Investment Office ANRS

Project Profile on the Establishment of

Electrical Switches, socket
And plug PRODUCING plant

Development Studies Associates

(DSA)

July 2016 Revised

Bahir Dar
 Table of Contents

1. Executive Summary............................................................................................1
2. Product Description and Application..............................................................1
3. Market Study, Plant Capacity and Production Program..............................2
3.1 Market Study...................................................................................................................2
3.1.1 Present Demand and Supply....................................................................................2
3.1.2 Projected Demand....................................................................................................4
3.1.3 Pricing and Distribution...........................................................................................4
3.2 Plant Capacity..................................................................................................................5
3.3 Production Program.........................................................................................................5
4. Raw Materials and Utilities..............................................................................6
4.1 Availability and Source of Raw Materials.......................................................................6
4.2 Annual Requirement and Cost of Raw Materials and Utilities.......................................6
5. Location and Site...............................................................................................7
6. Technology and Engineering............................................................................7
6.1 Production Process...........................................................................................................7
6.2 Machinery and Equipment...............................................................................................8
6.3 Civil Engineering Cost....................................................................................................9
7. Human Resource and Training Requirement................................................9
7.1 Human Resource..............................................................................................................9
7.2 Training Requirement....................................................................................................10
8. Financial Analysis...........................................................................................10
8.1 Underlying Assumption.................................................................................................10
8.2 Investment......................................................................................................................11
8.3 Production Costs............................................................................................................12
8.4 Financial Evaluation......................................................................................................12
9. Economic and Social Benefits and Justification...........................................13
ANNEXES...............................................................................................................15
 1. Executive Summary

This project profile deals with electrical switches, sockets and plug producing plant in Amhara
National Regional State. The following presents the main findings of the study.

Demand projection divulges that the domestic demand for switches, sockets and plug is
substantial and is increasing with time. Accordingly, the planned plant is set to produce 550
pieces of the electrical items annually. The total investment cost of the project including
working capital is estimated at Birr 1.49 million and creates 28 jobs and Birr 254,180 of income.

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 30.9% of capacity utilization and it will
payback fully the initial investment less working capital in 2 and half years. The result further
shows that the calculated IRR of the project is 28.8% and net present value discounted at 18% of
birr …

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

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

2. Product Description and Application

Electrical fittings and accessories consist of a wide range of products of which electric switches
and wall sockets are the most important. Basically switches, sockets and plugs are relatively
small in size and are widely used in houses, offices, hotels, hospitals teaching institutions,
factories and others.

To meet the wide range of requirements, these electrical fittings are manufactured in various
shapes. The items serve mainly in building construction sector for supply and control of electric
power.

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 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The market for electric switches, sockets and plugs primarily consists of households, offices and
other commercial buildings. The market demand is further divided into two categories. There is a
demand of electric switches, sockets and plugs arising out of the construction of new residential
and commercial buildings that require complete range of electric accessories. Second, is the
replacement/maintenance market that requires continuous up-keep of their electric fittings. This
second segment of the market is much larger than the first market and offers an attractive
opportunity.

Currently there are no units that produce electrical switches, sockets and plugs in the country so
that the whole domestic demand is dependent on import from abroad. However, since the import
data documented by the Customs Authority aggregates these electrical fittings with other
electrical apparatus, exact effective demand could not be established. Therefore, a different
approach is employed to proxy the current demand for the items under consideration: electrical
switches, sockets and plugs.

As mentioned earlier, residential houses, both new and existing constitute the major portion of
the target market for this product where the market can be further divided into two major
categories i.e. new houses built every year, and the existing houses in the country.

According to CSA, Annual Abstract (2008) the number of people living in the urban areas has
reached 13.2 million. Taking average family size of 5 people, we observe that there are 2.6
million families or houses in the urban part of the country. In this connection, it can be fairly
assumed that on an average, an urban housing unit consists of 2 rooms and each room carries out
2 switches and one socket; and each house make use of one plug for the easy access of electricity
for different purposes. This implies that each residential house requires at least 7 products (i.e. 4

2
switches, 2 sockets and 1 plug). Assuming that 5% of the electric switches sockets and plugs
need replacement every year, the total number of the products required by these housing units
every year is shown in the following table.

