FEASIBILITY STUDY

ON THE
ESTABLISHMENT
OF
COFFEE (COFFEE ARABICA)
PLANTATION

PROJECT OWNER:

CONTACT PERSON:
Mobile: +251911605116,
Email: amir2114@yahoo.com, amigoismael@gmail.com

CONSULTANT:
Girmaye Abebe Consultancy Services Enterprise
Mobile: +251911002790 /0994614040,
Email: girmayeabebe@gmail.com

` Ethiopia, 2021

1
 TABLE OF CONTENTS
TABLE OF CONTENTS ...................................................................................................... ii

LIST OF TABLES AND FIGURES ..................................................................................... iv

List of Tables .................................................................................................................... iv

1. EXECUTIVE SUMMARY ................................................................................................ 5

2. PRODUCT DESCRIPTION AND APPLICATION ......................................................... 6

2. 1. Vision of the Project .................................................................................................. 6

2. 2. Mission of the Project ............................................................................................... 6
2. 3. Objectives of the Project ........................................................................................... 7
2. 4. Keys to Success ......................................................................................................... 7
2. 5. SWOT Analysis......................................................................................................... 7
2. 5. 1. Strength ............................................................................................................. 7
2. 5. 2. Weakness ........................................................................................................... 8
2. 5. 3. Opportunity ........................................................................................................ 8
2. 5. 4. Threat ................................................................................................................. 8
3. MARKET STUDY, FARM CAPACITY AND PRODUCTION PROGRAM ..................... 9

3. 1. Market Study ............................................................................................................. 9

3. 1. 1. Present Demand and Supply ............................................................................. 9
3. 1. 2. Projected Demand ............................................................................................. 9
3. 1. 3. Pricing and Distribution .................................................................................. 10
3. 2. Farm Capacity, Market And Production Program................................................... 10
3. 2. 1. Farm Capacity ................................................................................................. 10
3. 2. 2. Production Program......................................................................................... 11
3. 2. 3. Product Distribution ........................................................................................ 11
4. RAW MATERIALS AND UTILITIES ............................................................................. 12

4. 1. Availability and Source of Raw Materials .............................................................. 12

4. 2. Annual Requirement and Cost of Raw Materials .................................................... 12
4. 3. Annual Requirement and Cost of Utilities .............................................................. 13
5. TECHNOLOGY AND ENGINEERING DESCRIPTION OF THE AGROFORESTRY

INVESTMENT ................................................................................................................... 14
 5. 1. Technology .............................................................................................................. 14
5. 1. 1. Production Process .......................................................................................... 14
5. 1. 2. Environmental Impact of The Agroforestry investment ................................. 15
5. 2. Engineering ............................................................................................................. 15
5. 2. 1. Machinery and Equipment .............................................................................. 15
5. 3. Land, Building and Civil Work Engineering Cost .................................................. 15
5. 4. Location and Site ..................................................................................................... 16
6. HUMAN RESOURCE AND TRAINING REQUIREMENT ........................................... 17

6. 1. Human Resource ..................................................................................................... 17

6. 2. Training Requirement ............................................................................................. 18
7. FINANCIAL ANALYSIS ................................................................................................ 19

7. 1. Underlying Assumption .......................................................................................... 19

7. 2. Investment ............................................................................................................... 20
7. 3. Production Costs ..................................................................................................... 22
7. 4. Financial Evaluation ................................................................................................ 23
7. 4. 1. Profitability...................................................................................................... 23
7. 4. 2. Breakeven Analysis ......................................................................................... 23
7. 4. 3. Payback Period ................................................................................................ 23
7. 4. 4. Internal Rate of Return (IRR) and Net Present Value (NPV) ......................... 24
7. 5. Economic and Social Benefit and Justification ....................................................... 24
7. 5. 1. Profit Generation ............................................................................................. 24
7. 5. 2. Tax Revenue .................................................................................................... 24
7. 5. 3. Employment and Income Generation .............................................................. 24
ANNEXES: FINANCIAL ANALYSIS SUPPORTING DOCUMENTS ............................... 26

Annex 1 : Net Working Capital (In ETB ) ...................................................................... 26

Annex 2 : Production Cost (In ETB ) .............................................................................. 28
Annex 3 : Income Statement (In ETB ) ........................................................................... 30
Annex 4 : Cash Flow for Financial Management (In ETB ) ........................................... 32
Annex 5 : Discounted Cash Flow (In ETB ) ................................................................... 34
Annex 6 : NPV and IRR .................................................................................................. 36

iii
 LIST OF TABLES AND FIGURES
List of Tables
TABLE 3. 1 : PRODUCTION PROGRAM .......................................................................... 11

TABLE 4. 1 : RAW MATERIALS REQUIREMENT ............................................................ 12

TABLE 4. 2 : UTILITY REQUIREMENT ............................................................................ 13

TABLE 5. 1 : MACHINERY AND EQUIPMENT ................................................................ 15

TABLE 6. 1 : HUMAN RESOURCE REQUIREMENT ....................................................... 17

TABLE 7. 1 : CONSTRUCTION AND FINANCE; DEPRECIATION AND WORKING

CAPITAL (MINIMUM DAYS OF COVERAGE) ................................................................. 19
TABLE 7. 2 : TOTAL INITIAL INVESTMENT ................................................................... 20
TABLE 7. 3 : PRODUCTION COST ................................................................................... 22

iv
 1. EXECUTIVE SUMMARY
This investment envisages the establishment of coffee plantation in Ethiopia with a
capacity of 7,200 tons per annum at 11,000 hectares of land. The following presents the
main findings of the study.

