FEASIBILITY STUDY

I. EXECUTIVE SUMMARY
The importance of developing and expanding health facilities has long been recognized as
input to the economic development of Ethiopia. However, its spread has been awfully low. In
recognition of this low level of health facilities in the country, the government is exerting
significant efforts to improve the conditions in the sector. Training programs have been
underway to develop the necessary medical personnel in all fields. Health centers and
institutions have been opened. The local production of Drugs and Medical Supplies are being
encouraged. Though the effort being made by the government is encouraging, it is very
minimal and insufficient.
This calls for the active participation of the private sector to improve the existing low-level
supply of drugs and medical supplies. It is in view of this fact that Mr. Saied Mohammed and
Mr. Amir Mohammed, an Ethiopian, and their partner Mr. Di Florio Armando, an Italian,
decided to take the initiative to establish a manufacturing plant, the first of its kind in Ethiopia,
which will produce medical devices such as; IV Giving Sets, IV Bags, IV Cannulas, Dialysis lines
and Extension tubing in its consecutive operational phases. In general, these products are used
for production of IV solution/fluid which is set for the care of nurture, before and after surgical
operation, improvement of circulation of blood and care for burn etc.
The company in its single shift will have the capacity to produce 5 million IV Giving Sets, 5
million 1000ml IV bags, and 5 million IV Cannulas at a time. However, the production plan of
the factory is to start with production of IV Giving Sets and 1000ml IV bags. Production of
500ml IV bags and IV Cannulas will be added in its future expansion plan.
These products will substitute the imported supply to the local IV fluid manufacturing
factories. Thus, this local production will serve as an import substituting for the products
which contribute to the current direction of the government. The company will also export its
products to African countries and the Middle East, as they mostly depend on imports. Hence,
increases the inflow of foreign currency to the country.

The manufacturing is located in a place known as Dukem, 37 km south east of the capital city,
Addis Ababa. The total project site is 8,500m 2 including the expansion site. Out of which
1,800m2 are allotted for the building construction of the plant with its full accommodations.
The construction of the factory is under way and 70% of its construction is completed.

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The company will have four functional departments, namely Production and technical, quality
assurance, commercial, and administration & finance. The General Manager will coordinate
and supervise the four departments and he will report to the board of Directors, which is the
highest body of the company. The plant will create job opportunity at least for 59 employees.
The total investment cost of the envisaged manufacturing plant is estimated to be Birr
28,439,723 out of which Birr 5,119,150 is in foreign currency, and Birr 23,320,573 is in
local currency. As to the financial source, Birr 19,907,807 is expected to be covered by Bank
loan and Birr 8,531,917is from owners’ equity.
The project’s feasibility study is supported its viability by the financial parameters. Among
them profit and loss statement, cash flow projection and financial internal rate of return are
presented. According to the project profit and or loss statement, it is profitable throughout its
life and it will generate net profit of Birr 3,770,567 in the first year and increases to Birr
11,655,232 at the 10th year of the project life. Its cash flow projection also shows a cumulative
cash flow of Birr 185,442 in the first year and increase to Birr 67,545,413 at the 10th year of
the project. In regard to Internal Financial Rate of Return (IFRR) the project is expected to
generate IFRR of 14.81%, which is well above the cut off rate, and NPV at 9.5% D.R. of Birr
9,232,778. The average benefit-cost ratio at 9.5% D.R. has come to be 1.325. These results are
acceptable. This shows that the project is liquid, profitable, viable and financially acceptable.

In general, the plant will contribute its share to the health sector of the country and in
particular towards export oriented industrialization strategy of the country, new job creation
policy and foreign currency saving opportunities.

II. INTRODUCTION
The Ethiopian domestic investments in manufacturing have increased significantly over the
last five years. Its share of total industrial output has been also increasing. Besides, the
government continues to give incentives to the sector in order to increase the country’s
potential in the manufactured products of export and import substitutions. Government
support packages were thus designed to stimulate investment in import substituting and
export products manufacturing through tax privileges, access to long-term capital and to loan.

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The overall potential health service coverage in 2000 EFY is estimated at 89.6%, 25.6%
increase from 1996. Nonetheless, this varies substantially among the regions depending on
their topographic and demographic characteristics. Geographical distance from a health facility
and socio economic factors are the major obstacle for the bulk of the Ethiopian population.
However, the trend over time shows that there is a steady increase both in health care
coverage and in utilization.
Currently, in the country about 89.6% of the population is expected to have access to modern
health services. Even though there is no well compiled available data on drug and medical
supplies importation, distribution, consumption and coverage of local manufacturers,
according to the information from the Federal Ministry of Health in the year 2008, 78% in
value of the country’s drugs and medical supplies supply is met through import. It is believed
that the rest 22% of the drug and medical devices is covered by local pharmaceutical plants.
The total expenditure on drugs and medical supplies for the year 2008 was one billion US
dollars. Hence, the government gives high support in health sector to meet the millennium
development goal.

Considering the countries attractive investment policy and incentives of the health sector the
project initiators who currently involved in importing of medical supplies would like to
establish a manufacturing plant, the first of its kind in Ethiopia, which will produce an import
substituting medical supplies. Thus the project contributes its role in the implementation of
Growth and Transformation Plan (GTP) of the country for the year 2003-2007 E.C.
Moreover, the promoters of this project consider the increasing demands of the medical
supplies in the country and the requirements of enormous amount of foreign currency to
import these products. It is in view of this fact that Mr. Saied Mohammed and Mr. Amir
Mohammed, an Ethiopian, together with their partner Mr. Di Florio Armando, an Italian,
decided to take the initiative to establish a manufacturing plant, the first of its kind in Ethiopia,
which will produce the IV Giving sets, IV Bags, IV Cannulas, Dialysis lines and Extension tubing
medical supplies in its consecutive operational phases.
Prior to plunging in to the implementation of the proposed project, it is deemed essential to
undertake a full-fledged feasibility study. Thus the objective of this study is to show an

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economic feasibility study that would enable to take effective decision towards engagement
with practical activities.
The main focus of this feasibility study is:

 to explain the project back ground

 to indicate objective of the project,
 to assess market conditions,
 to describe technical aspects of the project,
 to explain organizational and management of the project,
 to perform financial analysis, and
 to conduct technical, and financial feasibility and socio-economic benefit of the project.

III. PROJECTS BACKGROUND

1. The Applicants
The project is a joint venture which is owned by of two Ethiopian and an Italian investors.
Their personal information is presented as follows:
a) Name: Mr. Saied Mohammed
b) Address: Addis Ababa City Administration
Bole Kefle Ketema

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Kebele - 03
House number - 055
Telephone 0911-206050
c) Marital status: Married
d) Nationality: Ethiopian,

a) Name: Mr. Amir Mohammed

b) Address: Addis Ababa City Administration
Nefas Silk Lafto Kefle Ketema
Kebele - 03/04/05
House number - 2642
c) Marital status: Married
d) Nationality: Ethiopian,
and
a) Name: Mr. Di Florio Armando
b) Passport No: 832670R
c) Address: 65028 Tocco Da Casauria
Pescara, Italy
d) Marital status: Married
e) Nationality: Italian

2. The Project
a. Name: SA-MED
b. Address: Oromia National Regional State
c. Type of business: Medical Devices
d. Legal form of business: Joint Venture
e. Status of business: New
f. Licensing agency: Ethiopian Investment Agency

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g. Investment Permit No.: EIA-IP 4205/02

h. Licensing date: 01/11/02
i. Registration agency: Ministry of Trade and Industry
j. Registration number: EIA-PC01/0215/02
k. Registration date: 01/11/02
l. Taxpayer identification number/Tin/: 0003437244
m. Value Added Tax Registration Certificate: ………………….

The total number of shares of the joint venture is 5,500 with a value of Birr 1,000 each. The
venture is established with a total capital of 5.5 million. The lion share of 3,025 shares goes to
Mr. Di Florio Armando and followed by Mr. Saied Mohammed with 1,275 shares and Mr. Amir
Mohammed with 1,200 shares.

3. Brief History of the Promoters

The new company will operate under joint Venture named as SA-MED. The joint venture has
three shareholders, of which all of them have more than 15 years of experience in the field of
medical devices import. The promoters profile is presented as follows.

Table - 1: Profile of the promoters

R.No Full Name Share Holding Education Work Position in the
amount Background Experience Project
1. Mr. Saied Mohammed 1,275 BA 15 years General Manager
2. Mr. Di Florio Armando 3,025 BSc 30 years Production &
Technical
Department Manager
3. Mr. Amir Mohammed 1,200 High School 15 years Commercial
Complete Department Manager
ADRIA MED which is owned by one of the partner of this project, has been the major supplier of
IV bags for more than ten years to local IV fluid producers in the country, namely, Ethiopian
Pharmaceuticals Manufacturing Share Company (EPHARM), Addis Pharmaceutical and BIOSOL.
The supply of IV bags by ADRIA MED to local IV fluid Manufacturers is presented below.

Table – 2: Supply of IV Bags by ADRIA MED to local IV fluid Manufacturers

for the year 2001-2009 E.C
Year IV Bags (Pcs)
2001 657,000
2002 1,197,000

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2003 320,000
2004 570,000
2005 970,000
2006 1,600,000
2007 450,000
2008 1,760,000
2009 1,800,000
2010
Source: ADRIA MED
Since, the promoters have plenty of experience in the field and adequate equity capital; they
could run the business more effectively and efficiently. Moreover, the Italian promoter is
capable to deliver the best technology for the venture.

4. Objectives of the Project

The overall objective of the project is to invest on manufacturing/factory to produce IV Giving
Sets, IV Bags and IV Cannulas and to maximize the promoter’s income.

Thus the specific objectives of the project are elaborated as follows:

a. To generate a reasonable profit through producing of IV Giving Sets, IV Bags and IV
Cannulas at a commercial level,
b. Save foreign currency through import substitution of these medical supplies; and
c. Providing gainful employment opportunity to a good number of citizens there by
participating in the government program of poverty reduction through creation of
income generating activities.

