INVESTMENT PROJECT

PROPOSAL
ON
CATTLE FATTENING

PROMOTER:- Mr Roba Hordofa Gamade

Location;
Ethiopia , Oromia National Regional State, West Guji Zone,
Bule Hora District, Mate Lema PA

Prepared by: West Guji Zone Agriculture and Natural Resource

office
Extantion and Agri-Business Department (Nigatu Elias
(Msc)
0910186218

May,2020
Basic Information

 Name of the Promoter: Roba Hordofa Gamade

Contact Address: 0934611872

 Type of the Project: Cattle Fattening

 Type of Business: Sole proprietor ship

 Project Location: Bule Hora District, Sorile Wachu Kebele

 Project capital: The total investment capital of the project is estimated at birr 40,886,598.70

ETB of which:

 Birr 7,873,423.87 (20%) is contributed by the promoter

 Birr 31,493,695.48 (80%) is to be financed by local banks.

 Man power requirement: 18 permanent and temporary employees will be benefited within this

Project.

 Land requirement: The total area of 4000 m2 of land is required for the

project

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 I. EXECUTIVE SUMMARY

This profile envisages the establishment of cattle fattening farm with annual capacity of 1,500
heads of cattle for the coming two years 2021 and 2022 and 3,500.heads of cattle for the
remaining 8 successive years up to 2030. The current demand of cattle meat is estimated at
21,280.30kg per day here in and around Bule Hora University. The demand is projected to reach
31,350.00kg per day by the year 2030.
The envisaged project will create employment opportunity for about more than 18 people full
employed and others in part time. The total initial investment cost of the project is estimated at
Birr 12 million, out of which 1.023 million is for plant machinery and equipment. The project is
financially viable with an internal rate of return (IRR) of 12 % and net present value (NPV) of
Birr 13.023 million, discounted at 10%.

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 Tables Content

s
I. EXECUTIVE SUMMARY.................................................................................................................1
1. INTRODUCTION...............................................................................................................................3
1.1. Background of Livestock Fattening.............................................................................................3
1.2. Project Profile..............................................................................................................................4
1.3 Project Description and Mission, Vision, Objective..........................................................................4
1.3. Location of Enterprise.................................................................................................................5
2. FARM HOUSING AND SPECIFICATION.......................................................................................6
2.1. Pen...............................................................................................................................................6
2.2. Isolation Pen................................................................................................................................7
2.3. Weighing pen...............................................................................................................................7
2.4. Tie stalls Barn..............................................................................................................................7
2.5. Roof of Shade..............................................................................................................................7
3. MARKET STUDY AND PLANT CAPACITY................................................................................10
3.1. Market study..............................................................................................................................10
3.2. Plant Capacity and Production Program....................................................................................12
4. MATERIALS AND INPTUS............................................................................................................13
4.1. Materials....................................................................................................................................13
4.2. Utilities......................................................................................................................................14
5. TECHNOLOGY AND ENGINEERING...........................................................................................14
5.1. Technology................................................................................................................................14
5.2. Engineering................................................................................................................................16
6. MANPOWER AND TRAINING REQURIEMENT.........................................................................17
7. TRAINING REQUIREMENT...........................................................................................................19
8. FINANCIAL ANALYSIS.................................................................................................................19
8.1. Assumptions of Financial Analysis............................................................................................19
8.2. Total Initial Investment Cost.....................................................................................................21
8.3. Production Cost.........................................................................................................................21
8.4. Production Income.....................................................................................................................21
8.5. Financial Evaluation..................................................................................................................22

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 8.6. Economic Benefits.....................................................................................................................23
8.7 Organization Structure of Finance Department................................................................................23

1. INTRODUCTION

1.1. Background of Livestock Fattening

Livestock production is an integral part of Ethiopia’s agriculture sector and plays a vital role in
national economy. At present, livestock is contributing about 27-30 % to the agricultural sector
and 16 per cent to the total GDP (MoARD, 2007). Its net foreign exchange earnings are about 13
percent of the overall export earnings of the country (MoARD, 2007). The role of livestock in
rural economy is assessed by the fact that 65% of the total rural population is engaged in
livestock farming.

Livestock production is growing rapidly as a result of the increasing demand for animal
products. In a Food & Agriculture Organization study: Livestock to 2020: The Next Food
Revolution, it is suggested that global meat production and consumption will rise from 233
million tons (2000) to 300 million tons (2020), and milk from 568 to 700 million tons over the
same period. These predictions show a massive increase in animal protein demand, needed to
satisfy the growth in the human population.
In Ethiopia, fattening livestock culture is not better. All livestock are, not so often fed on
concentrated feed and fodder produced from the agricultural land. This poor feeding situation is
main cause for majority of large ruminants to be yield minimum meat production output.

