ebenezer farming work plc

cereals, pulses and oil crops production

investment proposal

proJect promoter: ebenezer farming work plc

proJect location: oromia region, east wollega zone, guto gida woreda,

contact person: gemechis olJira

(+251-921-830-000)
: negera geremu
(+251-902-167-741)
Consultant: sileshi angerasa econ, business and investment development consultancy service
Address: Mobile: 0911896145/0966109246
Consultant Name & Signature:

nekemte, ethiopia

november 2021

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 TABLE OF CONTENTS
EXECUTIVE SUMMARY OF THE PROJECT ...................................................................... iv
1. INTRODUCTION................................................................................................................. 1
2. BACKGROUND .................................................................................................................... 2
2.1. Stakes in Agricultural Production ................................................................................. 3
2.2. The Agriculture Sector ................................................................................................... 3
2.3. Development and socio-economic objectives ............................................................ 4
2.4. Income distribution and poverty ................................................................................. 5
3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS............ 5
4. NEED (PROBLEM STATEMENT) PROBLEM JUSTIFICATION ....................................... 5
5. PROJECT GOAL, OBJECTIVES AND RATIONALES ......................................................... 6
6. THE PROJECT AREA DESCRIPTION ................................................................................. 6
6.1. Physical Features ............................................................................................................. 6
6.2. Economic Base ................................................................................................................ 7
6.3. Population ....................................................................................................................... 8
6.4. Infrastructure and Institutions ....................................................................................... 9
7. THE PROJECT OUT PUTS, ACTIVITIES AND INPUTS ................................................... 9
7.1. Project Description ......................................................................................................... 9
7.2. Project Objectives .......................................................................................................... 9
7.3. Types Of Technology Use ........................................................................................... 10
7.4. Production Capacity .................................................................................................... 10
7.5. Land Use Plan and Action Plan .................................................................................. 10
8. MARKET PROSPECTS......................................................................................................... 11
8.1. Demands and Main Customers .................................................................................. 11
8.2. Competition analysis and Selling Prices ..................................................................... 11
8.3. Marketing Strategies ..................................................................................................... 11
9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT ............................... 12
9.1. Business Form ............................................................................................................... 12
9.2. Organization Structure of the Project ........................................................................ 12
9.3. Manpower Requirement with Qualification ............................................................ 12

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10. STAKEHOLDERS AND PARTNERS ................................................................................... 13
11. FINANCIAL STUDY ............................................................................................................ 13
11.1. Financial Requirements................................................................................................ 13
11.2. Project Capital Costs .................................................................................................... 13
11.3. Forecasted Production ................................................................................................. 17
11.4. Forecasted Sales Revenues .......................................................................................... 17
11.5. 8.4. Depreciation Calculations ................................................................................... 17
11.6. Loan Repayment Schedule and Interest Expense ..................................................... 17
11.7. Forecasted Income Statement ..................................................................................... 18
11.8. Forecasted Cash Flow Statement ............................................................................... 18
11.9. Forecasted Balance Sheet ............................................................................................ 18
11.10. Overall Financial Assessment ...................................................................................... 18
13. PHASE OUT AND SUSTAINABILITY STRATEGY ........................................................... 21
14. ACTION PLAN AND BUDGET BREAK DOWN ............................................................. 21
15. RISKS AND ASSUMPTIONS ............................................................................................... 22
16. ENVIRONMENTAL IMPACT ANALYSIS .......................................................................... 23
17. CONCLUSION AND RECOMMENDATION .................................................................. 24
Annex ........................................................................................................................................... 25

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EXECUTIVE SUMMARY OF THE PROJECT
1. Project Name Cereals, Pulses and Oilseed Crop Production Project
2. Project Owner Ebenezer Farming Work Private Limited Company
3. Project Type Agriculture
4. Project Promoter The promoter of the project is the owners themselves (the
investors) and those of who are benefiting from the project.
5. Nationality Ethiopian
6. Project Location Oromia Region, East Wollega Zone, Guto Gida Woreda
7. Premises Required 100 ha
8. Full production Capacity At full production Capacity, the project will produce 4,500
quintals of produce annually

9. Total investment capital 8,554,511.31 (ETB)

10. Job opportunity
11. Benefit Expected
12. Expected beneficiaries
13. Technology to be used
14. Market Destination
15. Source of finance
Permanent: Skilled 16 and unskilled 5
Temporary: Skilled - and unskilled 957
Total: Skilled 16 and Unskilled 962 (Aggregate =973)
The expected benefit of the project is to produce 4,300 quintals of
production per annual, and thereby create job opportunity for 973
individuals and become source of income for the government
 The surrounding community in obtaining job opportunity
 People living in Guto Gida woreda, Kebele and the
surrounding community will obtain social fund and job
opportunity
 People living in East Wollega zone, in large
 Government and non-government organizations
The firm will use environment friendly technology which can be
operated by local people.
i. Different individuals who are living in Oromia region, east
Wollega zone and woredas and towns
ii. Finfinne, Adama and surrounding community
iii. Some of the produce will be planned to be exported
abroad
Out of Br. 8,554,511.31 as capital requirement, 30% (Br.
2,566,353.39) from own contribution and 70% (5,988,157.92)
from bank@ interest rate of 11.5%

16. Recommendation The project is economically, financially and socially feasible. For
instance, financially, the project’s IRR is 114% which is greater
than discount rate (11.5%) and NPV is equal to Br. 32,309,171.00

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1. INTRODUCTION

Ethiopia’s Agricultural Sector Policy and Investment Framework (PIF) is a sectoral national
policy applicable for the period of 2010-2020. Its main objective is to sustainably increase
rural incomes and national food security producing more, selling more, nurturing the
environment, eliminating hunger and protecting the vulnerable against shocks. Four main
themes, each with its own strategic objective, are identified within the above overall
objective. These are: 1. achieve a sustainable increase in agricultural productivity and
production; 2. accelerate agricultural commercialization and agro industrial development;
3. reduce degradation and improve productivity of natural resources; and 4. achieve
universal food security and protect vulnerable households from natural disasters. As to the
thematic area of disaster risk management and food security strategic objective 4 aims at
reducing the number of chronically food insecure households, reducing imports of food aid,
improving the effectiveness of targeted social safety net programme for vulnerable groups,
reducing the prevalence of child malnutrition, and improving the effectiveness of the
disaster risk management system.

Under the thematic area of productivity and production strategic objective 1 entails the
following outcomes: increase the production of food, cash crops and livestock; increase
agricultural productivity; reduce qualitative and quantitative post-harvest losses; scale-up
proven best agricultural practices; increase the use of agricultural inputs and improved
agricultural practices; and reduce dependence on commercial imports of staple food
products. Under the thematic area of rural commercialization in strategic objective 2, the
following outcomes are expected: increase in private agribusiness investment; increase in
smallholder household cash incomes; increase in the proportion of agricultural production
marketed (versus subsistence utilization); increase in the diversification into higher value
products; improvement of farmer access to agricultural inputs and productive assets;
increase in farmer access to rural financial services; increase in agricultural export earnings;
increase in households’ participation in farmer organizations; strengthening of farm income
growth through improved infrastructure and market access; and reduction of rural
unemployment.

As with the thematic area of natural resource management strategic objective 3 aims at
increasing areas under irrigation; improving water conservation and water use efficiency;
reducing arable, rangeland and forest degradation; maintaining agricultural biodiversity;
improving soil health in key agricultural landscapes; improving security of private sector
access to land resources; and strengthening farmers’ ability to respond to climate change
challenges.

In addition, following the issuance of PIF and GTP, there has been a call for shifting from
low value land extensive production to high value and land intensive form of agriculture is
made. Accordingly, this crop production project is proposed by visionary emerging
domestic investor Sileshi Angerasa. It is against this background that this project study is
being undertaken to assess the profitability of the project so as to provide the investor and
Oromia Investment Commission with a tool to use in determining the feasibility of
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enterprises and monitoring its performance. In making this project feasibility study, the
consultant team has devoted a great deal of time in searching and collecting information on
specific aspects of the project. The information was collected by reviewing both print and
electronic documents from research publications (library and on-line reprints and
databases).

2. BACKGROUND

Agriculture is the mainstay of the Ethiopian economy, contributing 41.4% of the country’s
gross domestic product (GDP), 83.9% of the total exports, and 80% of all employment in
the country (Matousa, Todob, & Mojoc, 2013). Put in perspective, Ethiopia’s key
agricultural sector has grown at an annual rate of about 10% over the past decade; much
faster than population growth. Other important sectors are service and industrial sectors
contributing 43% and 15.6% respectively (The World Fact book, 2016). On agriculture
expenditure related metric, Ethiopia has dedicated an annual investment of about 14.7% of
all government spending to the agriculture sector since 2003. Ethiopia is among the few
African countries that have consistently met both the African Union’s Comprehensive Africa
Agricultural Development Program (CAADP) targets of 10% increase in public investment in
agriculture by the year 2008 and boosting agricultural production growth by 6% at least by
2015.

Although agriculture is one of Ethiopia’s most promising resources, the sector has been
slowed down by periodic drought, high levels of taxation and poor infrastructure that often
make it hard and expensive to get goods to market. Also, overgrazing, deforestation and
high population density has led to massive soil degradation leading to low productivity.
The above problems have made it hard for the country to feed itself; best exemplified by
the dramatic 1984-85 famine. Since then, the country has experienced similar occurrences
that expose a sizeable population to humanitarian needs. As things stand, over 3 million
Ethiopians need food and other humanitarian assistance annually (SIDA, 2015). However, a
critical look at the sector shows a high potential for self-sufficiency in grains and also for the
development export especially for livestock, vegetables, fruits and grains. Further, many
other economic activities depend on agriculture. These include processing, marketing and
export of agricultural products among others.

Although the government’s priority attention is still on increasing the productivity and
production by the smallholder farmers, recognizing the high prevalence of rural poverty
and the large productivity gap, due recognition is now given to the private commercial
firms in the agriculture sector. This is reflected in the Policy and Investment Frame work
(PIF) objective of the country which states “to contribute to Ethiopia’s achievement of
middle-income status by 2020”. The Development Objective aims to “sustainably increase
rural incomes and national food security, which embodies the concepts of producing more,
selling more, nurturing the environment, eliminating hunger and protecting the vulnerable
against shocks. Investments are also directed towards expanding the extension system,
irrigation development, and rural commercialization and agro-processing. The government
is complementing its efforts in food-insecure areas with an increased commitment to raise
national food production by investing in areas with high agricultural potential, including
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efforts to attract private agricultural investment in areas with under-utilized land and water
resources.