IV. MARKET ANALYSIS

1. General Assessment
In order to estimate and forecast the domestic market demand and supply of these medical
supplies we need to conduct careful market analysis. First let us consider the global situation.
As the data obtained from Ensymm (2008G.C) research paper, the global IV solution market
forecasted to grow with 13.5% annually due to an increase in world population and the
tremendous bag log demand of developing and emerging countries. As recommended by the
same research paper setting up an IV production factory is therefore an attractive investment

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for private investors. As one of the most important and basic medical items, IV solution has a
lot of demand whole through the world. For emerging countries like Ethiopia it is attractive to
produce IV products by themselves locally to avoid the relatively expensive import products.
To analyze this project’s demand situation, total consumption by the existing local IV fluid
manufacturing companies and export should be considered. However, according to the latest
data obtained from Central Statistic Agency (CSA) currently there is no local producer of IV
Giving Sets, IV bags and IV Cannula in the country. That is why the local IV fluid producers
totally depend on imports of these medical supplies. So, we cannot think of export to analyze
demand in the absence of local production. At the moment, the state owned pharmaceuticals
manufacturing plant, EPHARM and private manufacturing plants, namely Pharmacure, Addis
Pharmaceutical, and BIOSOL (Currently under transfer) are the only IV fluid producing
companies in the country. Their production capacity is taken as a base for analyzing demand
for IV Giving sets, IV bags and IV Cannula. As to the supply analysis for these medical supplies
total supply should be the sum of total import and local production. Since there is no local
production the analysis is carried out using total import.
Since, the promoters of this project are one of the suppliers to the local manufacturing
companies, they well understood the market condition and that is why motivated to move
from import to production of these medical supplies. However, the demand and supply
situation should be studied in a carful manner whenever a new project comes in mind. Now let
us consider demand and supply situation of the project. But, first it is important to clearly
identify and show the target market.
2. Target Market
The project is targeted the current local consumers of these medical supplies. To mention by
name EPHARM, Pharmacure, Addis Pharmaceutical, and BIOSOL are the anticipated major
customers of the company. Besides, through its expansion plan the company also targeted the
future newly establishing firms. In the near future, the company will also export its products
to most of the African countries and the Middle East, as they mostly depend on imports.
Besides to the above mentioned products, the company has a plan to further expand its
production to other medical products which can be used in hospitals. In this perspective
hospitals and higher clinics are also considered as customer of his project.
3. Demand Analysis and Projection

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3.1. Demand Analysis

Before analyzing the demand and supply condition of the medical devises considering the
consumption level of IV fluids in the country will give us a clear perspective towards the
demand for the medical devices.
In a conservative approach, by assuming IV fluids will be prescribed only to hospitalized
patients, the annual consumption level is calculated. To calculate annual consumption we need
to know the total length of patients stay in hospitals per annum. For this calculation, we used
data from MoH statistical bulletin 2000 GC for number of beds in hospitals which are 14,576
beds. The average bed occupancy rate is 95.5% and by multiplying the two we get 5,080,829
Days1. Each hospitalized patient on average will consume three liters of IV fluid, hence the
annual average consumption of IV fluid will be 15,242,487 2 liters, which implies a per capita
consumption of 0.192 liter. The country per capita consumption of IV fluid is very low as
compared to the WHO standard of 0.5 liters.

Though, the estimated consumption of IV fluid is 15,242,487 the sum of local production
(6,600,000 see table 3) and average import to the country (6,392,675 see table 4) is only
12,992,675. The difference of 2,249,812 indicates that the existence of high demand with
regard to IV fluid. This situation catches the attention of investors in two ways either to
substitute imports and/or fill the demand gap or both.

Table – 3: Local Production Capacity of IV Fluid as of 2001EC.

S. Company IV Fluid Production Existing Annual
Remarks
N Capacity (liters) Production (liters)
1 Pharmacure 5,000,000 3,000,000
2 EPHARM 1,100,000 1,000,000 Planned to double the capacity by
the year 2014 GC
3 Addis Pharmaceutical 3,000,000 2,600,000
4 BIOSOL 1,000,000 -
Total 10,100,000 6,600,000
Source: Each Manufacturing Companies
Table – 4: Total Imports of IV Fluid to the Country
(For the Year 2001 - 2004)
Year IV Fluid (pcs)

1
Total length of patient stay in hospitals per annum is calculated as (No of beds in hospitals X Occupancy rate X 365days)
2
Annual average consumption of IV fluid is calculated as (consumption of hospitalized patient X length of patients stay in hospital)

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2001 1,564,7003
2002 8,207,000
2003 (till May) 5,799,000
2004 (Planned) 10,000,000
4 years Average of Import 6,392,675
Source: Pharmaceuticals Fund and Supply Agency, PFSA (2003)

To analyze the company’s demand for these medical devices, the total consumption by the
existing local IV fluid manufacturing companies is taken in to consideration. The above
mentioned government and private owned pharmaceuticals manufacturing plants have a
capacity to produce a total of 10,100,000. Hence, their production capacity is taken as a base
for analyzing demand for IV Giving Sets, IV bags and IV Cannulas.

3.2. Demand Projection

In this particular project for the purpose of forecasting and projecting the demand of IV Giving
Sets, IV Bags and Cannulas, the potential health service coverage and the population growth
have been used.4

Table – 5: Populations and Health Coverage Growth Factor

Potential Health Service
Population Coverage (%)
Base Year 1997 73,043,510 72.1
Under consideration Year 2000 79,221,000 89.6
4 years average(1997 - 2000) 76,114,628 81.33
Growth Factor 1.08475 1.2427
Annual Average Growth Factor 1.04206 1.1279
Forecasting the future demand of IV Giving sets, IV Bags and Cannulas is done using the above
annual average growth factor of population and health service coverage. Since, all these
products are consumed on a one to one ratio the projection is carried out in the same ratio.
The result is shown in the following table.
Table – 6: The Projected Demand of Medical Devices for the year
2003 – 2023 E.C.

3
The low level of import is because of availability of stock in the country
4
Health and Health Related Indictors of 2000 E.C (2007/08) Issued by Planning and Programming Department of Federal
Ministry of Health and Central Statistical Agency (CSA) website, http://www.csa.gov.et
5
Growth Factor is calculated as population of year 2000 divided by population of base year(1997) (the same is for health
service coverage)
6
Annual Average Growth Factor is calculated as average population (4 years average is 76,114,628) divided by population
of base year (1997) (the same is for health service coverage which is average of 81.23)

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I.V Bags
Year in EC I.V Giving Sets (Pcs) IV Cannulas (Pcs)
(1000ml)
2003 10,100,000 10,100,000 10,100,000
2004 11,870,245 11,870,245 11,870,245
2005 13,950,764 13,950,764 13,950,764
2006 16,395,940 16,395,940 16,395,940
2007 19,269,686 19,269,686 19,269,686
2008 22,647,118 22,647,118 22,647,118
2009 26,616,520 26,616,520 26,616,520
2010 31,281,645 31,281,645 31,281,645
2011 36,764,435 36,764,435 36,764,435
2012 43,208,204 43,208,204 43,208,204
2013 50,781,384 50,781,384 50,781,384
2014 59,681,928 59,681,928 59,681,928
2015 70,142,487 70,142,487 70,142,487
2016 82,436,487 82,436,487 82,436,487
2017 96,885,279 96,885,279 96,885,279
2018 113,866,536 113,866,536 113,866,536
2019 133,824,128 133,824,128 133,824,128
2020 157,279,724 157,279,724 157,279,724
2021 184,846,425 184,846,425 184,846,425
2022 217,244,790 217,244,790 217,244,790
2023 255,321,676 255,321,676 255,321,676
As shown on the table above demand of IV Giving sets, IV Bags and cannulas for the year 2003
will be 10.1 million and it reaches to 255.3 million after 20 years. This projection indicates
that the consumption of IV fluids is yet to increase in the years to come with the development
of the health service coverage in the country.

4. Supply Analysis and Projection

4.1. Supply Analysis
To analyze the supply of the medical devices we need to consider the local production of the
items and the amount of imports. Since, there is no domestic producer of these products we
should stick to their imports. The supply for the envisaged products (medical devices) at a
country level will be determined by local IV Fluid production level. However, we must not
forget that these local producers could increase their production based on the increase in the
consumption of the IV fluid in the country to the level of their production capacity.

In this particular project since it is aimed at import substitution the supply analysis is carried
out considering the average annual import of IV Fluids to the country. As shown on table 4
above the average import of IV fluids to the country is 6,392,675 pieces. So, the supply amount
of IV Bags is considered to be the import amount of IV Fluids to the country. This is more or
less the same as the current production level of the local IV Fluid producers which is 6,600,000

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pieces. To be more realistic the four years average import amount of IV fluids is considered for
supply projection, which is 6,392,675.

4.2. Supply Projection

Assuming an increase in the establishment of similar manufacturing companies in the country
in the coming years due to the attractiveness of the business, together with the import trend it
is assumed that the supply will increase by 15% annually. We can observe more or less a
similar trend as compared to the global IV solution market forecast which is to grow by 13.5%
annually. It is a very conservative approach, when we consider the rapid increase in health
sector service coverage and the infrastructures, facilities and even the manpower
development. Hence, the supply projection is given by the following table.

Table – 7: The Projected Supply for the year 2003 – 2023 E.C.
IV Giving IV Bags IV Cannulas
Year in EC Sets (1000ml) (Pcs) (Pcs)
2003 6,392,675 6,392,675 6,392,675
2004 7,351,576 7,351,576 7,351,576
2005 8,454,313 8,454,313 8,454,313
2006 9,722,460 9,722,460 9,722,460
2007 11,180,829 11,180,829 11,180,829
2008 12,857,953 12,857,953 12,857,953
2009 14,786,646 14,786,646 14,786,646
2010 17,004,643 17,004,643 17,004,643
2011 19,555,339 19,555,339 19,555,339
2012 22,488,640 22,488,640 22,488,640
2013 25,861,936 25,861,936 25,861,936
2014 29,741,226 29,741,226 29,741,226
2015 34,202,410 34,202,410 34,202,410
2016 39,332,772 39,332,772 39,332,772
2017 45,232,687 45,232,687 45,232,687
2018 52,017,590 52,017,590 52,017,590
2019 59,820,229 59,820,229 59,820,229
2020 68,793,263 68,793,263 68,793,263
2021 79,112,253 79,112,253 79,112,253
2022 90,979,091 90,979,091 90,979,091
2023 104,625,954 104,625,954 104,625,954

The supply projection reviles that IV Bags, IV giving sets and cannulas will be 6,392,675 at the
end of 2003 and increases to 104,625,954 after 20 years.

5. Demand and Supply Gap

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The market analysis shows an increasing gap between demand and supply projections, since
2003 - 2022 E.C. Thus, it indicates the feasibility of this project throughout its life time. Table -
11 shows the Demand and supply gap of each medical supply.