There is high population of livestock in the country. But the total meat output is far below their
potential Amha Sebsibe, (2006) when compared with neighboring countries that have large
ruminant populations less than Ethiopia. Therefore, if the livestock fattening projects are carried
out in the country then the domestic demand of meat could be more fulfilled. As the fattened
animals have higher meat contents (55%) as compared to grazing animals (48%).

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1.2. Project Profile
Project type: cattle fattening
National: Ethiopian
Project owner: Roba Hordofa
Legal form of Business: Enterprise
Project location: oromia Region, west- Guji zone in Sorile Wachu
Altitude of the project area ranges from: 1700 to 1900 ISO
Topography: Flat
Temperature ranges from 15-300c
Employment opportunity: individual on permanent and on casual basis from both
qualified and UN qualified (skilled and UN skilled)

Fattening means controlling what cattle eat by using high quality feed so that to generate faster
weight gains. It is a strategic feeding option which produces a quick result (2-3 months),
technically quite simple. Agro-industrial by products can be used as feed sources. Once cattle
have eaten to their appetite and remain full, the chance of negative upsets is reduced
considerably

1.3 Project Description and Mission, Vision, Objective

The Robalarge ruminant farm consists of the livestock farms which is situated on the main
campus. The Livestock fatting farm will established together with Animal Science Department in
order to support large ruminant teaching and research activities. The existing infrastructure and
management of the farm fatting has been remained poor and has served as a teaching and
research center since its establishment. The fatting farm will be better equipped and managed.
Further, different research activities have been undertaken by Fikaduand the new business plan
aims to stimulate and transform livestock fatting production into a sustainable self-supporting
enterprise that generates revenue and support quality research and teaching.

Mission

 To mollify the current demand of livestock products in the University and surrounding
community.
 To provide qualified cattle fattened and survival the community and competent from East
South of both private and public Enterprise in Ethiopia.

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Vision

Roba Cattle fattening Qualified animal production and Competent recognizable in South East of
Ethiopia beyond by 2030.
Objectives
Roba is currently upgrading its livestock farms to the level of business enterprises to better
provide five basic services:
 To serve as a model farm for teaching
 To facilitate staff and student research activities
 To generate revenue from the farms making them self-sufficient and profitable
enterprises
 To satisfy the current demand of livestock products in the University and surrounding
community
 To export packed meat and other livestock products even to nearest countries.
To achieve these objectives, the University is investing and expands in its fatting farm. Investing
in a farm is often an expensive undertaking and can be financially stressful. Taking this aspect in
to consideration, creating a business plan is an essential step for any enterprise regardless of the
size of the business. Business plans can serve as a road map to chart the course of the business.

1.3. Location of Enterprise

Location is very pertinent for the success of any business established as well as business going to
be planned. To this effect, the location of the business located at Bule Hora Town, it is far away
467 km South of Addis Ababa. The selection of site is guided by four main criteria which
considered as pre requisite:
To expand and duplicate beef farm unit and achieve the meat requirements of the university
community
There is university center in the location. Thus the planned firm can have opportunities to
get scientific knowledge and advices in the process of fattening.
Absence of strong competitors in the sector around the area.
Enough feedlot are not available in the areas. Thus the University community travels far to
purchase large num.

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2. FARM HOUSING AND SPECIFICATION
Beef herds are relatively tolerant to sun, wind and other environmental conditions when
compared with other livestock farming. Hence no need to construct a high cost building for this
farming activity. However, to protect the animals from predators, theft, and to restrict the
movement of animals it requires fencing for the surrounding and shed in the feeding area to
prevent from rain made from locally available materials. But water trough and feed troughs
should be constructed from concrete floor for ease of cleaning and maintenance. Moreover,
plantation of trees is required against the direction of heavy winds to reduce wind attack and
even from rain and sun.

