ESTABLISHMENT OF RECREATION CENTER PROJECT PROPOSAL

Project to Be Implemented In Amhara Region Oromia Zone Bati Town

Submitted To: BATI Town Administration, land administration office and

BATI Town Administration Industry and Investment office

PROMOTED BY: W/RO ZEHARA AHMED ENDRIES

Mob.phone: +251912060205

OCT, 2021

BATI, Ethiopia

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 Table of Contents

page

PROJECT INFORMATION ................................................................................................................4

Executive Summary........................................................................................................................6
1.Introduction.................................................................................................................................7
1.1.General Background.................................................................................................................7

1.2. Project Rationale ....................................................................................................................9

1.3. Objective of the project..........................................................................................................11

2.4. The significance of the project ...............................................................................................11

2.5. Background of the Project Location ........................................................................................12

2.6. Proposed Project Location ......................................................................................................14

2. Service Description and Application............................................................................................15

3. Market Study and Service Capacity.............................................................................................16

3.1. Market Study ..........................................................................................................................16

3.1.1. Past Supply and Present Demand .........................................................................................16

3.1.2. Projected Demand.................................................................................................................16

3.1.3. Pricing ...................................................................................................................................17

3.1.4. Marketing promotion and strategy.......................................................................................18

3.1.5. Marketing and Sales Strategy................................................................................................19

3.2. Plant capacity ..........................................................................................................................20

3.3. Service delivery program.........................................................................................................20

4. Materials and Consumables and Inputs......................................................................................21

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4.1. Materials and Consumables.....................................................................................................21

5. Technology and Engineering .....................................................................................................22

5.1. Technology .............................................................................................................................22

5.2 Civil Engineering Cost ..............................................................................................................22

5.2.1. Locations and Site................................................................................................................24

5.2.2. Project implementation.......................................................................................................24

6. Manpower and Training Requirement.......................................................................................25

6.1. Manpower Requirement.........................................................................................................25

6.2. Training Requirement..............................................................................................................26

7. Financial Analysis.......................................................................................................................27

7.1. Underlying Assumption ..........................................................................................................27

7.2. Total Initial Investment Cost ...................................................................................................29

7.3. Operation Cost ........................................................................................................................30

7.4. Financial Evaluation..................................................................................................................31

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PROJECT INFORMATION

Project owner: W/ro Zehara Ahmed Endries

Proposed Project: Establishment of new recreation center

Project Location: Ethiopia Amhara Regional State, Oromia Zone Bati town Adminstration

Project Type: Service Industry

Requested Area: The site is 2500 karemeter square in area, located at Bati town

Total investment cost: 15 Million

Our value:-

 Loyalty and Reliability

 Customer focus

 Innovative culture

 Cost effectiveness

 Social responsibility

 Care for the environment

 Compliance with code of conduct

Facilities will be provided: Recreational centers are places where people get entertainment
and enjoyment. The facilities provided include various indoor and outdoor games, swimming
pools, cinema halls and facilities to stage theaters and music shows.

Job opportunity: The project will create employment opportunities for 85 persons

Need and Desirability: The envisaged project deemed to add to the economic development of
the nation in general and zone and town in specific with following ways:

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A. Source of Revenue

B. Employment opportunity

C. Sources of social service

D. Income

E. Source Of Fund

F. Hospitality – focus on the customers, promoting an exceptional guest experience.

G. Efficiency – offer a good service with the adequate resources.

H. Superior Customer Service

Source Of Fund: 30 % equity & 70% loan

Implementation Period: two year

Social and Economic Benefit: Provide better Building service, employment opportunities,
generation of income and benefits for the local people.

Objective:

 To construct and provide excellent child play care in a kid-friendly atmosphere while ensuring
our customers, both parent and child, receive excellent service in a playful,

 Establish recreation facilities and services to meet the needs of the Community.

 create both short and long term job opportunity for the local community and develop the
local skills base.