Table 1: Demand for Electrical fittings by Existing Urban Houses

  Ethiopia
Total Urban houses 2,645,000
Electrical Fittings per house 7
Total Products installed 18,515,000
5% Annual Replacement 925,750 units

On the other hand, a study conducted by PACO/WASS in 1995 revealed that the yearly
requirement of new residential building units is estimated to be 22,000 for Addis Ababa and
121,000 for other urban towns. In other words, the study shows that an annual demand for
dwelling units in the urban Ethiopia amounts to 144,100 units. If we conservatively assume that
one-fourth of this requirement will be realized, the annual effective demand for residential
buildings amounts to 36,025 units. Therefore, the estimated potential market for switches,
sockets and plugs products for new houses using the consideration employed earlier is estimated
as follows:
Table 2: Demand for Electrical Fittings by New Urban Houses

  Ethiopia
New Urban Houses 36,025 per annum
Electrical Fittings required 7 per house
Total products required 252,175 units

Thus, total potential market for the electric products in the housing segment comes to be around
1,177,925 units per annum.

In addition to the demand generated by housing segment, other buildings including shops,
factories, hotels and other commercial constructions such as high rise buildings also generate
additional demand. Apart from the existing ones, major towns of the country are currently
undergoing massive construction of multi story buildings, although the exact number on a yearly

3
basis is not available. For simplicity, however, if we assume that this market generates an
additional 15% of demand for the electrical products, additional consumption of 176,689 units
will be created annually. Accordingly, the current estimated total annual demand of electric
switches, sockets and plugs in the country is approximately 1,354,614 units per annum of which
745,038 (55%) is switches, 406,384 (30%) is sockets and 203,192 (15%) is estimated to be
plugs.

3.1.2 Projected Demand

The future demand for electrical switches, sockets and plugs basically depends on the process of
urbanization and electrification in the country. Assuming a conservative growth rate of 2.5% for
new and replacement demand, we obtain the following projected demand figure.

Table 3: Projected Demand for Switches, Sockets and Plugs

Year Switches Sockets Plugs

2007/08 763,664 416,544 208,272
2008/09 782,755 426,957 213,479
2009/10 802,324 437,631 218,816
2010/11 822,382 448,572 224,286
2011/12 842,942 459,786 229,893
2012/13 864,015 471,281 235,641
2013/14 885,616 483,063 241,532
2014/15 907,756 495,140 247,570
2015/16 930,450 507,518 253,759
2016/17 953,711 520,206 260,103
2017/18 977,554 533,211 266,606
2018/19 1,001,993 546,542 273,271

In general, the forecasted demand divulges the presence of ample demand for the manufacturing
of electrical switches, sockets and plugs.

3.1.3 Pricing and Distribution

The price of switches, sockets and plugs depends on their feature, size, voltage capacity and
origin of import. According to the market survey conducted, the majority of the imported items
are manufactured in China and Italy where the latter’s product is relatively quality and

4
expensive. Consequently, the minimum retail price for the electrical fitting items produced by
Asian countries (notably China) is presented in table 4 below

Table 4: Average Retail Price

Item (in pcs) Average Price (in Br)

Normal Switch (10A, 250V) 4
Normal Socket (10A, 250V) 4
2 Round Pin Plug (10A, 250V) 2

Based on the market research result and the capacity of the envisaged plant, the whole selling
price is set to be 70% of the minimum retail price. That is, birr 2.8 for a piece of switch, birr 2.8
for normal socket and birr 1.4 for a piece of plug. These selling prices are attractive for the
retailer provided that the items are produced with due emphasis to quality. The available retail
and wholesale network shall be used by the envisaged plant.

3.2 Plant Capacity

Thus, given the expected demand for the electrical fittings under consideration as presented
earlier, and the planned technology, the envisaged plant is set to produce 550 thousand pieces of
electrical fittings annually. The brake down of the production represents 300,000 switches,
170,000 sockets and 80,000 plugs.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 75 percent capacity and then at 90 percent in the
2nd year. The capacity will grow to 100 percent starting from the 3 rd year. This consideration is
developed based on the assumption that there is huge demand for the products where with proper
marketing the envisaged plant can eliminate market barriers within the first two years of
operation.

4. Raw Materials and Utilities

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 4.1 Availability and Source of Raw Materials

There are different basic raw materials used for manufacturing of electrical fittings. The
proposed facility will manufacture products for market Bakelite based products. A typical
electric fitting product requires: Bakelite, metal/brass parts, screws and nuts. All the raw
materials are imported from abroad. The following is a brief description of these raw materials.