2.1. Pen
It can be built out of any available material wood, trees, cable, pipe or fencing of different types.
The working alley can lead to the processing and unloading and loading area or to a hospital pen
area. Other arrangements can be done around a hillside or an area with slope. Plan how the water
will flow out of the pen. Water should flow away from the feed troughs and out to a retaining
pond. Shade can be place over the feed trough but if over the feed trough should have shade in
the pens for the cattle. The recommended space per head is 2.5 m 2, exclusive of feeding and
watering area. Floors may be concrete. The design of any pen should be arranged to move cattle
out of the pens to the cattle working alley and shows how the water drains from the pen into the
cattle alley and to a retention pond.
Quarantine pen
It is required for holding new animals before joining with the main farm animals. It sufficiently
reduces the risk of contagious disease and other parasitical disease in the main farm. This pen
should be separated from the main farm facilities. All newly purchased stock should be kept in
this pen to follow the standard procedure of quarantine, i.e. identification, vaccination, de-
worming, dipping, concentrate feeding.
The size of this facility will depend upon the number of incoming animals, whereas, standard
concentrate, hay troughs and watering facilities will be provided as per need of the stock.
Provide quarantine pen that should have minimum dimensions of 3 x 3 m (10 x 10 ft) per head,
be separate from the main livestock area and have a stanchion or tie-stall in one corner. The shed
shall be 3 m high with a door 2 meter wide and 2 meters high on one of the broad sides of the

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shed. The lower half of the door may be made of wooden plants/metal and the upper half of wire
netting. There may also be a window 0.7 m broad and l.2 m high with a wire net covering.

2.2. Isolation Pen

There shall be a sick shed for segregating ailing and disabled animals. It is good practice to have
a few isolation pens where sick animals can be kept apart from the rest of the herd to avoid cross
infection. Ideally, the pen should be quite separate from the main housing and grazing area, to
avoid any chance of air-borne infection. Isolation pen should be made of such a material that
these are easy to clean and disinfect after recovery or death of sick animals. Provide an isolation
pen that should have minimum dimensions of 3 x 3 m (10 x 10 ft) per head, be separate from the
main livestock area and have a stanchion or tie-stall in one corner. The shed shall be 3 m high
with a door 2 meter wide and 2 meters high on one of the broad sides of the shed. The lower half
of the door may be made of wooden planks/metal and the upper half of wire netting. There may
also be a window 0.7 m broad and l.2 m high with a wire net covering.

2.3. Weighing pen

Farms that need a weighing crate with suitable handling pens, to save workers time. This will be
useful to weigh animals to manage their feed, medication and to apply other scientific
managements. The weighing pen should be of same dimensions as cubicles i.e. 120 cm (4 ft) by
210 cm (7 ft) with entry and exit lines

2.4. Tie stalls Barn

A cubicle has a length of 210 cm (7ft) and a width of 120 cm (4 ft). Cubicles are separated from
each other by timbers/metals. A well designed tie stalls barn is essential for the proper
management of the fattened animal(s). The structure must be strong and high enough to stop
them escaping. A well designed tie stall barn will allow the animal to be fed on one side and
watered from another side. The tie stall barn pen should enclose, and all under the one shade.

2.5. Roof of Shade

Shade is required to keep the animals safe from rain, wind and other natural elements shade should be
placed on an east west axis for most coverage. It should be 5 meters high or higher for proper
ventilation shade material can be any type material from metal to cloth. On the other hand it can
be made from low cost material i.e. mud bricks etc. To support the roof either girder or bamboo
can be used. For more permanent structure, bricks and Grader can also be used. However, shade
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is not compulsory if the climate of the fattening area is hot. The animal shade must be clean and
dry to keep free from contamination. In most cases, the roof of the shelter can be found in both flat
and ‘A’ shaped. The ‘A’ shaped shelter is very suitable and has many advantages than flat
shaped roof. Flat shaped shelter is perfect in cold areas. But the ‘A’ shaped houses are suitable
for all areas. Especially for hot areas ‘A’ shaped roof helps to prevent direct solar radiation by
casting its shadow. It also helps in cutting down heat gain from the roof of the house.
Competitive Analysis

Competitive Forces: Collection and evaluation of data on competitors is essential for

successful strategy formulation. Competition on virtually all industries can be described as
intense.

Rivalry among Competing Firms

 Most powerful of the five forces
 Focus on competitive advantage of strategies
Potential Entry of New Competitors

 Barriers to entry are important

 Quality, pricing, and marketing can overcome barriers
Potential Development of Substitute Products

Pressures increase when consumer’s switching costs decrease

Firm’s plans for increased capacity & market penetration
Bargaining Power of Suppliers

 Large number of suppliers & few substitutes affects intensity of competition

 Backward integration can gain control or ownership of suppliers
Bargaining Power of Consumers
Customers concentrated or buy in volume affects intensity of competition
Consumer power is higher where products are standard or undifferentiated

SWOT Analysis
Strengths.