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Executive Summary

This profile envisages the establishment of recreational center in Bati town Amhara Regional
State. Demand projection divulges that there is high demand for recreational centers in the
region. Accordingly, the planned plant is set to provide recreational services in zonal second
largest town. The proposed Recreation Centre will meet the current and long-term needs of the
community of Bati. The total investment cost of the project including working capital is
estimated at Birr 15 million and creates 85 job opportunity .The proposed infrastructure will
support the Government’s objective to provide conditions and services. The proposed
recreation facility will enhance the tourism experience in many ways and create opportunities
for residents and businesses in Bati town. The financial result indicates that the project will
generate profit beginning from the first year of operation. Moreover, the project will break
even at 29.6% of capacity utilization and it wills payback fully the initial investment less working
capital in 3 years. The result further show that the calculated IRR of the project is 25.7% and
NPV discounted at 18% of Birr 351,871.79 .In addition to this, the proposed project possesses
wide range of economic and social benefits such as increasing the level of investment, tax
revenue and employment creation. Generally’ the project is technically feasible, financially and
commercially viable as well as socially and economically acceptable. Hence the project is worth
implementing. To this effect, the promoter the owner of the envisaged project, planned to
establishment of recreational center in Bati town and undertaken this project study to check
the market, technical and financial feasibility of this project. The promoter is very ambitious
and committed to realize the project. Hence, they expects to get the necessary support from
Bati investment and city administration to make the project to be operational

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1. Introduction
1.1. General Background
Ethiopia is now well-known as among the five1/ fastest growing economies of the world.
According to IMF, the average growth of the economy is about 10.7% for the last 11
consecutive years, up to 2013/14. The development is broad-based and in paradigm
transformation. It is apparent that the development policy and strategy of the Government
created an enabling environment for the participation of all citizens, who reside both in and
outside of the country, and contributed for the achievement of the stated fruits of
development. At this juncture all the development actors in general and the government in
particular is determined to sustain the pace of on-going growth and transformation of the
economy and it is explicitly indicated in the Second Five Year (2015/16-2019/20) of Growth and
Transformation Plan. The stated economic growth of the country brought a wide range of
positive social and economic outcomes, which includes, among others, the expansion of all
rounded business and investments. The project has multifaceted contributions for the socio-
economic development of a nation. In addition to the inclusive provision of best goods and
quality services, it is also beneficial in terms of job creation, revenue generation for the
government, an induced role in business and investment expansion and facilitation, tourist
attraction, etc. It is in this view that the promoter of establishment of recreational center in
Bati town has to first implement a plan to bridge the demand gap of the country in general and
to the city of Bati in particular. The current fast and dynamic economic growth of Ethiopia
especially in urban area necessitates equivalent growth of building and construction sector. The
sector should expand rapidly to support the overall economic development sustainable.

Service delivery is the provision of comprehensive and coordinated services to people in need.
Human service delivery is complex in contemporary Western societies, with high community
expectations, competing demands and often delivered under fiscal constraints. Specializations
can mean that individual service providers or agencies develop the expertise to deliver a very
specific service, yet individuals, families and communities often experience multiple needs and

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interrelated problems The Government of the Federal Democratic Republic of Ethiopia, after
closely examining youth issues, gave attention to youth problems and established the Ministry
of Youth, Sports and Culture in October 2001. This ministry has the duty and responsibility to
follow up, direct and coordinate youth affairs. The Ministry of Youth, Sport and culture
formulated a new National Youth Policy in 2004. Following the formulation of the National
Youth Policy, the Ethiopian government developed an Urban and Rural Youth Development
Package in 2006 and has started partnering with different local governmental organizations,
community based organizations and international agencies for program implementation. The
Urban Youth Development Package is a comprehensive development package that is designed
to solve the socio- economic problems of urban youth. In Ethiopia youth Perception towards
youth center service delivery have not as such received significant research attention of
concerned bodies. This has resulted in scarce literature, low practice and intervention on the
area of youth services delivery.

To this effect, the owner of the envisioned establishment of recreational center in Bati town
Amhara Regional State who has been living for long time in this town, planned to
establishment of recreational center in Bati and undertaken this project study to check the
market, technical and financial feasibility of this project. The promoter is very ambitious and
committed to realize the project. Hence, expects to get the necessary support from the city
administration to make the project to be operational.

To this effect, the promoters of establishment of recreational center in Bati committed to

developing in Eastern Amhara Bati town. Besides, the government policies and incentives for
the private sector investment are very promising that initiate the promoter to engage in
establishment of recreational center in Bati project.