2.1. Stakes in Agricultural Production

For Ethiopia to achieve middle-income status by 2025 and make substantial inroads against
food insecurity, concerted and strategic investment and strategic choices in the agricultural
sector are vital. Concentrations of food insecurity and malnutrition are endemic in rural
areas, with a population of six to seven million chronically food insecure, and up to 13
million seasonally food insecure. Over 90 percent of agricultural output is driven by
smallholder farmers. Without expanding cultivated land, and given forecast population
growth, the average land holding size in highland areas will be reduced to 0.7 hectares by
2020, placing further pressure on rural incomes and food security.

Agriculture contributes substantially to the overall Ethiopian economy. On a nominal GDP

of USD 25.6 billion, 43 percent was driven by the agricultural sector. Crop production
accounts for 29 percent, with livestock at 12 percent, followed by the forestry sector with 4
percent. The sector contributed USD 1.4 billion to export earnings. The sector also drives
aggregate employment figures. Estimates show 83 percent of the population relies on
agriculture for their livelihoods (with many more dependent on agriculture related cottage
industries such as textiles: crops and forestry account for 60 percent of overall export value,
livestock for 28 percent, and remaining exports, a combination nonagricultural industry,
primarily extractives and industrial production.

The role of gender in the Ethiopian agricultural system is also critical: in post-harvest
activities for cereals, women contribute as much as 70 percent of on-farm labor; in
marketing, particularly in cereals, participation of women is as high as 60 percent of labor
market share. While MoARD strategies do identify the role of women in the agricultural
value chain, the gap is in the implementation of these strategies. PASDEP II has already
identified targets for the participation of women in cooperatives and unions (>30 percent),
as well as the number of women targeted by public extension in male-headed and female-
headed households, 50 percent and 100 percent, respectively. Given the stakes of women
in production systems, specific strategies that target increasing the opportunity of women to
participate in income generation and decision-making, and the disaggregation of data sets
to capture the participation of women are critical.

2.2. The Agriculture Sector

In spite of disproportionately high employment in the sector (fairly above 84 percent of the
rural population) and high poverty reduction power of the sector, the contribution of the
agriculture to GDP of the nation has been declining. Such declining role of the sector is
explained mainly by the small sizes (land holding share of 83 percent by smallholders
farming setup less than 2 hectares and the average size of the small farms is 1.25 hectare)
characterized by low utilization of agricultural inputs, dependence on inconsistent, uneven
& unpredictable rains, poor irrigation system, low technology, little access to know-how
(risk management, technology, skill, etc), limited capital, fragmented plots hampering

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economic scale production and productivity, that is vulnerable to natural and man-made
changes.

About a third of rural household’s farm less than 0.5 hectares which, under rain fed
agriculture at current yield levels, cannot produce enough food to meet their requirements.
Most agricultural production is used to meet household consumption needs and, for a very
large number of households, there is a prolonged hunger season during the pre-harvest
period. This period is also characterized by rising in food item prices. When there are
surpluses, smallholder farmers are often constrained by lack of access to markets, and hence
sale their outputs at very depressed prices.

Owing to these characteristics of smallholder farmers and the related constraints, crop
production couldn’t keep in pace with the growing demand for such outputs for food and
as input for industrial sector for industrial sector. As a result, Ethiopia has been net importer
of cereals and fruit products despite of decades unreserved government effort to increase
the productivity and production of the smallholder agriculture sector. Hence, food security
remains a critical issue for many households, and for the country as a whole. Moreover,
expansion of the cropped area to more marginal lands has led to severe land degradation
in some areas. To fill such growing gap between the supply of crop products and demand
for such items, the government has declared its commitment to increase the national food
production by directing investment in areas with high agricultural potential, including
efforts to attract private agricultural investment in areas with under-utilized land and water
resources.

2.3. Development and socio-economic objectives

The development and social objective of the Ethiopia is compressive and consistent. In
addition to the well articulation of these in the current national plan (GTP), it is also
reflected in the Policy and Investment Frame work (PIF) objective of the country which
states “to contribute to Ethiopia’s achievement of middle-income status by 2020”. The
Development Objective aims to “sustainably increase rural incomes and national food
security”. This objective involves the concepts of producing more, selling more, nurturing
the environment, eliminating hunger and protecting the vulnerable against shocks; all of
which are embodied in various national policy instruments, and are expressed in terms of
four main themes, each with its own Strategic Objective summarized as follows:
Table: Strategic Objective
Thematic Area Strategic Objectives (SOs)
Productivity and To achieve a sustainable increase in agricultural
Production productivity and production.
Rural Commercialization To accelerate agricultural commercialization and agro
industrial development.
Natural Resources To reduce degradation and improve productivity of
Management natural resources.
Disaster Risk Management and To achieve universal food security and protect vulnerable
Food Security households from natural disasters.

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Thus, the objective of this investment project proposal is well anchored to, and aligned
with the national socioeconomic development of the country. The detail project rational
and objectives are explained under section three “rationale and Objectives of the project”.

2.4. Income distribution and poverty

As this project is proposed to be implemented in area where there is neither commercial
private farm nor state farms operating so far, and as the local smallholder farmers are
mainly characterized by low input and low output vicious, the successful implementation of
the project will contribute toward equitable income distribution and rural poverty
reduction. By creating non-farm job opportunity at their locality, this project will also
reverse the seasonal rural-urban migration, which has been the norm due to lack of non-
farm income generating activities. Given the fact that the success or failure of any project is
usually measured in terms of its final effect on these issues, this project will meet the priority
area where the government needs more investment.
3. NAME OF PROMOTERS, CONTACT PERSON, LEGAL FORM OF BUSINESS
 Name of the project: Cereals, Pulses and Oilseed Crop Production Project
 Owner: Ebenezer Farming Work PLC
 Contact Person: Mr. Gemechis Oljira & Negera Geremu
 Legal form of business: Private Limited Company, PLC

4. NEED (PROBLEM STATEMENT) PROBLEM JUSTIFICATION

Agriculture plays a critical role in the entire life of a given economy. Agriculture is the
backbone of the economic system of a given country. In addition to providing food and
raw material, agriculture also provides employment opportunities to very large percentage
of the population.
Hence, the key constraints to agricultural productivity in Ethiopia include low availability of
improved or hybrid seed, lack of seed multiplication capacity, low profitability and
efficiency of fertilizer use due to the lack of complimentary improved practices and seed,
and lack of irrigation and water constraints.
Indeed, at the close of the century of greatest agricultural expansion, the dilemma of the
farmer had become a major problem. Several basic factors were involved-soil exhaustion,
the vagaries of nature, overproduction of staple crops, decline in self-sufficiency, and lack of
adequate legislative protection and aid. Some of the environmental issues that are related
to agriculture are climate change, deforestation, dead zones, genetic engineering, irrigation
problems, pollutants, soil degradation, and waste.

Ethiopian agriculture has been suffering from various external and internal problems. It has
been stagnant due to poor performance as a result of factors such as low resource
utilization; low-tech farming techniques (e.g., wooden plough by oxen and sickles); over-
reliance on fertilizers and underutilized techniques for soil and water conservation;
inappropriate agrarian policy; inappropriate land tenure policy; ecological degradation of
potential arable lands; and increases in the unemployment rate due to increases in the
population

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Agriculture progresses technologically as farmers adopt innovations. The extent to which
farmers adopt available innovations and the speed by which they do so determine the
impact of innovations in terms of productivity growth. It is a common phenomenon that
farmers like any other kind of entrepreneurs do not adopt innovations simultaneously as
they appear on the market. Diffusion typically takes a number of years, seldom reaches a
level of 100% of the potential adopter’s population and mostly follows some sort of S-
shaped curve in time. Apparently, some farmers choose to be innovators (first users), while
others prefer to be early adopters, late adopters or non-adopters. Therefore, the project
tries to address the aforementioned problems through by accomplishing the following
objectives

5. PROJECT GOAL, OBJECTIVES AND RATIONALES

To address the problems identified on section 3 above this investment proposal is calling for
allocation of land for Seed Multiplication, pulses and oil seeds production recognizes that:
 The domestic consumption of both cereals and pulse seeds has increased significantly in
recent years;
 National cereals and pulse production does not meet the rapidly growing demand;
 Smallholder output is inadequate and most oilseeds consumption is met by importing;
 There has been a call for our smallholder and investors to concentrate on increasing
production and productivity to meet the growing food demands;
 Past production increases depended largely on an expansion of area planted rather than
on increasing average yields per hectare continued to be low by international standards
whereas this project aims at meeting such standards;
 Such project with the aim of enhancing production and productivity of seeds, pulses and
oilseed crops will minimize the current national budget deficit caused as a result of
importing food items on one hand and generate foreign currency by promoting exports
of oil seeds on the other hands.
 Implementation of this commercial seed and crop production project is expected to
motivate other investors to supplement it by investing in agro-processing factors
around Nekemte so that the outputs of this project will become the inputs for the
processing factors.
 As Nekemte town is expected to be the commercial center of the western Ethiopia,
this project will have access to lucrative international market. The railroad and
airport which is on the process of implementation will facilitate the transportation of
the products safely and swiftly.

6. THE PROJECT AREA DESCRIPTION

6.1. Physical Features

6.1.1. Location and Accessibility

Guto Gida woreda is bordered with Gidda Ayana, Abe Dongoro and Gudaya Bila to the
North, Wayyu Tuqa and Leka Dulecha to the South, Sasiga, Digga and Benshengul Gumuz
in the West and Sibu Sire and Wayyu Tuka. It covers a total surface area of 814.90 km2.
Currently, the District is divided in to 21 farmer’s associations (kebeles) and one urban
center. Guto Gidda Woreda is divided in to three distinct geographical areas with different
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proportion; namely, highland 0.26 percent, the midland 46.74 percent and the lowland
53.00 percent. This project is found in the lowland area of the woreda. This agricultural
project which covers 100 hectares of arable land is located in Oromia region, at East
Wollega Zone, Guto Gida Woreda,

6.1.2. Drainage and Climate

In this district, there are few rivers that continuously drain through the year which are
perennial with catchment area of 696 hectare, namely; Laga Harre, Horo Alalitu and Loko
with high volume and consistent flows. In addition to the above rivers there are some
streams which area seasonal and perennial used for drinking and irrigation and others are
flowing permanently to the major rivers of the environment.
Natural surface drainage facilities are generally excellent to excessive. Excess surface water
will quickly find a natural drainage channel for return to the river. However, such surface
wastes could cause serious erosion problems unless suitable erosion control drop structures
of well-grassed drainage ways are provided. Because of the slope and generally permeable
nature of the soil in association with suitability of natural drains with proper out fall,
control of a water table under irrigation should be easy

As the district profiling by the East Wollega Finance and Economic Development Bureau
shows, the district is situated at an altitude above 1350 to 2450 meters above sea level the
dominant climatic condition is a sub-tropical type. As a result, this area is experienced mean
annual temperature of slightly greater than 150c and mean annual rainfall of 1600 mm to
2000 mm. The climate of the area is categorized under hot-semi-arid climate.

