Investment Office ANRS

Project Profile on the Production

Of chemically Treated Wood poles

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....................................................................................................4
3.1.3 Pricing and Distribution...........................................................................................4
3.2 Plant Capacity..................................................................................................................5
3.3 Production Program.........................................................................................................5
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....................................................................................................7
7 Human Resource and Training Requirement.................................................8
7.1 Human Resource..............................................................................................................8
7.2 Training Requirement......................................................................................................8
8 Financial Analysis..............................................................................................8
8.1 Underlying Assumption...................................................................................................8
8.2 Investment......................................................................................................................10
8.3 Production Costs............................................................................................................10
8.4 Financial Evaluation......................................................................................................11
9 Economic and Social Benefit and Justification.............................................12
ANNEXES...............................................................................................................14
 1. Executive Summary
This project profile deals with the establishment of production of chemically treated wood poles
in Amhara National Regional State. The following presents the main findings of the study.

Demand projection divulges that there is ample demand for wooden poles and is increasing with
time. Accordingly, the planned plant is set to produce 3,000 wooden poles annually. The total
investment cost of the project including working capital is estimated at birr 720.26 thousand and
creates 13 job opportunity and birr 125.28 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 18.9% of capacity utilization and it will
payback fully the initial investment less working capital in one year and 9 months. The result
further show that the calculated IRR of the project is 43.8% and NPV discounted at 18% of birr
654,980.77

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

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

2. Product Description and Application

Wooden poles are made of young hard wood, having diameter of 16-10 inches and of length
varying from 6-12 meters. It is widely used in holding mainly low voltage wire electric cable.
The product has got wide range of advantages that make it very important in the electric and
other utility sector. The major benefits are briefly stated as follows:

I. Easy to handle

1
As wood is light, its handling and transportation is easy and cheap even in extreme
circumstances. This means considerable savings in haulage and erecting costs compared with
concrete or steel poles.

II. Tough

Chemically treated (impregnated) wooden poles are tough. This is an important benefit in
transportation and storage of poles. Steel and concrete poles are much more sensitive to dents,
scratches and scars.

III. Easily workable

Holes, notches and joints for fixing cross arms and kicking blocks can easily be made at the line
erection site, using simple hand tools - a practical benefit offered only by wooden poles.

IV. Maintenance free

A wooden pole is maintenance-free for decades while steel and concrete poles are much more
sensitive to corrosion, for instance.

V.Safe in use
A dry wood pole conducts no electricity and is safe in the event of current leakages.

VI. Economical
In most cases, wooden poles cost much less than alternate products. The material itself, but also
the installation and the erection are cheaper.

All these and other benefits have made wooden poles to play an important role in the
electrification process.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

2
Chemically treated wooden poles are mostly used to carry electric and telephone lines.
Nonetheless, with the introduction of wireless telephone connections in the country, the demand
for the pole is now mainly comes from the electricity industry.

Generally speaking, there is limited access to electricity, especially in the rural part of the country
which constitutes a major barrier to economic development and to the provision of social services in
rural areas. However, following the establishment of Rural Electrification Program in 2005, the
government is undergoing a massive electrification investment in an effort to light numerous
rural townships and localities. The objective of this program is to increase coverage of
electrification from 15% (in 2005) to 50% in the year 2011. Available report shows that at the
end of August 2007 the total coverage of electricity in the country has grown to 22pc. This
percentage is expected to increase in this year as well when we include the ongoing
electrification process of 1,714 towns.

Chemically treated wooden poles are one of materials highly demanded in the rural
electrification program since it has several advantages as explained in the previous section. The
Ethiopian Electric and Power Corporation (EEPCO) has got 4 wooden poles treatment plants (in
Addis Ababa, Shashemene, Bahir Dar and Nekemte) of which the 2 plants have been established
very recently. But as the demand for pole is usually higher than the supply, the corporation has
been outsourcing the work for local firms on bid basis. Some private wood work plants such as
Wanza Wood Works has been supplying the treated wood to the corporation.

