Addis Ababa University

Collage of Business and Economics

Department of Accounting and Finance
PROJECT TITLE ABC FURNITURE

Name ID NO Email

Yehualashetzenebe ber /3625/07 Abeselomzen@gmail.com

Yosefbelete ber/6282 /07 yosefbelete19@gmail.com

Yohannestesfaye ber/8443/07 YOHANNEST24@gmail.com

Tigistkiar ber/0210/07 efratusbiruk@gmail.com

Wendemagegnendale ber/8132/ 07 tarikendale7@gmail.com

Sualihali ber/4727/07 sualihali519@gmail.com

Tesfayegebru ber/9017/07 tesfayegebru2009@gmail.com

Submitted to: Instructor KassayeTuji

Submission Date June 9, 2017
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 Table of content

Page

1.EXCUTIVE SUMMERY..............................................................................................................................1
2. PROJECT BACKGROUND AND HISTORY.............................................................................................2
3. MARKET ANALYSIS AND MARKETING CONCEPT............................................................................4
3.1. DEFINITION OF BASIC IDEA OF THE PROJECT, OBJECTIVE AND STRATEGY......................4
3.1.1. BUSINESS DESCRIPTION...........................................................................................................4
3.1.2OBJECTIVE OF THE BUSINESS...................................................................................................5
3.1.3 ASSESEMENT OF RISK................................................................................................................5
3.2. PAST IMPORT AND EXPORTS AND THEIR FUTURE TRAINED.................................................6
3.2.1 IMPORT..........................................................................................................................................6
3.2.2 EXPORT..........................................................................................................................................6
3.3. MARKET DEMAND ANALYSIS........................................................................................................6
3.3.1. DEMAND FOR THE PROJECT....................................................................................................6
3.3.2. PRICING STRATEGY...................................................................................................................7
3.4 MARKET CONCEPT AND MARKETING BUDGET.........................................................................8
3.4.1. TARGET MARKET.......................................................................................................................8
3.4.2. IMPLICATIONS OR RISK FACTORS.........................................................................................8
3.4.3. PLANNED RESPONSE.................................................................................................................9
3.4.4 MARKET POSITIONING..............................................................................................................9
3.4.5. MARKET STRATEGY................................................................................................................10
3.4.6. BUILDING RELATION..............................................................................................................10
3.4.7. WEBSITE.....................................................................................................................................10
3.4.8. SOCIAL MEDIA..........................................................................................................................10
3.5 THE COMPETITION...........................................................................................................................10
3.5.1. COMPITATORS AND TYPE OF COMPITITION.....................................................................10
3.5.2. COMPETETIVE ADVANTAGE.................................................................................................11
3.5.3CUSTOMER SERVICE POLICY..................................................................................................11
3.6. SALES PROGRAM AND ESTIMATED ANNUAL SALES REVENUE..........................................13
3.7. ESTIMATED ANNUAL COST OF SALES PROMOTION AND SALES PROMOTION................13
4. MATERIAL INPUT...................................................................................................................................14
4.1. RAW MATERIALS............................................................................................................................14
4.2 FACTORY SUPPLIES AND COMPONENTS....................................................................................14
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5. Location and site.........................................................................................................................................15
5.1. Location...............................................................................................................................................15
5.2. Land and building................................................................................................................................15
5.3. Environmental impact of the location..................................................................................................15
6. TECHNOLOGY AND ENGINEERING....................................................................................................15
6.1 MANUFACTURING PROCESS.........................................................................................................15
6.2. TECHNOLOGY..................................................................................................................................16
6.2.1. MACHINERY AND EQUIPMENT.............................................................................................16
6.3. Environmental impact of technology...................................................................................................17
6.4. CIVIL ENGINEERING WORK..........................................................................................................18
7. ORGANIZATION AND STRUCTURE OF PROPOSED FIRM...............................................................18
8. HUMAN RESOURCES PLAN..................................................................................................................20
8.1. HUMAN RESOURCE SCHEDULE...................................................................................................20
8.1.1. ADMINISTRATION....................................................................................................................20
8.1.2. SKILLED AND UNSKILLED LABORS.....................................................................................22
9. FINANCIAL ANALYSIS AND INVESTEMENT....................................................................................22
9.1. ESTIMATE OF WORKING CAPITAL REQUIREMENTS...............................................................22
9.2. ESTIMATE OF FIXED ASSET..........................................................................................................23
9.3. TOTAL INVESTEMENT COST........................................................................................................24
9.4. PROPOSED CAPITAL STRACTURE AND COST OF FINANCE...................................................25
9.5. PRODUCTION COST..............................................................................................................................25
9.6. EVALUATION OF THE PROJEC......................................................................................................26
9.6.1. PAYBACK PERIOD....................................................................................................................26
9.6.2. INTERNAL RATE OF RETURN................................................................................................27
9.6.3. NET PRESENT VALUE METHOD............................................................................................29
9.6.4 BENEFIT COST RATIO...............................................................................................................30
9.6.4.1. CALCULATION OF BENEFIT COST RATIO....................................................................30
9.6.4.2. CALCULATION OF NET BENEFIT COST RATIO...........................................................31
10. IMPLEMENTATION SCHE....................................................................................................................32
11. PROJECTED FINANCIAL STATEMENTS...........................................................................................33
12.CONCLUSION.........................................................................................................................................37
11.2 Chance of project Implementation......................................................................................................38