6.1.3. Soils
As the district profiling by the East Wollega Finance and Economic Development Bureau
shows, the district has different types of soils which are suitable for agriculture. Clay loam is
among the soil types found in the district i.e it covers 16.33% of the total land of the
district which has. Sandy soil covers 55,734.60 hectares of land which is about 23.06% of
the total land of the district. The other soil type exist in the district is loam soil, dominantly
found in the district, which good potentiality for agriculture and covers 42.80 % of the
total land of the district.

6.2. Economic Base

6.2.1. Crop Production

The dominant economic activity in the district is smallholder agriculture. In the district,
there is neither state farm nor large scale commercial private farms. Agricultural inputs are
believed to be the most important factor to attain food self-sufficiency. Without chemical
fertilizer, high yield is not expected & feeding a family of large size would be impossible.

Agricultural calendar of the district differ according to the weather condition of the districts’
in the zone. The major crop production season in this district is Mehar. Land preparation
extends from the month of March to May whereas the appropriate sowing (planting)
extends from May to July and harvesting is between October and January. The Belg season
is not suitable for production in this district. In addition, there are some constraints on the
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productivity of agriculture even for the Mehar season. Among these constraints uneven
distribution of rain fall from beginning crop cultivation, crop diseases and soil conservation
problem and insect diseases exist.

6.2.2. Livestock
Like in most peasant smallholder societies in the Oromia region, livestock play a key role in
day-to-day life of the Guto Gida woreda society. They provide meat & milk, transport,
manure, skin & hide & furnish regular and easily realizable cash income. But in contrast to
the size of the livestock population, physical and value productivity are low.

6.2.3. Land Use Pattern

As the district profiling by the East Wollega Finance and Economic Development Bureau
shows, out of the total land of the district the proximate areal coverage of land used for
crop cultivation is 67,028.24 hectares of which 59,363.44 hectares of land is used for annual
crop cultivation and 7,664.8 hectares of land is used for perennial crop production.

Deforestation is highly practiced by the local farmers through which they gain an income by
selling charcoal, firewood and different lumbering materials. The greatest portion of fuel
wood consumption of the capital town is obtained from this district, in which the major
area in the district where fuel wood possibly comes at large to the town is expected from
these forests. As a result, the Natural forest of the district covers merely total area of
2,723.5 hectares of land. However, there has been promising initiatives to recover some
forest areas. Manmade type of forest is planted to solve the problem of environmental
problem such as soil erosion, desertification, deforestation, and etc. With the aim of
satisfying one of the millennium development goals of United Nations the inhabitants of
the district were participated on the planting and protecting the trees. The area covered by
manmade forest in Guto Gidda district is 930 hectare.

6.2.4. Input Supply and Product Markets

Concerning input supply, there are farmer service cooperatives on delivering service as
agricultural input supplies. In this district the multipurpose agricultural cooperative provides
a service as agricultural inputs and search market for their production and provides different
inputs.

6.2.5. Industry
Industry is a group of productive enterprises or organizations that produce or supply goods,
services, or sources of income. There are no medium and large-scale industries found in the
district and there is a data problem on small scale manufacturing industries.

6.3. Population
Population size, compositions, its spatial distribution and some other demographic and
socio-economic data are very important for planning, monitoring and evaluation of various
development programs. According to the recent population and housing census report of
CSA (2007), the current population of Guto Gida district is estimated to be 104,094, of
which fairly above 12 percent are urban dwellers whereas the rest about 97.22 percent are

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supposed to be rural residents who are directly or indirectly involving in the agriculture
sector. The crude population density of the district is estimated to be 115.43 persons per.
km2, which shows relatively high population density of per the land area of the district.

However, as the number of oxen per household are gradually decreasing owing to the
animal diseases and farm sizes is getting smaller and smaller due to increasing population,
there has been a trend of increasing rural to urban migration in search for alternative non-
farm income employment opportunities. Hence, this project is expected to create job
opportunities for these potential migrants at their nearby village and hence alleviate the
pushing factor for migrations.

6.4. Infrastructure and Institutions

The project area is only about 60 km far from the Nekemte town. There is also access road
from the district town to the project area. Thus, there will be no transportation problems to
and from the project area. In addition, the area is covered by mobile and fixed line
telecommunication facilities and hence there would be easy communication of the project
affairs within the project and with the external bodies. Furthermore, as the project area is
bounded by all season flowing rivers, there is no difficulty of getting potable water.

7. THE PROJECT OUT PUTS, ACTIVITIES AND INPUTS

7.1. Project Description

This project aims at mixed cultivation: crop production with irrigation system. Accordingly,
the total land area covering of 100 hectares was allocated as: cereals (maize 55 percent;
pulses (soybeans 10 percent & groundnuts 10, sesame 23 percent of the land). Most of these
crops are high valued products which fetch high foreign exchanges for the country on one
hand and inadequately supplied even in the domestic market on the other hand. To
determine the land use and crop patterns, we have utilized the expertise of soil scientists,
Agronomists and environmentalists and hence the proposed crop varieties are
recommended based on the suggestions of regional and local agricultural research
institutions.

7.2. Project Objectives

The main objective of this project is:
i. To fill the gap of seed shortage encountered the farming community,
ii. Increase the production of high valued crops such as Maize, soybean, groundnuts
and sesame by modernizing the faming system.
iii. In addition, the project has such strategic objectives of creation of job opportunities
to the local people;
iv. contributing toward increasing the foreign currency earning potential of the country
through increasing exportable products, and
v. Improving the problem of natural resource management practices through creation
of employment opportunity in the project area (alternative income generation of
non-farm activity for the local people).

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 vi. Thus, this project will reduce the prevailing environmental degrading practices
widely exercised by the local low-income societies, which include, coal making and
selling, use of animal dung for light and heat, timber production, collecting of fire-
woods for commercial purposes, all of which are commonly exercised by the local
community.

7.3. Types Of Technology Use

The project aims at employing technologies which are environmentally friendly and which
can be effectively utilized by locally existing know-how with the exceptions of some
machineries and equipment which should be imported if there is no domestic source of
supply. The project aims at utilizing locally available technologies so as to encourage the
backward and forward linkage of the project and hence contribute towards the realization
of Agricultural Development Led Industrialization (ADLI) strategy of the country.

7.4. Production Capacity

For each crop types proposed, the project aims at producing the maximum output per
hectare as proved to be achievable at the research stations. The project promoter aims at
utilizing the technologies and practices as per the recommendations of the research centers
so as to produce the maximum output per hectare. Accordingly, the projected output per
hectare for each crop will be presented under sub-section 9 (projected output per hectare).

7.5. Land Use Plan and Action Plan

The following table shows the proposed land use and crops for which the land is to be used.

Table 1: Land use plan for 100 hectares

Land allocated to Land Use and Development Plan Land
allocation (%)
Rain fed production system
Crop type Crop name 1 2 3 4 5 6 7 8 9 10 to 25
Seed multiplication Maize 60 60 60 60 60 60 60 60 60 60 60%
Pulses Soya Beans 10 10 10 10 10 10 10 10 10 10 10%
Oil Seed Groundnuts 10 10 10 10 10 10 10 10 10 10 10%
Sesame 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 18%
Total crop land 97.5 97.5 97.5 97.5 97.5 97.5 97.5 97.5 97.5 97.5 98%
Construction Plots 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.50%
Total Farm Area 98 98 98 98 98 98 98 98 98 98 98%
Forest Area 2 2 2 2 2 2 2 2 2 2 2%
Total Investment area 100 100 100 100 100 100 100 100 100 100 100%

As the above table shows, the total farm land is allocated to production of demanded crop
production and various high valued items such as: Cereal (60 percent of the land to be
covered by maize); Pulses crop production (10 percent of the land to be covered by
Soybean); Oilseed’s production (28 percent of the land to be covered by sesame and
groundnuts. The construction plots are expected to cover only 0.5 hectare and the
remaining land 2 percent is reserved for forest coverage (at least 2 percent of the allotted
land for investment as per the Oromia Rural Land use and Administration Proclamation
No. 130/ 2007, which will be 2 hectares).

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8. MARKET PROSPECTS

8.1. Demands and Main Customers

As socio-economic development of a country proceeds, it is expected that the preference of
a society for goods and services changes. This logic is also true in Ethiopia. We observe that
as our economy improves over time, demand for improved seed and food items in general
and preference for high valued products are increasing. The number of Hotels, Motels,
Cafeterias, Restaurants and Resorts are increasing. In addition, the number of colleges,
universities, research centers and other institutions are being located at the nearby towns.
More importantly, as the Nekemte town is becoming considered as the western Ethiopia
development corridor being fulfilled with infrastructural facilities, the project will enjoy
lucrative international market. It is also expected that agro-processing firms which will
utilize the outputs of the project as input for their production will emerge in the Nekemte
area. Thus, there is no doubt the project will have sufficient domestic and international
markets.

8.2. Competition analysis and Selling Prices

As the demand for the project outputs are expected to keep growing in the face of very
limited potential suppliers, it could be possible even to charge exorbitant price per units of
the products to be produced for the domestic market. However, since the very motive of
the project owners is not just to reap profits at the expense of the consumers, the price for
each product will be set at affordable prices by considering the forces of supply and
demand operating during each year of production. In all cases, we assume prices of each
commodity to increase at least by 5 percent each year and accordingly we have full
projections for the selling price per quintal of each product presented under sub-section 9
(projections of revenues).