Bakelite: This is a type of plastic that can easily be heated and molded into different products
and offers wide range of color options.

Brass/Metal Parts: All electric goods use metal parts. Metal parts are normally made of brass
because of its elasticity and electric conductivity.

Pins and Pipes: Metallic pins and pipes are also used for external electricity connection
Screws & Nuts: Majority of the electric fittings are composed of more than one individual part.
Screws and nuts are used for assembling and joining different parts of a product.

Springs: Springs are other important materials used in the assembly of electric switches.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant
shown in table 5 here under

6
 Table 5: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Bakelite 16.5 ton 247,500
Brass (profile) 12.87 ton 154,440
Round Pins 160,000 pcs 16,000
Pipes 340,000 pcs 17,000
Screw, Nuts and Springs 3 ton 60,000
Total Material Cost   494,940
Utility    
Electricity 95,000kwh 52,250  
Water 2,200m3 5,830  
Total Utility Cost   58,080  

Accordingly, the full capacity material and utility requirement is estimated to be Birr 553,020 per
annum.

5. Location and Site

The appropriate locations for the envisaged project, in view of the availability of skilled labor
and infrastructure, are Bahir Dar, Gonder and Kombolcha.

6. Technology and Engineering

6.1 Production Process

The basic technology involved in the manufacturing and assembly of electrical fittings is
pressure molding. Manually operated hydraulic presses are used to mold heated Bakelite into
different components of electric fittings. That is, a measured quantity of Bakelite is poured into
the mold/dye fixed on a hydraulic press. The press has arrangements of two burners, one placed
below the mould and other on top. Once the Bakelite is poured into the mould, burners are
switched on and the press is locked manually. Each product takes specific amount of time to take
the desired shape and strength. Once the product takes its final shape, the press is lifted and the
finished product is taken out, either manually or through an inbuilt mechanism in the mould. At
this stage, different metal parts including pipes and pins are attached to the main body of the

7
products. Moreover, most electrical fitting products are composed of more than two components.
Therefore, different parts are also attached at this stage with the help of screws and nuts. Now
the product is ready for final finishing which includes chopping off any lose raw material and
packaging.

The alternative technological option requires the use of injection molding in the manufacturing
of the electrical fittings. In this method molten bakelite is injected into the mold which later is
opened after cooling process. Nonetheless, pressure molding is widely used now-a-days owing
to the simple operation of the system and relatively lower cost.

6.2 Machinery and Equipment

The machineries and equipment required for producing switches, sockets and plugs is detailed in
table 6 below.
Table 6: Machinery and Equipment

Machinery and Equipment Quantity

Molding Presses 8
Cutting Presses 2
Bending Presses 8
Drill Machine 1
Molding, Cutting & Bending Dies 75
Lathe Machine 1
Shaper 1
Drill Machine 1
Milling Machine 1
Grinder 1

The total cost of machinery and equipment including freight insurance and bank cost is estimated
to be about Birr 318,702.

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

8
 Pressco Electronics and Electricals Pvt. Ltd.
Mall Road, K.B. Sarani Road,
Calcutta 700 080, India
Telephone : +(91)-(33)-5213872    
Fax : +(91)-(33)-5225130

A K Corp Ltd
105 Park Street, Kolkata,
West Bengal, India
Tel: 033-22175821

Associated Machinery Corporation Ltd

Bulandshahr Road Industrial Area,
Ghaziabad, Uttar Pradesh, India
Tel: 0120-2700773
Fax: 0120-2700209

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 300m 2 of which 200m2 is allocated
for the production space and store; and the remaining space (100m2). is left for, office buildings
and facilities.

7. Human Resource and Training Requirement

7.1 Human Resource

The required manpower for the envisaged plant is stated in table 7 below

9
 Table 7: Human Resource Requirement

No. Monthly Total Annual

Position Required Salary Salary
Manager 1 3,500 42,000
Accountant 1 1000 12,000
Secretary 1 850 10,200
Sales Clerk 2 600 14,400
Store Keeper 2 600 14,400
Cutting Bending & Fitting Staff 3 600 21,600
Press Operators 8 600 57,600
Daily Laborers 4 300 14,400
Cleaners 2 300 7,200
Driver 1 600 7,200
Guards 3 300 10,800
Benefit (20%)     42,360
 Total 28   254,160

The envisaged plant creates 28 jobs and about Birr 254,160 of income. The professionals and
support staffs for the envisaged plant shall be recruited from Amhara region.