 Good fund raising ability

 High production capacity
 Brand at international level.
Weaknesses

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  Low competitive market
Opportunities

 Growing economy, global markets, growth rates and profitability

 The ability to cross sell cattle fattened is barely being tapped.
 The workers increasing need for an “employed” can open new ways to service
the worker and generate income.
Threats

 Existing competitors makes the competition stiffer

 Raw Material Cost increases

3. MARKET STUDY AND PLANT CAPACITY

3.1. Market study

A. Demand Analysis

The current meat demand in and around Robais 3,445 kg/day. The main beneficiaries are ranked
as; the University students’ cafeteria (367 kg/day), staff lounge and private cafe (367 kg/day),
restaurants found surrounding the University and household consumers in and around the
University (2739kg/day).Community still getting limited amount of meat supply. Therefore the
supply and the demand gap of meat is 2277 kg/day, which is inadequate to satisfy the prevailing
demand for the product.

B. Projected Demand
Since the establishment, the population of community living inside the University, student enrolment and
the population of community living around the university compound is increasing time to time. The
increase in household meat consumption is mainly a function of three demand determining
variables such as population, income and consumption habit. The total population growth rate in
Ethiopia and the University are 4% and 3.5 % per annum respectively. The consumption of meat
by the University and its surrounding is expected to increase as a result of increasing human
population and income. The current and projected demand for the product is calculated on basis
of Ethiopian national per-capita meat consumption 25 Kg/year. Hence, in order to estimate the

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probable level of future demand, present demand is assumed to increase by 2% per annum.
Accordingly, the current and expected population size and its demand for meat are described on table 1.
Table 1 projected demand of meat in and around Bule Hora University

University Students Staff and University BHU Surrounding

Year community Community
Population Demand Population Demand Population Demand
kg/year kg/day (Zone) kg/day
2020 16,917 21,280.0 5,264 367 1,424267 2,739
2021 19,454 22,440 6,053 380 1,524,257 2,849
2022 22,372 23,660 6,961 390.19 1,674,345 2,946.66
2023 25,727 24,540 8,005 401.04 1,834,326 3,005.62
2024 29,586 25,780 9,205 409 1,925,436 3,065.76
2025 34,023 26,480 10,585 417.2 2,000,000 3,127.08
2026 39,126 27,360 12,172 425.5 2,123,234 3,189.65
2027 44994 29,440 13,997 434.02 2,324,456 3,215.9
2028 51,743 30,220 16,096 442.7 2,387,213 3,280.2
2029 59,504 30,220 18,510 451.52 2,435,234 3,345.83
2030 68,429 31,350 21,286 460.55 2,532,123 3,412.77
NB: - let the population of university student, staff and community is increased by 15% each
year. Bhu prepared

C. Supply Analysis

Roba enterprise will become the only source of meat for the University and community. To
decrease the pressure on the community living inside the University by the surrounding
community, additional butcher house has to be established for bule hora community.

D. Price Determination

The price of meat produced at Roba beef farm will be relatively cheaper than the price of meat at
national level in general. It is determined based on the cost of live animal, transportation, feed,
health care, labor, administrative cost and other production costs. The other factor determining
the price is the purchasing capacity of the campus community and administration.

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 E. Pricing and Distribution

The domestic market price is determined by the market force of demand and supply. Whenever
more cattle are driven to the market places the price would decline and vice versa. Generally the
domestic market price for meat has shown a continuous increase over the past couple of years.
The envisaged farm is recommended to directly sell the product local market such as, Hotel,
Super markets, staff, students and local community use commissioned agents at strategic locations.

Beef Fatting Farm

Students’ Butcher house in the

Cafeteria Staff Lounge campus & BH town

1. Hotels and Restaurants

2. House-hold consumers
Figure 1.Product distribution

3.2. Plant Capacity and Production Program

A. Plant Capacity

In BHU beef farm there will be three types of fattening schemes which are 30, 60 and 90 days
fattening programs. When the proposed expansion project completed, additional farm
containing 2 fattening houses then total estimated full capacity of the farm will be 500 cattle at a
time and 3500 cattle per annum. Therefore, this project envisages the establishment of an
enterprise for the fattening cattle with raising capacity of 3500 animals per annum for beef
production.
B. Production Programme

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The farm works all the year round. The farm will start at 100% within the existing started
university farm. After the envisaged project completed the production will increase in double of
its rated and full capacity in the second year and thereafter.