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4
 1. EXCUTIVE SUMMERY

ABC FURNITURE is a partnership type business enterprise which is going to supply different
types of furniture products. These products are sofa, bed table, shelf, office furniture, chair and etc.
Our envisioned project is located in AddisAbaba city, geom.wereda in front of selasemazoria taxi
parking area.
The main objective of our project is to produce high quality products with a reasonable price and to
gain a short run acceptance from customers and penetrate to the market by providing attractive
products at lower price comparing to our compotators that only cover the cost of production and
profit.
The project will required skilled and experienced labor who are had worked in similar business
activity for long period of time. Our primary target customers are households, factories, office, and
apartment / condominium users.
The required birr for the project is 620000 birr out of which 60% is covered by long term debt
which is used to finance the long term asset of the envisioned project and 10 % is covered by short
term debt and this used to finance the working capital need of the project. The remaining 30% is
covered by the partners of the project.
In addition to we plan to reinvest our proportion of earning for the coming years to expand our
business. At the first phase of operation (2010 EC) the project will have annual sales forecast of birr
900000 and net income of birr 54470.By the end of 2011EC the project will have sales forecast of
birr 1,200,000 and net income of 150,220. And also at the end of 2012 EC the project will have
sales forecast of birr 1,500,000 and net income of 236,535.
The owner of the project expect that there will be challenge of paid up capital security, difficulty of
having significant market share and expansion of the project. Taking the above challenges under
consideration, we will try to regulate this future by delegation of responsibility, producing quality
and through fair pricing and other mechanism.

2. PROJECT BACKGROUND AND HISTORY

World furniture industry has changed a lot over the past few years. Furniture industry comprises not
only the production of a wide range of products related to office, living room, bedroom, kitchen ,
garden, school furniture but also mattresses, upholstery, luxuries home furnishings, interior designs
etc. To meet with the varied demand of the customers now different type of innovative furniture
with unique shape and sizes are been manufactured.
Today it is a boom time for furniture industry, every single home and office stuff are made using
wood products. Research shows that the furniture market has shown a steady improvement, the
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main reason behind this is the rising standard of living; disposable income and the growing
economic condition are the main motive.
Furniture has traditionally been a resource based and labor-intensive industry that includes both
local craft-based firms and large volume producers. The furniture industry is relatively low barriers
to entry industry; these have created a very competitive industry situation. Work in this sector is
mainly involve assembly of various materials such as wood, chipboard, plastics, metals, leather etc
to produce different type of furniture.
The developing economic market marks the development of this sector which varies from region to
region. Some places show a lower rate of development in this sector mainly because of lack of
export and import facilities. Report shows that traditional furniture making countries looks more
promising by taking over 70% of the global furniture market. The main reason behind this is that
the traditional furniture manufacturers are more experienced and they use advanced science and
technology. This makes them capable to increase their production to meet the growing market
demand.
Some of popular furniture manufacturing countries are China, Southeast Asia, Poland and
Mexico. European Union furniture industry produces nearly half the total world's furniture
production. Out of the 15 major exporters; six are developing countries (viz. Brazil, China,
Indonesia, Malaysia, Mexico and Thailand). Industrialized countries on the whole export andimport
large volumes of furniture with china by far the largest net exporter, with Germany Italy
Poland in second third, and forth place respectively
Industry Trends
As the world economy is developing fast in the past 10 years, the furniture markets have opened up
more and the world furniture industry has been growing fast.
Traditional furniture making countries continued to take over 70% of the global market. This is
possible because of their long established production capacity, advancement in science and
technology, solid funds and rich management experiences. Meanwhile, China taking the lead has
built upon their respective competitive advantages and gradually has covered almost 30% of the
world market.
The furniture industry in such countries is developing strongly and showing great potentials. The
European Union furniture industry accounts for about half of the world's furniture production. The
production value of this industry in this region is around € 82 billion. Among the European
countries, Germany takes the lead as the largest furniture producing country, accounting for about
27% of total EU production. This is followed by Italy (21.6%), France (13.5%) and the UK
(10.4%).
The Canadian Furniture Industry is the 5th largest exporter of furniture in the world.
The major furniture producing countries in South East Asia are Philippines, Indonesia, Malaysia,
Singapore, Thailand, Korea, Taiwan and India. In the context of global furniture trade, Asia shows
healthy signs of growth with respect to its other international competitors. Asian furniture has
always been popular in developed countries like USA, Europe and Australia. Over 20 years of fast
growth, China has been able to bring unlimited business opportunities and vitality to the global
furniture industry. Now, China has today emerged as a furniture production center, a circulation
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center as well as an exhibition center in the world. The rise of China’s furniture industry has
brought about a new round of restructuring of the global furniture industry and trade pattern.
According to a recent estimate, the Indian furniture industry is estimated at around Rs350 billion.
Eighty-five per cent of this falls into the unorganized sector. According to study by the World Bank,
the organized furniture industry is expected to grow by 20 percent a year and India, Brazil and
Russia will witness a boom.
World furniture production
The furniture sector as a whole is a one of the most basic industry, if the industrialized countries are
considered. The furniture sector generally represents between 2 to 4% of the total production value
of the manufacturing industries. World furniture production was estimated at around $350
The seven major industrial economies (which are, in order of furniture production, the United
States, Italy, Germany, Japan, Canada, the United Kingdom and France) together produce 47% in
value of the world total.[51] The furniture production of all developed countries combined covers
61% of the world total. Furniture production in emerging countries currently amounts to 39% of the
world total in value. There are three countries (China, Poland and Vietnam) where production has
increased rapidly thanks to recent investments in new plants especially designed and built for
exports. World furniture trade basically involves 60 countries, which are the subject of this report
and of the World Furniture Indicators. The leading importers are the United States, Germany,
France, the United Kingdom and Canada. The major exporters are China, Italy, Germany, Poland
and United States.
Historical Background of Ethiopian Furniture Industry
The foundation of Ethiopian manufacturing technology was laid by emperor Menilik II, primarily
after the construction of the Ethio-Djibouti railways. He had import many technologies from abroad
to initiate the manufacturing industry and to induce the awareness of the people toward new
technology. Among these, his great effort was in protection of the forest and forestry products from
disaster and the establishment of manufacturing industry to transform forestry row material into
value added house hold equipments. In 1892 the Emperor established the first sawmill machine
which is driven by steam engine to use the country forest resources for household equipments and
for construction purpose. In addition, in 1898 by the Emperor invitation and great support two
foreigner had install two factories in Shewa region. This was the beginning of the wood processing
industry in Ethiopia. Therefore emperor Menilik contribute a lot in the foundation of the wood
industry in Ethiopia. However after the Death of the emperor Minilik, Ethiopia has seen three
regimes over the last eight decades. Keeping with the political ideologies governing the economic
principles of the time, these successive regimes adopted different policies for the development of
industry in the country. The industrial policies have distinctive features when looking at the guiding
vision (policy), ownership structure, and market orientation