The recent performance, however, shows that the corporation is strengthening its wooden pole
treatment capacity with the aim of absorbing all of the demand. This is because of the high
price that the private firms offer to charge for their treatment service. In this regard, available
information divulges that the corporation has recently cancelled a bid process for 180,000
chemically treated poles due to a high price offered by the bidders. As a result, the corporation
has increased its processing capacity tremendously. That is, the corporation has tripled its
treatment work where this year it has embarked in the processing of 30,000m 3 wooden poles
which is equivalent to 78,000 wooden poles of 10 meters tall. Moreover, the corporation is in the
process of importing wooden poles where it issued a tender in March 2006 for the supply of
22,782 treated wooden poles.

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The foregoing analysis indicates that although there is huge demand for electric poles, the
presence of high cost of treatment is forcing the corporation to absorb much of the work and also
offer international bidders as part of cost minimization attempt. .

3.1.2 Projected Demand

The future demand for wooden poles is expected to increase tremendously due to the ongoing
rural electrification program. If we sum the current production volume of the corporation (about
78,000) and the import demand (22,782), the current demand for wooden pole is estimated to be
100,782. According to EEPCO, the annual growth rate of electrical demand is about 17%.
Taking this percentage point the future demand for the pole is forecasted as shown in table 1
below.

Table 1: Projected Demand for Wooden Poles

Year Projected Demand

2007/08 100,782
2008/09 117,915
2009/10 137,960
2010/11 161,414
2011/12 188,854
2012/13 220,959
2013/14 258,522
2014/15 302,471
2015/16 353,891
2016/17 414,053

The above table shows the presence of huge demand for wooden pole in the future. It also
suggests the relevance of participating in such investment activities with cost effective approach.

3.1.3 Pricing and Distribution

4
Based on the market research result and the capacity of the envisaged plant, the selling price of a
10 meter tall wooden pole is set to be birr 450

5
 3.2 Plant Capacity

In consideration of the expected demand for chemically treated wooden poles as presented
earlier, and the planned technology, the envisaged plant is set to produce 3,000 wooden poles
annually.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 75 percent capacity and then it grows to 90
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 the market already exists and logistics
barriers would be eliminated within the first two years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The main raw materials used in the production of chemically treated wooden poles are wood and
chemicals. While the chemical is imported from abroad, the rest of the raw material is available
in the region.

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 2 here under.

6
 Table 2: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Copper Sulphate 2,400 kg 72,000
Wooden Pole (10 mt) 3,000 pcs 600,000
Total Material Cost 600,000 72,000
Utility
Electricity 20,000 kwh 11,000
Furnace Oil 15,000 105,000
Water 2,500m3 3,975
Total Utility Cost 119,975

According to the above table, the cost of material and utility at full capacity of operation is
estimated to be birr 881,975 per year.

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of input
is any localities where there are natural and man-made forests. This mainly includes North Shoa,
Awi and North Gonder zones.

6 Technology and Engineering

6.1 Production Process

The production process of chemically treated wooden poles involves harvesting, dry kilning,
testing, and treating. In brief the process is presented as follows. Trees are cut from natural or
man-made forests. Then they are freed from the branches and the pole is debarked. Latter, the
poles are cut to the specified length and are given a treatment with copper sulphate solution. The
poles are put in the treatment solution and dried in shade and stacked.

The alternative approach is related to the type of chemical used in the process. That is, the
envisaged plant can make use of Creosote chemical. However, this chemical is expensive and
therefore is not considered for the proposed plant.

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 6.2 Machinery and Equipment

The machineries and equipment required for producing chemically treated wooden poles is
presented in table 3 below

Table 3: Machinery and Equipment

Machinery and Equipment Quantity

Wood Treating Equipment 1
Circular Saw 5
Various Hand Tools As required

The, total cost of tools and equipment including freight insurance and bank cost is estimated to
be about birr 75,000

The following are some of the machineries suppliers’ address for the envisaged project

Hamco manufacturing company

Phone: 886-4-7633112
Fax: 886-4-7634901
NO.572-1, Sui Yuan Rd.,
Chuan Yao Li, Chang-Hua City, Taiwan

Yang-Der Machinery Co., Ltd

Phone: 886-4-26917488
Fax: 886-4-26917499
No. 56, Lane 43, taiping Rd., Chepu Village,
Tatu Hsiang, Taichung Hsien, Taiwan,

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 400m 2 where 200m2 is allocated to
the shade used as production place and the remaining space is left for stores (150m 2), office
buildings and facilities (50m2).