Demand projection divulges that domestic as well as export demand for coffee is
substantial and is increasing with time. The demand for coffee is met through both local
plantations. The present unsatisfied demand for coffee is high at national and international
level. The unsatisfied demand for coffee is projected to increasing at alarming rate.

The principal raw materials required are fertilizer, pesticide and sacks which have
to be imported or purchased from the local market of the whole sellers.

The total investment cost of the project including working capital is estimated at
ETB 33. 21 million. Out of the total investment, the shareholders contribute only 9. 96
million and the remaining will be from bank loan. From the total investment cost of the
highest share is accounted by initial working capital ETB 7. 83 million or 23. 57%)
followed by Vehicles (ETB 6. 720 million or 20. 23%). The remaining goes to others.
From the total investment cost, ETB 4. 35 million or 13. 10% is required in foreign
currency.

The financial result indicates that the project will generate profit beginning from
the second year of operation. Moreover, the project will break even at 56. 85% of capacity
utilization and it will payback fully the initial investment less working capital in 5 years
and 5 months. The results further show that the calculated IRR of the project is 56. 37%
and NPV discounted at 10% of ETB 99. 21 million.

The project can create employment for 48 persons. The establishment of such farm
will have a foreign exchange saving effect to the country by substituting the current import
and exporting 51% of the products to many Africa nations. The project will also create
forward linkage with the manufacturing, farming and other sub sectors and also generates
income for the Government in terms of tax revenue and payroll tax.

5
 2. PRODUCT DESCRIPTION AND APPLICATION
The potential of coffee cultivation in Ethiopia is very high as a result of altitude,
ample rainfall, optimum temperature, suitable planting material as well as fertile soil.
Furthermore, the country is of particular value to the world as it is the home or the origin
of Coffee Arabica with best inherent quality and production potential. In Ethiopia, coffee is
grown at various altitudes ranging from 550-2750 meters above sea level.

Currently coffee is produced using three very distinctive methods. These are: the
forest system, the small farm or cottage system and the plantation system. The forest
system means coffee grows under a forest canopy and needs very little human interference.
The small farm or cottage system is the most popular method for producing coffee in
Ethiopia representing about 95% of all coffee production. The cottage system consists of
small backyard gardens with a few coffee trees, which are harvested by hand. The
plantation system, which is becoming increasingly popular, is farming on a larger scale
using modern processing equipment and ensures more quality assurance advantages.

Basically, coffee plantations grow coffee trees for the domestic and for foreign
markets. The plantation is run on the basis of modern farm management system with the
purpose of maximizing production and profitability.

2. 1. Vision of the Project

Our vision is to establish an innovative farming, service and solution provider in
the coffee plantation.

2. 2. Mission of the Project

Our mission is to supply high-quality coffee products, providing related services
and solutions to a worldwide client base while utilizing innovative technologies within an
environment of motivated employees, focused on continuous improvement, highest

6
 business standards, work ethics and corporate citizenship, leading to added value for our
customers and sustained return on investment to our shareholders.

2. 3. Objectives of the Project

The establishment of the agroforestry investment is initiated by the unfulfilled
demand gap of highly standardized Coffee in the current market situation. This has created
a good market and investment opportunity.

To effectively utilize the opportunity, we devised many objectives. Some of them

are:

 Providing competitive product as much as possible at full capacity to create market for
the product and shortly improve the market share of the business,
 Committing into the market by providing a unique and quality coffee product at
reasonable price, and
 Stressing on quality product to ultimately satisfy customers and withhold their interest.

2. 4. Keys to Success
In descending order of rank, the critical keys to success for the envisaged farm are:

 Ability to meet and exceed the beliefs of its clients and partners with modern
agroforestry investment.

2. 5. SWOT Analysis
2. 5. 1. Strength

 The entrepreneur capacities of the investors are very high.

 The stockholder has excellent performance on farming agroforestry investment.

7
2. 5. 2. Weakness

 Lack of modern agroforestry investment at national level,

 Lack of expert in Coffee product at national level.

2. 5. 3. Opportunity

 Ethiopia is the origin of Coffee Arabica

 Prioritized investment by government policies and outlays.
 Increasing trend in the farming industry at developing nations,
 Strong assistances and incentives from the government,
 Expected increase in the economic growth of the country related to farming industry,
 huge investment in road, telecommunications, potable water and power sectors,
 Existence of various farming industries in the country and
 relatively stable economic and political environment.

2. 5. 4. Threat

 Low utilities development in the area,

 Decline in the purchasing power of the ETB against Dollar.

8
 3. MARKET STUDY, FARM CAPACITY AND
PRODUCTION PROGRAM
3. 1. Market Study
3. 1. 1. Present Demand and Supply

At present coffee is grown in many parts of the region. However, the most popular
and major producers are Yirgachefe, Jimma, Sidamo and Harare. According to the
Agricultural Sample Survey of CSA (2007-Vol I) there are 2,948,665 private peasant
holdings throughout the country holding an area of 295,237. 9 hectares of land. The
production level for the same period has been 2,414,823. 85 quintal generating 8. 24
quintals per hectare. There is high and growing demand for coffee both at domestic and
international market. In other words, any additional production will have market
opportunity at a given price.

Studies show that the Oromia, Amhara, Gambella, BGRS, and SNNP regions are
suitable for coffee plantation. For instance Amhara region has got a total of 3,825,600
hectares of land suitable for coffee production of which about 1. 4 million hectares is
classified as highly suitable. In contrast to this the area currently covered with coffee
plantation is only 10,825 hectares or 0. 77% (DSA / SCI, 2006). This represents the
presence of huge gap between the potential and actual production of the region. At the
same time it indicates the existence of untapped resource potential that could be translated
into profit.