8.3. Marketing Strategies

For efficient and effective distributions of the inputs and outputs of the project, we aim at
establishing and maintaining value chains. For this purpose, the following institutions are
identified with which we plan to work.

1. For the Supply of project inputs:

 Regional and zonal Agricultural Research Institutes;
 Regional and zonal Seed Enterprises (RSEs),
 Universities and Agricultural Colleges existing in the region, and
 Private organizations.
2. For the distributions of the project outputs:
 Seed multiplication enterprises
 Agricultural Colleges existing in the region,
 Civil society organizations (CSOs), including cooperatives and farmer
organizations,
 Private organizations, and individuals

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9. ORGANIZATIONS AND ADMINISTRATION OF THE PROJECT

9.1. Business Form

Ebenezer Farming Work PLC Cereals, Pulses and Oil seed Production investment project is
supposed to be established as one of the many branches the Company. Accordingly, its
organizational structure is presented below.

9.2. Organization Structure of the Project

Fig.1: Organizational Structure of Ebenezer Farming Work PLC Cereals, Pulses and
Oil seed Production investment project

Note that this organizational structure depicts the overall flows of accountability and
reporting structure of the project staffs.

9.3. Manpower Requirement with Qualification

Manpower is the decisive factor for the successful implementation and operation of any
project. Hence, careful identification of the number and qualification of the manpower
requirement of the project is in order. Accordingly, the following table shows the
manpower requirement with qualifications for the project:

Table 2. Manpower Requirement (with qualifications, number and estimated monthly salaries in Birr)
Staffs with position No Profession/Qualification Monthly Salary Annual Salary
Required (Birr)
Farm Manager 1 Bsc in Plant science 6,500 78,000
Agronomist 1 Bsc in Agronomy 6,000 72,000
Forman 2 Diploma in relevant field 4,500 108,000
Clerk/Accountant 1 Diploma &above in relevant field 4,500 54,000
Time Keeper 2 Diploma &above in relevant field 2,500 60,000
Tractor Operators 2 4th /5th grade license and 10th/12th complete 3,000 72,000
Farm Guards 3 8th /10th complete 1500 54,000
Store keepers 1 Diploma in relevant field 2,500 30,000
Secretary 1 Diploma in relevant field 2,500 30,000
Cashier 1 Diploma in relevant field 2,000 24,000
Cooks 2 10th /12th complete 1,500 36,000
Cleaners/Janitors 1 10th complete 1,200 14,400
Driver 3 4th /5th grade license and 10th /12th complete 3,000 108,000
Sub-Total 21 740,400.00

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Note that the employees’ salary is expected to increase by a minimum of five per cent each
year.

10. STAKEHOLDERS AND PARTNERS

The key stakeholders are the shareholders, the surrounding woreda communities, Zonal,
Woreda, and Kebele level administration Offices, the Investment Commission, Agriculture
offices, and Land Administration and Environment, Forest and Climate change Bureaus at
regional, woreda, and Kebele levels. The private sectors, research, academia, and civil
society constitute another category of stakeholders who will engage in delivering specific
services and benefitting directly or indirectly from the project.

11. FINANCIAL STUDY

In this section, both the cash outflow requirements and the projected inflows are projected
and analyzed.

11.1.Financial Requirements
The yearly financial requirements of the project are classified as capital costs, operating costs
and working capital requirements as follows.

11.2. Project Capital Costs

The project capital costs include such costs as construction costs, expenditures on office
equipment’s, investment in farm equipment’s, and other costs which are supposed to be
capitalized as cost of the project and are gradually depreciated over the life of the project.
Accordingly, the following are the projected capital costs of the project summarized under
different sections.
Construction costs: - these include expenditures related with the constructions of Store,
residential houses with guard room, offices, toilet, and guardian houses, parking areas,
cafeteria etc. The following table shows just the summaries of the construction items and
their respective costs.

Table 3. Summaries of the project construction costs (in Birr)

S.N Constructions needed unit Block Total Value (Birr)
1 Residential houses construction (for workers) class 1 255,000.00
2 Office construction class 1 188,000.00
3 Cafeteria construction class 1 230,000.00
4 Store and bathing rooms, rest room class 1 202,000.00
5 Shade for tractors and other vehicles class 25,000.00
Total estimated construction costs 900,000.00

Investment on farm machineries and equipment’s: - The following table shows the
specifications of the selected machineries from the proforma invoices attached to this
report.

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 Table 4. Summaries cost of the project farm machineries (in Birr)
S.N Descriptions of the Items quantity Unit costs Total costs
1 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1 1,200,577 1,200,577
2 Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 1 325,000 325,000
3 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 2 285,725 571,450
4 Brand New Toyota Hilux Double cab (Full Option) 4WD, 2.5L, 1 1,200,000 1,200,000
2949cc, 4cylinders, 16valve, Diesel Turbo, DOHC (Japan origin)
5 Truck 1 1,420,000 1,420,000
Estimated machineries (in Birr) 4,717,027.08
Farm tools: - in addition to the above-mentioned farm machineries, the following farm
tools are also identified with their respective current unit prices. However, as these items
are diverse in kind and in significant in terms of cost per unit, the costs are forested based
on the current market price without the need to collect proforma invoices.

Table 5. Farm tools with their respective per unit cost and quantities needed
S.N Items Quantity Units cost Total cost
1 Chemical Sprayer 30 450 13,500
2 Sickles 80 60 4,800
3 Axes 17 100 1,700
4 Tape meter (100 m) 4 450 1,800
5 Wheel borrow 5 3,500 17,500
6 Shovel 8 180 1,440
7 Weighing scale 3 25,000 75,000
8 Thresher 1 40,000 40,000
9 Saw 5 60 300
10 Cutlass or Machete 1 40,000 40,000
11 Spade hoe 5 900 4,500
12 Local hand hoe 12 70 840
13 Spade 10 98 980
14 Digging fork 15 400 6,000
15 Trovel 4 500 2,000
= Estimated cost of farm tools (in Birr) 210,360
Office Equipment’s: - the following table shows the prices of office equipment’s at the time
of preparing this project proposal.
Table 6. Summaries of the office equipment’s’ costs (in Birr)
FURNITURE Qty Unit Cost Total cost
Table and chair (Farm Manger) Set 2 8,200 16,400
Waiting /guest Chair Pcs 2 750 1,500
Camp bed and furniture’s Set 2 3200 6,400
Shelf and Other Drawers Set 1 5,000 5,000
Weighing scale 1 35,000 35,000
Desk top computer with its Accessories 1 15,000 15,000
Fax Machine 1 7,600 7,600
Laptop computer 1 15,500 15,500
Computer tables 2 5,000 10,000
Printer 1 7,600 7,600
Safe box 1 11,000 11,000
Cash register machine 1 8,000 8,000
Calculator /adding machines 2 450 900
Sub total 139,900.00

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 11.2.1. Project Operating Costs
Here, the operating costs refer to these costs which are not included in the project capital
costs and hence are not subjected to periodical depreciation. These costs include such costs
as labor costs; costs for equipment operations and maintenance such as fuel cost and repair
and maintenance costs; depreciation costs; utilities expenses such as water bills, electricity
bills and telephone charges; employee’s salaries; and others miscellaneous expenses.
Labor costs: - In order to determine the periodical labor cost of the project, first we need to
determine labor required to cultivate a hectare of each crop in each project year.
Accordingly, the following are our procedure to determine the labor requirement of the
project:
1. First, we started from our land use and cropping pattern proposd throughout the life of
the project as depicted by table 1 land use plan of 100 hectares specified above.
2. Second, we have determined the labor requirements of each crop per hectare per year
by the types of operations throughout the project life as shown by table 7 (annexed).
Labor requirement is expressed in terms of work-day, which is to mean the time
devoted by one person during one day (usually eight hours).
3. Thrid, we have determine the total labor requirement of each crop per year by
multiplying the labor requirement of per hectares by their corresponding total hectares
of land planned to plant each crop (table one). This is represented by table 7
(annexed).
4. Fourth, we have summed the total labor requirement of each crop in each year so as to
determine the annual total labor requirement of the project.
5. Finally, the average wage per day of labor is multiplied by the total labor requirement
of the project for each year. We have taken Birr 90.00 as the average wage per day per
worker applicable to the project location. The average wage per work-day is
projected to increase by minimum of 5 percent each year. This is determined by
considering the change in the labor markete price over the past few years.
Supplies costs: - such costs include costs for technological inputs such as fuel cost for the
tractors, fertilizers, seeds, office supplies and other chemicals. Table 9 (annexed) shows the
detailed calculations of these cost items, the summary of which is Birr 852,388.00 annual
supplies cost. As usual, we expect these cost items to increase by a minimum of 5 per cent
per year. This is presented by table 12 (annexed).

Repair and maintenance costs: - Operating costs for operations and maintenance of
machineries and equipment is taken to be 2 percent of the initial investment costs starting
from its second year after acquisition until end of tenth year, after which the rate would be
10 percent. Accordingly, table 8 (annexed) shows the detailed calculation of this cost item
which is summarized to be Birr 103,708.00 starting from the second year of the project
operation to tenth year. This is presented by table 13 (annexed).

Utilities expenses: - these include such periodical costs as incurrence of liabilities (payments
of cash) for water bills, electricity bills, fuel consumptions and telephone expanses.
Although such types of expenses are changing with the volumes of operations, it is
forecasted that a minimum of Birr 211,250.00 forecasted for the first year of project
operation, which is expected to increase by a minimum of 5 percent per year. This is
presented by table 14 (annexed).

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Miscellaneous Expense: - are other operating expense for which it is neither economical nor
convenient to give specific account code and hence should be merged together under
“miscellaneous expense” includes entertainment expense, employee benefits, litigation
expense and others. Similar to the utilities expense, such expenses are estimated to be Birr
374,576.00 for the first year and expected to increase at least by 5 percent per year. This is
presented by table 14 (annexed).