4. MATERIALS AND INPTUS

4.1. Materials

Annual raw material requirement and cost of the fattening farm at full operation capacity is given
in Table 2.
Table2: Annual raw material requirement and costs of fattening farm at full capacity in year 1
and 2
S.N Description Quantity/year Unit price Cost
1 Animal (Head) 1500 24000 36, 000,000
2 Feed (roughage) 21.6 tonnes 80 145,000
3 Feed (concentrate) 17.1 tonnes 68 139,300
4 Vaccine, treatment injection 190,000
and anti-parasitic
Total 36,474, 300

Table3: Annual raw material requirement and costs of fattening farm at full capacity starting in
year 3

S.N Description Quantity/year Unit price Cost

1 Animal (Head) 3500 28000 98, 000,000
2 Feed (roughage, café leftover) 43.2 tones 95 288,000
3 Feed (concentrate) 34.2 tones 80 280,000
4 Vaccine, treatment injection 300,000
and anti-parasitic
Total 98,868,000

4.2. Utilities
The annual requirement of utilities needed for the enterprise is annual requirement of electricity,
water and fuel is described on Table 4.The total costs of utilities are, therefore, about Birr 59,788
per annum.

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Table 4: Utilities requirement and cost
No. Utility Unit cost Quantity Cost /month (birr) Cost/year
(birr)
1 Electricity 1.53 birr/Kwh 800 1,224 14,688

2 Water 0.33 birr/m3 2500 825 9,900

3 Fuel 22 birr/L 1600 ------ 35,200
Total 59,788

5. TECHNOLOGY AND ENGINEERING

5.1. Technology
A. Production Process
The fattening farm will have the following processes. Cattles purchased from purchasing centers
holding areas and local market areas. The holding areas are used as quarantine and treatment.
Treatment include: vaccination, dipping, etc. It is important that animals in the fattening program
receive adequate disease treatment. Therefore, animals poorly performing after 3 weeks needs to
be culled and sold in the local market.

B. Ration formulation for fattening

A feed or mixture of feed is given to animals to meet the nutrient requirement of the animals
depending on the physiological state of the animals. The amount of feed provided will be
variable depending on many factors. Among others, weight, sex, age, fattening stage and
fattening duration. Ration should be composed of different feed ingredients.
Feed ingredients are mixed based on the nutrient contents. For example, in different fattening
phase the composition of roughage and mix is different for profitable fattening. The ratio of
roughage to concentrate mix is different across the fattening stages. In early fattening, the first
month, roughage is 90 % and 10 % concentrate mix and increasing the level of concentrate mix
and decreasing roughage at every 10 % as fattening progressing form early up to late. The
estimated feed cost at the various fattening stages is presented under Annex 1.

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The following balanced ratio is produced as a guide line using the following ingredients as
shown in Table 1.

Till it is possible to produce ration by substituting feed ingredients other than mention here
bellow that have similar nutrient content and low cost. However, it should be noted that it only
possible by replacing the existing ingredient with other feed ingredient that posse’s more or less
similar nutrient content. The inclusion rate for different feed ingredients is described on Annex
Table 2.

The distribution of roughage feed to concentrate mix is indicated in appendix Table 5.The ratio
of roughage to concentrate mix is different across the fattening stages. In early fattening, the first
month, roughage is 90 % and 10 % concentrate mix and increasing the level of concentrate mix
and decreasing roughage at every 10 % as fattening progressing form early up to late phase.
Table 5: Amount of feed across fattening stages
Feed Ingredients Duration or fattening phases
1st 2nd 3rd
Concentrate feed (Kg/head/day) 2.5-3 3-4.5 3-4.5
Roughage (Kg/head/day) 7-9 7-9 7-9
Total 9.5-12 10-13.5 10-13.5

5.2. Engineering
A. Machinery and Equipment
The required machinery, equipment and tools are listed in Table 6. Total cost is estimated at Birr
Xxx million.
Table 6: List of machinery and equipment for fattening farm

S.No Description Qty Unit cost (Birr) Total cost (Birr)

(No.)
1 Dipping tank (maintenance) 1 40,000 20,000
2 Crush 1 ----- ------
3 Syringes 25 1500 37,500
4 Hoof trimmer 10 1800 18,000
5 Sprayer 4 1300 5200