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Table – 8: Demands and Supply Gap for the year 2003 – 2023 E.C.
IV Giving IV Bags IV Cannulas
Sets (Pcs) (1000ml) (Pcs) (Pcs)
Year in EC
Demand Supply Gap Demand Supply Gap Demand Supply Gap
2003 10,100,000 6,392,675 3,707,325 10,100,000 6,392,675 3,707,325 10,100,000 6,392,675 3,707,325
2004 11,870,245 7,351,576 4,518,669 11,870,245 7,351,576 4,518,669 11,870,245 7,351,576 4,518,669
2005 13,950,764 8,454,313 5,496,452 13,950,764 8,454,313 5,496,452 13,950,764 8,454,313 5,496,452
2006 16,395,940 9,722,460 6,673,480 16,395,940 9,722,460 6,673,480 16,395,940 9,722,460 6,673,480
2007 19,269,686 11,180,829 8,088,857 19,269,686 11,180,829 8,088,857 19,269,686 11,180,829 8,088,857
2008 22,647,118 12,857,953 9,789,166 22,647,118 12,857,953 9,789,166 22,647,118 12,857,953 9,789,166
2009 26,616,520 14,786,646 11,829,874 26,616,520 14,786,646 11,829,874 26,616,520 14,786,646 11,829,874
2010 31,281,645 17,004,643 14,277,002 31,281,645 17,004,643 14,277,002 31,281,645 17,004,643 14,277,002
2011 36,764,435 19,555,339 17,209,096 36,764,435 19,555,339 17,209,096 36,764,435 19,555,339 17,209,096
2012 43,208,204 22,488,640 20,719,564 43,208,204 22,488,640 20,719,564 43,208,204 22,488,640 20,719,564
2013 50,781,384 25,861,936 24,919,448 50,781,384 25,861,936 24,919,448 50,781,384 25,861,936 24,919,448
2014 59,681,928 29,741,226 29,940,702 59,681,928 29,741,226 29,940,702 59,681,928 29,741,226 29,940,702
2015 70,142,487 34,202,410 35,940,077 70,142,487 34,202,410 35,940,077 70,142,487 34,202,410 35,940,077
2016 82,436,487 39,332,772 43,103,716 82,436,487 39,332,772 43,103,716 82,436,487 39,332,772 43,103,716
2017 96,885,279 45,232,687 51,652,591 96,885,279 45,232,687 51,652,591 96,885,279 45,232,687 51,652,591
2018 113,866,536 52,017,590 61,848,945 113,866,536 52,017,590 61,848,945 113,866,536 52,017,590 61,848,945
2019 133,824,128 59,820,229 74,003,899 133,824,128 59,820,229 74,003,899 133,824,128 59,820,229 74,003,899
2020 157,279,724 68,793,263 88,486,461 157,279,724 68,793,263 88,486,461 157,279,724 68,793,263 88,486,461
2021 184,846,425 79,112,253 105,734,172 184,846,425 79,112,253 105,734,172 184,846,425 79,112,253 105,734,172
2022 217,244,790 90,979,091 126,265,700 217,244,790 90,979,091 126,265,700 217,244,790 90,979,091 126,265,700
2023 255,321,676 104,625,954 150,695,721 255,321,676 104,625,954 150,695,721 255,321,676 104,625,954 150,695,721

From the above table one can easily consider the existence of high shortage for each medical supplies. For the year 2003 EC
the gap is 3,707,325 for all IV Giving sets, IV Bags and IV cannula. The gaps widen then after and reach 150,695,721 at the end
of 2023. So, besides to the import substitution the existing gap shows the reliability of the market. Hence, it is possible and
advisable to relay and invest on such attractive market.

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6. Marketing Strategy /Market Mix

6.1. Product
IV fluids are amongst the most essential drugs to the society. The supply of IV fluid Bags as a
packing material to the IV Giving’s sets as a device to transfer the solution to the veins of the
patient, and Cannulas as a device to inject drug into the IV fluids is a very important
component in the healthcare service of the society. Normally each IV solution is supplied
together with a Giving set.
The major products of the company are IV Giving sets, IV Bags (1000ml and 500ml) and
Cannulas. The quality of these products is similar with that of the currently imported once.
To insure the quality of the products it is designed to confirm to the requirements of general
principle of Good Manufacturing Practice (GMP) in all aspects; production process,
machinery and equipment selection, manpower training, etc.
6.2. Pricing Strategy
The estimated selling prices of the product as shown below on table 12 are determined
based on the current price of imported product supplied to the local manufacturing
companies. These product prices ultimately take in to account the costs of raw and packing
materials, labor cost, overhead cost & profit margin.

Table -9: Unit Selling Price

S/N Description Import Price Company Price
In Euro In Birr
1 IV Giving Set 0.095 1.927
2 1000ml IV Bag 0.186 3.831

As shown on the above table, the comparison of the price of these products with that of
imported ones shows being the locally manufactured products much cheaper. Because of low
labor cost and reduction in transportation cost, the factory-selling price is lower than the
imported price without compromising the quality.

6.3. Promotion and Publication

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In this particular project the main promotional strategies would be a close contact with the
existing IV fluid manufacturing companies in the country. As mentioned above the project
initiator is one of the major suppliers of these medical devices to the companies. He develops
a good will in his more than 10 years of service. Hence, the marketing strategy should be
developed in accordance with maintaining this relationship. Moreover, the promoters
discussed with the management of each company on this business idea and agreed to buy the
locally produced medical devices if it is similar quality with the imported once.
Developing publication and distributing to the stakeholders in the sector will also be carried
out with the objective of attracting new investments in the production of IV fluid. Thus,
promotional materials which include free samples, brochure and other informative medical
publication should be prepared periodically to promote products.
6.4. Place/Distribution
Good physical distribution network should be planned to get the right product to the right
place, at the right time, in the right qualities and in the proper condition as expected. In order
to be competitive in the market the proper distribution method should be chosen. The aim of
physical distribution is to facilitate the efficient movement of a particular product that
provides an acceptable level of customer service. Physical distribution should not be just
another cost center that erodes profit. Properly managed physical distribution can be a profit
center and the total activity has an important role to play in the marketing process.

The channels of distribution to move products from the producer to the consumer should be
a direct delivery as per the schedule to be agreed in the future. Since the manufacturing
companies are few it is economical to deliver the products with own transportation service
as after sale service. However, care should be taken on physical distribution not to be just
another cost center that erodes profit.

V. TECHNICAL ANALYSIS
1. Location

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The proper selection of the project site is an essential factor in fulfilling the objective and
goal of the project. The following site selection factors were considered while selecting the
project site.
a) The adequate supply of water, power and fuels;
b) The availability of skilled and unskilled labor;
c) The availability and possibility of transportation needed, construction facilities,
materials etc.
d) The availability of market and distribution networks
e) The availability of technical support of auxiliary industries etc.
f) The presence of favorable political conditions
g) Supporting financial policy
h) The availability of other social infrastructures like housing, roads, recreation, health
care, education facilities, etc.
Based on the above factors Addis Ababa and a place called Dukem 37km south east of Addis
Ababa were compared as shown below in the table.
Table – 10: Comparisons of the Locations
Advantages Disadvantages
 better supply of water, power and fuel;  Cost of labor is high;
 availability of skilled labor;  Land cost is very high (2000-2500) Birr
Addis  better availability of infrastructure such as per sq. meter);
Ababa roads;
 very close to the market and cheaper
distribution costs;
 land cost is relatively very cheap;  Relatively far from the center;
Dukem  cheap labor availability;  Higher distribution cost due to its
 adequate and low cost of water; distance from the center;
 fair supply of power and fuel;
For this particular project the main determining factors is the investment cost, availability of
labor and the distribution cost which ultimately will have an effect on the cost of production
& the selling price. Therefore, we recommend to place the plant in Dukem located 37 km
south east of Addis Ababa which has a better infrastructure and manpower availability as
compared to the surrounding areas within 50 km radius from Addis Ababa. It has also very
low land cost as compared to that of Addis Ababa.
2. The Factory Building

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The factory building is designed to meet the requirement and has an estimated built up area
of 1,800m2 and accommodates all the necessary facilities. The majority of the area is allotted
for production hall, stores for input and output, offices and display, canteen, W.C. and guard
house. According to the architect estimate the total construction cost is about Birr
6,300,000 with current price of Birr 3,500 per square meter. The construction of the
factory is under way and 70% of its construction is completed.

The owner of this project acquired the required land holding through rent system from the
municipality of Dukum town. The total area of the project is 8,500 m 2. The necessary
credentials/certification regarding land-holding evidences is attached. (See annexes)

3. Accessibility
From the above site selection process we can easily examine the accessibility of the project
under consideration. Since the project is located at Dukum, near to Addis Ababa, every type
of infrastructures and utilities are easily available. So, not only the required electric power
and water is easily accessible, but also the factory can easily transport its inputs and outputs
from and/or to the market meeting the schedule of delivery. In addition, all modern
communications, financial transactions and insurance service giving organizations and
facilities are available in the town.

4. Machinery and Equipments

The project uses various types of machineries and equipments for production and operation
of the company which worth Birr 17,660,250. They are indicated in the following table.
Table - 11: List of Machinery and Equipments
R.N Unit of
Required
o List of Machineries and Descriptions Measure Unit Cost Total Cost
Quantity
ment
1 Clean room made with panel and including 2 2, 2,350,0
air treatment machinery for 3000mc/h sq.m 250 350,000 00
2 PVC welding machinery for tubing composed
of a radio frequency generator 1.5kw and 1,78 5,358,00
pneumatic press set 1 6,000 0
3 Complete line for extrusion tubing PVC 2,115,00
medical grade Pcs 3 2,115,000 0
4 Autoclave machinery DE LAMA for
sterilization with ETLINE OXIDE, made in 1,97 1,974,00
stainless steel, model DOLG, fully set 1 4,000 0
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R.N Unit of
Required
o List of Machineries and Descriptions Measure Unit Cost Total Cost
Quantity
ment
automatically, complete with the recorder
and printing of the cycle
5 Complete line for PVC body bags, extruder
Bendera Model 60/25, production capacity 2,82 2,820,00
from 18 up to 60kg/h set 1 0,000 0
6 Automatic serigraphic machinery for printing 28 282,00
bags: MOWINKEW set 1 2,000 0
7 Automatic welding machinery working for 24
hours/day for the body of bags, Blalacchi
model 35, composed of radio frequency 99 998,75
generator 5kw, pneumatic press set 1 8,750 0
8 Air compressor, MATTEI 3000lt/minute all unit 1 282,000 282,000
9 Manual trolley stainless steel unit 2 58,750 117,500
10 Electric Generator Caterpillar turbo diesel
engine 6 cylinder, electric generator of 90kw 94 940,00
power unit 1 0,000 0
11 Laboratory quality control equipment unit 1 423,000 423,000
Total Cost   17,660,250

On the above table clean room is not machinery but it is an installable room for assembling
the products filled with treated air. It is included under this category, since it will be
imported together with the machineries and will be installed during the machinery erection.

5. Office Furniture and Fixtures

The total investment cost required to finance furniture and fixtures is estimated at Birr
251,948. The cost is calculated considering the manpower requirements of the project and
current market price of the items.