3. 1. 2. Projected Demand

As stated earlier, coffee is sold both at the domestic market and also exported to
abroad. Therefore, the future demand is highly related to these two groups of consumers.
Some studies estimate that about half of the total production of coffee is consumed within
the country. This figure can be fairly accepted when we consider the coffee ceremony

9
being practiced in many parts of the country across all income groups where by 3 cups of
coffee is usually consumed per individual in a given ceremony. This shows just how much
coffee has become a part of Ethiopian culture. Therefore, with an increase in population
and income in the future, the domestic demand for coffee undoubtedly increases in the
future. The same holds true for coffee export. Although the price is heavily manipulated by
the huge multinational coffee companies, the demand for Ethiopian coffee is increasing
from time to time. Such trend is expected to increase in the future as well. Therefore, the
future demand for the envisaged coffee plantation is very promising in view of the above
considerations.

3. 1. 3. Pricing and Distribution

The current retail price of coffee is ETB 5000. 00 / ton. Considering wholesalers
and retailers margin of 10% the recommended farm gate price for the envisaged farm is
ETB 4500. 00 / ton.

Considering the nature of the products and the characteristics of the end users a
combination both direct distribution to end users (for bulk purchasers) and indirect
distribution (using agents) is selected as the most appropriate distribution channel.

3. 2. Farm Capacity, Market And Production Program

3. 2. 1. Farm Capacity

From the market study and taking into consideration the farming practice of coffee
plantation process, the harvesting capacity of the farm is taken as 7,200 tons of coffee per
annum. It is possible to harvest 12-15 tons of coffee beans per hectare of coffee plantation
in modern farming.

10
3. 2. 2. Production Program

The program is scheduled based on the consideration that the farm will work
throughout the year in 1 shift except for Sundays and public holydays. During the first year
of operation the farm will operate at 35% capacity and then it grows to 70% in the 2nd year.
The farm starts to operate at 100% capacity beginning from the 3rd year of operation. This
consideration is developed based on the consideration that coffee by nature gives its full
harvest within 2 to 4 years. At the same time it is assumed that logistics barriers would be
eliminated within these years of operation.

TABLE 3. 1 : PRODUCTION PROGRAM

No. Description / Type of product Production Year

1 2 3
1 Capacity Utilization Rate (%) 35 70 100
2 Coffee Beans (Ton ) 24,700 49,400 7200

3. 2. 3. Product Distribution
The agroforestry investment will provide Coffee to both local (49%) and export
(51%) market with best quality and fair prices, ensuring, in the meantime, a sufficient
financial return on the investment.

11
 4. RAW MATERIALS AND UTILITIES
4. 1. Availability and Source of Raw Materials
The principal raw materials for coffee production required are fertilizer, pesticide
and sacks. The appropriate land will be leased from the region. Moreover, the most
demanded type of coffee seed shall be acquired from relevant sources. While fertilizer and
chemicals can be purchased from domestic suppliers operating in the region, the firm shall
make use of water pump equipments to pump water from the nearby river or other source.

According to the below Table 4. 1 and 4. 2, the annual raw materials and utilities
cost at full capacity of operation is estimated to be ETB 20. 07 million.

4. 2. Annual Requirement and Cost of Raw Materials

The annual raw materials requirement and the associated cost for the
envisaged farm are listed in Table 4. 1 here under. Annual cost is estimated at ETB 12. 40
million.

TABLE 4. 1 : RAW MATERIALS REQUIREMENT

Unit Cost
Material per Local Cost Total Cost
And Input Quantity Unit
Fertilizer Kg 96,000 28. 88 11,434,500. 00 11,434,500. 00
As
Pesticides 120,000 7. 00 840,000. 00 840,000. 00
required
Sack Number 7,200 17. 50 126,000. 00 126,000. 00
Total Cost 12,400,500. 00 12,400,500. 00

12
4. 3. Annual Requirement and Cost of Utilities
The annual utilities requirement and the associated cost for the envisaged farm (i. e.
7,200 ton per annum) are listed in Table 4. 2 here under. The major utilities requirements
of the farm are electricity and water. Annual cost is estimated at ETB 7. 67 million as
indicated in Table 4. 2.

TABLE 4. 2 : UTILITY REQUIREMENT

Unit Cost
per Local Total
Utility Quantity Unit Cost Cost
Electricity KWH 900,000 2. 7 2,430,000. 00 2,430,000. 00
Furnace
Ton 180,000 25 4,500,000. 00 4,500,000. 00
Oil
Lubricant Li / kg 4,800 29 139,200. 00 139,200. 00
Cubic
Water 60,000 10 600,000. 00 600,000. 00
meter
Total
7,669,200. 00 7,669,200. 00
Cost

13
 5. TECHNOLOGY AND ENGINEERING
DESCRIPTION OF THE AGROFORESTRY
INVESTMENT
5. 1. Technology
5. 1. 1. Production Process

The basic production process of coffee includes preparing the land, planting the
coffee seedlings, nurturing the trees, harvesting and marketing the coffee beans. While
planting the coffee seedling it should be planted in rows with 3 meters distance. In this way
we can plant about 1000 coffee trees per hectare. The seedlings should be sheltered against
sun and rain. Moreover, the issues that need proper attention in the course of action are the
following.

 Replacing seedlings that have not grown,

 keeping the soil covered and remove weeds,

 pruning the coffee trees correctly,

 applying fertilizers, and

 protecting the coffee trees from insects and diseases

The farm has to implement agroforestry practices within the coffee plantation for
economic benefit. Agroforestry increase coffee production and earn huge dollars from
harvesting of other economic products within coffee production.