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6 ISUZU FSR 1 3,500,000 3,500,000
7 Water tank 2 280,000 560,000
8 Urea mixer 1 220,000 220,000
9 Weighing Scale (1000 kg) 1 40,000 40,000
10 Wheelbarrow 3 3600.0 10800
11 Shovel 40 900.00 36,000
12 Sun gloves 120 120.0 14,400
13 Boots 60 440.0 24, 600
14 Black Overalls 8 680.0 5440
15 Fork 40 730.0 29,200
16 Belt 20 230.00 4600
17 Knife 40 440.0 17,600
Total cost 1,,023,340.00

B. Land, Buildings and Civil Works

The total area required for fattening farm is about 5,000 m2 and Building area of 1040 m2 are
required. The total cost for buildings and civil works is estimated at Birr 1,519,479.35. For the
detailed designs of the proposed fattening farm are refer Annex Table5 and 6.

C. Proposed Location
The envisaged farm expansion project is located at Bule Hora town. The area is long been known
by good cattle fattening practices and high quality beef. Beef is one the most important food item
in the area consumed in the form of raw and cooked. The demand and price of beef in this area is
alarmingly increasing and becoming very difficult to afford.
Previously the University has put a lot of effort to supply the market with meat from animal
fattened inside its compound but not succeeded.

6. MANPOWER AND TRAINING REQURIEMENT

A. Manpower requirement

skilled persons are required for performing routine farm operation and husbandry practices and
one additional Animal Science professional who can supervise, manage and provide professional
help in developing least cost feed other technologies to make the farm profitable and run in

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scientific way rather than in conventional manner. Manpower required and the corresponding
labour cost for the envisaged project is indicated in Table7.

Table 7: Manpower requirement

Description Quantity of Staff Salary/month/ Annual Salary

Person (Birr)/person
Farm Manager
1 10,000 120,000

Veterinarian (Diploma) 1 10,000 120,000

Cattle attendant 4 6000 24,000

Barn cleaning and sanitation 10 5000 50,000

Security 2 3000 36,000

Total 18 350,000

B. Professional cost

Table8: Professional cost

S.N Description Quantity Fee/person Total fee

1 Business plan writing 3 30,000 90,000

2 Training for farm personnel 3 8,000 24,000

3 Supervision fee for 3 10,000 30,000

construction and maintenance

Total 9 144,000

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 Representative organizational requirement for compound feed (after 5 years)

General Manager

Planning department Marketing

Administration and Production and technique
department
finance department department

Technique and Production and

Administration
maintenance division supervision
division
division

Purchasing unit

Finance Sales unit

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HR section General Service
section

7. TRAINING REQUIREMENT
It is suggested, to train production and technical manager, production and technical head, and
quality control head, mechanics, electricians and operator’s on-the-job training at the actual site
on the actual working condition by competent expert of the machinery & technology supplier for
about one month during erection & commissioning period. The training cost is estimated to be
Birr 50,000.

8. FINANCIAL ANALYSIS

8.1. Assumptions of Financial Analysis

The financial analysis of the beef fattening farm is based on the data presented in the previous
parts and the following assumptions:

i. Production Assumptions
Number of beef cattle purchase per round 500
Fatting period it takes 3 months
Batches of fatting per year 3 times
Carcass/meat (Kg/head) 250
Bone (Kg/head) 20
Offal (Kg/head) 15
Hide/head (Kg/head) 5
Manure production (Kg/head/day) 6
Project life 10 years
Overall inflation of cost and selling price 0
Production capacity utilization; (1stand 2ndyear)
1st and 2nd year head of livestock is 1500 per year
3rd – 10th years head of livestock is 3500 per year

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For existing business 100%
Production capacity utilization existing plus expansion (3 – 10thyear)
rd
100%

ii. Expense Assumptions

Feed cost (Birr/head) 24000
Average roughage feed cost (Birr/head/day) 40
Average concentrate feed cost (Birr/head/day) 30
Vaccination and Surveillance Cost 1% of cost of cattle
Detergent cost 1% of eq’t& material costs
Repair and maintenance 2% of eq’t and materials cost
Depreciation (Straight line method) 10% of initial investment cost
Administrative overheads 0.5% of sales

iii. Revenue Assumptions

Carcass/meat (Birr/Kg) 230
Bone (Birr/Kg) 100
Offal (Birr/Kg) 80
Hide/head (Birr/Kg) 50
Manure selling price (Birr/Qt) 65.00
iv. Financial Assumptions
Source of finance 100 % equity
Discount rate 12%
Tax 0%
Depreciation 10%

8.2. Total Initial Investment Cost

The total initial investment cost of the project including working capital is estimated at about
Birr 39,367,119.35.For details see Table 9.