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3. MARKET ANALYSIS AND MARKETING CONCEPT
3.1. DEFINITION OF BASIC IDEA OF THE PROJECT, OBJECTIVE AND STRATEGY

3.1.1.BUSINESS DESCRIPTION

Many good business ideas are arise from the need to solve everyday problem. In Ethiopia for
Most people local shops have no suitable furniture for their homes. As a result we aim to begin
“ABC small furniture manufacturing company” by aiming to design and produce different kinds
of furniture’s that reflect Nordic design by taking in to account the customers view. “ABC
furniture” is a small scale furniture production company which produces different kinds of
furniture products like sofa set, chair, diner set, bed set, TV set. And we can produce any types of
furniture based on customers order. These considerations of customers view allow as building and
maintaining a strong competitive advantage over our compotators. Our company such as other
companies has goals and objectives that will be able to meet in reasonable period of time.
Customers can also order bespoke sofas or other furnishings to the dimension and color of their
choice. As indicated in raw materials requirement section the major inputs for our manufacturing
process is woods which can easily available in local market.

The total land requirement for ABC furniture is estimated to be 1,500 m2. Of this, building area
will be 600 m2.This is comprised of areas for offices (60m 2), for production hall (450m2), store and
general purpose building (90m2). At an average unit building renting cost will be 7000 per month.
The startup cost of the business will be birr 620,000 out of this total initial investment cost 30% is
going to be covered by partners rest 70% will be covered by finance raised from creditors at
applicable market interest rate.
The finance will be used to:

 Purchase machineries and equipment.

 Purchase production raw materials.
 Legal and other registration fee.

3.1.2OBJECTIVE OF THE BUSINESS

Our manufacturing company has its own objective in coming 10 years these are:-

 To manufacture suitable furniture for our target customers around Addis Ababa.
 Produce furniture based on customers need.
 Become competitive, profitable, and increase the capital of the industry
 To be selective and favorable by satisfying existing customers and attract new customers
 Become well known national furniture manufacturing company
 Dominate compotators by producing good products with reasonable price
 Meet the expectation of the customers with the right coordination with architects/ interior
designers
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  Supply of different furniture brand as per the customer’s request
 To have a show room with in 9 month in a prominent retail space.

3.1.3 ASSESEMENT OF RISK

 Increase in the material price

 Failure to produce as expected
 Failure to get the loan as needed
 Failure to make profit
 And failure to deliver the products timely

3.2. PAST IMPORT AND EXPORTS AND THEIR FUTURE TRAINED

3.2.1 IMPORT

Furniture in average imported from different countries in 2007 and 2008 and 2009. As the Ethiopian
trade statistics report shows the average amount furniture products imported to the country was
5786000, 1793000,and966000. From this data the annual import demand for furniture is decreased.
This also shows that the decline will continue to the future.

3.2.2 EXPORT

Ethiopia is found 130 level the of the exported standard furniture in the last three years
consecutively. Data from Ethiopian trade statistics show the average amount of export to many
different countries was 1296000 in 2007, 2333000 in 2008 and 1552000 in 2009.

3.3. MARKET DEMAND ANALYSIS

The key factor driving the demand for furniture is the expansion of housing in both the major and
smaller cities of Ethiopia. The growth in both housing and commercial development will have a
positive effect on furniture demand, which is grown out from the need to furnish there new house
and constrictions. There will be demand in thousands for housing in urban excluding rural area in
coming few years. And also the growths of Ethiopian economy have a cascading effect on the
demand for commercial property to help to meet the need of the business such as modern office,
warehouses, hotels, and retailers and shopping centers.
Ethiopian tourism industry has expanded rapidly over the past few years and it’s also expected to
grow in fastest pace in the coming years by the support of the government, increasing income level
and by various international meeting forums held in the country. This growth of the tourism sector
leads to the growth of hotel industry. In the coming years it is estimated that the need of hotel rooms
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will increase at a fastest rate as compare to the past. This grows tourism sector and hotel in the help
the furniture industry as well as our envisioned business by increasing the demand for hotel
furniture.

3.3.1. DEMAND FOR THE PROJECT

Furniture’s are nodded in any one day to day life. Affordability being the major determinant of
demand, a 5% annual increase in demand for furniture used in house hold is anticipated. The rate
includes the demand to originate from new resident house owners.
Furniture’s for factories and storage facilities are standard utilities and demand for furniture is a
summation of 12% per annum for replacement of existing furniture’s, where duration of usability is
estimated to be 8 years. Added to this rate is demand by new factories which on average increase in
number by 8%. Total project demand for furniture to be used for factories and storage facilities for
2010 is to be calculated at 15% of present volume of demand and increase at a flat 20% rate
thereafter.
Furniture for hotel and apartment building are to be demanded at a rate increase of apartment
building constriction, which is 12% for replacement and at flat rate of 20% thereafter.
The projected demand for the products is as outlined below

 5% for private home and office

 20% for factories and storage facilities, and
 20% for hotels and apartment building.