14
5. 1. 2. Environmental Impact of The Agroforestry investment

The plantation of coffee does not have any negative impact on the environment
since the process does not use hazardous chemicals.

5. 2. Engineering
5. 2. 1. Machinery and Equipment

The envisaged farm shall use hired tractor whenever required on a rent basis. The
machineries and equipment required for coffee plantation detailed in Table 5. 1 below. The
total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about ETB 4. 35 million (13. 10%). All the machineries can be acquired
from local suppliers.

TABLE 5. 1 : MACHINERY AND EQUIPMENT

NO. DESCRIPTION UNIT OF MEASURE QUANTITY

1 Water Pump and 210
Equipment’s No.
2 Various Hand Tools And
Farming Machines As required

5. 3. Land, Building and Civil Work Engineering Cost

The total site area for the envisaged farm is estimated to be 11,000 hectares. As the
land and seedling of coffee price is around 100 per hectare, the total cost related to the land
and seedlings are around 1. 10 million. The major buildings and civil works include
buildings for production, offices, workshops and warehouses. The farm also requires 300 m2
area for office, store and other related facilities. Total cost of building and other civil works
is estimated at ETB 4. 60 million.

15
5. 4. Location and Site
The appropriate locations for the envisaged project in view of the availability of input and
infrastructure are localities of the Country suitable for coffee plantation. This mainly
includes Jimma, Sidama, Yirga Chefe, Arba Minch, Gambella, Bonga, Mizan Teferi,
Wellega, North Gonder, South Gonder, North Wollo, South Wollo, West Gojam, Awi and
East Gojam.

16
 6. HUMAN RESOURCE AND TRAINING
REQUIREMENT
6. 1. Human Resource
The list of required manpower for the envisaged farm is stated in Table 5. 2 below.
The envisaged farm therefore, creates 48 jobs and about ETB 3. 55 million of income. The
professionals and support staffs for the envisaged farm shall be recruited from the
surrounding areas of the site.

TABLE 6. 1 : HUMAN RESOURCE REQUIREMENT

S. Numb Monthly Annual

No. Description er Salary Salary
1 ADMINISTRATION
STAFF
1. 1 Manager/ Agronomist 1 16,000. 00 192,000. 00

1. 2 Secretary 3 3,500. 00 84,000. 00

1. 3 Accountant 3 4,200. 00 151,200. 00

1. 4 Cashier 3 3,100. 00 74,400. 00

1. 5 Sales And Purchasing

3,500. 00 168,000. 00
Officer 7
1. 6 Clerks 3 3,300. 00 79,200. 00
2 PRODUCTION
STAFF
2. 1 Agronomist 1 126,000. 00 10,500. 00

2. 2 Junior Agronomist 3 216,000. 00 6,000. 00

2. 3 Water Harvesting Expert 1 84,000. 00 7,000. 00

17
 2. 4 Coffee Farming Skilled
4,300. 00 464,400. 00
Operator 9
2. 5 Coffee Farming Semi-
3,700. 00 355,200. 00
Skilled Operator 8
2. 6 Coffee Farming Unskilled
3,400. 00 285,600. 00
Workers 7
2. 7 Guard 5 3,400. 00 204,000. 00
Sub -Total 48 126,900. 00 2,956,800. 00
Employees Benefit
591,360. 00 591,360. 00
(20% Of Total Salary) 20%
Total 718,260. 00 3,548,160. 00

6. 2. Training Requirement
Training of key personnel is very essential and shall be conducted in collaboration
with the Ministry of Agriculture. The training should primarily focus on the harvesting
technology and machinery maintenance and trouble shooting. It is suggested, to train
production and technical manager, production and technical head, and quality control head,
and operators on-the-job training at the actual site on the actual working condition by
competent expert of the machinery and technology supplier for about one month during
seedling plantation.

18
 7. FINANCIAL ANALYSIS
7. 1. Underlying Assumption
The financial analysis of Coffee farm is based on the data provided in the preceding
sections and the following assumptions as seen in Table 7. 1.

TABLE 7. 1 : CONSTRUCTION AND FINANCE; DEPRECIATION AND

WORKING CAPITAL (MINIMUM DAYS OF COVERAGE)

CONSTRUCTION AND
UNITY VALUE
FINANCE
Construction Period year 1
Tax Holidays year 5
Source Of Finance (Equity) % 30%
Source Of Finance (Loan) % 70%
Value Of Land ETB 25, 000. 00
Bank Interest Rate % 13%
Discount For Cash Flow % 10%
Spare Parts, Repair and Maintenance % 5%
DEPRECIATION UNITY VALUE
Building % 5%
Machinery And Equipment % 15%
Office Furniture % 10%
Vehicles % 15%
Pre-Production / Amortization / % 10%
WORKING CAPITAL UNITY VALUE
Raw Material Foreign day 130
Raw Material Local day 40

19
 Farm Supplies In Stock day 150
Spare Parts In Stock And
day 150
Maintenance
Cash In Hand day 20
Accounts Payable day 40
Work In Progress day 15
Finished Products day 30
Accounts Receivable day 30

7. 2. Investment
The total investment cost of the project including working capital is estimated at ETB 33.
21 million as shown in Table 7. 2 below. The Owner shall contribute 30% of the finance in
the form of equity while the remaining 70% is to be financed by bank loan. The foreign
component of the project accounts for 13. 10% of the total investment cost. Most of the
total investment goes working capital (ETB 7. 83 million or 23. 57%), Vehicles (ETB 6.
720 million or 20. 23%), machineries and warehouse construction (ETB 8. 95 million or
26. 95%). The remaining goes to others.