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1.2. Project Rationale

Man's struggle for self-realization assumes many forms and has many parts. The road to
individual integrity and dignity requires the exercise of our rights and freedoms in responsible
and constructive ways. Important among these is the way each person chooses to exercise the
right to enjoy increasingly longer periods of respite from work and other responsibilities. We
are changing from a work-centered society to one in which people have a better opportunity to
balance their work with meaningful recreation experiences , These leisure experiences should
bring a greater measure of satisfaction and fulfillment into our daily lives. As we balance our
individual lives in this manner, we contribute to the proper balance of society. Whether
individually or as part of a group such as the family, are find much of the balancing experience
through some form of recreation activity. The nature and quality of the experience, which we
call recreation, determines in large measure the nature and quality of our lives. The values we
experience and demonstrate in our leisure behavior reflect the values we hold as individuals
and as a community of human beings. Recreation is first and foremost a personal matter. It is
something that a person does voluntarily during his leisure because he believes that it will be
satisfying to him. Enjoyment of the activity is basic to the recreation 10 experience, but the
values of recreation which give it depth and fullness of meaning include the maintenance and
improvement of physical and psychic well-being, the growth and development of personality,
and the easing of social adjustments. Recreation is one of the keys to abundant living. Because
of its importance in the building of our social fabric, recreation is more than a personal
responsibility. As ingenious and resourceful as man may be, his attempts to provide for himself
recreationally , meets an impasse unless he pools his resources with those of his fellow man to
enable provision of certain kinds of recreation opportunity. The very things that have given us
increased freedom and leisure have also worked in many ways to our disadvantage. The rapid
increase in population and the new leisure have created vast new economic markets and
helped to promote financial affluence. During the past quarter century while we have been
depleting our recreation resource potential, the recreation needs and demands of the
population have increased many times over. Scientific and technological advances have
prolonged life, produced labor-saving devices, increased production per man-hour of work, and

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reduced the work day and the work week. Longer life combined with compulsory retirement
practices has produced a new leisure group of "senior citizens." The increase in leisure provides
for small allotments of time on weekdays, larger allotments on weekends and occasional
holidays, and substantial blocks of time for vacations. If this time is to be enjoyed and used in a
manner that will contribute to the positive growth of our culture, suitable recreation
opportunities must be conveniently accessible.

1.3. Objective of the project

The major goal of this project is to contribute towards the growth of the trade sector in Bati
town. Its specific objectives include the following: 

 To provide excellent child play care in a kid-friendly atmosphere while ensuring our
customers, both parent and child, receive excellent service in a playful, educational, and
safe environment.
 Establish recreation facilities to meet the needs of the population;
 Provide basic recreation services to the Community.
 The proposed infrastructure upgrade will create both short and long term job
opportunity for the local community and develop the local skills base.
 To create a service-based company this exceeds customers’ expectations.
 Become an established community destination by end of first year.
 Educate the community on what the company has to offer.
 To create employment opportunities for the population in the town and Contribute
towards the beautification of the town through the construction of modern building
infrastructure and facilities.

2.4. The significance of the project

The proposed development will have numerous positive impacts to the area residents and to
the general area. Some of the anticipated benefits include:-

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 A. Source of Revenue

As public policy of any nation, the government collects different forms of taxes from
different business organizations and individuals. Among the different forms of taxes,
business income taxes, payroll income tax and VAT are collected from undertaking business
activities. Therefore, the building will serve as sources of revenue for the town as well as for
the region.

B. Employment opportunity
One of the problems that our country faced is unemployment. Therefore, the current
objective of the government is working on tackling the problem of unemployment and
fostering the development process either through creating self-employment or
employment in other organization. This will be a significant impact since unemployment
is currently quite high in this area hence, this project will hire 85 individuals
C. Sources of social service
In addition to serving as a source of employment and income for the region, the project
renders social services for different group of people.
Hence, it is also providing the following services;
 Serve as a source of mental satisfaction for the different users,
 Since, the center encompasses different recreational areas; it will divert the attention

of the users from different evil deeds.

 It deemed to minimize the demand of services in the area.