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the supplier of the machinery.
The training should primarily focus on the production technology and machinery maintenance
and trouble shooting. Birr 30,000 will be allocated as training expense.

8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of switches, sockets and plugs producing plant is based on the data
provided in the preceding sections and the following assumptions.

10
 A. Construction and Finance

Construction period 2 years

Source of finance 40% equity and 60% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment

The total investment cost of the project including working capital is estimated at Birr 1.49
million as shown in table 8 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60% is to be financed by bank loan.
[

11
 Table 8: Total initial investment
Items L.C F.C Total
Land 900   900
Building and civil works 1,539,600 0 1,539,600
Office equipment 102,640 0 102,640
Vehicles 384,900 0 384,900
Plant machinery &
equipment 0 817,789 817,789
Total fixed investment cost 2,028,040 817,789 2,845,829
Pre production capital
expenditure* 55,480   55,480
Total initial investment 2,083,520 817,789 2,901,309
Working capital at full
capacity 114,405 215,974 330,379
Total 2,197,925 1,033,763 3,231,688

*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee
during construction and expenses for company‘s establishment, project administration expenses,
commission expenses, preproduction marketing and interest expenses during construction.

The foreign component of the project accounts for 35.8% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 1.01 million as detailed in
table 9 below.
Table 9: Production Cost

Items Cost
1. Raw materials 494,940
2. Utilities 58,080
3. Wages and Salaries 254,160
4. Spares and Maintenance 11,096
Factory costs 818,276
5. Depreciation 106,966
6. Financial costs 89,728
  Total Production Cost 1,014,970

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 8.4 Financial Evaluation
I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. However, the profit obtained in
the first year is highly insignificant. Ratios such as the percentage of net profit to total sales,
return on equity and return on total investment are 10%, 18% and 24% respectively in the first
year and substantially rise with time. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 30.9% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in 2 and half
years.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 24.2%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
28.8% and the net present value at 18 % discount is Birr 552,010.52.

VI. Sensitivity Analysis

The envisaged plant is not as such sensitive to an increase in cost of production. That is, the plant
enjoys profit beginning from the first year of operation when 10 % cost increment takes place in
the sector. This result is accompanied with a payback period of 2 and half years.

13
 9. Economic and Social Benefits 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 Amhara National Regional State. It also
plays positive role in diversifying the economic activity by enhancing the industrial sector of the
region. The other major benefits are listed as follows:
A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 8

million within the project life. Such result induces the project promoters to reinvest the profit
which, therefore, increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 1.16 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.

C. Import Substitution and Foreign Exchange Saving

Based on the projected figure we learn that in the project life an estimated amount of US Dollar
1.38 million will be saved as a result of the proposed project. This will create room for the saved
hard currency to be allocated to other vital and strategic sectors.

D. Employment and Income Generation

The proposed project is expected to create employment opportunity for several citizens of the
region. That is, it will provide permanent employment to 28 professionals as well as support
staff. Consequently the project creates income of Birr 254,160 per year. This would be one of the
commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

14
ANNEXES

15
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0.00 0.00 75% 90% 100% 100%

1. Total Inventory 0.00 0.00 384217.54 461061.05 512290.05 512290.05

Raw Materials in Stock- Total 0.00 0.00 161980.36 194376.44 215973.82 215973.82

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 0.00 0.00 161980.36 194376.44 215973.82 215973.82

Factory Supplies in Stock 0.00 0.00 757.02 908.42 1009.36 1009.36

Spare Parts in Stock and Maintenance 0.00 0.00 2723.57 3268.28 3631.42 3631.42

Work in Progress 0.00 0.00 18925.41 22710.49 25233.88 25233.88

Finished Products 0.00 0.00 37850.82 45420.98 50467.76 50467.76

2. Accounts Receivable 0.00 0.00 116836.36 140203.64 155781.82 155781.82

3. Cash in Hand 0.00 0.00 25546.91 30656.29 34062.55 34062.55

CURRENT ASSETS 0.00 0.00 364620.45 437544.54 486160.60 486160.60

4. Current Liabilities 0.00 0.00 116836.36 140203.64 155781.82 155781.82

Accounts Payable 0.00 0.00 116836.36 140203.64 155781.82 155781.82

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 247784.09 297340.90 330378.78 330378.78