11.2.2. Project Working Capital

Project working capital refers to cash required to be held at hand at the end of each year
for some operating costs to be incurred at the beginning of the next year. These costs are
usually determined as a given percentage of the next year’s increase in the operating cost
requirements. Accordingly, the following table shows the projected working capital
requirement of the project, determined as the 80 percent of the increase in the operating
costs of the next year. This is presented by table 15 (annexed).
Note that the working capital requirement of the first year is determined to be 80 percent
of the increase in the operating cost requirement of the second year Birr 212,638.00
(2,629,752- 2,417,114) which is (Birr 212,638*0.8= 170,111.73). It is estimated that the
remaining 20 Percent increase in each year’s operating expense will be covered by the cash
inflows of the preceding year. The same approach is followed for the rest years. The non-
cash expense is not included in the determinations of the working capital requirements. This
is because such expense has no effect on cash flow streams for which we need to determine
working capital requirement. However, periodical income tax and interest liabilities need to
be considered since such items affect cash flows of an entity. Nonetheless, they are not
reflected in this case since we have not yet estimated such costs by this time.

11.2.3. Total Financial requirements

Total financial requirement for the project is just the sum of the three cost elements we
have determined above: total capital cost, total operating cost and total working capital
costs. The following table summarizes the total finance requirement of the project together
with the possible sources of finance.

Table 16. Total Financial Requirement of the Project

Items Birr
Project construction costs 900,000.00
Project farm machineries costs 4,717,027.08
Project farm tools costs 210,360.00
Summaries of the office equipment’s’ costs 139,900.00
Total Project Capital Cost 5,967,287.08
Operating Costs 2,417,113.50
Working Capital Cost 170,110.73
Total Financial Requirement at first year (In Birr) 8,554,511.31
Sources of Finance:
Owner’s Equity Contributions (30 %) 2,566,353.39
Bank loan at 11.5% simple interest rate (70%) 5,988,157.92
Total Financial Requirement at first year (In Birr) 8,554,511.31

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 11.3. Forecasted Production
In order to estimate the per hectare production of each crop, we have utilized opinions of
experts in the field of agronomists. Accordingly, table 17 (annexed) shows the projected
output in quintal from each crop proposed to be cultivated over the first ten years of the
project life.

Note that the projections are based on the expert opinions in the field as well as per the
recommendations of east Wallaga zone agriculture office, and experienced investors & seed
multipliers enterprises. In essence, if the project is to be implemented and run-in accordance
with the recommendations of the experts, these projections are supposed to be achievable.
Here, it is expected that as the project operates for a greater number of years, there is
advantage of getting lessons from the past years and hence the latter years’ output per year
is expected to increase accordingly.

11.4. Forecasted Sales Revenues

Sales revenues are the functions of projected production and projected selling price per unit
of each crop. Taking the projected production of each crop from the table 17, we now
proceed to the projection of selling price of each crop. Accordingly, the selling price of each
quintal of the crop is expected to increase each year by a minimum of 5 percent. Given the
trends of the past five years in Ethiopia in particular and in the world in general, this
projection wouldn’t be far from the reality under the normal macroeconomic condition.
Table 18 (annexed) shows the projected selling price per quintal of each crop over the next
ten years.
In order to determine the forecasted sales revenues, we need to multiply the forecasted
selling price per unit of each crop by their respective projected production of each year.
Table 19 (annexed) shows this procedure.

11.5. 8.4. Depreciation Calculations

In order to determine the periodical depreciation, we adopted the Ethiopian standard of
useful economic life of fixed assets and hence used depreciation rates for each asset category
accordingly. The detail depreciation schedule is presented by Table 20 (annexed).
Depending on the difference in the useful lives of specific assets, the depreciation charge is
estimated to be larger at the beginning of the project life and smaller at the earlier years
since some of the assets are expected to be fully depreciated within the first five years.
Accordingly, the periodical depreciation charge is estimated to be Birr 671,325.40 for the
first five years and will be reduced to Birr 476,053.00 over the next two years (since the
farm machineries are supposed to have useful lives of seven years), and finally Birr
11,200.00 for the next subsequent years (since the constructed assets are supposed to have
useful lives of more than 25 years).

11.6. Loan Repayment Schedule and Interest Expense

The periodical interest expense is just the functions of amount of the loan outstanding at
the beginning of each period, the interest rate and the time for which the loan remains
unchanged. Accordingly, the bank loan was estimated to be Birr 5,988,157.92, at simple
interest rate of 11.5 percent on the unpaid balance of the loan at the beginning of each

17 | P a g e
period. The loan with interest is expected to be paid with equal installment amount of Birr
977,566.78 over ten years starting just at the end of the second year of operation. Table 21
(annexed) shows the periodical loan repayment and interest expense.

11.7. Forecasted Income Statement

Forecasted income statement shows just the summary reports of all revenues earned and
costs expired (expense incurred) during each period. Accordingly, Table 22 (annexed)
shows the forecasted income statement of the project over the first ten years of the project
life. Note that the farm project will have substantial net income starting from its first year of
operation. It is evident that that this project is financially viable.

11.8. Forecasted Cash Flow Statement

Unlike the forecasted income statement, the forecasted cash flow statement shows the
inflows and outflows of money to and from the project over a given period of time. In this
case, all items (revenues and expense) which don’t affect cash flow are excluded from the
statement. In our case, depreciation expense is the only expense that doesn’t affect cash
flow and hence excluded from the outflows whereas all revenues are supposed to be either
fully collected within the year of sales or the sale be made on cash basis.

The cash flow statement shows the sources and uses of money over a given period of time.
Accordingly, there are three sections of this report: (1) cash flows of operating activities (O);
(2), cash flows of investing activities (I), and (3) cash flows of financing activities (F). Net
cash flow of the project is the sum of net cash flows from these three sections. Table 23
(annexed) shows the projected cash flow statement over the first ten years of the project.
Note also that this cash flow report shows that the firm’s cumulative cash inflows over the
forecast period is very attractive and deserves financing. This statement also proves that the
project is finically viable.

11.9. Forecasted Balance Sheet

Forecasted balance sheet shows the summary report of what the entity owns and what it
owes on the specific date in a time, usually, at the end of the fiscal year. In essence, it
reports on total assets, total liabilities and capital (owner’s equity and creditors’ equity) of
the entity on a given date. Thus, balance sheet contains information regarding the financial
viability of the enterprise on a given date. By comparing change in the elements of the
balance sheet over different periods, we can judge whether or not the enterprise is
improving its financial position over the periods. Accordingly, table 24 (annexed) shows
forecasted balance sheet of the enterprise for the first ten years of the life of the project.

Note that as the projected balance sheet shows that the financial position of the firm
remarkably improves over the period and will be able to full operate by own finance after
ten years if the project is successfully implemented. This also supports that the project has
financial viability.

11.10. Overall Financial Assessment

The overall financial performance of the project is appealing as shown by the projected by
the above three financial statements. When evaluated in terms of its profitability, there is
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steady increase in after tax net income showing that the project would remarkably
contribute towards wealth maximization of the shareholders. Similarly, the forecasted
balance sheet shows extraordinary attractive financial position of the firm over the same
period. In addition, when viewed in terms of the sources and uses of money (cash flow
statements), there is steady increase in the net cash provided by the project cash receipts
after covering the cash payments required to sustain the project.

Furthermore, the project has the following financial performance measured in different
investment decision criteria. The following table shows the summarized project financial
viability test just for the first ten years of the life of the project. Note that these figures
would have been much larger if we consider the entire life of the project since most of the
capital expenditures of the project are supposed to be committed at the beginning of the
years while most net cash inflows are expected during the later life of the project.
However, these figures are still indicators of financial attractiveness of the project. Detail
calculation is presented by table 25 (annexed).
Table 26. Project financial viability test
Criteria Results
Present Value of Costs PVC 54,229,048
Present Value of Benefits PVB 86,538,219
Net Present Values NPV 32,309,171
Benefit Cost Ratios BCR 1.60
Net Benefit Cost Ratio NBCR 0.60
Internal Rate of Returns IRR 114%

Net Present Value (NPV): - is the sum of present values of all the cash flow both positive
and negative that are expected to occur over the life of the project. The formal selection
criterion for the NPV measure of project worth is to accept all independent projects with a
positive NPV when discounted at the opportunity cost of capital. In this project case, given
the project has positive value of Birr 32,309,171; it means that the project would contribute
Birr 32,309,171.00 towards the wealth maximization of the owner’s wealth and hence it is
viable.
Benefit Cost Ratio (BCR): - The benefit-cost ratio is defined as the ratio of the discounted
values of benefits to the discounted value of costs. A ratio of at least one is required for
acceptability and the ratio of one indicates that the NPV of zero at a particular discount
rate. In our case BCR of Birr 1.60 shows, for every one Birr invested in this project, the
return would be 1.60 Birr, which is highly remarkable figure.
Net Benefit Cost Ratio (NBCR): - this ratio is defined as the ratio of net present value to the
present value of cost. A ratio greater than zero (0) is needed for the project to be financially
acceptable; in our case the ratio of 0.60 is in excess of the hurdle rate required to make the
project financially viable (the project is magnificent in terms of this criteria also).

Internal Rate of Return (IRR): - is the maximum interest that a project could pay for the
resources used if the project is to recover its investment and operating costs and still break
even. It measures opportunity cost of capital tied up in the investment. In this project case,
IRR is 114 percent which is extraordinarily large compared with the minimum cost of capital

19 | P a g e
of 11.5 per cent. Hence, we can safely conclude that the IRR of the project is extraordinarily
high and hence indicates project viability.

It should be recalled that the various investment decision criterion we have considered
above involve predicting values for each of the various elements entering into the definition
of volume of output sold, selling price, required investment, labor costs per unit;
maintenance costs of machines, profit, and so forth. However, as these values are based on
certain assumptions, they may change in unfavorable direction thereby making projects less
attractive than when it was planned. Thus, switching value measures the value an element
of a project would have to reach as a result of a change in an unfavorable direction before
that project no longer meets the minimum level of acceptability as indicated by one of the
measures of project worth. In this case we ask, by how much an element would have to
change in an unfavorable direction before the project would no longer meet the minimum
level of acceptability as indicated by one of the measures of project worth. In other words,
in sensitivity analysis, we ask how sensitive is the project’s estimated financial and economic
benefits to increase in costs, fall in price and extension of implementation periods?
In our case, since BCR is 1.60, it means that cost can rise by 60 percent at which the BCR
will become exactly 1.0 and hence the decision will be indifference. However, any rise in
cost beyond 61 percent keeping sales revenues constant will lead the BCR to be below 1.0
and hence the decision will be to reject the project on this ground. But it is unlikely to
expect such increase in operating costs keeping selling prices of these products’ constant.
Thus, the 38 percent margin of safety is large enough to guarantee for the stability of the
  1 
above decision criteria. Similarly, revenues can keep dropping up to 1    =
  BCR 
  1 
1   1.60  = 1-0.625= 0.375 which is roughly equals to 38 percent, keeping the cost
  
elements constant. Any drop in sales by more than 38 percent may lead the project to
rejection region. However, given the past few year trends, the price of these items has been
increasing at increasing rate and hence expected to increase over the next many years partly
due to increasing demand to these outputs and partly due to increasing general trend in
commodity prices. Overall, when evaluated both in terms of cost and revenue, the project
has sufficient margin of safety to guarantee the stability of the determined investment
decision criteria above. Thus, it is can be safely concluded that the project is financially
viable.