The detail Project demand is presented in the following table:

PROJECTED DEMAND FOR FURNITURE
Table.1

Year Demand
House hold Factories and Hotel and
storage apartments
Year 1 18000 22000 26000

Year 2 18900 26400 31200

Year 3 18940 30400 36400

Year 4 19887 34400 41600

Year 5 20881 38400 46800

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3.3.2. PRICING STRATEGY

Our pricing strategy is a competitive cost plus price by which we mean that we cover our cost and
making some profit as we try to explain in the long term objective section.
The Price of different furniture product varies relation with the quality of the product. The current
market price for furniture’s for example sofa ranges from Birr 15000 to Birr 50000: the bigger the
quality the higher the price of the product.
Furniture’s used in offices furniture product for example office table can be sell from Birr 3000 to
Birr 6000 depending on the quality, Also office chairs sell at Birr 2000 to Birr 6000.
These quotations of each price is seated by take into account all costs involved in manufacturing
each products and adding the appropriate margin at a lower amount than our compotators and this
gives as a competitive advantage over them. .
As indicated above household Sofa and bed will be produced and sold at a price ranges from
Birr15000 to birr 50000 including delivery charges.
Other furniture products can be sold to many customers depends on the type of furniture they need.
So there price will be determined by consideration of their manufacturing cost and other costs
relating to put the furniture to its intended use (if exists).

3.4 MARKET CONCEPT AND MARKETING BUDGET

3.4.1. TARGET MARKET

ABC FURNITURE is aware that well defined target markets are the first element of marketing
strategy. By focusing attention on these smaller segments we learn a great deal about these
customers and with this information we can craft highly effective strategies to reach to our
customers. The key segments based on usage are

 household furniture
 office furniture
 Hotel furniture.

From these segments household segment cover the largest portion of the future market demand and
the remaining portion covered by the remaining segments.
Home furniture can be further segmented by their purpose: kitchen furniture, bed room furniture,
living room furniture,.
The office furniture segment contains a need of furniture for both commercial and office space.
Office furniture includes: - seating chair, operative desk and other.
Producing and selling furniture is act by a lot of industry. The focus of the industry is on the
affluent customer who can spend upwards to 3,000birr on furniture purchases. In our furniture there
are fifteen furniture stores that are competing for these customers with deep pockets. Those
customers who can't afford these high prices are left with a poor selection of inferior products.
In the ABC furniture jemo area area, there are a lot of residents with modest incomes that do not
7
have a furniture store to cater to their needs for affordable quality furniture. This income
demographic has grown tremendously over the past five years but has not been responded to by the
area furniture stores. Targeting customers with modest incomes is good business. They are expected
to make up half of addis ababa area population by 2025 making them the fastest-growing segment
of the city's housing market. There are three modest-income housing renovation projects under way
in ABC furniture with a combined total of1, 500 units that will be sold as affordable housing. The
House of Pine (tsid) will offer customized, ready-to-finish pine furniture that's man made and
surprisingly affordable. We offer:

3.4.2. IMPLICATIONS OR RISK FACTORS

Some of the barriers that we will face while entering this market with our new company will be:

 High production costs

 High marketing costs
 Consumer acceptance and brand recognition
 Training and skills
 superior quality products;
 Excellent service;
 customized "made to order" fit; and
 access to distribution networks
 price advantage compared with competitor’s product

3.4.3. PLANNED RESPONSE

We will overcome these barriers by having a good flow chart. Since the production costs will be
high due to the materials, we will ask the customers to give a certain percentage beforehand, so we
will be able to start the job in the required time. The marketing cost depends on the places in which
we will be marketing. Advertising expenses are considered as investment, because that is how we
are going to get our customers to get to know us and trust us; therefore we will gain our consumer
acceptance and they will recognize our company as a trustworthy one. Before we hire the
employees, they will have to go through a training process, so we are going to be able to know what
skills they possess and which skills do they lack. Our marketing approach has to shift to address the
mid to high-end customer with a concentration on large-surface contractors and export markets. We
have increased contractors distribution, new point-of-sale displays, promotional literature, and
customer satisfaction surveys.

3.4.4 MARKET POSITIONING

ABC FURNITURE Company’s position is that of a superior-quality, unique, reliable construction

firm that stands behind its work.
ABC FURNITURE will be known in the market for:
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  High quality
 Commitment to customer satisfaction
 Honesty and trustworthiness
 Being reasonably priced and competitive
 Things done right the first time
 Reliability
 Finishing projects on time and under budget every time
 Doing the best to make sure the customer is always happy
 Safety consciousness

3.4.5. MARKET STRATEGY

“ABC Furniture Company” will create interest in their products and service in their target
markets. We will be letting people to know about the products that we offer, and perusing hem to
buy and use them. We have created a plan to accomplish this and to let people know about our
product reputedly. The following are tactics we are aim to use to reach to our customers:-
3.4.6. BUILDING RELATION
We will create an environment of familiarity and relatedness with our customer’s base. This will be
accomplished by taking actions such as: wining and dining, in person meeting, regular
correspondence, offering of token of appreciation such as tickets, gift baskets along with the
furniture product they perches.

3.4.7. WEBSITE

Creation of a website and creation of a search engine makes our product accessible to our
customers. Usage of website to show our products are also most efficient and in expensive way of
promotion.

3.4.8. SOCIAL MEDIA

Usage of social Medias like face book, twitter, telegram, YouTube to promote our furniture
products

3.5 THE COMPETITION

Although there are many compotators, there product not satisfy the need of customers in our project
our designer by the customer’s order go to there house and advise them what design have to be for
their home stile thereby we can fulfill their need differently

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3.5.1. COMPITATORS AND TYPE OF COMPITITION

There are many furniture manufacturing companies around Addis Ababa companies serving
approximately 70% of the country market: Households, Hotel and apartments, office and factories,
Homeowners looking to upgrade or replace their home fixtures and furniture. Several local
operations make up the balance of the local marketplace with competition arising from the existing
furniture manufacturing companies.