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7 Human Resource and Training Requirement

7.1 Human Resource

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

Table 4: Human Resource Requirement

No. Monthly Total Annual

Position Required Salary Salary
Manager 1 3500 42000
Accountant/Cashier 1 1000 12000
Store Keeper 1 600 7200
Skilled Operator 2 600 14400
Laborers 6 300 21600
Guards 2 300 7200
Benefit (20%) 20880
Total 13 125280

The envisaged plant therefore, creates 13 job opportunity and about birr 125.28 thousand of
income. The professionals and support staffs for the envisaged plant shall be recruited from
Amhara region

7.2 Training Requirement

On job training of personnel shall be conducted by focusing on the production technology and
machinery maintenance and trouble shooting. Birr 5,000 will be allocated as training expense.

8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of chemically treated wooden poles making plant is based on the data
provided in the preceding chapters and the following assumptions.

A. Construction and Finance

9
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 1% of fixed investment

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment

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The total investment cost of the project including working capital is estimated at Birr 720.26
thousand 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.

Table 5: Total initial investment

Items L.C F.C Total

Land
1,200 1,200
Building and civil works
400,000 400,000
Office equipment
15,000 15,000
Vehicles
0 0
Plant machinery & equipment
20,000 55,000 75,000
Total fixed investment cost
436,200 55,000 491,200
Pre production capital
expenditure* 24,560 24,560
Total initial investment
460,760 55,000 515,760
Working capital at full capacity
173,085 31,418 204,503
Total 633,845 86,418 720,263
*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 12% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 999.29 thousand as
detailed in table 6 below.

Table 6: Production Cost

Items Cost

11
 1. Raw materials 672,000
2. Utilities 119,975
3. Wages and Salaries 125,280
4. Spares and Maintenance 4,912
Factory costs 922,167
5. Depreciation 33,912
6. Financial costs 43,216
Total Production Cost 999,295

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%, 58% and 42% 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 18.9% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in one year and
9 months.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 38.4%

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 V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
43.8% and the net present value at 18 % discount is Birr 654,980.77

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.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits where it promotes the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It also
boosts the inter sectorial linkage between the agricultural/forestery and industrial sector. At the
same time, therefore, it helps diversify the economic activity 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 2.53 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 889.5 thousand from
corporate tax payment alone. Such result create additional fund for the regional government that
will be used in expanding social and other basic services in the region.

13
 C. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 13 professionals as well as support
stuffs. Consequently the project creates income of birr 125.28 thousands per year. This would be
one of the commendable accomplishments of the project.

D. Pro Environment Project

The proposed production process is environment friendly.

14
ANNEXES

15
 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 75% 90% 100% 100%

1. Total Inventory 0.00 0.00 205965.49 247158.59 274620.66 274620.66

Raw Materials in Stock- Total 0.00 0.00 72654.55 87185.45 96872.73 96872.73

Raw Material-Local 0.00 0.00 49090.91 58909.09 65454.55 65454.55

Raw Material-Foreign 0.00 0.00 23563.64 28276.36 31418.18 31418.18

Factory Supplies in Stock 0.00 0.00 782.25 938.70 1043.00 1043.00

Spare Parts in Stock and Maintenance 0.00 0.00 1205.67 1446.81 1607.56 1607.56

Work in Progress 0.00 0.00 19556.16 23467.39 26074.88 26074.88

Finished Products 0.00 0.00 39112.32 46934.79 52149.76 52149.76

2. Accounts Receivable 0.00 0.00 110454.55 132545.45 147272.73 147272.73

3. Cash in Hand 0.00 0.00 20066.32 24079.58 26755.09 26755.09

CURRENT ASSETS 0.00 0.00 263831.81 316598.17 351775.75 351775.75

4. Current Liabilities 0.00 0.00 110454.55 132545.45 147272.73 147272.73

Accounts Payable 0.00 0.00 110454.55 132545.45 147272.73 147272.73

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 153377.27 184052.72 204503.02 204503.02