Table – 12: List of Office Furniture and Fixtures

R Require
Unit of Total
S.N List of Items d Unit Cost
Measurement Cost
o Quantity
1 Executive chairs unit 4 6,000 24,000
2 Executive table unit 4 9,500 38,000
3 Executive gust chair unit 8 3,850 30,800
4 Executive shelves unit 4 5,000 20,000
5 Secretary table unit 7 1,600 11,200
6 Computer table unit 7 900 6,300
7 Secretary chair unit 7 650 4,550
8 Filing cabinets unit 2 4,500 9,000
9 Personal computers/Dell Optiplex GX set 7 10,695.00 74865.00
780MT Intel core 2 Due E750 2.93 GHz
Processer

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R Require
Unit of Total
S.N List of Items d Unit Cost
Measurement Cost
o Quantity
10 HP LaserJet 1005 Printer unit 2 2,434.00 4868.00
11 Panasonic KX-FP362CX Fax Machine unit 1 2,500.00 2500.00
12 UPS APC 750VA SMART unit 7 3,695.00 25865.00
Total 251,948

6. Vehicles
The project has planned to purchase 2 vehicles for distribution of products and
administrative purpose, whereas 1 bus for transportation purpose with a total cost of Birr
1,328,000. The type and cost of same are disclosed hereunder.

Table – 13: List of Vehicles

S.No Description Unit of Quantity Unit Price Total Price
Measurement (Birr) (Birr)
1 TATA ACE MS CONTAINER for Pce 2 206,000 412,000
Distribution of products
2 BUS (Model TATA LPO1318 BUS Pcs 1 916,000 916,000
W/RLC & RLB) for workers Service
  Sub total       1,328,000

The bus will be used for workers daily service. The other two vehicles will be used for
product distribution, raw materials purchase and other administrative purpose.

7. Production Capacity and Input-Output Ratio

As we all know the production capacity of any company should be determined based on
specification of the machineries.

7.1. IV Giving Sets

The IV Giving Set machinery has a capacity to produce a maximum of 40kg/hr based on the
specification of the machinery. For production of IV Giving tubes we use imported PVC
granules as raw material and other components which could be directly assembled. The
standard input-output ratio is, from one kilogram of PVC granules we can produce 100 pieces
of IV Giving sets. Hence, the annual production capacity will be 9,600,000
(40kg/hr*8hr*300days*100pcs/kg).

7.2. IV Bag 1000ml

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The IV Bag machinery has a capacity to produce a maximum of 60kg/hr based on the
specification of the machinery. For production of IV Bags Sets we use imported PVC granules
as raw material. The standard input-output ratio is, from one kilogram of PVC granules we
can produce 35 pieces IV Bags. Hence, the annual production capacity will be 5,040,000
(60kg/hr* 8hr* 300days* 35bpcs/kg).

This can be taken as the installed capacity of the plant and whereby 100% of it will be
considered to be the maximum achievable production capacity at a single shift. The company
will star production at 70% and increases by 15% each year to reach 100% in the third year
and onwards.
Table - 14: Total production Capacity
Production level Machinery
Working Working Total annual
from 1kg of Granules production
R.No Items days in a hours in a production
(pcs/kg) capacity
year day capacity
(input-output ratio) (kg/hr)
1 IV Giving tube 100 300 8 40 9,600,000
2 IV Bags 35 300 8 60 5,040,000
Normally each IV fluid is supplied together with an IV Giving set. Hence, IV Giving sets and
l000m IV bags should be produced at the same amount, so the company will produce both
items at the same amount of 50,040,000. In addition, Cannula and 500m1 IV Bags production
will be launched in its second phase.

The above production capacity shall be attained in a single shift of 8hr/day and 300 working
days per annum. The company is expected to be operational by 2004 E.C with its 70%
capacity. The 70% production capacity is determined taking in to consideration various
factors. The major one is till we get enough experience, since the venture is new in the
country.
Table – 15: Annual Production Plan
Products
Project Years Production level IV Giving Sets IV Bags
1 70% 3,528,000 3,528,000
2 85% 4,284,000 4,284,000
3 100% 5,040,000 5,040,000
4 100% 5,040,000 5,040,000
5 100% 5,040,000 5,040,000
8. Raw Materials, Supplies and Utilities
8.1. Raw Materials Availability
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The major raw materials required are PVC granules and IV giving set components. These raw
materials could be imported from 5 European manufacturers. EVC component Spa,
Modenplast Spa, Resilia Spa, TPV Sri and Fainplast Spa are the major assessed sources.
Besides, the raw materials also could be imported from Saudi Arabia, china and India as an
alternative source.

8.2. Raw Materials and Ethylene oxide

The major raw materials required are PVC granules and IV giving set components. All the
raw materials required for the production of the products will be imported, except carton for
packaging purpose. The amount required and unit costs are presented as follows.

Table - 16: Raw Material Requirements

Unit Total Unit Cost Total Total cost
Measur Quantity Quantity in Birr Unit Cost at full
Descriptions ement Require Required at in Birr capacity
(a) (b) d full capacity (e) (c)+(e) (d)+(e)
(c) (d)
1. Raw Material for IV Giving Set
1.1. PVC Granules for Giving set of gm 10.00 50,400,000 0.0260 0.25968 1,308,762
Length 1300mm & Weight 10gm
(1 kg of Granules can produce
100pcs of IV Giving tube)
1.2. Components of IV Giving Sets (which could be assembled directly)
a. Assembled drip chamber pcs 1 5,040,000 0.31725 0.31725 1,598,940
b. Roller Clamp pcs 1 5,040,000 0.14993 0.14993 755,647
c. Latex Bulb Connector pcs 1 5,040,000 0.15275 0.15275 769,860
d. Lure Cone connector pcs 1 5,040,000 0.07403 0.07403 373,086
e. Needle pcs 1 5,040,000 0.15275 0.15275 769,860
f. Poly. Bag pcs 1 5,040,000 0.08225 0.08225 414,540
1.3. Ethylene Oxide For giving sets gm 0.29 1,440,000 0.04175 0.01211 60,120
Raw materials Cost for IV Giving Set 1.20074 6,050,815
2. Raw Material for IV Bag
2.1. PVC Granules for production of gm 28.57 144,000,000 0.02597 0.74189 3,739,320
5,040,000 IV bags (1 kg of
Granules can produce 35 bag)
2.2. Ethylene Oxide For bags gm 0.36 1,800,000 0.04175 0.01503 75,150
Raw Material Cost of IV Bag 0.75692 3,814,470

Ethylene Oxide (ETO) in its gaseous form is used to sterilize IV Giving Sets, IV Bags and
cannulas. The consumption of ETO gas is proportional to the sterilization capacity (volume)
of the autoclave. Based on the envisaged production capacity of the plant the annual ETO gas
consumption is calculated. The annual consumption of ETO gas at full capacity based on the
consumption rate for both products is 3,240 kg or 484 ETO gas cylinders with a capacity of
6.7kg each will be required annually to run the plant at full capacity.
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8.3. Utilities

a) Electricity Supply
Based on the electrical power requirement of each machineries and equipments and for
general lighting purpose 90kw of electrical power is sufficient for the first phase of the
project. However, considering future expansion possibilities 100kw transformer shall be
acquired from the Ethiopian Electric Power Corporation (EEPCO). The annual requirement
and the annual cost are calculated based on the prevailing electric tariff. Accordingly, the
annual electric energy cost of the plant at full capacity is Birr 166,698. As power usages are
high, it is recommended to have a stand by electric power generator with a capacity of
8OKVA. Such a generator will cost Birr 900,000.
b) Water Supply
The water requirement of the project is limited to its use in the canteen, garden and
bathrooms. Based on standards on water consumption, the annual water requirement of the
plant is calculated. Accordingly, the annual water requirement of the plant is 1,075m 3 and
costs Birr 2,473 annually. The company could get tap water supply from the Municipality of
the town.
c) Telecommunication
The projects telecommunication consumption is determined based on the required
manpower and it is assumed to be Birr 1,500Birr per month. The annual cost is estimated to
be Birr 18,000.
d) Compressed Air Supply
The plant will require a compressed air supply particularly for the production of PVC tubes,
bags and the air treatment unit which supplies clear and conditioned air to the clean room.
The plant will require 500lit/min at a working pressure of 8-10 bars. Therefore, the plant
should have a compressed air unit which can supply 500lit/min of compressed air at a
working pressure of 8-10 bars. The only running cost of air compressor is its electric power
consumption.
8.4. Fuel and lubricants
A worth of Birr 935,603diesel oil will be consumed to run the stand by generator and three
vehicles of the project owns. We assumed that each vehicle will consume a total of 15,000

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liters per annum. As far as the diesel generator is concerned, it is prudent to assume that
there will be 2 days of blackout per week so that the generator will operate for 104 days per
annum using diesel fuel. The generator consumption is assumed to be 50 liters per day and
5,200 liters per annum.

Table – 17: Fuel and Lubrications

S,no Description amount Fuel consumption Unit cost Total cost
(Liters/annum) (Birr) (Birr)
1 Vehicles 3 15,000 17.75 798,750
2 Fuel Generator 1 5,200 17.75 92,300
Sub Total       891,050
3 Lubrications(5% of Fuel cost) 5%     44,553
Total       935,603

9. Technology and Engineering

9.1. Preliminary Determination of Scope of the Project
The first phase of the project will be to setup a plant which can produce 5,040,000 Giving
sets, 5,040,000 PVC bags and 5,040,000 Cannulas per annum. In this phase the plant will do
the following activities.
a) IV Giving Sets: the PVC-tube will be manufactured by using the imported PVC
Granules and all the other components will be imported. The assembling of the
components will be largely manual.
b) IV Bags: the bags will be molded by using the imported PVC Granules and all the
welding will be done at the plant.
c) Cannulas: individual packing and sterilizing will be done at the plant.
Packing and sterilizing of all the three products shall be performed at the plant.

Medical devices are one of the main items needed in the health care of any society. To
produce effective and safe drugs and medical devices strict care should be taken with
production premises, personnel and environment.

9.2. Production Process Description

a) IV-Giving Sets

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In its first phase of production the plant shall concentrate on the assembling of the various
components of IV-Giving sets. Most of the assembling will be done manually. The
production process is a batch process as described below in the flow chart.

b) IV-Bags

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The plant will have a complete plant to produce bags from PVC granules. The production
process is a batch process as shown below.

c) Cannulas
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In its first phase of production the plant shall concentrate on production of IV Giving set and
IV Bag. In its second phase launches the packing and sterilization of cannulas. The packing
process is shown below.

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9.3. Major GMP — Guidelines Concerning Manufacturing Process

a) The manufacturing procedure should be strictly followed as per the standard operating
procedures. The details of the operation should be recorded on the Batch Manufacturing
Record.
b) At all times during processing, all materials bulk containers and major items of
equipment used should be labeled or otherwise identified with an indication of the
product or material being processed.
c) Each delivery or batch of material should be assigned a reference number which will
identify the delivery or batch throughout storage and processing.
d) All measuring systems should be verified as accurate.

9.4. Quality of Machinery and Equipment

For the manufacturing of giving sets & bags and packing of cannulas machineries and
equipments with the best quality should be acquired to minimize wastage and to produce
quality products. The quality can be assessed based on the design, construction and material
selection. All machineries and equipments are to be purchased from abroad. The local
industries are not in position to produce the machineries and equipment required.