12. MONITORING AND EVALUATION

Monitoring of the project will be continuous and ongoing by the project promotor.
Monitoring and Evaluation of the project will be handled by the promoter on daily basis.
Ebenezer Farming Work PLC will develop a guideline for monitoring and evaluation. The
amount of input (Financial, material and manpower) will be evaluated through a technical
team that will be established containing members of Ebenezer Farming Work PLC, zonal,
Woreda and Kebele administrative organs and community members.
Moreover, during the final year of Project implementation the M&E data collected over the
Project implementation period will be used as part of a thorough assessment of Project

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achievements. The Project is scaling up the development of efficient and sustainable village
organizations in region including the field testing of innovative technology and associated
capacity building of supporting institutions. The experiences so derived will be scaled
up/replicated in other parts of the region. This also involves major potential for scaling up
and synergies in relation to subsequent investment programme

13. PHASE OUT AND SUSTAINABILITY STRATEGY

Concerning the Sustainability of the invested Project, the promoter is mainly decided to
make the project sustainable that the concerned government bodies will take-over it after
this project is phase out. Till then Ebenezer Farming Work PLC will firmly and closely
handle the project. The project aims to achieve a sustainable increase in agricultural
productivity and production. This will be achieved through scaling up of technologies
which are appropriate, affordable and profitable to promoter, and can be sustained
without ongoing support in the long-run.

To ensure the sustainability of the project sustainability will be integrated in the projects
right from the beginning, Key stakeholders will be involved: Another major step to ensure
sustainability is the involvement and participation of key stakeholders in program
development. In general, the exit strategy of the investment project will be based on the
lease agreement of the project which is

14. ACTION PLAN AND BUDGET BREAK DOWN

Action plans help know what needs to be done to complete a task, project, initiative or
strategy. An action plan generally includes steps, milestones, and measures of progress, as
well as responsibilities, specific assignments, and a time line. Action plans are an important
part of strategic planning. The following table indicates activities to be undertaken in the
first year of the project. While the budget needed is indicated on section 8.1.4 above

Table: Operational Plan of the Project

S/N Cropping Activities Work schedule (%) Year: 2021

2021/22

NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT
1 Secure the project site 50% 50%
2 Camp construction 60% 40%
3 Site clearing 30% 70%
4 Manpower employment 35% 40% 25%
5 Bank loan processing 20% 80%
6 Surveying and land development 50% 50%
7 Machinery procurement 50% 50%
8 Plouging 30% 20% 30% 20%
9 Seeding and plantation 40% 60%
10 Weeding and cultivation 60% 40%
11 Harvesting ** ** **
12 Marketing ** **

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15. RISKS AND ASSUMPTIONS
Successful agricultural development initiatives associated with poverty reduction have
seldom included large-scale land-based investment. Feed the Future focuses on smallholder-
led agricultural growth as the principal engine of poverty reduction and food security.
Investment in agriculture of all sizes, however, can be constructive and is encouraged by the
Ethiopian Government, but investments must take into account specific country contexts
and circumstances and respect the rights of local populations.

Large-scale land-based investment in agriculture, if approached in an equitable and

sustainable way, can hold unique benefits that complement smallholder agriculture: it can
bring new technologies, crops and/or market opportunities to a region, and, through
associated out-grower or contract farming schemes, to smallholder farmers within the
region. The result can be a mutually beneficial model where large investments create new
opportunities for adjacent communities and farmers. Nevertheless, this model has come
under heavy criticism for failing to recognize smallholder property rights, thereby
potentially harming the people it aims to help. Consequently, there is all the more need to
improve land governance and focus on assisting all investors to better understand the needs
and tools for responsible land-based agricultural investment.

Successful commercial investment in agriculture is dependent upon access to clear and

uncontested land rights. In environments where land rights are undocumented or poorly
protected, medium to large commercial investments in agriculture could lead to
displacement, loss of livelihoods and more limited access to land for the local population,
in particular indigenous and nomadic communities.

These negative outcomes not only undermine the Ethiopian Government’s development
and poverty reduction objectives among the populations it aims to serve but also
significantly increase reputational risk for the Ethiopian Government, its development
partners and the private sector. Conflicts over land rights can also significantly augment the
financial risks for companies investing in commercial agriculture due to delays or disruptions
in operations.

The five general risks in the project are as follows:

1. Production risks stem from the uncertain natural growth processes of crops and
livestock, with typical sources of these risks related to weather and climate (temperature
and precipitation) and pests and diseases. Other yield-limiting or yield-reducing factors
are also production risks such as excessive heavy metals in soils or soil salinity.
2. Market risks largely focus on uncertainty with prices, costs, and market access. Sources of
volatility in agricultural commodity prices include weather shocks and their effects on
yields, Other sources of market risk include international trade, liberalization, and
protectionism as they can increase or decrease market access across multiple spatial
scales. Farmers’ decision making evolves in a context in which multiple risks occur
simultaneously, such as weather variability and price spikes or reduced market access.

22 | P a g e
3. Institutional risks relate to unpredictable changes in the policies and regulations that
effect agriculture, with these changes generated by formal or informal institutions.
Government, a formal institution, may create risks through unpredictable changes in
policies and regulations, factors over which farmers have limited control. Sources of
institutional risk can also derive from informal institutions such as unpredictable changes
in the actions of informal trading partners, rural producer organizations, or changes in
social norms that all affect agriculture.
4. Personal risks are specific to an individual and relate to problems with human health or
personal relationships that affect the farm. Some sources of personal risk include injuries
from farm machinery, the death or illness of family members from diseases, negative
human health effects from pesticide use, and disease transmission between livestock and
humans.
5. Financial risk refers to the risks associated with how the farm is financed and is defined
as the additional variability of the promoter’s operating cash flow due to the fixed
financial obligations inherent in the use of credit. Some sources of financial risk include
changes in interest rates or credit availability, or changes in credit conditions.

Key invested Project implementation assumptions are that the country’s economy maintains
its stability and that consistency is established between the stated government policies and
agricultural reforms supporting private sector development, and the agriculture sector vis-à-
vis the actual implementation of investment policies and reforms.

16. ENVIRONMENTAL IMPACT ANALYSIS

Consistent with the government’s high priority of encouraging private investment in the
agriculture sector, these integrated projects aim at agricultural production with due care to
reduce degradation and improve productivity of natural resources. Given the fact that
these projects intend to utilize the rain fed cultivation, certainly these reliefs the existing
degradation pressure on rural farm land imposed by the traditional farming system.

More importantly, the projects aim at reversing the environmental degradation trends
widely observable in the area by breaking the nexus between poverty and degradations. In
essence, the projects aim at solving the key problem area by breaking the nexus between
rural poverty, natural resource management and climate change mainly by creating
alternative and more lucrative income source for the local resource poor smallholder
farmers, who, otherwise should depend on the natural resource bases and hence causes the
degradations. The project promoters believe:
 environment and natural resource degradation is often a direct cause of rural
poverty;
 rural poverty often exacerbates environment and natural resource degradation; and
 Climate change increases the vulnerability of rural people and the ecosystems they
depend on for their livelihoods.
Thus, opening alternative source of income by creating job opportunities within the project
can relieve the current pressure on the rural land in the project area. Besides, the project
promoters are fully aware of the Oromia Rural Land use and Administration Proclamation

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No. 130/ 2007, which force any investor to cover at least 2 percent of the allotted land
area by indigenous trees.

17. CONCLUSION AND RECOMMENDATION

Overall, the projects have the following merits which would justify the need for giving
priority in its finance:

 The strategic objectives of the projects are highly consistent with the national
development objective which calls to “sustainably increase rural incomes and national
food security, which embodies the concepts of producing more, selling more, nurturing
the environment, eliminating hunger and protecting the vulnerable against shocks.
 These projects are expected to create job opportunities for these potential migrants at
their nearby village and hence alleviate the pushing factor for migrations.
 The projects aim at utilizing locally available technologies so as to encourage the
backward and forward linkage of the project and hence contribute towards the
realization of Agricultural Development Led Industrialization (ADLI) strategy of the
country.
 Finally, the projects will largely contribute towards the national economic development
by contributing to National GDP. GDP contribution originating from the agriculture
sector has more power of poverty reduction than other sectors (a one percent GDP
growth rate originating in agriculture sector has more potential for poverty reduction
than two percent GDP growth rate originating from the service sector).
Recommendation: - considering the viability of the project, as aforementioned, the
project is recommended for implementation.

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 Annex
Table. 7 Labor requirement per Hectares of each crop
Project life in years
Crop and Operation 1 2 3 4 5 6 7 8 9 10 to 25
Maize (Seed) Land preparation 7 7 7 7 7 7 7 7 7 7

Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 7 7 7 7 7 7 7 7 7 7

Chemical application (2X) 5 5 5 5 5 5 5 5 5 5

Harvesting 5 5 5 5 5 5 5 5 5 5
Threshing 5 5 5 5 5 5 5 5 5 5
Total 34 34 34 34 34 34 34 34 34 34
Soya Beans
Land preparation 4 4 4 4 4 4 4 4 4 4

Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 4 4 4 4 4 4 4 4 4 4
Chemical application (4X) 3 3 3 3 3 3 3 3 3 3
Harvesting (2X) 7 7 7 7 7 7 7 7 7 7
threshing 5 5 5 5 5 5 5 5 5 5
Total 28 28 28 28 28 28 28 28 28 28
Groundnuts
Land preparation 4 4 4 4 4 4 4 4 4 4

Planting 5 5 5 5 5 5 5 5 5 5
Weeding (2X) 5 5 5 5 5 5 5 5 5 5
Chemical application (2X) 3 3 3 3 3 3 3 3 3 3
Harvesting 8 8 8 8 8 8 8 8 8 8
threshing 5 5 5 5 5 5 5 5 5 5
Labor per season 30 30 30 30 30 30 30 30 30 30
Sesame
Land preparation 5 5 5 5 5 5 5 5 5 5
Planting 8 8 8 8 8 8 8 8 8 8
Weeding (2X) 6 6 6 6 6 6 6 6 6 6
Harvesting (2X) 7 7 7 7 7 7 7 7 7 7
threshing 6 6 6 6 6 6 6 6 6 6
Total 32 32 32 32 32 32 32 32 32 32
Labor requirement is expressed in terms of work-day, which is to mean the time devoted by one person during one day (usually eight hours).