3.5.2. COMPETETIVE ADVANTAGE

Compotators in the industry advantage resides only on the quality of product they produce but our
company is big enough to supply quality furniture that product at a reasonably cost lower than our
compotators that respond directly to the testes of all segment of the market. Even the other
company’s high quality product may not match our customer’s unique features of the product in
shape and appearance, and the “one- size fit –all” approach of the compotators such as shalom
house office furniture. We intended to continue positioning our products in the higher end of the
market

3.5.3CUSTOMER SERVICE POLICY

Customer service is enhanced by a website and investigation, quarterly meetings with main
distributors (end users), and unique feature of product which includes customer feedback surveys.
The following table shows ABC furniture strength and weakness in relation to the unique features
that support companies in this industry to have a competitive advantage over compotators. And the
table also show competitors position related to this specific position.
Table 2Competitive analysis

Factors Abc furniture strength weakness Shalom house Omedah wood

hold and office and metal work
furniture
Product

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Price Our price will be High product Reasonable
set based on price price in relation
quality and we set to the degree of
it below quality o f there

compotators product.

Quality Providing quality  A quality Different degree

furniture product product but of quality for
is our main goal with un each categories
affordable price of there
product.
Services We provide  No additional After sales
additional service service service is given.
beside the Starting from
production like delivery of the
advise customers good up to
to select high make ready the
quality product product for its
intended
purpose

Reliability Because of their  More reliable Reliability of

high quality product the products
nature our depend on the
products are degree of
reliable quality of their
product
Stability The products will  Because of high This Also
provide stable quality nature depend on the
service for long of their product degree of the
period there product quality of their
give stable product
service for long
period of time.
Expertise We will have  More skilled More skilled
skilled personals labors with labors.
but they are few different
technical, and

11
 design
knowledge.
Location Situated around  In Addis Ababa In Addis Ababa
the center of the city nefas silk city bole
city. wored. wereda.
Credit Sell at discount  Sells on credit Salon credit
policy and sells on credit base base and also
base to attract they offer a
customers sales discount.

Advertizin Promotion by  Using large Use TV, radio,

g using social coverage news paper .
media, news medias and
paper because we other social
can’t afford the medias e.g. face
largest coverage book.
medias like
TV(EBC),
radio(FANA)

3.6. SALES PROGRAM AND ESTIMATED ANNUAL SALES REVENUE

The following table shows three year’s sales revenue for the envisioned project.
TABLE 3

Item 2010 2011 2012

Sales Birr Birr Birr

Sofa 180000 240000 300000

Bed set 240000 324000 405000

Chair 230000 300000 375000

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Diner set 125000 168000 210000

Office furniture 125000 168000 210000

Total 900,000.00 1,200,000.00 1,500,000.00

3.7. ESTIMATED ANNUAL COST OF SALES PROMOTION AND SALES PROMOTION

To promote our products we distribute leaflet, business cards and internet, social Medias and other
small advertising Medias. We aim to use this Medias because we have not sufficient capacity to
afford the large promotion and advertizing Medias. In relation to the promotion cost through the
selected Medias is immaterial.

4. MATERIAL INPUT
4.1. RAW MATERIALS

In manufacturing furniture’s like bed, diner set, sofa set office furniture the basic raw material is
wood. And this wood is obtained from forest and it’s available to buy it from the market. Among
many type of woods the dry one is the best for quality for our furniture manufacturing process. The
other required by this process are nail, screws, glue/solution, spirit, thinner, sealer, and handler. The
detail raw material input required and there cost is present in the following “table 4”
Table 5: Raw material input requirement

Raw material Year 2010 Year 2011 Year 2012

Wood 54000 72000 90000

Nail 18000 24000 30000

Oil 9000 12000 15000

Glue/ solution 9000 12000 15000

Total 90000 120000 150000

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4.2 FACTORY SUPPLIES AND COMPONENTS

 The material supplies in the furniture manufacturing process are:-

 Wood glue
 Caulk or grout
 Nails
 Cola

 Supplies used for finishing of furniture includes

 Waxes
 Chemicals used to furnish the furniture
 Paints
 Varnish
 Shellacs
 Lacquers

5. Location and site

5.1. Location

Addis Ababa is the most appropriate location for this envisioned project because it makes as
More clauses to our target market and the specific sit of our project will be jemoselasemazoria in
front of taxi parking center.

5.2. Land and building

The total land requirement for ABC furniture is estimated to be 1,500 m2. Of this, building area will
be 600 m2.This is comprised of areas for offices (60m2), for production hall (450m2), store and
general purpose building (90m2). At an average unit building renting cost will be 7000.

5.3. Environmental impact of the location

The area where the location of the business is situated close to the center of the city where there is a
high demand for furniture products. But these specific locations have some negative impact for the
environment these are:-

 Noise for the community around the site.

 Hazardous materials from the production process

14
  Pollution of the river that is the major source of pure drinking water to the city.
( legedarawenz).

6. TECHNOLOGY AND ENGINEERING

6.1 MANUFACTURING PROCESS

Wood is cut into different sizes of blocks and slabs. If the wood purchased is not seasoned than
these blocks/slices are seasoned through different processes, namely:
. Condensation
. Boiler System
· Vacuum System
· Seasoning through putting the wood slices under normal environmental temperature for
considerable duration. Before start of manufacturing of any furniture product a desired design is
selected. Selection of elegant design is important to ensure attractive finished product.
The seasoned wood blocks are cut into desired shape and slices according to the requirement of
design. The slices of wood are molded into the desired shape according to the design. Carving
means different elegant pattern carved in the wood. Quality of carving depends on the skills of the
labor. Once the different pieces are carved & molded than these Parts/pieces are assembled or fixed
together to give the shape to the final product. Assembled product is grind to make the surface
smooth. Once the surface is smooth, finishing material is applied to make the surface ready for paint
or polish. After the base is prepared final finishing is applied depending on requirement in term of
paint/polish. Upholstery of fabric is carried out according requirement of design.
The following are sequence of steps used to produce the desired furniture product
Step.1. purchase of wood from the market
Step.2. wood cutting at trolley
Step.3. wood comes in factory
Step.4. wood seasoning
Step.5. furniture design on cad
Step.6. wood comes to machine man
Step.7. wood comes at shaper machine
Step.8. carpenter shape the wood in to furniture
Step.9. furniture corns to spindle /molding machine
Step.10. furniture corns to carver for carving
Step.11. carpenter assemble the furniture
Step.12.furniture corns to inspection before finishing
Step.13. furniture goes to store or for polishing