TABLE 7. 2 : TOTAL INITIAL INVESTMENT

Forei
Local Total
No. Cost Items gn %
Cost Cost
Cost
1. 0 Fixed Investment
Land and Coffee 1,100,000. 1,100,000.
1. 1 3. 31
Seedlings 00 00
Building And Civil 4,600,000. 4,600,000.
1. 2 13. 85
Work 00 00
1. 3 Machinery And - 4,350,00 4,350,000. 13. 10

20
 Equipment 0. 00 00
Office Furniture And 1,590,000. 1,590,000.
1. 4 4. 79
Equipment 00 00
6,719,000. 6,719,000.
1. 5 Vehicle 20. 23
00 00
14,009,00 4,350,00 18,359,000
Sub -Total
0. 00 0. 00 . 00 55. 28
2. 0 Pre Operating Cost -
4,439,366. 4,439,366.
2. 1 Pre-Expenditure* 13. 37
25 25
Interest During First 2,583,000. 2,583,000.
2. 2 - 7. 78
Year / Construction 00 00
7,022,366. 7,022,366.
Sub -Total
25 - 25 21. 15
21,031,36 4,350,00 25,381,366
Total Investment
6. 25 0. 00 . 25 76. 43
7,828,633. 7,828,633.
3. 0 Working Capital** 23. 57
75 75
28,860,00 4,350,00 33,210,000
Grand Total
0. 00 0. 00 . 00 100. 00
Foreign Currency, % 17. 11

*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 total working capital required at full capacity operation is ETB 15. 66
million. However, only the initial working capital of ETB 7. 83 million during the first
year of production is assumed to be funded through external sources. During the remaining
years production is assumed to be funded through external sources. During the remaining

21
years the working capital requirement will be financed by funds to be generated internally
(for detail working capital requirement see Annex).

7. 3. Production Costs
The total production cost at full capacity operation is estimated at ETB 30. 18
million as detailed in Table 7. 3 below.

TABLE 7. 3 : PRODUCTION COST

ITEMS COST %

Raw Material And Inputs 12,400,500. 00 41. 09

Utilities 7,669,200. 00 25. 41

Maintenance And Repair 527,000. 00 1. 75

Labor Direct 2,208,000. 00 7. 32

Labor Overheads 591,360. 00 1. 96

Administration Costs 748,800. 00 2. 48

Land Lease Cost 25,000. 00 0. 0828

Cost Of Marketing And Distribution 1,500,000. 00 4. 97

Total Operating Costs 25,669,860. 00 85. 06

Depreciation 1,485,436. 63 4. 92

Cost Of Finance 3,022,110. 00 10. 01

TOTAL PRODUCTION COST 30,177,406. 63 100. 00

22
7. 4. Financial Evaluation
7. 4. 1. Profitability

According to the projected income statement attached in the annex part (see Annex)
the project will generate profit beginning from the second year of operation. Ratios such as
the percentage of net profit to total sales, return on equity and return on total investment
are rises in the subsequent years. Furthermore, the income statement and other profitability
indicators show that the project is viable.

7. 4. 2. Breakeven Analysis

The breakeven point of the project is estimated by using income statement

projection. Accordingly, the project will break even at 56. 85% of capacity utilization. The
break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-
even point for capacity utilization and sales value estimated by using income statement
projection are computed as followed.

 BESV = Brake- Even Sales Value = ( (Fixed Cost + Financial Cost) / Variable Margin
ratio) (%) = ETB 18,418,121. 64
 BECU = Brake -Even Capacity utilization = ( (Brake -even Sales Value) / Sales
revenue) X 100 = 56. 85%

7. 4. 3. 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 5 years and 5 months.

23
7. 4. 4. Internal Rate of Return (IRR) and Net Present Value (NPV)

Based on cash flow statement described in the annex part, the calculated IRR of the
project is 56. 37% and the NPV at 10% discount is ETB 99. 21 million.

7. 5. Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that help promote the socio-
economic goals and objectives stated in the strategic plan of the Ethiopia. It boosts inter
sectorial linkage between the farming 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:

7. 5. 1. Profit Generation
The project is found to be financially viable and earns on average a profit of ETB
from 1. 00 million to 9. 00 million per year and ETB 66. 93 million within the project life.
Such result induces the project promoters to reinvest the profit which, therefore, increases
the investment magnitude in the region.

7. 5. 2. Tax Revenue
In the project life under consideration, the region will collect about ETB 11. 06
million from corporate tax payment alone (i. e. excluding income tax, sales tax and VAT).
Such result creates additional fund for the regional government that will be used in
expanding social and other basic services in the region.

7. 5. 3. 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 48 professionals as

24
well as support staff. Consequently the project creates income to the workers around 3. 55
million per year and supply to the domestic needs. The establishment of such agroforestry
investment will have a foreign exchange saving effect to the country by exporting the
product and substituting the current imports. Moreover, the envisaged farm benefits urban
income from the sale of coffee, and the like. This would be one of the commendable
accomplishments of the project.