INCREASE IN NET WORKING CAPITAL 0.00 0.00 247784.09 49556.82 33037.88 0.00

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
  5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 512290.05 512290.05 512290.05 512290.05 512290.05 512290.05

Raw Materials in Stock-Total 215973.82 215973.82 215973.82 215973.82 215973.82 215973.82

Raw Material-Local 0.00 0.00 0.00 0.00 0.00 0.00

Raw Material-Foreign 215973.82 215973.82 215973.82 215973.82 215973.82 215973.82

Factory Supplies in Stock 1009.36 1009.36 1009.36 1009.36 1009.36 1009.36

Spare Parts in Stock and Maintenance 3631.42 3631.42 3631.42 3631.42 3631.42 3631.42

Work in Progress 25233.88 25233.88 25233.88 25233.88 25233.88 25233.88

Finished Products 50467.76 50467.76 50467.76 50467.76 50467.76 50467.76

2. Accounts Receivable 155781.82 155781.82 155781.82 155781.82 155781.82 155781.82

3. Cash in Hand 34062.55 34062.55 34062.55 34062.55 34062.55 34062.55

CURRENT ASSETS 486160.60 486160.60 486160.60 486160.60 486160.60 486160.60

4. Current Liabilities 155781.82 155781.82 155781.82 155781.82 155781.82 155781.82

Accounts Payable 155781.82 155781.82 155781.82 155781.82 155781.82 155781.82

TOTAL NET WORKING CAPITAL REQUIRMENTS 330378.78 330378.78 330378.78 330378.78 330378.78 330378.78

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 582541.05 912919.83 1187836.36 1308567.27 1443578.18 1428000.00
1. Inflow Funds 582541.05 912919.83 116836.36 23367.27 15578.18 0.00
Total Equity 233016.42 365167.93 0.00 0.00 0.00 0.00
Total Long Term Loan 349524.63 547751.90 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 116836.36 23367.27 15578.18 0.00
2. Inflow Operation 0.00 0.00 1071000.00 1285200.00 1428000.00 1428000.00
Sales Revenue 0.00 0.00 1071000.00 1285200.00 1428000.00 1428000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 582541.05 582541.05 1223374.50 1076456.06 1236850.80 1175672.87
4. Increase In Fixed Assets 582541.05 582541.05 0.00 0.00 0.00 0.00
Fixed Investments 554801.00 554801.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 27740.05 27740.05 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 364620.45 72924.09 48616.06 0.00
6. Operating Costs 0.00 0.00 623847.84 746312.70 827955.94 827955.94
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 121005.06 126388.71
8. Interest Paid 0.00 0.00 234906.21 107673.18 89727.65 71782.12
9.Loan Repayments 0.00 0.00 0.00 149546.09 149546.09 149546.09
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 330378.78 -35538.13 232111.21 206727.38 252327.13
Cumulative Cash Balance 0.00 330378.78 294840.65 526951.86 733679.24 986006.38

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 1428000.00 1428000.00 1428000.00 1428000.00 1428000.00 1428000.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 1428000.00 1428000.00 1428000.00 1428000.00 1428000.00 1428000.00
Sales Revenue 1428000.00 1428000.00 1428000.00 1428000.00 1428000.00 1428000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 1163111.00 1162877.93 1150316.06 988208.10 988208.10 988208.10
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 827955.94 827955.94 827955.94 827955.94 827955.94 827955.94
7. Corporate Tax Paid 131772.37 149484.84 154868.50 160252.16 160252.16 160252.16
8. Interest Paid 53836.59 35891.06 17945.53 0.00 0.00 0.00
9. Loan Repayments 149546.09 149546.09 149546.09 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 264889.00 265122.07 277683.94 439791.90 439791.90 439791.90
Cumulative Cash Balance 1250895.38 1516017.45 1793701.39 2233493.29 2673285.19 3113077.09

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 1071000.00 1285200.00 1428000.00 1428000.00

1. Inflow Operation 0.00 0.00 1071000.00 1285200.00 1428000.00 1428000.00

Sales Revenue 0.00 0.00 1071000.00 1285200.00 1428000.00 1428000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 582541.05 582541.05 871631.92 795869.52 860993.82 954344.66

3. Increase in Fixed Assets 582541.05 582541.05 0.00 0.00 0.00 0.00

Fixed Investments 554801.00 554801.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 27740.05 27740.05 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 247784.09 49556.82 33037.88 0.00