INCREASE IN NET WORKING CAPITAL 0.00 0.00 153377.27 30675.45 20450.30 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 274620.66 274620.66 274620.66 274620.66 274620.66 274620.66

Raw Materials in Stock-Total 96872.73 96872.73 96872.73 96872.73 96872.73 96872.73

Raw Material-Local 65454.55 65454.55 65454.55 65454.55 65454.55 65454.55

Raw Material-Foreign 31418.18 31418.18 31418.18 31418.18 31418.18 31418.18

Factory Supplies in Stock 1043.00 1043.00 1043.00 1043.00 1043.00 1043.00

Spare Parts in Stock and Maintenance 1607.56 1607.56 1607.56 1607.56 1607.56 1607.56

Work in Progress 26074.88 26074.88 26074.88 26074.88 26074.88 26074.88

Finished Products 52149.76 52149.76 52149.76 52149.76 52149.76 52149.76

2. Accounts Receivable 147272.73 147272.73 147272.73 147272.73 147272.73 147272.73

3. Cash in Hand 26755.09 26755.09 26755.09 26755.09 26755.09 26755.09

CURRENT ASSETS 351775.75 351775.75 351775.75 351775.75 351775.75 351775.75

4. Current Liabilities 147272.73 147272.73 147272.73 147272.73 147272.73 147272.73

Accounts Payable 147272.73 147272.73 147272.73 147272.73 147272.73 147272.73

TOTAL NET WORKING CAPITAL REQUIRMENTS 204503.02 204503.02 204503.02 204503.02 204503.02 204503.02

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 257880.00 462383.02 1122954.55 1237090.91 1364727.27 1350000.00
1. Inflow Funds 257880.00 462383.02 110454.55 22090.91 14727.27 0.00
Total Equity 103152.00 184953.21 0.00 0.00 0.00 0.00
Total Long Term Loan 154728.00 277429.81 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 110454.55 22090.91 14727.27 0.00
2. Inflow Operation 0.00 0.00 1012500.00 1215000.00 1350000.00 1350000.00
Sales Revenue 0.00 0.00 1012500.00 1215000.00 1350000.00 1350000.00
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 257880.00 257880.00 1076299.02 1016267.81 1184889.78 1143661.99
4. Increase In Fixed Assets 257880.00 257880.00 0.00 0.00 0.00 0.00
Fixed Investments 245600.00 245600.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 12280.00 12280.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 263831.81 52766.36 35177.57 0.00
6. Operating Costs 0.00 0.00 700593.84 839616.21 932297.79 932297.79
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 102172.33 104765.28
8. Interest Paid 0.00 0.00 111873.37 51858.94 43215.78 34572.63
9. Loan Repayments 0.00 0.00 0.00 72026.30 72026.30 72026.30
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 204503.02 46655.52 220823.10 179837.50 206338.01
Cumulative Cash Balance 0.00 204503.02 251158.55 471981.64 651819.14 858157.15

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 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00
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 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00
Sales Revenue 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00
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 1137611.78 1133035.17 1126984.96 1048908.45 1048908.45 1048908.45
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 932297.79 932297.79 932297.79 932297.79 932297.79 932297.79
7. Corporate Tax Paid 107358.22 111424.77 114017.72 116610.66 116610.66 116610.66
8. Interest Paid 25929.47 17286.31 8643.16 0.00 0.00 0.00
9. Loan Repayments 72026.30 72026.30 72026.30 0.00 0.00 0.00
10. Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 212388.22 216964.83 223015.04 301091.55 301091.55 301091.55
Cumulative Cash Balance 1070545.36 1287510.19 1510525.22 1811616.77 2112708.32 2413799.86

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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 1012500.00 1215000.00 1350000.00 1350000.00

1. Inflow Operation 0.00 0.00 1012500.00 1215000.00 1350000.00 1350000.00

Sales Revenue 0.00 0.00 1012500.00 1215000.00 1350000.00 1350000.00

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 257880.00 257880.00 853971.11 870291.66 952748.09 1037063.07