However, as the manufacturing process is a batch process, the machineries and equipments
can be purchased from different manufacturers or suppliers and can be installed in a
synchronized way.

9.5. Major GMP Requirements Concerning Quality of Machineries and Equipment

It is highly advisable and recommended to use this guidelines in order to have the best
machineries, clean operation and in effect quality products.
a) Equipments should be designed and located to suit the process and products for which it
is to be used. It should be capable of carrying out the processes for which it is used and of
being operated to the necessary hygienic standards. It should be maintained so as to be fit
to perform its functions and present no hazard to the product.
b) Manufacturing equipment should be easily and conveniently cleanable, both inside and
outside. There should be written instructions for such cleaning and suitable cleaning
facilities should be provided.
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c) Equipment parts which come into contact with materials being processed should be
minimally reactive or absorptive with respect to those materials.
d) Equipment should not hazard a product through leaking glands, lubricant drips, and the
like; or through in appropriate modifications or adoptions.
e) Equipment used for weighing, measuring, testing and recording should be subjected to
regular recorded checks for accuracy and working order, according to a written planned
maintenance schedule.

10. Civil Engineering Works

10.1. General Description
Pharmaceutical industries, including those producing medical apparatuses & devices, should
be located, designed, constructed and maintained to suit the operations to be carried out.
Their layout and design must aim to minimize the risk of errors and permit effective clearing
and in general to avoid any adverse effect on the quality of products. Especially, the floor,
walls and ceilings should be very smooth and possibility with no cavities, to avoid any dust
accumulation and to enhance the cleaning process.

It is with this understanding that the overall floor layout plan of the plant shall be designed
to confirm to the requirements of GMP.

10.2. Production Layout Plan

A typical sketch for the production floor layout is attached in Annex part. While designing the
floor layout, the following points shall be considered.
a. The avoidance of cross contamination
b. Segregated entry for personnel and material
c. The avoidance of different process mix-ups.
For this purpose a straight line process layout plan from raw materials entry to
finished goods exist system shall be planned.
d. Allocation of sufficient space for easy and unhindered movement of personnel and
materials.

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During design care should be taken with the height of the ceiling, drainage system, and
natural light system, smoothness of walls, floors and ceilings to facilitate easy cleaning.
10.3. Major GMP - Requirement Concerning Premises/ Production Layout
It is advisable and highly recommended to follow these major guidelines during selection of
site, design and construction of the manufacturing plant.
a) Premises should be sited to avoid contamination from external environment or from
near-by activities.
b) Premises should be constructed and maintained with the object of protecting against
weather, ground seepage and the entrance and harboring of vermin, birds and pets.
c) Protection from weather should be provided for receiving and dispatch areas, and for
materials and products in transit.
d) Premises should provide sufficient space to suit the operation to be carried out, allow
an efficient flow of work and permit effective communication and supervision.
e) Toilets should be well ventilated and not open directly to manufacturing areas.
f) Floors in processing areas should be made of impervious materials, laid to an even
surface.
g) They should be free from cracks and open joints and should allow prompt and
efficient removal of any spillages. Walls should be sowed and finished with a smooth,
impervious and washable surface. Ceiling should be so constructed and finished so
that they can be maintained in a clean condition.
h) Pipe work, light fittings, ventilation points and other services in manufacturing areas
should be designed to avoid creating non-cleanable recesses. They should be sealed in
to any walls and partitions through which they pass
i) Drains should be of adequate size and should have trapped drains and proper
ventilation. Open channels should be avoided, where possible.
j) Buildings should be effectively lit & ventilated.
k) Air intakes and exhausts; and associated paperwork and trunking, should be designed
to avoid product contamination hazards.

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l) Storage areas should be designed, laid out and be of sufficient capacity to permit
effective & orderly segregation of the various categories of material stores and to
allow rotation of stock.
m) All premises, including processing areas; laboratories store, passage ways & external
surrounds should be maintained in a clean and tidy condition.
11. Environmental Impact Assessments

In general, the lack of selection of proper technology, improper running as well as using
improper input in industrial operation is the main causes of adverse effects to the
environment and public health. Pollution can be in the form of gas emission or liquid
effluents which negatively affect working area or the surrounding environment. Industrial
waste in particular, represents a health hazard, due to its content in toxic substances such as
heavy metals, pesticides, solvents and used oils, if not properly treated causes serious
damages to the environment.

In this regard, the project under study produces the items simply by extrusion and
assembling of the components. So, the production process does not generate any emissions
and/or effluents that can potentially endanger the environment. The whole production
process is carried out within the clean room which filled with treated air. Besides, since the
factory produces medical devises it is much concerned on environmental and sanitation
aspects.
Moreover, the residual of the factory could be consumed as a raw material for the production
of plastics, shoe PVC soal, PVC pipes, and other plastic products. Hence, the residual is
supplied to these factories. From this fact one can be sure that the plant does not have any
waste material which affects the environment. On the other hand, the factory utilizes
ethylene oxide for sterilization purpose or cooling of the machineries, and then it will be
catalyzed. During sterilization process only less than 2% will be released into the air which is
acceptable in any environmental standards.
Hence, since the factory uses chemicals it is advisable to ensure the safety of the personnel
and physical assets of the factory. This is facilitated through provision of protective masks
and milk for promoting the health of employees who will be working on the production line.

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VI. ORGANIZATION AND MANAGEMENT

1. Organizational Structure
The organizational structure of the envisaged manufacturing plant is prepared taking in to
account the theoretical approach as well as the organizational structure of similar
institutions. The main objective is to maximize the utilization of the limited resources clearly
identify responsibility and authority and to improve the control and coordination system
through a better communication. As shown below on the organization of the company the
manufacturing plant will have four departments.

In general, the plant will be managed by the following management group.

a. Board of directors
b. General manager/ Managing director
c. Technical head/plant manager
d. Quality assurance head
e. Administration and finance head
f. Commercial head
g. Audit service

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2. Manpower Requirement
There should be sufficient personnel at all levels with the ability, training, experience, and
wherever necessary the professional/technical qualifications and managerial skills
appropriate to the tasks assigned to them. Their duties and responsibilities should be clearly
explained to them and issued as written job descriptions. The details of manpower
requirement and the annual labor cost including overheads are shown on table 21. It is
planned that the company will have a total of 59 employees during full operation.

It is possible to get from the local market skilled and qualified domestic personnel. But, since
the venture is new in the country it requires special training. Hence, continues training
program is designed based on the GMP principles to insure the quality of the products.
Table – 18: Manpower Requirements and Wage Bill
No Description No of Monthly Annual Salary
Workers Salary (Birr) (Birr)
General Manager’s office 3
1 General Manager 1 4,000 48,000
2 Secretary 1 1,000 12,000
3 Office assistant 1 400 4,800
Production & Technical Dept. 32
Quality Assurance Dept.
4 Production Head 1 3000 36,000

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No Description No of Monthly Annual Salary

Workers Salary (Birr) (Birr)
5 Quality Assurance Head 1 3000 36,000
6 Quality Inspection Workers 2 1500 36,000
7 Mechanic 2 1500 36,000
8 Electrician 2 1500 36,000
9 Production Workers 20 800 192,000
Visual Inspection Workers 4 500 24,000
Finance & Admin. Dept. 20
10 Finance & Admin. Head 1 3000 36,000
11 Cashier Accountant 1 1000 12,000
12 Personnel & General Service 1 1000 12,000
13 Driver 3 700 25,200
14 Janitors 10 500 60,000
15 Guard 4 400 19,200
Commercial Dept. 4
16 Sales & Supplies Head 1 1500 18,000
17 Sales man and Store Keeper 3 1000 36,000
Total 59 679,200
Fringes Benefit 15% 101,880
(Allowance, Insurance, Health, & other
benefits)
Annual Wage and Salary Cost 781,080

3. Major GMP requirements concerning personnel

a) The key personnel are the person responsible for production and quality assurance who
should be different persons, neither of whom shall be responsible to the other, but who
both have a responsibility for achieving the requisite product quality.
b) Persons in responsible positions should have sufficient authority to discharge their
responsibilities.
c) Key personnel should be provided with adequate supporting staff.
d) High standards of personal cleanliness should be observed by all those concerned with
production.
e) All persons entering production areas should wear protective out fits appropriate to the
process being carried out. Outfits should be regularly and frequently cleaned and not
worn outside the factory premises.
f) Direct contact should be avoided between the operators’ hands and starting materials,
intermediates and products.

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g) There should be pre-employment medical checks and steps should be taken to see that no
person with a disease in a communicable form or with open lesions on the exposed
surface of the body is engaged in the manufacture of medicinal products.

4. Training
All personnel, whose duties take them into manufacturing areas, or which bear upon
manufacturing activities should be trained in the practice of the tasks assigned to them and
the general principle of Good Manufacturing Practice (GMP).

Training should be done in accordance with written program and should be given at
recruitment and be augmented and revised as necessary. Training records should be
maintained and periodic assessments of the effectiveness of training program should be
made. Checks should be carried out to confirm that designated procedures are being
followed by staff at all levels. In this context, a special on job training program should be
arranged for professionals in the production and quality assurance sections in order to
acquaint them with ever growing modern technological process in the manufacturing of
pharmaceuticals on a regular basis.
X. FINANCIAL ANALYSIS
1.1. Basic Assumptions
1) Annual working days 300,
2) Daily working hour is 8 hr,
3) One shift production is assumed,
4) Number of employees is assumed to be 59,
5) The company is assumed to start operation at 70% capacity (3,528,000 unit) and
increase by 15% per annum to reach its’ maximum efficiency,
6) Sanitation and cleaning materials cost is assumed to be Birr 3,600.
(300Birr/month*12)
7) Workers uniform cost is assumed for 30 workers two times a year at a cost of Birr
500 per worker. This is estimated as Birr 30,000. (500Birr*30worker*2)
8) Supplies are assumed to be 10% of wage and salary cost,

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9) Fringe Benefits of all employee is assumed to be 15% of total annual wage &
salary and Estimated as Birr 101,880 per annum,
10)Electricity consumption is estimated to be 216,000kwh per annum. Considering
the number of working days and hours of production. Total cost as full capacity
will be Birr 111,132 per annum, (18,000KWH/annum X 0.49Birr/KWH X
12months plus 5% service charge)
11)Water consumption is estimated as Birr 3,763 per annum, (90cu.m/month X
12months X 3.5Birr/cu.m )
12)Telephone consumption is assumed to be Birr 18,000 per annum.
(1,500Birr/month*12 month)
13)Fuel and Lubrication is estimated to be Birr 935,603per annum,
14)Consumption of Ethylene Oxide is estimated to be 0.29gm for IV giving sets and
0.35gm for IV bag per unit,
15)Land and Building Tax are calculated by assuming 0.5% of building construction
cost which is Birr 31,750.
16)Insurance is assumed to be as follows:
a) Machinery and Equipments: 0.1% of its original cost (Birr 17,765).
b) Vehicles: 0.3% of its original cost (Birr 3,984).
17)Vehicle annual inspection is assumed to be Birr 3,600 (Birr 1,200 per year*3
vehicles)
18)Administrative cost is assumed to be 10% of total wage and salary (Birr 78,108)
19)Depreciation is calculated by assuming:
a) Structural and civil works 5.0% of its original cost (Birr 315,000)
b) Machinery and Equipment 8.0% of its original cost (Birr 1,412,820)
c) Vehicles 12.50% of its original cost (Birr 166,000)
d) Furniture & Fixtures 10% of its original cost (Birr 25,190)
e) Pre-production expense 25% of original value (Birr 70,500)
20)Revenue is assumed to be as follows:
a. Revenue from IV Giving sets: 3,528,000Unit*1.927Birr=6,798,456 at 70% capacity
b. Revenue from IV bags(1000ml): 3,528,000Unit*3.83Birr=13,514,004at70% capacity
21)Selling price is expected to increase by 2% each years,
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22)Interest Rate is assumed as 9.5%,

23)Exchange rate is assumed to be Euro 23.5 & USD 17.5
24)Grace period is assumed to be two years.