2.5. Background of the Project Location

As aforementioned on the introductory part the envisioned project is intended to be
located in Amhara Oromia zone Bati town . Bati city is found in Amhara regional state at
about 410 kms away from Addis Ababa , in the eastern Amhara direction .the city is
located at 7O 40 ‘ N latitude And 36 O6’ E longitude and the total area of land of the city
was estimated over 4,623 hectares .According to the 2007 population and housing
census of Ethiopia, the total population of Oromia zone for 2012 was estimated to be
3,868,151 and the Bati town population is also estimated to be above 149,164. Bati

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 town is one of the oldest town in the eastern part of the region and its strategic location
and availability of major infrastructures makes it the main market centre for coffee and
cereal crop productive woredas or city of the zone and surrounding areas such as of kalu
, kombolcha town is known as industry area in the South wollo zone in Amhara Region
and Adeare(ELIWEHA) wereda, Mille wereda and logia town and Semera town the
capital city of Afar region. The coverage of basic infrastructure facilities are increasing
dramatically in recent years following free market policy of the Federal Democratic
Republic of Ethiopia’s (FDRE) in general and Regional Government of Amhara in
particular. As has been the case in the past, Government continues its commitment to
give an opportunity for its national to invest on various feasible projects, with positive
present value when compared to that of without project case. The coverage of basic
infrastructure facilities are increasing dramatically in recent years following free market
policy of the Federal Democratic Republic of Ethiopia’s (FDRE) in general and Regional
Government of Amhara in particular. With this understanding and inspired by current
fast development of the city, the applicant has developed strong desire of investing in
the town to construct and operates recreation center

Ecologically
Bati town lies in wet land Ecosystem .It is bounded by wet evergreen mountain forest
land ecosystem. Because of the climatic stability the green coverage of the city, is very
significant and estimated to be about 35% including farmlands & vacant places. In the
city green areas are found long streets, in urban parks, in public & private gardens, along
stream banks and flood plains, in stream and downstream, ridges and hills and left over
spaces.
In spite of the rapid urban population growth and associated growing demand for
greenery during the past 10 years, only few planned green structures, i.e. one municipal
park & one private parks were developed for public greenery and recreation in the city.

Area:
According to the current used master plan, Bati has has the total area of 4623 hectares.
Information on land zoning of the town shows, 25.7% of the total area of the town is to

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 be covered by residential buildings, 2.65% by commercial activities, 4.01% by Industrial
activities, 10.6% by social & public services, 2.6% by administrative zone, 15.4% is land
reserved for construction of roads and the proportion of land left for other
infrastructures is about 39.1%.

2.6. Proposed Project Location

For the proposed development to be feasible, accessibility plays a major role Before
choosing project we conducted feasibility studies and market analysis and identify the
location that serve the market and benefit greatly and decided to settle at Bati town.
The proposed development site is located within the Bati administrative city within the
urban industrial area of Bati town.
The proposed project site is approximately 2500m2.

2. Service Description and Application

Recreational centers are places where people get entertainment and enjoyment. The
facilities provided include various indoor and outdoor games, swimming pools, cinema
halls and facilities to stage theaters and music shows. At the same time these facilities
also serve for conducting various ceremonies such as wedding, and other assemblies.
The dedicated sports facility is proposed to be provided by way of a new Community
Recreation Centre (including swimming pool, multi-use recreation hall, change rooms
and ancillary rooms and service areas). It is to be integrated with the adjacent existing
community sports oval. The proposed facilities are intended to balance the commercial
and social benefits for all community. to create a welcoming space to help cultivate a
strong sense of community, promote health and wellness in our community and support
for the needs of local residents. There will also be indirect benefits from complimentary
development which will occur adjacent to the facility, promoting greater business
investment interest, regional awareness and tourism opportunities. The proposed
recreation facility will enhance the tourism experience in many ways and create
opportunities for residents and businesses in Bati.

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 3. Market Study and Service Capacity
3.1. Market Study
3.1.1. Past Supply and Present Demand
At present the recreational facilities available in the various are very inadequate in
terms of the type of service and standards. As a matter of fact, with the decentralization
of government structures zonal capitals have become centers of important
administrative functions as well as commerce, industry, education, etc. Accordingly, the
population of the urban centers which are designated to be capitals of respective zones
has increased substantially. At the same time in these and other urban centers of the
region the population number is increasing substantially. Nonetheless, there has not
been a corresponding increase in recreational facilities. For example, no indoor and
outdoor games, no swimming pools, no musical shows, and no theaters in most of the
places. For example if we assume that 10% of the population do pay visit to well
established recreational centers once in a week, then the number of individuals in the
target group would amount to 20,956 every month. This can be fairly assumed as the
current level of demand and at the same time suggests the existence of ample demand.
Therefore, if well equipped recreation facilities are established in zonal capitals, they
will definitely have enough customers.