25
 ANNEXES: FINANCIAL ANALYSIS SUPPORTING
DOCUMENTS
Annex 1 : Net Working Capital (In ETB )
Construct Productio Productio Productio
Production
ion n n n
Items

Year1 Year 2 Year 3 Year 4 Year 5

7,450,633. 14,901,267. 21,287,525 21,287,525

Total Inventory 0
75 50 . 00 . 00
Accounts 1,134,000. 2,268,000. 3,240,000. 3,240,000.
0
Receivable 00 00 00 00
756,000. 1,512,000. 2,160,000. 2,160,000.
Cash-In-Hand 0
00 00 00 00
Total Current 9,340,633. 18,681,267. 26,687,525 26,687,525
0
Asset 75 50 . 00 . 00
1,512,000. 3,024,000. 4,320,000. 4,320,000.
Accounts Payable 0
00 00 00 00
Total Current 1,512,000. 3,024,000. 4,320,000. 4,320,000.
0
LIABILITIES 00 00 00 00
Net Working 7,828,633. 15,657,267. 22,367,525 22,367,525
0
Capital 75 50 . 00 . 00

26
 Productio Productio
Production Production Production Production
n n

Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

21,287,525. 21,287,525. 21,287,52 21,287,525. 21,287,525 21,287,525.

00 00 5. 00 00 . 00 00

3,240,000. 3,240,000. 3,240,000. 3,240,000. 3,240,000. 3,240,000.

00 00 00 00 00 00

2,160,000. 2,160,000. 2,160,000. 2,160,000. 2,160,000. 2,160,000.

00 00 00 00 00 00

26,687,525. 26,687,525. 26,687,52 26,687,525. 26,687,525 26,687,525.

00 00 5. 00 00 . 00 00

4,320,000. 4,320,000. 4,320,000. 4,320,000. 4,320,000. 4,320,000.

00 00 00 00 00 00

4,320,000. 4,320,000. 4,320,000. 4,320,000. 4,320,000. 4,320,000.

00 00 00 00 00 00

22,367,525. 22,367,525. 22,367,52 22,367,525. 22,367,525 22,367,525.

00 00 5. 00 00 . 00 00

27
Annex 2 : Production Cost (In ETB )
Constr
Production Production Production Production
uction
Item Year 2 Year 3 Year 4 Year 5
Raw Material 4,340,175. 8,680,350. 12,400,500. 12,400,500.
And Inputs 00 00 00 00
2,684,220. 5,368,440. 7,669,200. 7,669,200.
Utilities
00 00 00 00
Maintenance And
527,000. 00 527,000. 00
Repair 184,450. 00 368,900. 00
1,545,600. 2,208,000. 2,208,000.
Labor Direct
772,800. 00 00 00 00
Labor Overheads 591,360. 00 591,360. 00
206,976. 00 413,952. 00
Administration
748,800. 00 748,800. 00
Costs 262,080. 00 524,160. 00
Casual Labor - -
- -
Land Lease
Cost Of
1,500,000. 1,500,000.
Marketing And 1,050,000.
00 00
Distribution 525,000. 00 00
Total Operating 8,975,701. 17,951,402. 25,644,860. 25,644,860.
Costs 00 00 00 00
1,039,805. 1,485,436. 1,485,436.
Depreciation
519,902. 82 64 63 63
1,057,738. 2,115,477. 3,022,110. 2,854,215.
Cost Of Finance
50 00 00 00
Total 10,553,342. 21,106,684. 30,152,406. 29,984,511.
Production Cost 32 64 63 63

28
Productio Productio Productio Productio
Production Production
n n n n

Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

12,400,500 12,400,500. 12,400,500. 12,400,50 12,400,50 12,400,500

. 00 00 00 0. 00 0. 00 . 00
7,669,200. 7,669,200. 7,669,200. 7,669,200.
7,669,200. 00 7,669,200. 00
00 00 00 00
527,000. 527,000. 527,000. 527,000.
527,000. 00 527,000. 00
00 00 00 00
2,208,000. 2,208,000. 2,208,000. 2,208,000.
2,208,000. 00 2,208,000. 00
00 00 00 00
591,360. 591,360. 591,360. 591,360.
591,360. 00 591,360. 00
00 00 00 00
748,800. 748,800. 748,800. 748,800.
748,800. 00 748,800. 00
00 00 00 00
- - - - - -

25,000. 00 25,000. 00 25,000. 00 25,000. 00 25,000. 00

1,500,000. 1,500,000. 1,500,000. 1,500,000.
1,500,000. 00 1,500,000. 00
00 00 00 00
25,644,860 25,669,860. 25,669,860. 25,669,86 25,669,86 25,669,860
. 00 00 00 0. 00 0. 00 . 00
1,485,436. 1,485,436. 1,485,436. 1,485,436.
1,485,436. 63 1,485,436. 63
63 63 63 63
2,695,647. 2,270,870. 2,144,710. 2,025,560.
2,545,889. 31 2,404,451. 01
50 40 93 33
29,825,944 29,701,185. 29,559,747. 29,426,16 29,300,00 29,180,856
. 13 93 64 7. 02 7. 56 . 95

29
Annex 3 : Income Statement (In ETB )
Constru Productio Productio Productio Productio
Item / Year ction n n n n
Year 1 Year 1 Year 2 Year 3 Year 4
Capacity Utilization (%) 35% 70% 100% 100%
13,090,00 26,180,00 37,400,00 37,400,00
TOTAL INCOME
0 0 0 0
11,340,00 22,680,00 32,400,00 32,400,00
Sales Revenue
0 0 0 0
Other Income 1,750,000 3,500,000 5,000,000 5,000,000
LESS VARIABLE 17,968,90 25,669,86 25,669,86
COSTS 8,984,451 2 0 0
11,730,14 11,730,14
VARIABLE MARGIN
4,105,549 8,211,098 0 0
In % Of Variable
31. 36 36. 20
Margin Sales Revenue 36. 20 36. 20
Less Fixed Costs 2,039,889 2,039,889 2,039,889 2,039,889
OPERATIONAL
9,690,251 9,690,251
MARGIN 2,065,660 6,171,209
In % Of Operational
25. 91 29. 91
Margin Sales Revenue 15. 78 23. 57
Less Financial Costs 728,664 1 633,938 646,252
GROSS PROFIT 1,336,996 6,171,208 9,056,313 9,043,999
In % Of Gross Profit Sales
24. 21 24. 18
Revenue 10. 21 23. 57
Income (Corporate) Tax - - - -
1,336,995. 6,171,208. 9,056,313. 9,043,998.
NET PROFIT
81 00 17 74
RATIOS (%)
Gross Profit / Sales 10. 21 23. 57 24. 21 24. 18
Net Profit After Tax /
24. 21 24. 18
Sales 10. 21 23. 57