1.2. Investment Cost

The investment costs constitute the resources required for land acquisition, building
construction and civil works, purchase of machineries and equipments, Vehicles, Furniture
and Fixture. For the given project the fixed investment cost are estimated at Birr
28,439,723 including 5% contingencies.
For the project under reference, according to Table-19, the investment cost includes the
following: -
1. Cost of land acquisition on lease basis and Structures and civil works
2. Cost of Machinery and Equipments
3. Cost of Furniture and fixtures
4. Cost of Vehicles
5. Pre-production Expenses
6. Working Capital Requirements

Table - 19: Investment Cost

S.no Description Amount (Birr)
1 Building and Civil works construction 6,349,000
2 Vehicle 1,328,000
3 Machinery 17,660,250
4 Office Furniture & fixture 251,948
5 Pre-operating cost 282,000
6 Working Capital 1,214,253
Sub Total 27,085,451
  5% contingency 1,354,273
  Total 28,439,723

1.3. Pre-production Capital Expenditures

The pre-production capital expenditures, which have to be capitalized, include the following
cost items that originate during the various stages of project formulation and

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implementation. As indicated on the implementation schedule it will take one year. The total
amount of the pre-production expenditures is estimated to be Birr 0.282 million.
1. Costs of preparatory investigations a pre-investment study such as feasibility study
and preliminary designing. (consultancy service Birr 180,000)
2. Detail planning, tendering, supervision and coordination of implementation works.
(Administrative expense 10% of salary of experts for one year, 7,200)
3. Project management expenses for salary, wages, and other expenses during project
implementation period. (salary of three experts each with Birr 2,000 per month for
one year, Birr 72,000)
4. Interest on loan during construction phases. (interest payment at 9.5% for one year
Birr 22,800 )

1.4. Working Capital

Working capital is the financial means required for smooth operation and maintenance of the
project. In the case of the project under consideration the current assets comprises
receivables, inventories (material inputs), cash in hand and accounts payable to creditors but
which is free of interest. For the proposed project the working capital has been computed at
Birr 1,214,253 in the first year operation. (See Table below)

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Table – 20: Working Capital Determination

S.No Description Projection Years

1 2 3 4 5 6 7 8 9 10
1 Materials Input per month 632,491 768,025 903,558 903,558 903,558 903,558 903,558 903,558 903,558 903,558
2 Supplies per month 4,703 5,533 6,509 6,509 6,509 6,509 6,509 6,509 6,509 6,509
3 Uniform per 6 month 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000
4 Sanitation materials per month 210 300 300 300 300 300 300 300 300 300
5 Wage and Salary per month 65,090 65,090 65,090 65,090 65,090 65,090 65,090 65,090 65,090 65,090
6 Utility per month 6,702 8,138 9,575 9,575 9,575 9,575 9,575 9,575 9,575 9,575
7 Maintenance per month 91,337 110,909 130,481 130,481 130,481 130,481 130,481 130,481 130,481 130,481
8 Spear parts per quarter 274,011 332,727 391,444 391,444 391,444 391,444 391,444 391,444 391,444 391,444
9 Fuel and Lubrication per month 54,577 66,272 77,967 77,967 77,967 77,967 77,967 77,967 77,967 77,967
10 Overhead Cost 57,097 57,097 57,097 57,097 57,097 57,097 57,097 57,097 57,097 57,097
11 Administrative cost 4,556 5,533 6,509 6,509 6,509 6,509 6,509 6,509 6,509 6,509
12 Promotion per month 8,479 10,296 12,112 12,112 12,112 12,112 12,112 12,112 12,112 12,112
  Total Working Capital 1,214,253 1,444,920 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643
  Increase in Working Capital 230,667 230,723 - - - - - - -

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1.5. Project Financing

Fixed investment costs, pre-production capital expenditure and the working capital
requirements are assumed to be covered by equity capital contribution of the project
promoters and through loans of short and long terms credit suppliers.

Even though the project might obtain loan under different terms and condition for the
purpose of calculating loan repayment capacity the current Commercial Bank of Ethiopia
(CBE) credit term and conditions have been used. Accordingly, it is assumed that the project
will be able to cover about 70% of the total investment cost through bank credit loan; the
loan could be repaid back within 8 years period with 9.5% annual interest rate. But the
payback period is only 4 years.
Table - 21: Financial Scheme (Source)
R.no Description Bank loan Owner equity Total Cost
1 Building and Civil Works 4,444,300 1,904,700 6,349,000
2 Vehicle 929,600 398,400 1,328,000
3 Machinery & equipment 14,128,200 3,532,050 17,660,250
4 Furniture & fixture   251,948 251,948
5 Pre-production cost   282,000 282,000
6 Working capital 405,707 808,546 1,214,253
  5% contingency   1,354,273 1,354,273
  Total 19,907,807 8,531,917 28,439,723
  Percentage share 70% 30% 100%

1.6. Operation and Maintenance Cost

1. Material Inputs
a. IV Giving Sets
In the project under study, at full capacity the basic materials inputs required for production
of 5,040,000 pieces of IV Giving sets are 50,400kg of PVC granules and other assembling
components as listed on the following table including cartons for packaging. This show from
one kilogram of PVC Granules 100 pieces of IV Giving tubes could be produced.

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Table – 22: List of Materials Input Required for Production of IV Giving Sets
Per Unit Cost Total Quantity Total Cost at Full
Descriptions Unit in Birr Required Capacity in Birr
A. Raw Material        
PVC Granules for Giving set of Length 1300mm
& Weight 10gm (1 kg of Granules can produce
100pcs of IV Giving tube) kg 25.9675 50,400 1,308,762
A. Components
(which could be assembled directly)        
Assembled drip chamber pcs 0.3173 5,040,000 1,598,940
Roller Clamp pcs 0.1499 5,040,000 755,647
Latex Bulb Connector pcs 0.1528 5,040,000 769,860
Lure Cone connector pcs 0.0740 5,040,000 373,086
Needle pcs 0.1528 5,040,000 769,860
Poly. Bag pcs 0.0823 5,040,000 414,540
Sub Total       4,681,933
C. Importation changes 10%       468,193
D. Packing Materials        
Labeled Cartoon Box pcs 5 8,000 40,000
Total cost (A+B+C+D)       6,498,889

b. IV Bags
For the production of 5,040,000 pieces of 1000ml IV bags the basic material inputs required
are 144,000kg of PVC granules. This show from one kilogram of PVC Granules 35 pieces of IV
Bags could be produced. The following table shows material required for production of IV
Bags including cartons for packaging.

Table - 23: List of Materials Input required for production of IV Bags

Per Unit Cost Total Quantity Total Cost at Full
Description unit in Birr Required in Kg capacity in Birr
A. PVC Granules for production of 5,040,000
IV bags (1 kg of Granules can produce 35
bag) kg 25.9675 144,000 3,739,320
B. Importation charges 10%       373,932
C. Labeled Cartoon Box for 1000ml bags Pcs 5.00 15,000 75,000
Total cost (A+B+C)       4,188,252

c. Ethylene Oxide Supply for both

Table - 24: Cost of Ethylene Oxide
Unit of Production Total Per Unit Total Cost at
Description Measurem amount Requiremen Cost Full capacity
ent ts
Ethylene Oxide
For giving sets kg 5,040,000 1,440 41.75 60,120
For bags kg 5,040,000 1,800 41.75 75,150
Sub total 3,240   135,270
Importation charges(by Air) 15%     20,290
Annual Total cost Birr     155,560
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d. Summary of Materials Input

Materials required for production of both products is summarized below for the first five
years of operation of the project.

Table - 25: Summary of Materials Input

Project Year
 
1 2 3 4 5
R.no Description
70% 85% 100% 100% 100%
Raw Materials, Components and 4,549,222 5,524,055 6,498,889 6,498,889 6,498,889
1 Packaging Materials of Giving sets
Raw Materials, and Packing 2,931,776 3,560,014 4,188,252 4,188,252 4,188,252
2 Materials of 1000ml IV Bags
3 Ethylene Oxide 108,892 132,226 155,560 155,560 155,560
Total Cost 7,589,891 9,216,296 10,842,701 10,842,701 10,842,701

2. Salaries and Wage

The costs of salary and wages have been calculated by considering the organizational
structure of the company. The project's manpower requirement has been estimated to be 59
employees. In the estimation of salaries and wages the official minimum was respected.

Other costs related to salaries and wages such as fringe benefits (insurance, medication,
travel and per diem and sundry expenses) have been included in cost of salaries and wages
at the following rates: -
 Medication 5% of salary and wages
 Insurance 3% of salary and wages
 Travel and per-diem 4% of salary and wages
 Sundry expenses 3% of salary and wages
The total salary and wage expense is estimated to be Birr 781,080. (See table 18 above)

3. Utilities
In estimating costs of utility expenses for operation and maintenance of the given project,
costs of electricity, water and telecommunication consumption have been taken in to
consideration, the rates of which have been estimated on the basis of the proposed capacity
utilization of the project and at the current official charging rates.

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Items Costs
 Electricity 18,000KWH
/month*0.49Birr/Kwh*12month 111,132
 Water
90cu.m/month*3.5Birr/cu.m.*12month
3,763
 Telecommunication 1,500Birr/month*12month
18,000
Total..........................................................Birr 114,895
4. Repair and Maintenances
In the expenses under this title have been considered cost estimates of annual repair and
maintenance works. These expenses include the annual repair and maintenance cost of
structures and civil works, vehicles, machinery and equipment, Furniture and Fixture. For
the given project, the cost of repair and maintenance works have been estimated at Birr
1,691,776 per annum at full capacity production.