3.1.2. Projected Demand

The future demand for recreational services in the zonal capital will increases mainly
due to population increase. Moreover, the growth of urbanization will attract additional
traders, social workers and families into the towns. Consequently, the number of
individuals that do visit the envisaged type of recreational services will also increase. In
this connection if we assume that the number of population in general increases by 3%,
the target population will increases Substantially as shown in table 1 below.

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3.1.3. Pricing

The envisaged plant as a startup will focus on providing entertainment activities such as video games,
snooker, watching of video films and refreshment drinks. Moreover, the center shall rent its hall and
compound for weeding and meeting purposes. Based on the market research result and the capacity of
the envisaged plant, the following selling price is set.

• Birr 3 for one session video game

• Birr 5 per snooker played 18

• Birr 2,000 for renting the hall for weeding ceremony

• Birr 600 per day for renting the hall for assembly purpose

• Birr 5 per person for watching video film and ;

• Birr 15 on average per person for soft drinks, hot drinks and food.

3.1.4. Marketing promotion and strategy

Nowadays the sphere of professional commercial activity is being developed rapidly in Ethiopia. There
are several operating modern hotel centers in large cities, the large amount of projects are in
development and are going to entry into the market in the coming years. According to the plan
mentioned above for developing of the consumer market by means of complete meeting clients’
requirements, providing them with safe and high quality goods and services in civilized way, and also for
making-up principally new ways of market wholesale trade providing goods that are high-performance
and high-demand on inner and outer market. In order to penetrate and gain considerable market share,
one of the major marketing strategies for the project is consistently rendering quality service to its
tenants. Due emphasis must be placed on improving quality of service and facilities. The major
marketing strategies to promote the project and gain considerable market share include:

Advertising through different means focusing on the existing service and facilities Promote in
association to the key location and nearby business Working on sustained promotional work.

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 Working on public relations to reach and influence key personas and organization with a
capacity of making decision.

Keeping the quality of its service/ facilities and consistently improving with changing situations.

3.1.5. Marketing and Sales Strategy

The marketing strategy for this new hotel is going to be driven basically by making available
standard excellent customer service and provision of complimentary services. We will work
hard to build a loyal customer base; customers that will always patronize us over and over
again and as well help us use word of mouth publicity to get their friends and acquaintance to
patronize us. Our marketing strategy is a simple one: satisfied customers are our best marketing
tool. When a customer leaves our business, they know that they got the best price and service
money can buy, our name and service will stand on its own via our cheaper process and very
competitive prices. In view of that, we are going to adopt the following strategies to ensure that
we do not only attract customers but ensure that they become loyal customer. Part of the
marketing strategies that we will adopt is;

Introduce our hotel by sending introductory

• Open our business with a party so as to capture the attention of residence that is our first
targets

• Advertise our hotel on national dailies, local TV stations and local radio station

• Promote online via our official website and all available social media platforms and
Continuous improving the performance of our brands

• Hire the services of experts to make our brands the first choice delivering consistent
customer experiences to all our clients; making our first impression count positively.

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3.2. Plant capacity

Thus, given the expected demand for the service, and the planned technology, the envisaged
plant is set to attract the following number of visitors.

• 50 individuals per day for video game

• 50 visitors per day to play snooker

• 120 individuals per day to watch video film in two programs

• Accommodate 50 wedding ceremonies in a year

• Accommodate 25 meeting programs and workshops in a year that take on average 3 days per
program.

• Cater food and beverage for 100 individuals per day.

3.3. Service delivery program

The program is scheduled based on the consideration that the envisaged plant will work 300
days from 8 A.M till 8 P.M where the remaining days will be for maintenance. During the first
year of operation the plant will operate at 70 percent capacity and then it grows to 85 percent
in the 2ndyear. The capacity will grow to 100 percent starting from the 3rd year. This
consideration is developed based on the assumption that market and logistics barriers would be
eliminated gradually within the first two years of operation.

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4. Materials and Consumables and Inputs

4.1. Materials and Consumables

The raw materials used in providing the cervices stated earlier are mainly beverages and
various ingredients used to prepare food.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant
is listed in table 2 here under.