Table 9: Initial investment cost in Birr

S.No Cost Items Total Cost(birr)
1. Land 00.00
2. Building and Civil Work 1,519,479.35

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 3. Machinery and Equipment 1,,023,340.00

Total initial investment cost 2,542,819.35

4. Working capital 36,824,300

Total Capital Cost 40,886,598.70
Investment cost + working capital

8.3. Production Cost

The annual production cost at full operation capacity of the plant is estimated at Birr 36,824,300
million. The material and utility cost 1,023,340 and 59,788 Birr respectively while repair and
maintenance take 1percent of the equipment cost.

8.4. Production Income

Table 8: The expected income from fattened animals per year for beginning
Revenue Item Weight/ Income/ Expected Expected Expected total
head(Kg) Kg total head of revenue /year
(birr) revenue/head livestock
per year
Carcass or 250 230 27, 600 1, 500 41,400,000
Meat
Bone 25 100 3000 1,500 4,500,000
Offal (internal 20 100 2000 1,500 3,000,000
organ)
Hide/head 8 80 640 1,500 960,000
Manure 6 65 390 1,500 585,000
Total 33,630 50,445,000

Expected income for first three years increase by two percent and increase by five percent for
seven years consecutives.

8.5. Financial Evaluation

A. Profitability

According to the projected income statement, the project will start generating profit in the first
year of operation. Important ratios such as profit to total sales, net profit to equity (Return on

20 | P a g e
 equity) and net profit plus interest on total investment (return on total investment) show an
increasing trend during the life-time of the project.

B. Payback Period

The payback period, also called pay – off period is defined as the period required recovering the
original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within one year.

C. 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.
Accordingly, the IRR of this project is computed to be 54.65 % indicating the variability of the
project.

D. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects.

NPV is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 12% discount rate is found to be Birr
133,510,116.9 million which is acceptable.

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8.6. Economic Benefits

The project can create employment for 18 persons. In addition to supply of the domestic needs,
the project will generate income for the government in terms of tax revenue. The establishment
of such farm will also have a research and teaching activities for specifically for B/Hora and to
the country in general. The farm will have a forward linkage effect on food industries and a back
ward linkage effect on the animal feed plants and the agriculture sector.

8.7 Organization Structure of Finance Department

A well-organized finance department is absolutely essential for the efficient financial
management of an enterprise. If finance department does not operate well, the whole
organizational activity will be ruined. Hence, it is essential that the finance department should be
well organized with nucleus staff from the time of project stage, so that expert guidance and
advice regarding the various proposals are available to the management in planning and
managing the project.

The finance function, although, is controlled by the top management, there will be a separate
team to look after these activities and this function will be sub-divided according to the needs. A
common structure of the finance department cannot be evolved as the size of the firm and nature
of the business vary, from firm to firm.

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 Table 10: Income statement

Years
Items 1 2 3 4 5 6 7 8 9 10

Sales
41,400,000 42,228,000 43,072,560 45,226,188 47,487,497 49,861,872 52,354,966 54,972,714 57,721,350 60,607,417
Sale of meat
4,500,000 4,590,000 4,681,800 4,915,890 5,161,685 5,419,769 5,690,757 5,975,295 6,274,060 6,587,763
Sale of bone
3,000,000 3,060,000 3,121,200 3,277,260 3,441,123 3,613,179 3,793,838 3,983,530 4,182,706 4,391841
Sale of offal
960,000 961,920 981158 1030216 1081727 1135813 1192604 1252234 1314846 1380588
Sale of hide and head
Sale of manure 585,000 596,700 626260 657573 690451 724974 761222 799283 839247 881210
52,482,978 55,107,127 57,862,483 60,755,607 63,793,387 66,983,056 70,332,209 73,848,819
Total Revenue 50,445,000.00 51,435,900.00
Cost of Sales
37, 500,000 38,250,000 39,015,000 40,965,750 41,785,065 43,874,318 46,068,034 48,371,436 50,790,008 53,329,508
Animal cost
145,000 147,900 150,858 158,401 166,321 174,637 183,369 192,537 202,164 212,272
Roughage feed cost
139,300 142,086 144,928 152,174 159,783 167,772 176,161 184,969 194,217 203,928
Concentrate feed cost
Payroll (Production,
Administrative Staff) 350,000 357,000 364,140 382,347 401,464 421,537 442,614 464,745 487,982 512,381
Vaccination & Medication 190,000 252960 258019 270920 1513439 1589112 1668567 1751995 1839595 1,931,575
Total Cost of Sales 38,382,300 39,149,946 39,932,945 41,929,592 44,026,072 46,227,376 48,538,745 50,965,682 53,513,966 56,189,664
Gross Profit 12,062,700.00 12,295,954.00 12,550,033.00 13,177,535.00 13,836,411.00 14,528,231.00 15,254,642.00 16,017,374.00 16,818,243.00 17,659,155.00
Operating Expenses
Utility expense 59,778 59,778 59,778 59,778 59,778 59,778 59,778 59,778 59,778 59,778
Detergent cost 3,565.84 3,565.84 3,565.84 3,565.84 3,565.84 3,565.84 3,565.84 3,565.84 3,565.84 3,565.84
Professional fees (legal, audit
etc.) 90,000 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00