Table – 26: Repair and Maintenances

Repair and
S.No Description rate Original Cost maintenance cost
1 Structural and Civil Works 2% 6,300,000 126,000
2 Machinery and Equipments 8% 17,768,348 1,421,468
3 Furniture and Fixtures 8% 143,850 11,508
4 Vehicle 10% 1,328,000 132,800
Total 1,691,776

5. Depreciation
To calculate the total service rendering costs, the net working capital requirements and net
profit, depreciation charges should be taken into account as part of the total service
rendering costs. For this particular project the fixed assets were depreciated on a straight
basis using the following rates of the original acquisition costs of the assets.

Table - 27: Deprecation

S.n Rate of
Description Original value Annual Depreciation
o Depreciation
1 Structural and Civil Works 5.00% 6,300,000 315,000

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2 Machinery and Equipment 8.00% 17,660,250 1,412,820

3 Vehicle 12.50% 1,328,000 166,000
4 Furniture and Fixture 10% 251,948 25,195
5 Pre production capital Expenditure 25% 282,000 70,500
Total 1,989,515

The amortization rate for the pre-production capital expenditures was estimated at 25%.
The rational used for the estimation of depreciation and an amortization rate is the expected
service life of the assets and repayment capacity of the project under consideration.

1.7. Project Revenue

In the first year of operation the project will generate total gross revenue of Birr 20,312,460
in its 70% capacity utilization.
Table - 28: Summery of Revenue
Project Year
S.No Item/Year Unit 1 2 3 4 5
  Production Capacity % 70% 85% 100% 100% 100%
1 IV Giving sets            

  Qty Pcs 3,528,000 4,284,000 5,040,000 5,040,000 5,040,000

  Selling price/pcs Birr 1.927 1.966 2.005 2.045 2.086
  Sub Gross Revenue Birr 6,798,456 8,420,373 10,104,448 10,306,537 10,512,668
2 IV bags (1000ml)            
  Qty Pcs 3,528,000 4,284,000 5,040,000 5,040,000 5,040,000
  Selling price/pcs Birr 3.83 3.91 3.99 4.06 4.15
  Sub Gross Revenue Birr 13,514,004 16,738,059 20,085,671 20,487,385 20,897,132

  Total Gross Revenue Birr 20,312,460 25,158,433 30,190,119 30,793,922 31,409,800

1.8. Summary of Financial Results

i) Investment Cost
Project investment costs are defined as the sum of fixed capital and net working capital. Of
which fixed capital constitutes the resources required for building construction, purchase of
vehicles, machinery and equipments, pre-production costs and working capital
corresponding to the resources needed for full or partial operation the project.

The project at full capacity operation will entail a total outlay of Birr 28,439,723. Out of the
total outlay for the investment capital Birr 8,531,917is assumed to be covered by equity

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capital and Birr 19,907,807 is expected to be obtained in the form of loan capital from local
bank.

ii) Profitability
Accordingly, the project profit and loss statement forecasted for 10 years shows that net
profit at initial will be Birr 3,770,567. The net profit at the end of the project period of
ten years is projected to be Birr 11,655,232. (Refer to table-9 of annex-IX)

iii) Liquidity
The cash flow projection also shows a positive incremental cumulative cash balance
throughout the reporting period. The cumulative cash balance at first year is projected to be
Birr 185,442. The cumulative cash balance is projected to grow throughout and be Birr
67,545,413 at the end of the project period. This implies that the project will be liquid to
meet its financial obligations throughout the reporting period.

iv) Internal Financial Rate of Return(IFRR)

The internal financial rate of return (IFRR), the benefit–cost ratio and net present value
(NPV) have been calculated at 9.5% discount rate (D.R) for ten years of the project
production period. Accordingly the project is expected to generate IFRR of 14.81%, which is
well above the cut off rate of 9.5%, and NPV at 9.5% D.R. of Birr 9,232,778. The average
benefit-cost ratio at 9.5% D.R. has come to be 1.325, hence these results are acceptable.

v) Sensitivity Analysis
The fate of the project in events of adverse effect in selling price, operation cost and initial
investment cost is addressed. If selling price decreases by 10% FIRR will be 12.94%. If
operation cost increases at 10% FIRR will be 11.59%. The result proves that the project will
exist in the market if adverse events of 10% happened.

vi) Socio Economic Benefits

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The establishment of the project is expected to contribute to the government treasury in the
form of taxes a total of Birr 47,188,966 at the end of the project year. It also contributes
to creation of employment for 59 citizens. The product will also substitute import and
creates a suitable supply condition to local manufacturing of IV Fluids.

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XI. IMPLEMENTATION SCHEDULE

Period of accomplishment
R. Tasks 2011 2012
no June July
Au Se Oc No Dec Ja Feb
Marc April Ma Jun Jul Au Se Oc No De
g p. t. v n h y e y g p. t. v c
1 Bank Loan Processing
2 Completing the
Construction/ civil work
of the Plant (Currently
70% is completed)
3 Procurement of Plant
Machinery, Vehicle, office
equipments & Furniture
4 Staff/Workers recruiting
and hiring process and
Training
5 Procurement of starting
materials, chemicals,
other supplies
6 Erection, commissioning,
tests on completion and
performance testing of
machineries and
equipments
7 Plant Promotion and
Publicity
8 Commencement of Trial
Production
9 Official Inauguration and
commencement of
production and
marketing products

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ANNEXED TABLES

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Annex - I
SA-MED PLC
CALCULATION OF ANNUAL PRODUCTION COSTES
Table - 1 in Birr
Project Year

Cost Category 70% 85% Full capacity

capacity capacity 100% 3 4 5 6 7 8 9 10
Material Input 7,589,891 9,216,296 10,842,701 10,842,701 10,842,701 10,842,701 10,842,701 10,842,701 10,842,701 10,842,701
Wage and Salary 781,080 781,080 781,080 781,080 781,080 781,080 781,080 781,080 781,080 781,080
Utility 80,426 97,660 114,895 114,895 114,895 114,895 114,895 114,895 114,895 114,895
Workers Uniform 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
Sanitation and Cleaning Materials 2,520 3,060 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600
Supplies 56,433 66,392 78,108 78,108 78,108 78,108 78,108 78,108 78,108 78,108
Repair of building (2%) 126,000 126,000 126,000 126,000 126,000 126,000 126,000 126,000 126,000 126,000
Maintenance of machinery & equip. (8%) 1,003,083 1,218,029 1,432,976 1,432,976 1,432,976 1,432,976 1,432,976 1,432,976 1,432,976 1,432,976
Repair of Vehicle (10%) 92,960 112,880 132,800 132,800 132,800 132,800 132,800 132,800 132,800 132,800
Fuel and Lubrication 654,922 795,262 935,603 935,603 935,603 935,603 935,603 935,603 935,603 935,603
Land & Building Tax 31,745 31,745 31,745 31,745 31,745 31,745 31,745 31,745 31,745 31,745
Insurance: Machinery & Equipments 17,768 17,768 17,768 17,768 17,768 17,768 17,768 17,768 17,768 17,768
Vehicle 3,984 3,984 3,984 3,984 3,984 3,984 3,984 3,984 3,984 3,984
Vehicle Annual Inspection 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600 3,600
A. Factory Direct Costs (sum of 1-13) 10,474,412 12,503,757 14,534,859 14,534,859 14,534,859 14,534,859 14,534,859 14,534,859 14,534,859 14,534,859
Administrative Costs 54,676 66,392 78,108 78,108 78,108 78,108 78,108 78,108 78,108 78,108
(10% of Wage & Salary cost)
Promotional Expenses (1% of Direct cost) 101,744 123,546 145,349 145,349 145,349 145,349 145,349 145,349 145,349 145,349
B. Total Operating Costs (sum of 1-15) 10,630,832 12,693,695 14,758,316 14,758,316 14,758,316 14,758,316 14,758,316 14,758,316 14,758,316 14,758,316
Financial Cost(Interest) 1,891,242 1,653,742 1,416,242 1,178,742 941,242 703,742 466,242 228,742 - -
Depreciation and Amortization 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515
C. Total Production Costs (sum of 1-17) 14,511,588 16,336,951 18,164,072 17,926,572 17,689,072 17,451,572 17,214,072 16,976,572 16,747,831 16,747,831

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Annex - II
SA-MED PLC
PROJECTED PROFIT AND LOSS STATEMENT
FOR THE TEN YEARS ENDING DEC. 31
Table - 2 in Birr
Project Year
Item Description
1(70%) 2(85%) 3(100%) 4 5 6 7 8 9 10
1. Total Gross Revenue 20,312,46 25,158,43 30,190,119 30,793,922 31,409,800 32,037,996 32,678,756 33,332,331 33,998,978 34,678,957
0 3
2. Total Production Costs 14,511,58 16,336,95 18,164,072 17,926,572 17,689,072 17,451,572 17,214,072 16,976,572 16,747,831 16,747,831
8 1
Profit Before Taxes 5,800,872 8,821,481 12,026,047 12,867,349 13,720,728 14,586,424 15,464,684 16,355,759 17,251,147 17,931,127

Profit Taxes (35%) 2,030,305 3,087,518 4,209,116 4,503,572 4,802,255 5,105,248 5,412,639 5,724,516 6,037,901 6,275,894

Net Profit 3,770,567 5,733,963 7,816,931 8,363,777 8,918,473 9,481,175 10,052,04 10,631,24 11,213,24 11,655,23
4 3 6 2
Dividend ( 20%)on profit 1,146,793 1,563,386 1,672,755 1,783,695 1,896,235 2,010,409 2,126,249 2,242,649 2,331,046

Undistributed Profit 3,770,567 4,587,170 6,253,544 6,691,022 7,134,778 7,584,940 8,041,635 8,504,995 8,970,596 9,324,186

Accumulated Undistributed 3,770,567 8,357,737 14,611,28 21,302,30 28,437,08 36,022,02 44,063,65 52,568,65 61,539,24 70,863,43
Profit 1 3 1 2 7 2 8 4

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Annex - III
SA-MED PLC
PROJECTED CASH FLOW STATEMENT
Table - 3 in Birr
Project Year
Item Description
0 1 2 3 4 5 6 7 8 9 10
Cash Inflows
Share Capital 8,531,917
Bank Loan 19,907,807
Net Profit (net Income) 3,770,567 5,733,963 7,816,931 8,363,777 8,918,473 9,481,175 10,052,04 10,631,24 11,213,24 11,655,23
4 3 6 2
Depreciation & 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515 1,989,515
Amortization
Total Cash Inflows 28,439,72 5,760,08 7,723,47 9,806,445 10,353,29 10,907,98 11,470,690 12,041,55 12,620,75 13,202,76 13,644,74
3 2 8 2 8 9 8 0 7
Cash Outflows
Increase in Working Capital - 230,667 230,723
Increase in Fixed Asset 25,595,751 2,843,972
Loan Repayment 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,500,000 2,407,807 - -
Dividend Payment(Profit
Share)
Total Cash Outflows 1,146,793 1,563,386 1,672,755 1,783,695 1,896,235 2,010,409 2,126,249 2,242,649 2,331,046
Net Cash Inflow 25,595,75 5,574,63 3,877,51 4,063,386 4,172,755 4,283,695 4,396,235 4,510,409 4,534,055 2,242,649 2,331,046
1 9 6
Cumulative Cash Inflows 2,843,972 185,442 3,845,96 5,743,059 6,180,536 6,624,293 7,074,455 7,531,150 8,086,703 10,960,11 11,313,70
2 1 1

