will obtain electric power from Ethiopian Electric Light and Power
Authority (EELPA).
There will be a total of 29 rooms of which 21 are sing bed rooms while the remaining 8
are double bed rooms and all rooms feature a generous work surface, remote-
controlled color television, attractive furniture, artistic paintings, overhead and
reading lights, kitchen, fireplace (chimney) and telephone facility. “No Smoking” and
handicapped-accessible rooms will also be available. The rooms will also feature high-
security guest locks as an added safety feature.
The total land acquired for the project Guest House and commercial building is
1,307M2 and it is planned to build 7 story building.
Of the 7 stories, the basement, ground floor, first floor and second floor are planned to
be used for commercial purpose renting such café & restaurant, bank, shops, etc while
the floors from 3rd to 7th are planned to be used as a guest house rooms. As depicted in
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table 4.1 below, the total cost of building and construction is estimated to be
approximately Birr 33.81 Million of which planned construction cost is Birr 27.80
Million while existing investment on building construction is Birr 6 Million.
A. SUB-STRUCTURE
1.Excavation & Earth Work 428,191.51
2.Concrete Work 2,089,589.91
TOTAL A 2,517,781.42
B. SUPER-STRUCTURE
Concrete Work 6,548,151.62
Block Work 1,120,315.68
Roof works 252,000.00
Carpentry & Joinery 664,735.00
Aluminum Works 2,732,071.74
Finishing 5,122,882.74
Painting 272,095.88
Electrical installation 5,129,980.00
Sanitary Installation 914,059.00
TOTAL B 22,756,291.66
TOTAL A+B 25,274,073.08
CONTINGENCY (10% of A+B) 2,527,407.31
TOTAL 27,801,480.39
15% VAT
GRAND TOTAL 27,801,480.39 6,000,000.00 33,801,480.39
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All rooms of the guest house will be using superior quality and comfortable mattresses,
blankets, linen, towels, curtains and carpets and pillows. The other assets that are
going to be used are silverware and glassware and kitchen equipments that are going
to be of high quality. The total investment cost of soft furnishing, silverware, glassware
and kitchen utensils will be Birr 305,415, Birr 195,994, Birr 132,704 and Birr 66,033
respectively. The details of these assets are presented in Annex.
4.3.5 VEHICLES
For the proper functioning of the day to day activities of the guest house, one minibus
and one pickup are required. The cost of acquiring these vehicles is estimated to be
Birr 1,950,000.
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Organizational effectiveness is also largely influenced by the type and level of human
resource the organization employs. This in turn is related to the existence of
competitive remuneration scheme. Furthermore, setting suitable organizational
structure and clear tasks and duties of those involved would allow the organization to
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The framework of jobs and departments that make up any organization must be
directed toward achieving the organization’s objectives.
In other words, the structure of a business must be consistent with its strategy.
Managers give structure to a center through job specialization, organization, and
establishment of patterns of authority and span of control.
The Organizational structure of the guest house is presented in the figure below.
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5.2 MANAGEMENT
The General Manager (GM) is responsible for defining and interpreting the policies
established by top management. The manager follows the day-to-day management of a
facility and its staff and has commercial accountability for planning, organizing and
directing all services.
The overall operation of the Guest House & commercial building is directed and
controlled by the operation & Maintainace department. To perform these many duties
effectively, the operation department is divided into two specialized divisions namely;
Rooms division & Maintainace division.
The primary responsibility of the marketing and promotion department is sales, or the
selling of the facilities and services to individuals and groups. The department sells
rooms to potential clients through advertising, attendance at association and
conference meetings, and direct contacts. Besides, dealing with Airliners, Travel and
Tour operators and outdoor sales will also be the responsibilities of this department.
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Fitsum Getu guest house have planned to employ about 13 workers including
management & supervision personnel skilled & unskilled workers. The details of the
required number of employ and the remuneration are shown in table 5.1 below.
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6 FINANCIAL ANALYSIS
ITEM RATE
Vehicle 20%
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The working capital requirement of the guest house during operation is calculated on
the basis of the minimum days of coverage needed for the different elements of the
working capital. Hence, the minimum days are specified as follows:-
6.1.5 DISCOUNTING
The total investment and equity capital of the guest house are discounted at 10 percent
over the life of the project.