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 Table 8. Estimated yearly repair and maintenance expenses Repair and maintenance
Items costs Rate
1 Store and bathing room 202,000.00 0.02 4,040.00
2 New John Deere 6100D Mfwd Tractor (Mexico Origin) 1,200,577 0.02 24,011.54
3 Mounted Four Disc Plough (Make: Nardi, Model: QD 70/E) 325,000 0.02 6,500.00
4 Mounted Tandem Disc Harrow (Make: Nardi, Model: 28 HOP 56) 571,450 0.02 11,429.00
6 Brand New Toyota Hilux Double cab 1,200,000 0.02 24,000.00
8 Truck 1,420,000 0.02 28,400.00
10 Chemical Sprayer 13,500.00 0.02 270.00
11 Sickles 4,800.00 0.02 96.00
12 Axes 1,700.00 0.02 34.00
13 Tape meter (100 m) 1,800.00 0.02 36.00
14 Wheel borrow 17,500.00 0.02 350.00
15 Shovel 1,440.00 0.02 28.80
16 Weighing scale 75,000.00 0.02 1,500.00
17 Thresher 40,000.00 0.02 800.00
18 Saw 300.00 0.02 6.00
19 Cutlass or Machete 40,000.00 0.02 800.00
20 Spade hoe 4,500.00 0.02 90.00
21 Local hand hoe 840.00 0.02 16.80
22 Spade 980.00 0.02 19.60
23 Digging fork 6,000.00 0.02 120.00
24 Trovel 2,000.00 0.02 40.00
25 Laptop Computer 15,500.00 0.02 310.00
26 Printers 7,600.00 0.02 152.00
27 Shelf 5,000.00 0.02 100.00
28 Managerial Chairs 16,400.00 0.02 328.00
29 Guest Chairs 1,500.00 0.02 30.00
30 Computer tables 10,000.00 0.02 200.00
Total Repair and Maintenance costs 103,707.74

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 Table 9. Total Labor requirement and cost of the project
Years 1 2 3 4 5 6 7 8 9 10
Maize Labor per Ha (table 7) 34 34 34 34 34 34 34 34 34 34
Land area (table 1) 60 60 60 60 60 60 60 60 60 60
Sub-total labor required 2040 2040 2040 2040 2040 2040 2040 2040 2040 2040
Soybean Labor per Ha (table 7) 28 28 28 28 28 28 28 28 28 28
Land area (table 1)* 10 10 10 10 10 10 10 10 10 10
Sub-total labor required 280 280 280 280 280 280 280 280 280 280
Groundnuts Labor per Ha (table 7) 30 30 30 30 30 30 30 30 30 30
Land area (table 1) 10 10 10 10 10 10 10 10 10 10
Sub-total labor required 300 300 300 300 300 300 300 300 300 300
Sesame Labor per Ha (table 7) 32 32 32 32 32 32 32 32 32 32
Land area (table 1)* 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5
Sub-total labor required 560 560 560 560 560 560 560 560 560 560
Total Labor required per ha 3180 3,180 3,180 3,180 3,180 3,180 3,180 3,180 3,180 3180

Table 10. Summaries of labor cost (wage expense)

Years 1 2 3 4 5 6 7 8 9 10
Total Annual Labor 3,180 3,180 3,180 3,180 3,180 3,180 3,180 3,180 3,180 3,180
Labor cost per work-day (Birr) 75 75 79 83 87 91 96 101 106 111
Projected wage Cost per year 238,500 238,500 250,425 262,946 276,094 289,898 304,393 319,613 335,593 352,373

Table 12: summaries of supplies costs per year

1 2 3 4 5 6 7 8 9 10
Supplies costs 852,388 895,007 939,757 986,745 1,036,082 1,087,886 1,142,281 1,199,395 1,259,365 1,322,333

Table 13. Repair and Maintenance expense per year

1 2 3 4 5 6 7 8 9 10
Repair & 0
maintenance
103,708 108,893 114,338 120,055 126,057 132,360 138,978 145,927 153,224

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 Table 14. Miscellaneous and utilities expense per year
years 1 2 3 4 5 6 7 8 9 10
Utilities Expense 211,250 221,813 232,903 244,548 256,776 269,614 283,095 297,250 312,112 327,718
Other Operating expense 374,576 393,305 412,970 433,619 455,299 478,064 501,968 527,066 553,419 581,090

Table 15. Operating and working capital costs needed

Years 1 2 3 4 5 6 7 8 9 10
Employee salaries 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Labor cost (table 10) 238,500 238,500 250,425 262,946 276,094 289,898 304,393 319,613 335,593 352,373
Repair& maint. (table 13) 0 103,708 108,893 114,338 120,055 126,057 132,360 138,978 145,927 153,224
Utilities costs (table 14) 211,250 221,813 232,903 244,548 256,776 269,614 283,095 297,250 312,112 327,718
Supplies cost (table 12) 852,388 895,007 939,757 986,745 1,036,082 1,087,886 1,142,281 1,199,395 1,259,365 1,322,333
Miscellaneous cost (table 14) 374,576 393,305 412,970 433,619 455,299 478,064 501,968 527,066 553,419 581,090
Total Operating 2,417,114 2,629,752 2,761,240 2,899,301 3,044,267 3,196,480 3,356,304 3,524,119 3,700,325 3,885,341
Increase in Operating costs 0 212,638 131,488 138,062 144,965 152,213 159,824 167,815 176,206 185,016
Working capital needed 170,110.73 105,190 110,450 115,972 121,771 127,859 134,252 140,965 148,013 0

Table 17. Forecasted production of each crop over the first 10 years
Crops 1 2 3 4 5 6 7 8 9 10
Maize Land area in Ha 60 60 60 60 60 60 60 60 60 60
Output per Ha (quint) 55 55 55 55 55 55 55 55 55 55
Total Output (quint) 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300
Soybean Land area in Ha 10 10 10 10 10 10 10 10 10 10
Output per Ha (quint) 35 35 35 35 35 35 35 35 35 35
Total Output (quint) 350 350 350 350 350 350 350 350 350 350
Groundnuts Land area in Ha 10 10 10 10 10 10 10 10 10 10
Output per Ha (quint) 30 30 30 30 30 30 30 30 30 30
Total Output (quint) 300 300 300 300 300 300 300 300 300 300
Sesame Land area in Ha 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5 17.5

Output per Ha (quint) 20 20 20 20 20 20 20 20 20 20

Total Output (quint) 350 350 350 350 350 350 350 350 350 350
4,300 4,300 4,300 4,300 4,300 4,300 4,300 4,300 4,300 4,300

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 Table 18. Projected selling price of (at the farm gate price in Birr per quintal)
Crops 1 2 3 4 5 6 7 8 9 10
Maize 1500 1,575 1,654 1,736 1,823 1,914 2,010 2,111 2,216 2,327
Soya beans 1800 1,890 1,985 2,084 2,188 2,297 2,412 2,533 2,659 2,792
Groundnuts 2200 2,310 2,426 2,547 2,674 2,808 2,948 3,096 3,250 3,413
Sesame 3500 3,675 3,859 4,052 4,254 4,467 4,690 4,925 5,171 5,430

Table 19 Projected annual Sales revenues from each Crop (at the farm gate price in Birr)
Crops 1 2 3 4 5 6 7 8 9 10
Maize Price (Birr) 1500 1,575 1,654 1,736 1,823 1,914 2,010 2,111 2,216 2,327
Production (quint) 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300 3,300
Sales (Birr) 4,950,000 5,197,500 5,457,375 5,730,244 6,016,756 6,317,594 6,633,473 6,965,147 7,313,404 7,679,075
Soya bean Price (Birr) 1,800 1,890 1,985 2,084 2,188 2,297 2,412 2,533 2,659 2,792
Production (quint) 350 350 350 350 350 350 350 350 350 350
Sales (Birr) 630,000 661,500 694,575 729,304 765,769 804,057 844,260 886,473 930,797 977,337
Groundnuts Price (Birr) 2,200.0 2,310.0 2,425.5 2,546.8 2,674.1 2,807.8 2,948.2 3,095.6 3,250.4 3,412.9
Production (quint) 300 300 300 300 300 300 300 300 300 300
Sales (Birr) 660,000 693,000 727,650 764,033 802,234 842,346 884,463 928,686 975,121 1,023,877
Sesame Price (Birr) 3,500 3,675 3,859 4,052 4,254 4,467 4,690 4,925 5,171 5,430
Production (quint) 350 350 350 350 350 350 350 350 350 350
Sales (Birr) 1,225,000 1,286,250 1,350,563 1,418,091 1,488,995 1,563,445 1,641,617 1,723,698 1,809,883 1,900,377
Total Sales revenues 7,465,000 7,838,250 8,230,163 8,641,671 9,073,754 9,527,442 10,003,814 10,504,005 11,029,205 11,580,665