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Annex -IV
SA-MED PLC
Projected Balance Sheet statement
FOR THE TEN YEARS ENDING DEC. 31
Table - 4 in Birr
Project Year
Description 0 1 2 3 4 5 6 7 8 9 10
Assets
Current Assets
Cumulative Cash 185,442 4,031,404 9,774,463 15,955,00 22,579,29 29,653,74 37,184,89 45,271,60 56,231,71 67,545,41
0 3 8 8 1 2 3
Working Capital 1,214,253 1,214,253 1,444,920 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643 1,675,643
Total Current Asset 1,214,253 1,399,695 5,476,324 11,450,10 17,630,64 24,254,93 31,329,39 38,860,54 46,947,24 57,907,35 69,221,05
6 3 6 1 1 4 5 6
Fixed Asset
Building and Civil Works 6,349,000 6,034,000 5,719,000 5,404,000 5,089,000 4,774,000 4,459,000 4,144,000 3,829,000 3,514,000 3,199,000
Furniture and Fixture 251,948 226,753 201,558 176,364 151,169 125,974 100,779 75,584 50,390 25,195 0
Vehicles 1,328,000 1,162,000 996,000 830,000 664,000 498,000 332,000 166,000 0 0 0
Machinery and Equipment 17,660,25 16,247,43 14,834,61 13,421,79 12,008,97 10,596,15 9,183,330 7,770,510 6,357,690 4,944,870 3,532,050
0 0 0 0 0 0
Total Fixed Asset 25,589,19 23,670,18 21,751,16 19,832,15 17,913,13 15,994,12 14,075,10 12,156,09 10,237,08 8,484,065 6,731,050
8 3 8 4 9 4 9 4 0
Intangible asset 1,354,273 1,354,273 1,354,273 1,354,273 1,354,273 1,354,273 1,354,273 1,354,273 1,354,273 1,354,273 1,354,273
Pre-operating Cost 282,000 282,000 211,500 141,000 70,500 -
Total Asset 28,439,72 32,210,29 34,297,46 38,051,00 42,242,02 46,876,80 51,961,74 57,503,38 63,508,37 70,071,16 79,395,35
3 0 0 5 6 5 5 0 5 5 1
Liability and Capital
Liability
Bank Loan 19,907,80 19,907,80 17,407,80 14,907,80 12,407,80 9,907,807 7,407,807 4,907,807 2,407,807 - -
7 7 7 7 7
Capital
Owners Equity 8,531,917 8,531,917 8,531,917 8,531,917 8,531,917 8,531,917 8,531,917 8,531,917 8,531,917 8,531,917 8,531,917
Retain Earning 0 3,770,567 8,357,737 14,611,28 21,302,30 28,437,08 36,022,02 44,063,65 52,568,65 61,539,24 70,863,43
1 3 1 2 7 2 8 4
Total Capital 8,531,917 12,302,48 16,889,65 23,143,19 29,834,22 36,968,99 44,553,93 52,595,57 61,100,56 70,071,16 79,395,35
3 3 8 0 8 8 4 8 5 1
Total Liability and 28,439,72 32,210,29 34,297,46 38,051,00 42,242,02 46,876,80 51,961,74 57,503,38 63,508,37 70,071,16 79,395,35
Capital 3 0 0 5 6 5 5 0 5 5 1

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Annex -V
SA-MED PLC
Computation Internal Financial Rate of Return (Birr)
For the Ten Year ending Dec.31
Table – 5 In Birr'
in Birr
Year Cash Flow 1/( 1+ i)^n Present 1/( 1+ i)^n Present
at 9.5% Value at at 15% Value at
9.5% 15%
0
(28,439,72
3) 1.00000 (28,439,723) 1.000000 (28,439,723)
1
185,442 0.91324 169,354 0.869565 161,254
2
3,845,962 0.83401 3,207,574 0.756144 2,908,100
3
5,743,059 0.76165 4,374,223 0.657516 3,776,155
4
6,180,536 0.69557 4,299,022 0.571753 3,533,742
5
6,624,293 0.63523 4,207,934 0.497177 3,293,444
6
7,074,455 0.58012 4,104,009 0.432328 3,058,482
7
7,531,150 0.52979 3,989,904 0.375937 2,831,238
8
8,086,703 0.48382 3,912,538 0.326902 2,643,557
9
10,960,111 0.44185 4,842,704 0.284262 3,115,548
10
11,313,701 0.40351 4,565,239 0.247185 2,796,574
NPV at NPV at
  9.5% = 9,232,777.55 15% = (321,629)

NPV at 9,232,777.5
9.5% = 5
IFRR = 14.81
NB: IFRR =(Bank Interest Rate + (difference of the two DF)*Positive NPV/(Range
of Positive & Negative NPVs)

Benefit =
37,672,501
Cost =
28,439,723
Benefit Cost Ratio =
1.325

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Annex -VI
SA-MED PLC
Computation Internal Financial Rate of Return (Birr)
At Selling Price decreases by 10%
Table – 6
in Birr
Year Cash Flow 1/( 1+ Present 1/( 1+ Present
i)^n at Value at i)^n at Value at
9.5% 9.5% 13% 13%
0
(28,439,723
) 1.00000 (28,439,723) 1.000000 (28,439,723)
1
(256,457) 0.91324 (234,208) 0.884956 (226,953)
2
3,408,102 0.83401 2,842,395 0.783147 2,669,044
3
5,217,628 0.76165 3,974,026 0.693050 3,616,078
4
5,644,597 0.69557 3,926,236 0.613319 3,461,937
5
6,077,635 0.63523 3,860,682 0.542760 3,298,697
6
6,516,863 0.58012 3,780,540 0.480319 3,130,170
7
6,962,407 0.52979 3,688,591 0.425061 2,959,445
8
7,506,584 0.48382 3,631,863 0.376160 2,823,676
9
10,368,390 0.44185 4,581,253 0.332885 3,451,480
10
10,710,145 0.40351 4,321,696 0.294588 3,155,084
NPV at NPV at
  9.5% = 5,933,350.88 13% = (101,067)

NPV at 5,933,350.8
9.5% = 8

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IFRR = 12.94
NB: IFRR=(Bank Interest Rate +(difference of the two DF)*Positive NPV/(Range
of Positive & Negative NPVs)

Benefit =
34,373,074
Cost =
28,439,723
Benefit Cost Ratio =
1.209

Annex -VII
SA-MED PLC
Computation Internal Financial Rate of Return (Birr)
At Production cost increase by 10%

Table – 7
in Birr
Year Cash Flow 1/( 1+ Present 1/( 1+ Present
i)^n at Value at i)^n at Value at
9.5% 9.5% 12% 12%

(28,439,723
0 ) 1.00000 (28,439,723) 1.000000 (28,439,723)

1 (757,811) 0.91324 (692,065) 0.892857 (676,617)

2 2,996,440 0.83401 2,499,064 0.797194 2,388,744

3 4,798,527 0.76165 3,654,817 0.711780 3,415,497

4 5,248,355 0.69557 3,650,621 0.635518 3,335,424

5 5,704,461 0.63523 3,623,632 0.567427 3,236,865

6 6,166,973 0.58012 3,577,564 0.506631 3,124,381

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7 6,636,019 0.52979 3,515,675 0.452349 3,001,798

8 7,203,921 0.48382 3,485,427 0.403883 2,909,543

9 10,089,224 0.44185 4,457,904 0.360610 3,638,275

10 10,442,813 0.40351 4,213,823 0.321973 3,362,306

NPV at NPV at
  9.5% = 3,546,738.34 12% = (703,507)

NPV at 3,546,738.3
9.5% = 4
IFRR = 11.59
NB: IFRR=(Bank Interest Rate +(difference of the two DF)*Positive NPV/(Range
of Positive & Negative NPVs)

Benefit =
31,986,462
Cost =
28,439,723
Benefit Cost Ratio =
1.125

ANNEX-VIII
SA-MED PLC
CALCULATION OF PAY-BACK PERIOD
Table In Birr'
-8
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Year Amount paid back Investmen End year

Net Profit Depreciation Total t
1
25,595,75
3,770,567 1,989,515 5,760,082 1 (19,835,669)
2
5,733,963 1,989,515 7,723,478 2,843,972 (24,715,175)
3
7,816,931 1,989,515 9,806,445 - (14,908,729)
4
10,353,29
8,363,777 1,989,515 2 - (4,555,437)
5
10,907,98
8,918,473 1,989,515 8 - 6,352,550
6
11,470,69
9,481,175 1,989,515 0 - 17,823,241
7
12,620,75
10,631,243 1,989,515 8 - 30,443,999
8
13,202,76
11,213,246 1,989,515 0 - 43,646,759
9
13,644,74
11,655,232 1,989,515 7 - 57,291,506

Annex -IX
SA-MED PLC
LOAN AMORTAIZATION
Table-9 In Birr'

Years Loan Repayment Interest (9.5%) Loan outstanding

0 _ _ 19,907,807
1 2,500,000 1,891,242 17,407,807
2 2,500,000 1,653,742 14,907,807
3 2,500,000 1,416,242 12,407,807
4 2,500,000 1,178,742 9,907,807
5 2,500,000 941,242 7,407,807
6 2,500,000 703,742 4,907,807
7 2,500,000 466,242 2,407,807
8 2,407,807 228,742 0

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Annex - X
SA-MED PLC
SOURCE OF INITIAL FINANCE
Table - 10 In Birr'
Source of finance Local Currency Foreign Currency Total
1. Equity Capital 3,412,767 5,119,150 8,531,917
2. Loan Capital
19,907,807 0 19,907,807
Total 23,320,573 5,119,150 28,439,723

Annex - XI

SA-MED PLC
TOTAL INITIAL INVESTMENT COST
Table - 11 In Birr'
Investment Category Local Currency Foreign Currency Total
1. Initial fixed investment cost 21,824,321 5,119,150 26,943,471
2. Pre-production Capital
expenditure 282,000   282,000
3. Working Capital at full Capacity
1,214,253   1,214,253
Total 23,320,573 5,119,150 28,439,723

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PLC
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Annex -XII
SA-MED PLC

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PLC