6.1.7 REVENUE
The major source of revenue for the Guest House & Commercial Building is generated
through guest house rooms rent and rent fee collected from commercial building part
i.e. Cafes, banks and shop renting revenues. The total annual revenue to be generated
by the project is shown below in table 6.4.
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The total investment cost of the project is estimated at Birr 52,994,437. From the total
investment cost, Birr 52,070,137 is accounted by fixed investment cost and Birr
871,300 is accounted by initial working capital .Of the total fixed investment cost of
Birr 52.99 Million, 64.92% is accounted by building & civil works including existing
investment (the promoter has already invested Birr 6 Million on building
construction), machinery and equipment accounts 8.84% , Guest house furniture &
fixture accounts 13.67% and, 3.74% is accounted by vehicles. Guest house office
furniture, Pre-operating expense & interest and other fixed investments accounts the
remaining 8.83%.
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
The total cost of service during the first year of operation at 65% occupancy rate is
estimated at Birr 11,507,876. Of the total service cost the share of raw materials,
Depreciation, Financial Cost , Administration and repair & maintenance is 11.71%,
47.46%, 22.85%, 9.86%, 5.95%, respectively. The remaining 4.19% is other costs.
Table 6.6 shows the total costs of service at 65% occupancy rate. The costs of service
for the other years of operation are shown in Annex I.
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
PERCENTAGE
ITEM COST
SHARE
Raw material 1,347,276 11.71
Repair and maintenance 685,344 5.95
Direct Labour with benefits 113,400 0.99
Administrative costs 1,135,165 9.86
Marketing costs 339,168 2.95
Depreciation 5,343,805 46.43
Financial costs/interest 2,514,718 21.85
Miscellaneous expenses 30,000 0.26
TOTAL OPERATION COSTS 11,508,876 100.00
As indicated earlier the investment requirement of the project will be financed by equity
capital and long-term bank loan. Accordingly, from the total investment cost of Birr 52,941,437
financial requirements its 50% i.e. Birr 26,470,719 will be covered by the project promoter
and the remaining will be covered through long term bank loan.
6.2.4 PROFITABILITY
Based on the projected profit and loss statement shown in Annex I, the Furnished guest house
& commercial building will generate a net profit of Birr 12.23 Million during its first year of
operation and Birr 16.32 Million during the second year. The project will generate 20.78
Million, Birr 23.90 Million and Birr 29.07 Million during its 3rd, 4th and 5th year of operation,
respectively. The Furnished Guest House & Commercial Building will generate revenue for the
government in the form of profit tax of Birr 5.24 and Birr 12.46 Million in its 1st and 5th year of
operations.
Net profit as percent of sales revenue ranges between 42% and 58% throughout the operation
years, which is so attractive. Net profit to equity (ranges between 46% and 151%) and net
profit to total investment or return on investment (ROI) (ranges between 23% and 76%) are
also quite attractive. Table 6.7 below presents net profit, ratio of Net profit to equity and net
profit to total investment for the first 5 years of projection.
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
The projected cash flow of the project shows that the project will generate positive net
cash flows throughout its operation life. The cumulative cash balance that will be
generated by the project during its 5th year of operation will amount to Birr 82.12
Million which was 15.88 Million in the first year of operation. At the end of the project
life i.e. year 10, this amount will rise to Birr 219.83 Million. Details are shown in Annex
I.
The payback period which is the period required to recover the original investment
outlay through the accumulated net cash flows earned by the project. Accordingly,
based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within three and half years, which is a reasonably short period
of time.
Important financial efficiency ratios like current ratio, and net cash flow to sales all
show that the project is highly liquid and has sound financial performance.
40
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
The envisaged Guest House & Commercial Building is expected to have significant
economic and social benefits. These include market development and forward and
backward linkages, employment generation, generating of foreign exchange through
providing quality service for international tourists.
Through the complex network of the distribution and redistribution process, part of
the social surplus is being used for private and public consumption, taxes in the
national budget. Therefore, larger social surplus is a major precondition for higher
private consumption and the normal functioning of the entire executive organ of the
government on the one hand and a basic source of savings for accelerated
socioeconomic development of the country on the other. This in turn is a prerequisite
for a higher future consumption.