5. Operating Costs 0.00 0.00 623847.84 746312.70 827955.94 827955.94

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 121005.06 126388.71

NET CASH FLOW -582541.05 -582541.05 199368.08 489330.48 567006.18 473655.34

CUMMULATIVE NET CASH FLOW -582541.05 -1165082.10 -965714.02 -476383.54 90622.64 564277.98

Net Present Value (at 18%) -582541.05 -493678.86 143183.05 297821.64 292455.48 207039.12

Cumulative Net present Value -582541.05 -1076219.91 -933036.86 -635215.22 -342759.74 -135720.62

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

  PRODUCTION
5
 5 6 7 8 9 10
TOTAL CASH INFLOW 3664248 3664248 3664248 3664248 3664248 3664248
1. Inflow Operation 3664248 3664248 3664248 3664248 3664248 3664248
Sales Revenue 3664248 3664248 3664248 3664248 3664248 3664248
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 2462663 2508113 2521928 2535742 2535742 2535742
3. Increase in Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
4. Increase in Net Working Capital 0 0 0 0 0 0
5. Operating Costs 2124535 2124535 2124535 2124535 2124535 2124535
6. Corporate Tax Paid 338127.9 383578.1 397392.6 411207 411207 411207
NET CASH FLOW 1201585 1156135 1142320 1128506 1128506 1128506
CUMMULATIVE NET CASH FLOW 2649522 3805657 4947978 6076484 7204990 8333496
Net Present Value (at 18%) 445105 362939.7 303900.8 254428.5 215617.4 182726.6
Cumulative Net present Value 96845.92 459785.6 763686.5 1018115 1233732 1416459
Net Present Value (at 18%) 1416459
Internal Rate of Return 28.80%

Annex 4: NET INCOME STATEMENT ( in Birr)

6
 PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 75% 90% 100% 100% 100%
1. Total Income 2748186 3297823 3664248 3664248 3664248
Sales Revenue 2748186 3297823 3664248 3664248 3664248
Other Income 0 0 0 0 0
2. Less Variable Cost 1375572 1650686 1834096 1834096 1834096
VARIABLE MARGIN 1372614 1647137 1830152 1830152 1830152
(In % of Total Income) 128.1717 128.1717 128.1717 128.1717 128.1717
3. Less Fixed Costs 499697 538827.5 564914.5 564914.5 564914.5
OPERATIONAL MARGIN 872917.1 1108309 1265238 1265238 1265238
(In % of Total Income) 81.49616 86.24326 88.60398 88.60398 88.60398
4. Less Cost of Finance 602769.3 276289.4 230241.1 184192.9 138144.7
5. GROSS PROFIT 270147.8 832020.1 1034997 1081045 1127093
6. Income (Corporate) Tax 0 0 310499 324313.4 338127.9
7. NET PROFIT 270147.8 832020.1 724497.6 756731.4 788965.1
RATIOS (%)  
Gross Profit/Sales 10% 25% 28% 30% 31%
Net Profit After Tax/Sales 10% 25% 20% 21% 22%
Return on Investment 24% 30% 25% 25% 24%
Return on Equity 18% 54% 47% 49% 51%

7
 PRODUCTION
  6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%
1. Total Income 3664248 3664248 3664248 3664248 3664248
Sales Revenue 3664248 3664248 3664248 3664248 3664248
Other Income 0 0 0 0 0
2. Less Variable Cost 1834096 1834096 1834096 1834096 1834096
VARIABLE MARGIN 1830152 1830152 1830152 1830152 1830152
(In % of Total Income) 128.1717 128.1717 128.1717 128.1717 128.1717
3. Less Fixed Costs 459462.1 459462.1 459462.1 459462.1 459462.1
OPERATIONAL MARGIN 1370690 1370690 1370690 1370690 1370690
(In % of Total Income) 95.99406 95.99406 95.99406 95.99406 95.99406
4. Less Cost of Finance 92096.46 46048.23 0 0 0
5. GROSS PROFIT 1278594 1324642 1370690 1370690 1370690
6. Income (Corporate) Tax 383578.1 397392.6 411207 411207 411207
7. NET PROFIT 895015.6 927249.3 959483.1 959483.1 959483.1
RATIOS (%)  
Gross Profit/Sales 35% 36% 37% 37% 37%
Net Profit After Tax/Sales 24% 25% 26% 26% 26%
Return on Investment 26% 25% 25% 25% 25%
Return on Equity 58% 60% 63% 63% 63%