30
Production Production Production Production Production Production
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
100% 100% 100% 100% 100% 100%
37,400,000. 37,400,000. 37,400,000 37,400,000. 37,400,000.
37,400,000. 00
00 00 . 00 00 00
32,400,000. 32,400,000. 32,400,000 32,400,000. 32,400,000.
32,400,000. 00
00 00 . 00 00 00
5,000,000. 5,000,000. 5,000,000. 5,000,000. 5,000,000.
5,000,000. 00
00 00 00 00 00
25,669,860. 25,669,860. 25,669,860 25,669,860. 25,669,860.
25,669,860. 00
00 00 . 00 00 00
11,730,140. 11,730,140. 11,730,140 11,730,140. 11,730,140.
11,730,140. 00
00 00 . 00 00 00
36. 20 36. 20 36. 20 36. 20 36. 20 36. 20
2,039,888. 2,039,888. 2,039,888. 2,039,888. 2,039,888.
2,039,888. 89
89 89 89 89 89
9,690,251. 9,690,251. 9,690,251. 9,690,251. 9,690,251.
9,690,251. 11
11 11 11 11 11
29. 91 29. 91 29. 91 29. 91 29. 91 29. 91
644,832.
644,651. 49 644,859. 61 644,836. 07 644,835. 61 644,835. 67
55
9,045,599. 9,045,391. 9,045,418. 9,045,415. 9,045,415.
9,045,415. 44
62 51 56 04 50
24. 19 24. 19 24. 19 24. 19 24. 19 24. 19
1,356,808. 1,356,812. 1,356,812. 1,356,812.
- 1,356,812. 32
73 78 26 32
9,045,599. 7,688,582. 7,688,605. 7,688,602. 7,688,603.
7,688,603. 12
62 78 78 79 17

24. 19 24. 19 24. 19 24. 19 24. 19 24. 19

24. 19 20. 56 20. 56 20. 56 20. 56 20. 56

31
Annex 4 : Cash Flow for Financial Management (In ETB )
Construction Production Production Production
Item Year 1 Year 2 Year 3 Year 4
TOTAL CASH 31,978,800. 54,658,800.
66,420,000. 00 74,098,800. 00
INFLOW 00 00
Inflow Funds 33,210,000. 00 4,649,400. 00 4,649,400. 00 4,649,400. 00
Total Equity 9,963,000. 00 - - -
Total Long Term Loan 23,247,000. 00 - - -
Total Short Term
- 4,649,400. 00
Finances 4,649,400. 00 4,649,400. 00
11,340,000. 22,680,000.
Inflow Operation - 32,400,000. 00
00 00
11,340,000. 22,680,000.
Sales Revenue - 32,400,000. 00
00 00
Interest On Securities - - - -
Other Income - - - -
TOTAL CASH 12,652,298. 21,898,205.
18,359,000. 00 57,074,322. 94
OUTFLOW 05 44
Increase In Fixed Assets 22,798,366. 25 - - -
Fixed Investments 18,359,000. 00 - - -
Pre-Production
4,439,366. 25 -
Expenditures - -
Increase In Current 18,681,267.
- 26,687,525. 00
Assets 9,340,633. 75 50
Operating Costs - - - 25,669,860. 00
Marketing And
- 1,500,000. 00
Distribution Cost - -
Income Tax - - - -
Financial Costs - 728,664. 30 633,937. 94 633,937. 94
Loan Repayment 2,583,000. 00 2,583,000. 00 2,583,000. 00
Dividends Paid
19,326,501. 32,760,594.
SURPLUS / DEFICIT / - 17,024,477. 06
95 56
CUMULATIVE CASH 19,326,501. 52,087,096.
36,350,979. 01
BALANCE 95 51

32
Production Production Production Production Production Production
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
74,098,800. 74,098,800. 74,098,800. 74,098,800. 74,098,800. 74,098,800.
00 00 00 00 00 00
4,649,400. 4,649,400. 4,649,400. 4,649,400. 4,649,400. 4,649,400.
00 00 00 00 00 00
- - - - - -
- - - - - -
4,649,400. 4,649,400. 4,649,400.
00 00 00
32,400,000. 32,400,000. 32,400,000. 32,400,000. 32,400,000. 32,400,000.
00 00 00 00 00 00
32,400,000. 32,400,000. 32,400,000. 32,400,000. 32,400,000. 32,400,000.
00 00 00 00 00 00
- - - - - -
- - - - - -
57,086,637. 57,085,036. 58,442,053. 58,442,030. 58,442,033. 58,442,032.
37 49 33 34 32 94
- - - - - -
- - - - - -
- - - - - -
26,687,525. 26,687,525. 26,687,525. 26,687,525. 26,687,525. 26,687,525.
00 00 00 00 00 00
25,669,860. 25,669,860. 25,669,860. 25,669,860. 25,669,860. 25,669,860.
00 00 00 00 00 00
1,500,000. 1,500,000. 1,500,000. 1,500,000. 1,500,000. 1,500,000.
00 00 00 00 00 00
1,356,808. 1,356,812. 1,356,812. 1,356,812.
- -
73 78 26 32
646,252. 37 644,651. 49 644,859. 61 644,832. 55 644,836. 07 644,835. 61
2,583,000. 2,583,000. 2,583,000. 2,583,000. 2,583,000. 2,583,000.
00 00 00 00 00 00

17,012,162. 17,013,763. 15,656,746. 15,656,769. 15,656,766. 15,656,767.