In addition to the above stated socio- economic contributions, the project will also
create employment opportunity for about 13 persons. The employment opportunity
will have a multiplicative impact as it will benefit the families of the employees as
source of income.
41
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
8 IMPLEMENTATION SCHEDULE
The implementation schedule covers the activities from the finalizing building
construction up to start up of the Guest House. It is envisaged that the complete
implementation program requires a total of 16 months.
Legal processing and financial arrangement are the first steps towards the realization
of the project, which will be carried out within one month after approval of the project
study. Major implementation work of the project is finalizing building and civil work
construction. In this respect, civil engineering design has already been completed and
finalizing the construction of building and other civil work already started and will
take 10 months.
Placement of machinery and equipment and other assets will require two month.
Manpower training will start simultaneously with placement of machinery and
equipment & other assets and continues up to the start up of the Guest House. The
operation of the Guest House will immediately start after complete finishing of the
building and civil work and machinery & equipment and other assets required for the
service delivery of the Guest House are fully acquired and placed.
42
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
ANNEXES
43
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
COMMERCIAL BUILDING
RENT
Basement 260 M2
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
Commercial Building
Rent
of wage and
Employees benefit
5% salaries
Selling dept staff
Traveling expense 10% salary
Professional Expense(Legal, Audit, consultancy etc) Birr/annum
25,000
Land lease expenses Birr/annum
10,000
Stationary & P.T.T Birr/annum
11,500
Miscellaneous Expense Birr/annum
30,000
Dividend 30% of net income
of annual
Promotional Expense 1%
revenue
Birr/kwh +
Electric charge 0.4736 134 service
charge
Water charge 3.8 Birr/M3
Diesel 20 Birr/litter
Fuel cost Regular 21 Birr/litter
Oil & lubricant 10% of fuel cost
Vehicle 4%
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
5% For Building
7% For vehicle
25.9808 Birr/Euro
General Increase in
Costs 1.1
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
47
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
REVENUE PROJECTION
Year 1 Year 2 Year 3 Year 4 Year 5
Total Single bed night/year @ full occupancy 7,560 7,560 7,560 7,560 7,560
Total Double bed night/year @ full occupancy 2,880 2,880 2,880 2,880 2,880
Total area of rented out/year @ full occupancy 10,295 10,295 10,295 10,295 10,295
Bed price/night
Single bed room 3,362 3,530 3,707 3,892 4,086
Double bed room 5,283 5,547 5,825 6,116 6,422
Commercial building rent price/M2
Rent Price/m2 400 420 441 463 486
Guest House revenue
Single bed room 16,520,413 20,015,116 23,817,988 26,479,999 30,893,332
Double bed room 9,889,771 11,981,838 14,258,388 15,851,972 18,493,967
Commercial building rent Revenue
Building rent Revenue 2,676,648 3,242,862 3,859,006 4,290,306 5,005,357
Total Revenue/year 29,086,833 35,239,817 41,935,382 46,622,277 54,392,657
SUMMARY OF REVENUE
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
SALES AND MARKETING STAFF (SMS) 42,000 46,200 50,820 55,902 61,492
UTILITIES
Total 93,372
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
Total
Lt / Total Fuel
KM,/Year, No. hours Cost
Description Quantity Km, Requirements
generator used/year
Lt/Hr (Liters)
Operation purpose machinery, vehicles &
generator
Minibus 1 27,000 0.17 4,500 90,000
6,912
GENERATOR 1 1,728 0.20 346
Administrative purpose vehicles
Double Pick-up 1 10,800 0.13 1,350 27,000
Total 123,912
INSURANCE
SPAREPARTS
Description Total cost Cost of spare parts
Total 425,172
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
DEPRECIATION &
AMORTIZATION
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
52
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
53
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