3. Increase in Fixed Assets 257880.00 257880.00 0.00 0.00 0.00 0.00

Fixed Investments 245600.00 245600.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 12280.00 12280.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 153377.27 30675.45 20450.30 0.00

5. Operating Costs 0.00 0.00 700593.84 839616.21 932297.79 932297.79

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 102172.33 104765.28

NET CASH FLOW -257880.00 -257880.00 158528.89 344708.34 397251.91 312936.93

CUMMULATIVE NET CASH FLOW -257880.00 -515760.00 -357231.11 -12522.77 384729.13 697666.07

Net Present Value (at 18%) -257880.00 -218542.37 113852.98 209800.14 204898.11 136787.62

Cumulative Net present Value -257880.00 -476422.37 -362569.39 -152769.26 52128.86 188916.48

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00

1. Inflow Operation 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00

Sales Revenue 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00

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 1039656.01 1043722.56 1046315.51 1048908.45 1048908.45 1048908.45

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 932297.79 932297.79 932297.79 932297.79 932297.79 932297.79

6. Corporate Tax Paid 107358.22 111424.77 114017.72 116610.66 116610.66 116610.66

NET CASH FLOW 310343.99 306277.44 303684.49 301091.55 301091.55 301091.55

CUMMULATIVE NET CASH FLOW 1008010.06 1314287.50 1617971.99 1919063.54 2220155.08 2521246.63

Net Present Value (at 18%) 114961.20 96148.16 80791.67 67882.92 57527.90 48752.45

Cumulative Net present Value 303877.68 400025.83 480817.50 548700.42 606228.31 654980.77

Net Present Value (at 18%) 654,980.77

Internal Rate of Return 43.8%

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 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 75% 90% 100% 100% 100%

1. Total Income 1012500.00 1215000.00 1350000.00 1350000.00 1350000.00

Sales Revenue 1012500.00 1215000.00 1350000.00 1350000.00 1350000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 657527.84 789033.41 876703.79 876703.79 876703.79
VARIABLE MARGIN 354972.16 425966.59 473296.21 473296.21 473296.21
(In % of Total Income) 35.06 35.06 35.06 35.06 35.06
3. Less Fixed Costs 76978.00 84494.80 89506.00 89506.00 89506.00
OPERATIONAL MARGIN 277994.16 341471.79 383790.21 383790.21 383790.21
(In % of Total Income) 27 28 28 28 28
4. Less Cost of Finance 111873.37 51858.94 43215.78 34572.63 25929.47
5. GROSS PROFIT 166120.79 289612.85 340574.43 349217.58 357860.74
6. Income (Corporate) Tax 0.00 0.00 102172.33 104765.28 107358.22
7. NET PROFIT 166120.79 289612.85 238402.10 244452.31 250502.52
RATIOS (%)
Gross Profit/Sales 16% 24% 25% 26% 27%
Net Profit After Tax/Sales 16% 24% 18% 18% 19%
Return on Investment 42% 49% 39% 39% 38%
Return on Equity 58% 101% 83% 85% 87%

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 Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00

Sales Revenue 1350000.00 1350000.00 1350000.00 1350000.00 1350000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 876703.79 876703.79 876703.79 876703.79 876703.79
VARIABLE MARGIN 473296.21 473296.21 473296.21 473296.21 473296.21
(In % of Total Income) 35 35 35 35 35
3. Less Fixed Costs 84594.00 84594.00 84594.00 84594.00 84594.00
OPERATIONAL MARGIN 388702.21 388702.21 388702.21 388702.21 388702.21
(In % of Total Income) 29 29 29 29 29
4. Less Cost of Finance 17286.31 8643.16 0.00 0.00 0.00
5. GROSS PROFIT 371415.90 380059.05 388702.21 388702.21 388702.21
6. Income (Corporate) Tax 111424.77 114017.72 116610.66 116610.66 116610.66
7. NET PROFIT 259991.13 266041.34 272091.55 272091.55 272091.55
RATIOS (%)
Gross Profit/Sales 28% 28% 29% 29% 29%
Net Profit After Tax/Sales 19% 20% 20% 20% 20%
Return on Investment 38% 38% 38% 38% 38%
Return on Equity 90% 92% 94% 94% 94%