8
 nnex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 582541.05 1495460.88 1717576.98 1915646.06 2064023.28 2209384.20
1. Total Current Assets 0.00 330378.78 659461.10 964496.40 1219839.84 1472166.98
Inventory on Materials and Supplies 0.00 0.00 165460.95 198553.14 220614.60 220614.60

9
 Work in Progress 0.00 0.00 18925.41 22710.49 25233.88 25233.88
Finished Products in Stock 0.00 0.00 37850.82 45420.98 50467.76 50467.76
Accounts Receivable 0.00 0.00 116836.36 140203.64 155781.82 155781.82
Cash in Hand 0.00 0.00 25546.91 30656.29 34062.55 34062.55
Cash Surplus, Finance Available 0.00 330378.78 294840.65 526951.86 733679.24 986006.38
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 582541.05 1165082.10 1058115.88 951149.66 844183.44 737217.22
Fixed Investment 0.00 554801.00 1109602.00 1109602.00 1109602.00 1109602.00
Construction in Progress 554801.00 554801.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 27740.05 55480.10 55480.10 55480.10 55480.10 55480.10
Less Accumulated Depreciation 0.00 0.00 106966.22 213932.44 320898.66 427864.88
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 582541.05 1495460.88 1717576.98 1915646.06 2064023.28 2209384.20
5. Total Current Liabilities 0.00 0.00 116836.36 140203.64 155781.82 155781.82
Accounts Payable 0.00 0.00 116836.36 140203.64 155781.82 155781.82
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 349524.63 897276.53 897276.53 747730.44 598184.35 448638.26
Loan A 349524.63 897276.53 897276.53 747730.44 598184.35 448638.26
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 233016.42 598184.35 598184.35 598184.35 598184.35 598184.35
Ordinary Capital 233016.42 598184.35 598184.35 598184.35 598184.35 598184.35
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 105279.73 429527.63 711872.76
9.Net Profit After Tax 0.00 0.00 105279.73 324247.90 282345.13 294907.00
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 105279.73 324247.90 282345.13 294907.00

Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION
  5 6 7 8 9 10
TOTAL ASSETS 2367306.98 2566558.85 2778372.59 3152294.29 3526215.99 3900137.69
1. Total Current Assets 1737055.98 2002178.05 2279861.99 2719653.89 3159445.79 3599237.69
Inventory on Materials and Supplies 220614.60 220614.60 220614.60 220614.60 220614.60 220614.60
Work in Progress 25233.88 25233.88 25233.88 25233.88 25233.88 25233.88
Finished Products in Stock 50467.76 50467.76 50467.76 50467.76 50467.76 50467.76

10
 Accounts Receivable 155781.82 155781.82 155781.82 155781.82 155781.82 155781.82
Cash in Hand 34062.55 34062.55 34062.55 34062.55 34062.55 34062.55
Cash Surplus, Finance Available 1250895.38 1516017.45 1793701.39 2233493.29 2673285.19 3113077.09
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 630251.00 564380.80 498510.60 432640.40 366770.20 300900.00
Fixed Investment 1109602.00 1109602.00 1109602.00 1109602.00 1109602.00 1109602.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 55480.10 55480.10 55480.10 55480.10 55480.10 55480.10
Less Accumulated Depreciation 534831.10 600701.30 666571.50 732441.70 798311.90 864182.10
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 2367306.98 2566558.85 2778372.59 3152294.29 3526215.99 3900137.69
5. Total Current Liabilities 155781.82 155781.82 155781.82 155781.82 155781.82 155781.82
Accounts Payable 155781.82 155781.82 155781.82 155781.82 155781.82 155781.82
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 299092.18 149546.09 0.00 0.00 0.00 0.00
Loan A 299092.18 149546.09 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 598184.35 598184.35 598184.35 598184.35 598184.35 598184.35
Ordinary Capital 598184.35 598184.35 598184.35 598184.35 598184.35 598184.35
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 1006779.76 1314248.63 1663046.59 2024406.42 2398328.12 2772249.82
9. Net Profit After Tax 307468.87 348797.96 361359.83 373921.70 373921.70 373921.70
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 307468.87 348797.96 361359.83 373921.70 373921.70 373921.70

11