Table 21. Projected periodical loan repayment and interest expense

Years 1 2 3 4 5 6 7 8 9 10
Principal loan outstanding at
5,988,157.92 5,389,342 4,790,526 4,191,711 3,592,895 2,994,079 2,395,263 1,796,447 1,197,632 598,816
beginning
Periodical loan repayments 598,815.79 598,816 598,816 598,816 598,816 598,816 598,816 598,816 598,816 598,816
Outstanding Loan at the end 5,389,342.13 4,790,526 4,191,711 3,592,895 2,994,079 2,395,263 1,796,447 1,197,632 598,816 0
Periodical interest expense 688,638.16 619,774.34 550,910.53 482,046.71 413,182.90 344,319.08 275,455.26 206,591.45 137,727.63 68,863.82
Total periodical payment 1,287,453.95 1,218,590 1,149,726 1,080,863 1,011,999 943,135 874,271 805,407 736,543 667,680
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 Table 22 Projected Annual Income Statement (all in Birr)
Years 1 2 3 4 5 6 7 8 9 10
Total Revenues 7,465,000 7,838,250 8,230,163 8,641,671 9,073,754 9,527,442 10,003,814 10,504,005 11,029,205 11,580,665
Operating Expenses:
Salaries Expense 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages Expense 238,500 238,500 250,425 262,946 276,094 289,898 304,393 319,613 335,593 352,373
Repair & maintenance 0 103,708 108,893 114,338 120,055 126,057 132,360 138,978 145,927 153,224
Utilities Expense 211,250 221,813 232,903 244,548 256,776 269,614 283,095 297,250 312,112 327,718
Supplies Expense 852,388 895,007 939,757 986,745 1,036,082 1,087,886 1,142,281 1,199,395 1,259,365 1,322,333
Miscellaneous Expense 374,576 393,305 412,970 433,619 455,299 478,064 501,968 527,066 553,419 581,090
Depreciation Expense 671,325 671,325 671,325 671,325 671,325 476,053 476,053 5,050 5,050 5,050
Interest Expense 688,638 619,774 550,911 482,047 413,183 344,319 275,455 206,591 137,728 68,864
Total Operating Expense 3,777,077 3,920,852 3,983,475 4,052,674 4,128,775 4,016,852 4,107,813 3,735,761 3,843,103 3,959,255
Income Before Income Tax 3,687,923 3,917,398 4,246,687 4,588,997 4,944,979 5,510,589 5,896,001 6,768,244 7,186,102 7,621,410
Income Tax (35%) 1,290,773 1,175,220 1,274,006 1,376,699 1,483,494 1,653,177 1,768,800 2,030,473 2,155,831 2,286,423
Net Income 2,397,150 2,742,179 2,972,681 3,212,298 3,461,486 3,857,413 4,127,201 4,737,771 5,030,272 5,334,987
Retained Earnings 2,397,150 5,139,329 8,112,010 11,324,308 14,785,793 18,643,206 22,770,407 27,508,178 32,538,449 37,873,436

Table 23. Projected Annual cash Flow Statement (all in Birr)

Years 1 2 3 4 5 6 7 8 9 10
1. Cash flows of Operating activities:
Cash Inflows:
Collections from Sales 7,465,000 7,838,250 8,230,163 8,641,671 9,073,754 9,527,442 10,003,814 10,504,005 11,029,205 11,580,665
Cash Outflows:
Salaries payment 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages payment 238,500 238,500 250,425 262,946 276,094 289,898 304,393 319,613 335,593 352,373
Repair & maintenance - 103,707.74 108,893.13 114,337.79 120,054.67 126,057.41 132,360.28 138,978.29 145,927.21 153,223.57
Utilities Expense 211,250 221,813 232,903 244,548 256,776 269,614 283,095 297,250 312,112 327,718

30 | P a g e
 Supplies Expense 852,388 895,007 939,757 986,745 1,036,082 1,087,886 1,142,281 1,199,395 1,259,365 1,322,333
Miscellaneous Expense 374,576 393,305 412,970 433,619 455,299 478,064 501,968 527,066 553,419 581,090
Interest payment 688,638 619,774 550,911 482,047 413,183 344,319 275,455 206,591 137,728 68,864
Income Tax (30%) 1,290,773 1,175,220 1,274,006 1,376,699 1,483,494 1,653,177 1,768,800 2,030,473 2,155,831 2,286,423
Working capital 170,111 105,190 110,450 115,972 121,771 127,859 134,252 140,965 148,013 0
Total cash outflows 4,566,635 4,529,936 4,696,606 4,874,019 5,062,714 5,321,835 5,534,812 5,902,149 6,141,896 6,240,628
Net cash provided by 2,898,365 3,308,314 3,533,557 3,767,651 4,011,040 4,205,607 4,469,002 4,601,856 4,887,309 5,340,037
operation
2. Cash flows of investing activities:
Cash inflows:
Cash Outflows:
Project construction costs 900,000
Projected farm machine cost 4,717,027
Projected farm tools cost 210,360
Projected office equipment’s 139,900
Total cash outflows 5,967,287
Net cash used by investing -5,967,287
3. Cash flows of Financing:
cash inflows:
Owners' equity 2,566,353
Bank loans 5,988,158
Total cash inflows 8,554,511
Cash outflows:
Repayments of loans 598,816 598,816 598,816 598,816 598,816 598,816 598,816 598,816 598,816 598,816
Net cash flows by financing 7,955,696 -598,816 -598,816 -598,816 -598,816 -598,816 -598,816 -598,816 -598,816 -598,816
Total N et cash flows 4,898,647 2,709,498 2,934,741 3,168,835 3,412,224 3,606,791 3,870,186 4,003,040 4,288,493 4,741,221
Cumulative cash flows 4,898,647 7,608,145 10,542,886 13,711,721 17,123,946 20,730,737 24,600,923 28,603,964 32,892,456 37,633,678

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 Table 24 Projected Balance sheet of the project (in Birr)
Years 1 2 3 4 5 6 7 8 9 10
Assets
Current asset
Cash (cumulated) 4,898,647 7,608,145 10,542,886 13,711,721 17,123,946 20,730,737 24,600,923 28,603,964 32,892,456 37,633,678
working capital (cumulated) 170,111 275,301 385,750 501,722 623,493 751,352 885,604 1,026,569 1,174,582 1,174,582
Total current assets 5,068,757 7,883,446 10,928,636 14,213,444 17,747,439 21,482,089 25,486,528 29,630,533 34,067,039 38,808,260
Fixed asset
Project construction costs 900,000 900,000 900,000 900,000 900,000 900,000 900,000 900,000 900,000 900,000
Projected accu. depren -5,050 -10,100 -15,150 -20,200 -25,250 -30,300 -35,350 -40,400 -45,450 -50,500
Projected farm machine cost 4,717,027 4,717,027 4,717,027 4,717,027 4,717,027 4,717,027 4,717,027 4,717,027 4,717,027 4,717,027
Projected accu. depren -471,003 -942,007 -1,413,010 -1,884,014 -2,355,017 -2,826,020 -3,297,024 -3,768,027 -4,239,031 -4,239,031
projected farm tools cost 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360 210,360
Projected accu. depren -184,072 -368,144 -552,216 -736,288 -920,360 -1,104,432 -1,288,504 -1,472,576 -1,656,648 -1,840,720
projected office equipment’s 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900 139,900
Projected accu. depren -11,200 -22,400 -33,600 -44,800 -56,000 -67,200 -78,400 -89,600 -100,800 -112,000
Total fixed assets 5,295,962 4,624,636 3,953,311 3,281,985 2,610,660 1,939,335 1,268,009 596,684 (74,641) (274,963)
Total assets 10,364,719 12,508,082 14,881,947 17,495,429 20,358,099 23,421,424 26,754,537 30,227,217 33,992,397 38,533,296
Liability
Bank Loan 5,389,342 4,790,526 4,191,711 3,592,895 2,994,079 2,395,263 1,796,447 1,197,632 598,816 0
Capital
Owners' equity 2,566,353 2,566,353 2,566,353 2,566,353 2,566,353 2,566,353 2,566,353 2,566,353 2,566,353 2,566,353
Retained earning 2,397,150 5,139,329 8,112,010 11,324,308 14,785,793 18,643,206 22,770,407 27,508,178 32,538,449 37,873,436
Total capital 4,963,503 7,705,682 10,678,363 13,890,661 17,352,147 21,209,559 25,336,760 30,074,531 35,104,803 40,439,790
Total Liability + Capital 10,352,845 12,496,208 14,870,074 17,483,556 20,346,225 23,604,822 27,133,208 31,272,163 35,703,618 40,439,790

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 Table 25. Projected Annual cash Flow Statement from Operations(all in Birr)
years 1 2 3 4 5 6 7 8 9 10
Cash flows of Operating activities:
Cash Inflows:
Cash collections from revenues 7,465,000 7,838,250 8,230,163 8,641,671 9,073,754 9,527,442 10,003,814 10,504,005 11,029,205 11,580,665
Cash Outflows:
Salaries payment 740,400 777,420 816,291 857,106 899,961 944,959 992,207 1,041,817 1,093,908 1,148,603
Wages payment 238,500 238,500 250,425 262,946 276,094 289,898 304,393 319,613 335,593 352,373
Repair & maintenance - 103,708 108,893 114,338 120,055 126,057 132,360 138,978 145,927 153,224
Utilities Expense 211,250 221,813 232,903 244,548 256,776 269,614 283,095 297,250 312,112 327,718
Supplies Expense 852,388 895,007 939,757 986,745 1,036,082 1,087,886 1,142,281 1,199,395 1,259,365 1,322,333
Miscellaneous Expense 374,576 393,305 412,970 433,619 455,299 478,064 501,968 527,066 553,419 581,090
Interest payment 688,638 619,774 550,911 482,047 413,183 344,319 275,455 206,591 137,728 68,864
Income Tax (30%) 1,290,773 1,175,220 1,274,006 1,376,699 1,483,494 1,653,177 1,768,800 2,030,473 2,155,831 2,286,423
Working capital 170,111 105,190 110,450 115,972 121,771 127,859 134,252 140,965 148,013 -
Capital cost 5,967,287
Total cash outflows 10,533,923 4,529,936 4,696,606 4,874,019 5,062,714 5,321,835 5,534,812 5,902,149 6,141,896 6,240,628
Net cash provided by operation (3,068,923) 3,308,314 3,533,557 3,767,651 4,011,040 4,205,607 4,469,002 4,601,856 4,887,309 5,340,037
PVC 9,708,684 4,175,056 4,328,669 4,492,184 4,666,096 4,904,917 5,101,209 5,439,768 5,660,734 5,751,731
PVB 6,880,184 7,224,194 7,585,403 7,964,673 8,362,907 8,781,052 9,220,105 9,681,110 10,165,166 10,673,424
NPV (2,828,500) 3,049,137 3,256,734 3,472,490 3,696,811 3,876,135 4,118,896 4,241,342 4,504,432 4,921,693
PVC 54,229,048.00
PVB 86,538,219.15
NPV 32,309,171.15
BCR 1.60
NBCR 0.60
IRR 114%

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