ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on the Establishment of Modern

Garment for Export and Re-Export Making
Plant

Development Studies Associates

(DSA)

July 2016 Revised

Bahir Dar
 Table of Contents

1. Executive Summary..................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program...................1
3.1 Market Study.......................................................................................................1
3.1.1 Present Demand and Supply........................................................................1
3.1.2 Projected Demand........................................................................................2
3.1.3 Pricing and Distribution...............................................................................3
3.2 Plant Capacity......................................................................................................3
3.3 Production Program.............................................................................................3
4. Raw Materials and Utilities....................................................................3
4.1 Availability and Source of Raw Materials...........................................................3
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................4
5. Location and Site.....................................................................................4
6. Technology and Engineering.................................................................4
6.1 Production Process...............................................................................................4
6.2 Machinery and Equipment...................................................................................6
6.3 Civil Engineering Cost........................................................................................7
7. Human Resource and Training Requirement......................................7
7.1 Human Resource..................................................................................................7
7.2 Training Requirement..........................................................................................8
8. Financial Analysis...................................................................................8
8.1 Underlying Assumption.......................................................................................8
8.2 Investment............................................................................................................9
8.3 Production Costs................................................................................................10
8.4 Financial Evaluation..........................................................................................10
9. Economic and Social Benefit and Justification..................................11
ANNEXES....................................................................................................13
 1. Executive Summary
The project envisages production of 220,000 men’s dress shirt per annum for export. The total
investment outlay requirement of the project including the working capital is estimated at about
Birr 12.86 million; of which nearly Birr 5.30 million is the cost of the working capital and
Birr 3.84 million is for machinery and equipments. Based on the cash flow statement, the
calculated internal rate of return (IRR) and simple rate of return (SRR) of the project are 44.9 %
and 41, respectively. The net present value (NPV) at 18 % discounting rate is about Birr 11,670
thousand. The plant is expected to create employment opportunities for about 65 persons.

2. Product Description and Application

The garment work consists of the manufacturing of clothing by cutting and sewing fabrics.
Garment is one of the major activities that consume huge labor. The major input for garment
production is different types of textile fabrics. Important garment products include shirts, shorts,
T-shirts, under wears, fur apparel, pants, trousers, sport wears, work clothes and jackets.
This project envisages to make men’s dress shirt. Men' shirt, among various kinds of clothing,
has wide adaptability and is consumed in huge quantity throughout the world. Transporting the
product is easy too; therefore, if the factory can produce quality shirt at a cost which can compete
internationally, geographical limitation of the factory location is practically nil for both local
consumption and export.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

Textile and garment industry has enormous potential and opportunities for progress. The demand
for garment in the world market is increasing. Garment products of Ethiopia have high market
demand in many parts of the world, particularly in the United States of America, Western Europe
and Japan. Cotton garments have wide adaptability and are consumed in huge quantity

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throughout the world. Therefore, there will be sufficient demand for the product in the
international markets if the factory can produce at a cost which can compete internationally.

However, although there is a high potential for the production of raw materials, such as textile
and leather, the garment industry has not yet developed in the country. The demand for garment
products, in various parts of the world is steadily growing. There is high potential for cotton
production; which supplies basic raw materials for the textile factories, which in turn, are major
raw material suppliers for the garment industry. The textile fabric, which is the major potential
input for garment production, is produced in various textile factories in the country.

Garment industry is labor intensive, requires relatively small capital investment and has high
market demand in the world market; all of these conditions are in line with the country’s
requirement. Moreover, there is an opportunity to get skilled manpower for making the product
as there is a Textile and Garment Industry Support Institute at the Bahir Dar University for
training professional skilled manpower.

The existing potential for cotton and textile production and the availability of cheap labor is one
the major parameters for considering the sub-sector as one of the strategic export- promoting
sector in the country. Thus, the garment and textile industry has been identified as one of
strategic economic areas that have been given great attention and support by the government.
Given the potential of the raw material and the priority of the government for the textile and
garment sub-sector, the garment industry has a major role to play in the Region’s economy in
general and export trade in particular.