15
6.2. TECHNOLOGY

6.2.1. MACHINERY AND EQUIPMENT

The following are detail machineries and equipments and there relative cost required by the
manufacturing process of the envisioned project.
TABLE. 6

Equipments and Quantity Unit cost Total amount

machineries
Motor 1 150000 150000

Hand drill 3 3500 10500

Grinder 2 9000 18000

Compressor 3 4000 12000

Sander machine 1 50000 40000

Drill machine with 2 25000 20000

motor
Cutter 1 55000 40000

Bench grinder 2 8000 12000

Blade grinder 2 7000 14000

Hand tools and other - - 3000

small equipment’s
Office equipment’s - - 120000

Total 4339500

16
6.3. Environmental impact of technology

In furniture manufacturing process there are some impacts to the surrounding environment. The
main impacts of the process and its technology are one there is resource (wood) depletion which is
the base for a forestation which have a negative effect to the environment. The other is hazardous
wastes which pollute the environment (e.g. solvent containing materials). The sound noise from the
machines also has an adverse impact to the environment which interrupts the day to day activity of
the society.
The other environmental impacts of the process are

 Volatile organic components from coating

 Particulate and dusts
 Hazardous wastes e.g. solvent containing materials
 Machine Noise to the environment
 High Energy usage

6.4. CIVIL ENGINEERING WORK

The total land requirement for ABC furniture is estimated to be 1,500 m2. Of this, building area will
be 600 m2.This is comprised of areas for offices (60m2), for production hall (450m2), store and
general purpose building (90m2). At an average unit building renting cost will be 7000 civil works
is estimated at Birr

7. ORGANIZATION AND STRUCTURE OF PROPOSED FIRM

The ABC share furniture manufacturing will have the following staff members:

 Manager;
 Assistant manager;
 Office manager/accountant;
 Checkers ;
 Production staff ;
 Stockers ;

The following are departments in abc furniture

 production departmen
 human resource departement
 marketing departemnt
 Plant Superintendent
 Mentainance Superintendent

17
C
k
M
S
P
h
ly
A
B
g
s
m
a
e
tin




c
u
d
o
r
p
O
E  sales departement
 pricing and promotion departement

8. HUMAN RESOURCES PLAN

8.1. HUMAN RESOURCE SCHEDULE ABC furniture manufacturing will have the following staff
members:
 Manager;
 Assistant manager;
 Office manager/accountant;
 Checkers ;
 Production staff ;

General maintenance, raw material receiver and finished goods shipper

Production Manager
Office assistant
Furniture work supervisor
18
  Draftsperson

8.1.1. ADMINISTRATION

Table 7

Tabble.8

 Full time administration employee wages are forecasted blow for the coming three year

Pay roll Year 1 Year 2 Year 3

Assembler (10) 30,000.00 31,100.00 40,110.00

General 16,000.00 17,100.00 20,110.00

maintenance,
raw material
receiver and
finished goods
shipper (5)
Production 4,000.00 5,300.00 7,500.00
Manager (1)

Office assistant 5,000.00 6,600.00 7,950.00

(3)

Furniture work 6,000.00 6,300.00 6,110.00

supervisor (2)
(2) 6,000.00 7,300.00 6,110.00

Draftsperson (2) 5,000.00 5,300.00 7,110.00

19
Total pay roll 72,000.00 78000.00 95,000.00
 NAME OF KEY QUALIFICATIONS
TITLE(NO OF RESPONCIBLITIES
POSITIONS)
1. General Reception & transporter, Low skills, reliability
maintenance & repairs
receiver/shipper
 Full (5) time

2. Production Floor manager + Technical knowledge,

Manager (1) assistant for more people & process
complex processes management
3. Office Administration, book- Office / organizational
assistant (3) keeping, support skills

4.furniture Supervision of the Knowledge on general

production production process furniture products.
process
supervisor(2)

7. Draftsperson Design of furniture Computer skill

(2) products

8. other Other technical works Low skill

administration employee wages are forecasted blow for the coming three year

20
8.1.2.

SKILLED AND UNSKILLED LABORS

The total annual wages and salary for skilled and unskilled labours excusing labour in
administrative are is shown bellow
TABLE .9.

2010 2011 2013

Skilled and unskilled 36000 46000 51000

labor

9. FINANCIAL ANALYSIS AND INVESTEMENT

9.1. ESTIMATE OF WORKING CAPITAL REQUIREMENTS

TABLE.10.

21
Item Covera CTO Construct Year 1 Year 2 Year 3
ge day ion
period
Cash 40 360/40=9 - 100000/9 165000/9 206250/9
=11111 =18333 =22917

Account 100 360/100=3 - 210000/3.6=5833 318000/3.6=88333 499260/3.6

receivable .6 3 =138683

Supplies 55 360/55=6. - 40000/6.55=6154 60400/6.55=9221 94828/6.55

55 =14478

WPI 65 360/65=5. - 25000/5.5=4546 32000/5.5=5818 49280/5.5=

5 8960

Total - - - 80144 121705 185038

working
capital
Account 150 360/150=2 120000/2.4 147600/2.4 219924/2.4
payable .4 =50000 =61500 =91635

Net - - 18000 30144 60205 93403

working
capital

Increase in - 12144 30061 33198

net
working
capital

9.2. ESTIMATE OF FIXED ASSET

TABLE.11.