Repair and maintenance 7,131.68 7,131.68 7,131.68 7,131.68 7,131.68 7,131.68 7,131.68 7,131.68 7,131.68 7,131.68
Depreciation expense 10% 143,409.94 143,409.94 143,409.94 143,409.94 143,409.94 143,409.94 143,409.94 143,409.94 143,409.94 143,409.94
Total Operating Exp. 303,885.46 243,885.46 243,885.46 243,885.46 243,885.46 243,885.46 243,885.46 243,885.46 243,885.46 243,885.46
Profit before Tax 11,758,814.54 12,052,068.54 12,306,147.54 12,933,649.54 13,592,525.54 14,284,345.54 15,010,756.54 15,773,488.54 16,574,357.54 17,415,269.54
Tax 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net Profit 11,758,814.54 12,052,068.54 12,306,147.54 12,933,649.54 13,592,525.54 14,284,345.54 15,010,756.54 15,773,488.54 16,574,357.54 17,415,269.54

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1. Discounted Payback Period

(Net present value factor =1/1+r) n

Year Cash Flow (CF) Discount factor (12%) Present Value (PV) Cumulative CF
1 11,758,814.54 0.892 10,488,862.57
10,488,862.57
2 12,052,068.54 0.797 9,605,498.63
20,094,361.2
3 12,306,147.54 0.7122 8,764,438.28
28,858,799.48
4 12,933,649.54 0.6355 8,219,334.28
37,078,133.76
5 13,592,525.54 0.5674 7,712,398.99
44,790,532.75
6 14,284,345.54 0.5066 7,236,449.45
52,026,982.2
7 15,010,756.54 0.4523 6,789,365.18
58,816,347.38
8 15,773,488.54 0.4038 6,369,334.67
65,185,682.05
9 16,574,357.54 0.3606 5,976,713.33
71,162,395.23
10 17,415,269.54 0.3219 5,605,975.26 76,768,370.5
Initial Investment = 13.023 million

In order to determine the payback period

Payback period = year before full recovery + UN recovered cost

Annual flow during the next year
= 2 year +7,712,398.99

12,933,649.54

= 2 year + (0.59) (12 months)

= 2year + (0.59 months)

Hence, it will take 2 year/5months/9days

2. NPV

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 Year Cash Flow (CF) Discount factor (10%) Cf Present Value (PV)
1 11,758,814.54 0.892 10,488,862.57
2 12,052,068.54 0.797 9,605,498.63
3 12,306,147.54 0.7122 8,764,438.28
4 12,933,649.54 0.6355 8,219,334.28
5 13,592,525.54 0.5674 7,712,398.99
6 14,284,345.54 0.5066 7,236,449.45
7 15,010,756.54 0.4523 6,789,365.18
8 15,773,488.54 0.4038 6,369,334.67
9 16,574,357.54 0.3606 5,976,713.33
10 17,415,269.54 0.3219 5,605,975.26
Total 76,768,370.5
o Present value of cash inflows = 76,768,370.5
o Present value of cash outflows = 13.023 million
Hence, NPV = 6,374,537.5

3. IRR

IRR = NPV = 0

Average Cash flow =

Estimated Discount Factor = Initial Investment

Average Cash flow

= 13,023,000

20,094,361.2

= 1.6480

= 10%

IRR = 12 %

Cost Capital = 8%

Therefore, internal rate of return is greater than cost capital. The business is profitable.

Generally, Assumptions of discounted criteria has been full filled that modern discount to show project
benefits.

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