3.1.2 Projected Demand

As it is said above, there is no demand constraint for standard exportable men’s dress shirts. As
long as the factory can produce the product up to the standard and at a cost which can compete
internationally, any factory with such small capacity normally faces a perfectly elastic demand
curve; it can sell all of its output at the international price. Therefore, there will be sufficient
demand for the product in the international markets.

2
 3.1.3 Pricing and Distribution

The average wholesale price of LDC made standard exportable men’s dress shirt ranges from
Birr 60 (USD 6) per piece up to Birr 75 (USD 7.5) per piece. The envisaged project plans to sell
its products at average factory gate price of Birr 60 per piece (USD 6). The product will find its
market outlet by searching the international market through its marketing staff.

3.2 Plant Capacity

The minimum economic capacity of men’s dress shirt making unit is around 800 shirts per day or
195,000 pieces per annum. It has one line and operates in two shift basis for 275 working days.
The working days are set by deducting all Sundays and public holidays, and assuming that
annual maintenance works and unexpected work interruptions will take 25 days.

3.3 Production Program

The production program follows gradual capacity utilization due to market and technological
reasons. Since this project targets the international market, some time is required to secure a
reasonable market size; while the technology refers to the speed with which the operators
assimilate the process know how. Accordingly, 50 % and 75 % capacity utilization are assumed
for the first and the second years of the operation, respectively. The third year onwards, 100 %
capacity utilization is assumed.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The main raw materials for the plant will be the textiles fabrics which are obtained from factories
such as Almeda Textile Factory, Akkaki Textile Factory, Bahir Dar Textile Factory, Dire-Dawa
Textile Factory, Kombolcha Textile Factory and Awassa Textile Factory; and some other raw
materials like Internal linings, Sewing Thread and Buttons are imported from countries such
Italy.

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 4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual requirements of main raw materials at 100 % capacity utilization with their
associated costs are given in Table 4.1.
Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT
(AT FULL CAPACITY)

Cost(In Birr)
No Raw Material Unit Qty. F.C L.C Total
1 Cotton Fabrics M2 290,000 0 967,837,650 645,225,100
2 Internal 18,333
Lining Dozen 24,474,056 0 24,474,056
3 Sewing 1.1
Thread Ton 7,342,217 0 7,342,217
4 Buttons Packet 3,520 7,831,698 0 7,831,698
Total     39,647,970 967,837,650 1,007,485,620

Electricity and water requirement is about 62.7 MWH and 1,000 m3. The total annual cost of
utility at full capacity is equal to Birr 39,610.
Table 4.2
UTILITIES REQUIREMENT

No. Utility Requirement Unit Cost (Birr)

(Annual) Price
1 Electricity 67,200 KWH Birr0.55 36,960
/KWH
2 Water 1,000 m3 Birr2.65 2,650
/m3
Total     39,610

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 5. Location and Site
For its convenience to procure raw materials and its access to the capital city to export the
product to different parts of the world, among ANRS’s towns Debre Birhan is an appropriate
choice to establish exportable men’s dress shirt making factory in Amhara region.

6. Technology and Engineering

6.1 Production Process

Making of men’s dress shirt involves the following major steps.

1) Cutting Process
In the cutting process, the cloth is cut to the proper sizes, then is inspected, assorted, and
arranged to facilitate flow to the sewing process. Cut cloth must be combined with the
interlining, if to be applied. The cutting process consists of the following four processes:

(1) Drawing
A paper pattern is placed on the cloth and the pattern is copied on the cloth.

(2) Cloth Laying

The cloth is spread and piled on the cutting table.

(3) Cutting
The cloth is cut by a knife-type cutting machine or a die cutting machine.

(4) Arrangement
The cut cloth and interlining are inspected, assorted, and bundled, and a slip is attached to the
bundle.

2) Sewing Process

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In the sewing process, the cut cloth is sewn one by one and the whole cloths are made into the
finished product. Generally, each part of shirt is made at different section and the shirt is made in
an integrating way. As the workers become specialized the work is mastered in a short time, and
efficiency is improved. 80 % of the direct labor of the sewing factory serves for the sewing
process.

3) Finishing Process
In the finishing process the completely sewn shirt is inspected, pressed for body finishing and
collar finishing, ironed to the proper shape and then folded and packaged.