22
No FIXED ASSETS Quantity Price Total amount

1 Motor 1 130000 130000

2 Grinder 2 9000 18000

3 Bench grinder 2 6000 12000

4 Sander machine 1 40000 40000

5 Drill machine with 2 20000 20000

motor
6 Cutter 1 40000 40000

7 Vehicle 1 200000 200000

Total 460000

9.3. TOTAL INVESTEMENT COST

The total investment cost of the project including working capital is estimated at 620000.

The major breakdown of the total initial investment cost is shown in the following table below
TABLE.12.

NO COST ITEM TOTAL COST

1 plant machineries and 359000

equipments
2 Office equipments 120000

3 pre production expense 90500

23
4 Legal and other registration 11000
fee

TOTAL INVESTMENT 580500

COST

5 Working capital 39500

GRAND TOTAL 620000

9.4. PROPOSED CAPITAL STRACTURE AND COST OF FINANCE

Out of the total initial investment 60% will be covered by long term financing which is used to
finance the long term asset of the project another 10% will be raised by using short term loan and it
will used to finance the working capital need of the project. The remaining will be covered by the
founders and owners of the business. For capital contributors there will be no payment until the 4 th
year after that based on their contribution there will be a share of profit. For long term borrowing
the maturity date is after 10 years and the short term loan will be returned at the end of the year
borrowed with full amount. Related to cost of capital for both long and short term the applicable
interest will be 13%.

9.5. PRODUCTION COST

The first year production cost at 60% operation capacity is estimated at Birr502900. The raw
material cost accounts for 18 percent of the production cost. The other major components of the
production cost are depreciation, financial cost and skilled, unskilled, administration labor which
account for 19%, and 14% and 38% respectively. The remaining 4.98 % is the share of utility,
repair and maintenance, labor overhead and other administration cost.
The annual production cost for year 2011 at 70% capacity will be 566,000. Out of this cost raw
material cost and depreciation constitutes 21% and 17% of the total production cost and the other
major cost is skilled, unskilled and administration labor constitutes 38%.
For the year 2012 the majority of the production cost 630200 is constitute by skilled, unskilled and
administration labor cost which accounts 36 % the remaining amount is constituted by the other
costs
ANNUAL PRODUCTION COST CAPACITY
24
 TABLE.13.

Items YEAR32012

YEAR YEAR
2010 2011
Raw Material and Inputs 150000

90000 120000
Utilities 6500

4000 5600
Maintenance and repair 2500

700 1200
Skilled and unskilled 51000
Labor
36000 46000
Manufacturing overheads 75000

50000 65000
Rent 84000

84000 84000
Administration labor 95000
Costs

72000 78000
Total Operating Costs 336700 464000

399800
Depreciation -
machineries and 52000 52000
equipments
52000
Depreciation- vehicle 44000 44000

44000
25
 Cost of Finance or interest
expense 70200 70200

70200
Total Production Cost 630200

502900 566000

According to the income tax proclamation of Ethiopia all business assets are depreciated at a rate of
20 %. This category of assets includes vehicle, plant machineries and equipments. And the interest
rate expected to be 13%

9.6. EVALUATION OF THE PROJEC

9.6.1. PAYBACK PERIOD

The payback period, also called pay – off period is defined as the period required to recover the
original investment outlay through the accumulated net cash flows earned by the project.

Cumulative cash flow method

TABLE.14.

No Year Cash flow cumulative cash investment to be

flow recovered
I 620000

2010 91970 91970 528030

2012 338190 430160 189840

2013 670725

26
2 years+ 189840/670725= 2+0.28=2.28years
Means the period of time the initial investment is return within 2 years and one month.

9.6.2. INTERNAL RATE OF RETURN

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate of
return for an investment is the discount rate that makes the net present value of the investment's
income stream total to zero. It is an indicator of the efficiency or quality of an investment. A project
is a good investment proposition if its IRR is greater than the rate of return that could be earned by
alternate investments or putting the money in a bank account.
COMPUTATION OF THE STARTING POINT
Step 1. ACFA=(91970+338190+670725)/3
=1100885/3
=366962
Step 2. Dividing the initial investment by ACF
=620,000/366962
=1.69

 By looking at the annuity table the we found that the starting point is 12%.

YEAR CF PV@12% Total PV

0 - - 620000

1 91970 0.893 82129

2 338190 0.797 269537

3 670,725 0.712 477556

Total present value 1100885 829222

of inflow

Present value of 620000

outflow

27
Net present value 209222

STEP.2.

 Since the NPV is positive we try a higher rate.

 @ 30%

TABLE.15.

YEAR CF PV@30% TOTAL PRESENT

VALUE
0 - -

1 91970 0.769 70725

2 338190 0.592 200208

3 670,725 0.455 305180

Total present value 576113

of inflow

Present value of 620000

outflow

Net present value (43887)

 Know we know that the IRR is between 12% and 30%

STEP.3. INTERPOLATIONS METHOD

28
  Distance between 12% and 30%

=829200-576113

= 253087

 Distance between 12% and 620000

=829200-620000

=209200

 % of distance between 12% and 620000

= 209200/253087

= 0.83

 INTERNAL RATE OF RETURN

= 30%-0.83%

=29.17%

9.6.3. NET PRESENT VALUE METHOD

By using above computed starting point we can calculate the net present value(NPV) of the cash
flows.
TABLE.16.

Years Cash flow PV of 1 birr Present value of

@12% cash flow
0 - 1 620000

1 91970 0.893 82129

2 338190 0.797 269537

3 670725 0.712 477556

29
Total inflow 829222

Net present value = Total discounted cash inflow- total discounted cash outflow
= 829222-620000
=209222
As indicated in the above competition the Net present value is positive so this indicate that the
project is profitable.