63 51 67 66 68 06
53,363,141. 70,376,905. 86,033,651. 101,690,421 117,347,18 133,003,95
64 15 82 . 48 8. 16 5. 22

33
Annex 5 : Discounted Cash Flow (In ETB )
Productio Producti
Construction Production
Item n on
Year 1 Year 1 Year 2 Year 3
11,192,580. 38,261,160. 74,098,80
TOTAL CASH INFLOW -
00 00 0. 00
11,192,580. 38,261,160. 74,098,80
Inflow Operation -
00 00 0. 00
11,192,580. 38,261,160. 74,098,80
Sales Revenue -
00 00 0. 00
Interest On Securities - - - -
Other Income - - - -
TOTAL CASH 34,998,493. 42,827,127. 49,537,38
22,798,366. 25
OUTFLOW 75 50 5. 00
Increase In Fixed Assets 22,798,366. 25 - - -
Fixed Investments 18,359,000. 00
Pre-Production
4,439,366. 25
Expenditures
Increase In Net Working 15,657,267. 22,367,52
Capital 7,828,633. 75 50 5. 00
25,669,860. 25,669,860. 25,669,86
Operating Costs
00 00 0. 00

Marketing And Distribution

1,500,000. 1,500,000
Cost
1,500,000. 00 00 . 00
Income (Corporate) Tax - - -

(22,798,366. (23,805,913. (4,565,967. 24,561,41

NET CASH FLOW
25) 75) 50) 5. 00
CUMULATIVE NET (22,798,366. (46,604,280. (51,170,24 (22,042,8
CASH FLOW 25) 00) 7. 50) 65. 00)
(22,798,366. (23,805,913. (4,565,967. 22,328,55
Net Present Value
25) 75) 50) 9. 09
Cumulative Net Present (22,798,366. (23,805,913. (4,565,967. (1,477,35
Value 25) 75) 50) 4. 66)

34
 Productio Productio Producti Producti Productio Producti
Production
n n on on n on
Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
74,098,800. 74,098,80 74,098,80 74,098,80 74,098,80 74,098,80 74,098,80
00 0. 00 0. 00 0. 00 0. 00 0. 00 0. 00
74,098,800. 74,098,80 74,098,80 74,098,80 74,098,80 74,098,80 74,098,80
00 0. 00 0. 00 0. 00 0. 00 0. 00 0. 00
74,098,800. 74,098,80 74,098,80 74,098,80 74,098,80 74,098,80 74,098,80
00 0. 00 0. 00 0. 00 0. 00 0. 00 0. 00
- - - - - - -
- - - - - - -
49,537,385. 49,537,38 50,894,19 50,894,19 50,894,19 50,894,19 50,894,19
00 5. 00 3. 73 7. 78 7. 26 7. 32 7. 32
- - - - - - -

22,367,525. 22,367,52 22,367,52 22,367,52 22,367,52 22,367,52 22,367,52

00 5. 00 5. 00 5. 00 5. 00 5. 00 5. 00
25,669,860. 25,669,86 25,669,86 25,669,86 25,669,86 25,669,86 25,669,86
00 0. 00 0. 00 0. 00 0. 00 0. 00 0. 00
1,500,000. 1,500,000. 1,500,000. 1,500,000 1,500,000 1,500,000. 1,500,000
00 00 00 . 00 . 00 00 . 00
1,356,808. 1,356,812 1,356,812 1,356,812. 1,356,812
- -
73 . 78 . 26 32 . 32

24,561,415. 24,561,41 23,204,60 23,204,60 23,204,60 23,204,60 23,204,60

00 5. 00 6. 27 2. 22 2. 74 2. 68 2. 68
2,518,550. 27,079,96 50,284,57 73,489,17 96,693,77 119,898,3 143,102,9
00 5. 00 1. 27 3. 49 6. 23 78. 91 81. 59
20,298,690. 18,453,35 15,849,05 14,408,23 13,098,39 11,907,63 10,825,11
08 4. 62 8. 31 2. 31 3. 31 0. 24 8. 41
18,821,335. 37,274,69 53,123,74 67,531,98 80,630,37 92,538,00 103,363,1
42 0. 04 8. 36 0. 66 3. 97 4. 21 22. 62

35
Annex 6 : NPV and IRR
Net Present Value= Net Cash Flow / 1+Discount Rate ^Time period, Note That
Interest Rate is 10%

1+Disocunt Rate ^Time period is (1+10%) ^t

Discount
YEAR Rate Net Cash Flow NPV IRR

0 Year 1 1 (23,805,913. 75) (23,805,913. 75) 160. 41%

2 1. 1 (4,565,967. 50) (4,150,879. 55)

3 1. 21 24,561,415. 00 22,328,559. 09

4 1. 331 24,561,415. 00 20,298,690. 08

5 1. 4641 24,561,415. 00 18,453,354. 62

6 1. 61051 23,204,606. 27 15,849,058. 31

7 1. 771561 23,204,602. 22 14,408,232. 31

8 1. 9487171 23,204,602. 74 13,098,393. 31

9 2. 14358881 23,204,602. 68 11,907,630. 24

10 2. 357947691 23,204,602. 68 10,825,118. 41

161,335,380. 34 99,212,243. 08

36