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 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 257880.00 720263.02 996838.36 1236515.82 1417618.89 1590044.90
1. Total Current Assets 0.00 204503.02 514990.36 788579.82 1003594.89 1209932.90
Inventory on Materials and Supplies 0.00 0.00 74642.46 89570.96 99523.29 99523.29
Work in Progress 0.00 0.00 19556.16 23467.39 26074.88 26074.88
Finished Products in Stock 0.00 0.00 39112.32 46934.79 52149.76 52149.76
Accounts Receivable 0.00 0.00 110454.55 132545.45 147272.73 147272.73
Cash in Hand 0.00 0.00 20066.32 24079.58 26755.09 26755.09
Cash Surplus, Finance Available 0.00 204503.02 251158.55 471981.64 651819.14 858157.15
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 257880.00 515760.00 481848.00 447936.00 414024.00 380112.00
Fixed Investment 0.00 245600.00 491200.00 491200.00 491200.00 491200.00
Construction in Progress 245600.00 245600.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 12280.00 24560.00 24560.00 24560.00 24560.00 24560.00
Less Accumulated Depreciation 0.00 0.00 33912.00 67824.00 101736.00 135648.00
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 257880.00 720263.02 996838.36 1236515.82 1417618.89 1590044.90
5. Total Current Liabilities 0.00 0.00 110454.55 132545.45 147272.73 147272.73
Accounts Payable 0.00 0.00 110454.55 132545.45 147272.73 147272.73
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 154728.00 432157.81 432157.81 360131.51 288105.21 216078.91
Loan A 154728.00 432157.81 432157.81 360131.51 288105.21 216078.91
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 103152.00 288105.21 288105.21 288105.21 288105.21 288105.21
Ordinary Capital 103152.00 288105.21 288105.21 288105.21 288105.21 288105.21
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 166120.79 455733.64 694135.74
9. Net Profit After Tax 0.00 0.00 166120.79 289612.85 238402.10 244452.31
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 166120.79 289612.85 238402.10 244452.31

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 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 1768521.11 1956485.94 2150500.97 2422592.52 2694684.07 2966775.61
1. Total Current Assets 1422321.11 1639285.94 1862300.97 2163392.52 2464484.07 2765575.61
Inventory on Materials and Supplies 99523.29 99523.29 99523.29 99523.29 99523.29 99523.29
Work in Progress 26074.88 26074.88 26074.88 26074.88 26074.88 26074.88
Finished Products in Stock 52149.76 52149.76 52149.76 52149.76 52149.76 52149.76
Accounts Receivable 147272.73 147272.73 147272.73 147272.73 147272.73 147272.73
Cash in Hand 26755.09 26755.09 26755.09 26755.09 26755.09 26755.09
Cash Surplus, Finance Available 1070545.36 1287510.19 1510525.22 1811616.77 2112708.32 2413799.86
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 346200.00 317200.00 288200.00 259200.00 230200.00 201200.00
Fixed Investment 491200.00 491200.00 491200.00 491200.00 491200.00 491200.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 24560.00 24560.00 24560.00 24560.00 24560.00 24560.00
Less Accumulated Depreciation 169560.00 198560.00 227560.00 256560.00 285560.00 314560.00
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 1768521.11 1956485.94 2150500.97 2422592.52 2694684.07 2966775.61
5. Total Current Liabilities 147272.73 147272.73 147272.73 147272.73 147272.73 147272.73
Accounts Payable 147272.73 147272.73 147272.73 147272.73 147272.73 147272.73
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 144052.60 72026.30 0.00 0.00 0.00 0.00
Loan A 144052.60 72026.30 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 288105.21 288105.21 288105.21 288105.21 288105.21 288105.21
Ordinary Capital 288105.21 288105.21 288105.21 288105.21 288105.21 288105.21
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 938588.05 1189090.57 1449081.70 1715123.04 1987214.58 2259306.13
9. Net Profit After Tax 250502.52 259991.13 266041.34 272091.55 272091.55 272091.55
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 250502.52 259991.13 266041.34 272091.55 272091.55 272091.55

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