9.6.4 BENEFIT COST RATIO

Benefit cost ratio gives the return for each dollar invested. There are two ways of defining the BCR.

1. The first definition related to the PV of benefit to the initial investment

2. The second measure, a net measure, relates NPV to initial investment

9.6.4.1. CALCULATION OF BENEFIT COST RATIO

TABLE.17.

Cash flow PV of 1 birr@ 12% Discounted cash flow

0 - 1 620000

1 91970 0.893 82129

2 338190 0.797 269537

3 670725 0.712 477556

Total net present 829222

value

30
BCR= Net present value/Initial investment
=NPV/I
=829222/620000
=1.34

 As project evaluation method suggested that if net benefit cost ratio is greater than 1
we should accept the project.

9.6.4.2. CALCULATION OF NET BENEFIT COST RATIO

TABLE.18.

Year Cash flow PV of 1 birr@12% Discounted cash

flow
0 - 1 620000

1 - 0.893 82129

2 91970 0.797 269537

3 338190 0.712 477556

Total net present 670725 829222

value

Net benefit cost ratio = discounted cash inflow-discounted cash outflow/ initial investment
Or
NBCR= (CIF-COF)/I
= (829222-620000)/620000
=209222/620000
=0.34

 According to project evaluation if net benefit cost ratio (NBCR) is greater than zero (0)
it indicate us that the project is profitable.

3. Break-even Analysis

31
The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium.

10. IMPLEMENTATION SCHE

The operation of the proposed firm will start at the beginning of 2010E.C. From the
beginning of 2010 E.C up to the end of 2012 E.C the firm will be engaged on satisfying
all prerequisites required to launch operation. The detailed timing of the firm's overall
operation time schedule is presented in the following table.
TABLE.19. Implementation schedule

No. Activity Time (in E.C )

1. Acquiring of licence Meskerem 2010 - Hidar 2010

2. Granting of Funds Tahsas2010 - Megabit 2010

Renting of Building Miyaziya2010 - Nehase2011

3. Machinery Acquisition (part Meskerem2011- Yekatit2011
of Construction period)
4. Machinery Installation Megabit 2011 - Miyaziya2011

5. Maintenance of Utility Ginbot2011 - Nehase2011

6. HR Recruitment Meskerem 2012 - Tikimt2012

7. HR Training Hidar2012

8. Sample production (Piloting) Yekatit2012 - Megabit 2012

9. Promotion (Demonstrating) Miyaziya2012

10. Mass Production Ginbot2012 - Nehase2012

(Mainstreaming)
11. Marketing Meskerem 2013

11. PROJECTED FINANCIAL STATEMENTS

ABC FURNITURE
PROJECTED INCOME STATEMENT
FOR THE YEAR ENDED SENE 30, 2010-2012
32
 Description Year 2010 Year 2011 Year 2012
Sales revenue 900000 1200000 1500000

Cost of sales 6500000 795000 969900

Depreciation- 52000 52000 52000

equipment and
machineries

Depreciation – 44000 44000 44000

vehicles

EBIT 154000 309000 363900

Interest 702000 70200 70200

EBT 83800 238800 363900

Tax 29330 88580 127365

EAT 54470 150220 236535

DRAWING/ - - -
PAYEMENT TO
PARTNERS

33
 RETAINED 54470 150220 236535
EARNING

ABC FURNITURE
PROJECTED CASH FLOW STATEMENT
FOR THE YEAR ENDED SENE 30, 2010-12

DESCRIPTION CONSTRACTION YEAR 1 YEAR 2 YEAR 3

PERIOD
SOURCE

EBIT - 151000 309000 433100

DEPRECIATION - 96000 96000 96000

SHORT TERM - - -
LOAN 74000
LONG TERM 444000 - - -
LOAN

TOTAL 518000 247000 405000 530100

USES

PAYMENT OF 70200 70200 70200

INTEREST
PAYMENT OF 29330 88580 127365
TAX
CURRENT 39500
ASSET

34
LONG TERM 460000
ASSET
PAYMENT OF 74000
SHORT TERM
LIABILITY

PAYMENT OF - - -
LONG TERM
LIABILITY
TOTAL USES 499500 173530 158780 197565

SURPLUS OR 18500 73470 246220 332535

DEFICIT
BIGENING - 18500 73470 246220
CASH
BALANCE
ENDING CASH 18500 91970 319690 578755
BALANCE

12. CONCLUSION

 Depending on the financial the financial feasibility obtained earlier envisaged project
promotes and poses many advantage. In general it play an important role in achieving and
promoting the national objective of the country.
 As shown in the above feasibility analysis the envisioned project is financially viable
such result induces the project promoters to reinvest the profit which, therefore, increases
the investment magnitude in the region.

 Since the project is profitable starting from its binging year it contribute a large amount
of tax revenue to the government Such result create additional fund for the regional
government that will be used in expanding social and other basic services in the region
 The commencement of this project relieves a portion of the import burden. That is, based
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.
 The proposed project is expected to create employment opportunity to several citizens of
the country. That is, it will provide permanent employment to thousands per year. This
would be one of the commendable accomplishments of the project.

35
Pro-Environment Project
The proposed production process is environment friendly.
Major disadvantage of the project
The project may face the following major obstacles:

 Financial problem: preparation of project paper requires a through investigation market,

feasibility study and others which require some amount of money. As a student, because
of such shortage, we may not examine/considers each and every aspect of the study.
 Expertise problem: being the first time for such project preparation we, the members of
this study, may lack sufficient knowledge and experience needed from the project
initiation up to completion.
 Information shortage: lack of sufficient information is major drawback.
 Other problems the project is the inaccuracy of estimating trends required for financial
analysis.

11.2 Chance of project Implementation

Since the projects have a high glamour of hope and government also support such new
investment by making tax exemption and subsidies the project will have a high probability of
implementation.

36