54
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY STUDY
56
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
Major Inputs
Investment Structure
Interest rate -
Long term loan 10%
Deposit 0%
Loan Repayment period 10 years
Total investment
NPV 121,322,973
IRR 46%
Debt Equity
NPV 145,387,262
IRR 85%
Owner's Equity
NPV 145,387,262
IRR 85%
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
LOAN REPAYEMENT
Year Interest Principal Total Outstanding
Repayment Payment Balance
0 2,514,718 26,470,719
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
Finance Department
Finance Manager 1 3,500 42,000
Accountants 2 3,000 72,000
Total 3 114,000
Grand Total 13 408,000
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
DETAILS OF INVESTMENT
BUILDING AND CIVIL WORK
DESCRIPTION PLANNED EXISTING TOTAL
CONSTRUCTION INVEST BUILDING
COST CONSTRUCTION
COST
A. SUB-STRUCTURE
1.Excavation & Earth Work 428,191.51
2.Concrete Work 2,089,589.91
TOTAL A 2,517,781.42
B. SUPER-STRUCTURE
Concrete Work 6,548,151.62
Block Work 1,120,315.68
Roof works 252,000.00
Carpentry & Joinery 664,735.00
Aluminum Works 2,732,071.74
Finishing 5,122,882.74
painting 272,095.88
Electrical installation 5,129,980.00
Sanitary Installation 914,059.00
TOTAL B 22,756,291.66
TOTAL A+B 25,274,073.08
CONTINGENCY (10% of 2,527,407.31
A+B)
TOTAL 27,801,480.39
15% VAT
GRAND TOTAL 33,801,480.39 33,801,480.39
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
VEHICLE
61
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
62
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
SOFT FURNISHING
DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Bed sheet 58 750 43,500
Blanket comfort type 58 2,000 116,000
Mattress protector 58 75 4,350
Pillow 58 300 17,400
Pillow case 58 250 14,500
Towel for body 58 250 14,500
Towel for face 58 150 8,700
Towel for hand 58 150 8,700
Other Soft furnishings 50,000 50,000
Sub total 277,650
Contingency (10%) 27,765
TOTAL 305,415
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
64
GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
GLASSWARE
DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Beer Glass 116 50 5,800
Bread & Butter Plate 116 60 6,960
Breakfast Plate 116 60 6,960
Butter Service 116 150 17,400
Coffee Cup With Saucer 116 50 5,800
Desert Plate 116 60 6,960
Fruit Cups 116 50 5,800
Fruit Salad Glass 116 50 5,800
Gourdens Glass 116 50 5,800
Juice Glass 116 50 5,800
Meat Plate 116 60 6,960
Soup Cup 116 100 11,600
Spaghetti Plate 116 60 6,960
Tea Cup With Saucer 116 50 5,800
Water Glass 116 40 4,640
Whisky Glass 116 50 5,800
Wine Glass 116 50 5,800
Sub Total 120,640
Contingency (10%) 12,064
Total 132,704
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
KITCHEN UTENCILS
DESCRIPTION QTY UNIT PRICE TOTAL PRICE
Service Spoon 116 30 3,480
Service Fork 116 30 3,480
Egg Slicer 29 25 725
Spaghetti Strainer 29 150 4,350
Boiled Egg Cup 29 25 725
Bowls One Handle 29 150 4,350
Butter Cutter 29 25 725
Bread & Cake Mold 29 50 1,450
Frying Pan Oval Medium 29 350 10,150
Meat Hooker 29 400 11,600
Potato Chips Spair 29 150 4,350
Sugar Container Glass 29 30 870
Arosto Fork 29 25 725
Aluminum Bowls 29 300 8,700
Ladle Big Size 29 100 2,900
Coffee Shaker 29 50 1,450
Sub Total 60,030
Contingency (10%) 6,003
TOTAL 66,033
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GUEST HOUSE AND COMMERCIAL BUILDING PROJECT FEASIBLITY
STUDY
EXPENSE
SUMMARY OF INVESTMENT
Fixed And Other Pre- Existing Planned Total
Operational Expenditures Investment Investment Investment
Building & Civil Work 33,801,480 33,801,480
Land Lease Fee
Machinery & Equipment 4,603,445 4,603,445
Furniture & Fixtures 7,117,808 7,117,808
Office Furniture 154,770 154,770
Soft Furnishings 305,415 305,415
Silverware & Porcelains 195,994 195,994
Glassware & Cutlery 132,704
132,704
Kitchen Utensils 66,033 66,033
Vehicle 1,950,000 1,950,000
Pre - Operating Expense & Interest
Pre - Operating Expense 1,227,770
Pre - Operating Interest 2,514,718
3,742,488
Total Fixed Investment
52,070,137 52,070,137
Required
Working Capital 871,300 871,300
Total Required Investment 52,941,437 52,941,437
INVESTMENT STRUCTURE
67