Table 2: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Aluminum, steel 3 ton 461,880 -
engineered plastics, brass, 130,000 pcs - 630,671

Copper, basic plastics 650 - 705,650

Titanium - 211,695
Total Material Cost 461,880 1,548,016
Utility
Electricity 215,000 kwh  118,250
Water 1,500m 3
 3,975
Total Utility Cost 122,225

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According to the above table the annual cost of material and utility at full capacity of operation is
estimated to be Birr 5 million

5. Technology and Engineering

5.1. Technology

The machineries and equipment required for providing the various services stated earlier is
detailed in table 3 below

Table 3: Machinery and Equipment

Machinery and Equipment Quantity

Video game equipment 5
Refrigerator 2
Coffee Machine 1
Snooker Table 2
Various Tools As required

The, total cost of machinery and equipment including is estimated to be about Birr 4 million

5.2 Civil Engineering Cost

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The total site area for the envisaged plant is estimated to be 2500m2 is allocated to the building for the
various game playing area, hall, café and related activities. The remaining space is left open compound.
The following outlines the functional components of the proposed multiple use

Recreation Centre:

Lobby/Foyer; Reception, Staff administration offices; Kitchen / Kiosk; Public toilets/change

rooms; staff toilets; Creche/Child minding facilities, a multi-purpose sports hall to cater for net
ball, volley ball, basketball, equipment stores, hall viewing and seating, multi-purpose activity
room, Gymnasium, First aid, 25m pool, External paving / Hardstand for pedestrians, Car parking
and drop off facilities, General power and site lighting, Sewage collection from toilet facilities,
Stormwater and runoff collection, treatment and disposal and screen fencing

Gymnasium

The envisaged gymnasium will composed of one machine room (200sq.mt), one Aerobics studio
(100 sq. mt)Laundry Center The laundry center provides in-house cleaning service to bed room,
and sauna/stem bathrooms by providing clean towels, linens, covers and uniform of the
employees with the required time and quantity. The main processes of laundry center are
sewing (if any), washing, and squeezing drying, folding and pressing. The laundry center will
have a daily capacity of providing 200 clean sets of towels, 300 sets of linen and cover 100 sets
of uniforms and other miscellaneous items.

Children’s Play Ground

The facilities included in the children’s playground are swings, sliding stands, tunnels, merry go
round, sand filled pits, and coin operated toy vehicles and different kinds of arcade video
games. The whole area of the playground shall be free from any obstruction that could result in
accident and the recreational tools are installed in such a way that they will not cause any
accident. The arcade coin operated video game room having an area of about 100 m2will be
constructed from prefabricated material with ventilation and lighting, and it will be carpeted. It

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should also be free from any visible electrical connections and free from an accident or hazard.
The provision of such service doesn't have any adverse impact on environment.

5.2.1. Locations and Site

The appropriate locations for the envisaged project in view of the availability of infrastructure
as well as market for the output are Bati town

5.2.2. Project implementation

The project’s implementation is expected to take 24 months. The major activities include Bank
loan processing construction of the building, cleaning the area around the building,
Procurement of equipment and start rendering services. The time schedule for the above
matured major activities is presented below

Table: project Implementation schedule

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6. Manpower and Training Requirement

6.1. Manpower Requirement

The envisaged hotel requires 85 labor forces. The list of manpower and the annual cost of labor is
indicated in Table

Table 6.1 Manpower Requirement and Annual Labour Cost

SN Position No Qualification Monthl Annu

y salary al
in Birr salary
in Birr
1 General manager 1 BA in management 3000 36,00
0
2 Building admin 1 BA in Acct/Mgt 2500 30,00
0

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Position No. Required Monthl Total Annual Salary
y
Salary
Manager/ 1 123,168
Technician 10,264
Accountant/ 1 36,950
Cashier 3,079
Store Keeper 1 24,634
2,053
Inspector 1 36,950
3,079
Operators 6 147,802
2,053
Daily Laborers 3 36,950
1,026
Cleaners 1 12,317
1,026
Guards 2 24,634
1,026
Benefit (20%) 88,681
-
 Total 16 532,086
-

3 Secretary 1 10+2 in secretariat science 900 10,800 4 HRM Officer 1 10+2 in HRM/Management 950
11,400 5 Technical and maintenance manager 1 Diploma in building maintenance 1500 18,000 6 Finance
head 1 BA in Accounting 2500 30,000 7 IT Technician 1 Diploma in computer science/IT 1150 13,800 8
Marketer 1 Diploma in marketing 1150 13,800 9 Accountant 1 Diploma in accounting 1150 13,800 10
Guards/Security 8 Basic 500 24,000 11 General Service head 1 Diploma in Management 1500 18,000 12
Purchaser 2 Diploma in purchasing &Sup Mgt 1150 13,800 13 Electrician 1 10+2 in general electricity
1000 12,000 14 Plumber 2 10+2 in general mechanic 1000 12,000 15 Casher 4 10+1 in bookkeeping 850
20,400 26 16 Cleaner 10 Unskilled 450 27,000 17 Maintenance officer 2 10+2 in General mechanic 1000
12,000 18 Driver 3 10 completed 850 10,200 19 Guard 5 20 watires 5 Total 85 327,000 Benefit (20%)
65,400 Grand Total 1,326,542

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6.2. Training Requirement

All the staffs, in the catering and recreation sections, including physiotherapists, and
supervisors should be given at least two weeks on-the-job- training by the equipment supplier’s
expert during commissioning. The management members should also be given a two weeks
training in local training centers. The total cost of training is estimated at Birr 200,000

7. Financial Analysis

The financial analysis of the international standard hotel project is based on the data presented
in the previous chapters and the following assumptions:-

7.1. Underlying Assumption

The financial analysis of milk powder producing plant is based on the data provided in the
preceding chapters and the following assumptions.

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 A. Construction and Finance

Construction period 2 year

Source of finance 30% equity and 70% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 3% of fixed investment

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

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

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7.2. Total Initial Investment Cost

The total investment cost of the project including working capital is estimated at Birr 15 million.
The major breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1 Initial Investment Cost

Items L.C F.C Total

Land Lease
1,000,000
Building and civil works
6,000,000
Office equipment
500,000
Vehicles
700,000
Plant machinery & equipment
5,000,000
Total fixed investment cost
13,200,000
Pre production capital
expenditure* 200,000
Total initial investment
13,400,000
Working capital at full capacity
1,600,000
Total 15,000,000

N.B Pre-production expenditure includes interest during construction, training ( Birr 200
thousand) and Birr 25000 costs of registration, licensing and formation of the company
including legal fees, commissioning expenses, etc

7.3. Operation Cost

The annual production cost at full operation capacity is estimated at Birr 12.06 million (see
Table 7.2). The major components of the production cost depreciation, financial cost and
material and input which account for 26.82%, 22.63% and 18.72%, respectively. The remaining

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31.82% is the share of direct labour, utility, repair and maintenance, labour over head and
other administration cost

Table 7.2 Annual Production Cost at Full Capacity ('000 Birr)

Items Cost %
Material and Input 2,257.85 18.72
Utilities 1,544.44 12.81
Maintenance and Repair 500.07 4.15
Labour Direct 860.88 7.14
Labour overheads 358.70 2.97
Administration cost 573.92 4.76
Land lease cost - -
  Total operating cost 6,095.86 50.54
Depreciation 3,235.15 26.82
Cost of finance 2,729.82 22.63
Total Production Cost 12,060.83 100

7.4. Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the
project will generate profit beginning from the first year of operation. Ratios such as the
percentage of net profit to total sales, return on equity and return on total investment are 10%,
14% and 22% in the first year and are gradually rising. Furthermore, the income statement and
other profitability indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 29.6% of capacity utilization.

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III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in 3 years.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 25.1%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
25.7% and the net present value at 18 % discount

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector. This result is accompanied with payback period of 3 years and 5 months .

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that promotes the socio-economic
goals and objectives stated in the strategic plan of the Bati town Amhara regional state. It also
plays a role in diversifying the economic activity of the region. These other benefits are listed as
follows

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 2.48 million within the
project life.

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B. Tax Revenue

In the project life under consideration, the region will collect about Birr about 1million from
corporate tax payment alone (i.e. excluding income tax and). Such result create additional fund
for the regional government that will be used in expanding social and other basic services in the
region

C. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 85 professionals as well as support
stuffs.

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