There is no alternative technology in sewing men’s dress shirt.

6.2 Machinery and Equipment

The lists of machinery and equipments required to establish a men’s dress shirt making is given
below (Table 6.1).
TABLE 6.1
LIST OF MACHINERY AND EQUIPMENT

Cutting Process Number

Cutting Table (Coarse Cutting) ..............................................................................................1
Cutting Table (Fine Cutting) ..................................................................................................1
Straight Knife Cutting Machine ........................................................................................... .1
Band Knife Cutting Machine................................................................................................ .1
Cutting Press ......................................................................................................................... 1
Sewing Process
Single Needle Lock Stitch Machine .................................................................................... .12
2 Needles 5 Thread Interlock Machine .................................................................................. 2
Single Needle Double Chain Stitch Machine ......................................................................... 1
Single Needle Chain Stitch Button Sewing Machine ………………………………..............1
Tack Stitch Machine For Slit Cover Attaching (Lr Three Each) ……………...……….........2
Single Needle Lock Stitch Blind Buttonhole Machine ...........................................................1
Over-Lock Machine .' .......................................................................................................... ...1
Label Setter ..............................................................................................................................1
Collar Top Sewing Machine ....................................................................................................1
Pocket Folding And Setting Machine ................................................................ ………….....1
Double-Head Automatic Buttonhole Machine For Cuff. .................................... …………...1
Automatic Buttonhole Machine For Front ..............................................................................1
Electric Iron ................................................................................................... ……………….6
Ironing Stand ...................................................................................................................... …6
Sleeve Slit Cover Folder ...................................................................................................... ..1
Cuff Forming Press ............................................................................................................ …1

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Collar Turning Machine ...................................................................................................... ...1
Press For Collar .......................................................................................................................1
Stamping Machine ............................................................................................................. ….1
Workbench ......................................................................................................................... ….1
Fusing Press For Interlining ................................................................................................ …1
All-Round Press. ................................................................................................................. …1
Finishing Process
Press For Collar And Cuff Finishing ........................................................................................1
Press For Front Finishing .........................................................................................................1
Press For Neck Finishing ...................................................................................................... ..1
Folder ................................................................................................................................. ….2

The total cost of machinery/equipment is estimated at Birr 1.5 million all of which is in foreign
currency.
Machinery Suppliers Address:
Welco Garment Machinery Private Limited
T-19-6 DLF Phase III,
Gurgaon, India

6.3 Civil Engineering Cost

The building area required by the plant is estimated to be 600 m 2, and it costs Birr 1,200,000.
This would include cost of land preparation and associated civil works. The total land area of the
plant, including the open space, is 2000 m2 and its lease cost equals Birr 109,000. The cost of the
land lease is as per ANRS land lease rate for Debre Birhan which is equal to Birr 54.50 per
square meter for industrial purpose. Of the total cost of the lease, 5 % is paid in the beginning
while the rest will be paid in 40years.

7. Human Resource and Training Requirement

7.1 Human Resource
Details of the manpower requirement of the plant is shown in Table 7.1
Table 7.1
MANPOWER REQUIREMENT

Description No Monthly Annual

Salary Salary
(Birr) (Birr)
A. Administration      
1. Manager 1 7698 92376
2. Marketing Manager 1 5132 61584

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3. Supervisors 2 2566 61584
4. Technicians 2 2566 61584
5. Personnel Officer 1 2566 30792
6. Accountant 1 2566 30792
7.Seretary 1 2052.8 24633.6
8. Cashier 1 1539.6 18475.2
9. Storekeeper 1 1539.6 18475.2
10.Guards 4 769.8 36950.4
Sub-total 15 0 437,246
B. Production      
11. Skilled Workers 40 2566
(Tailors and Others) 1231680
12. Semi-skilled 10 1539.6
Workers (laborers) 184752
Benefits (20%)     370,735

  65   2,224,413

The total annual wages and salary, including 20 % benefits, amount to Birr 866,880.

7.2 Training Requirement

One month on job training is required for the technical personnel. And, this can be managed by
hiring two experts in the area from the technology suppliers.

8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of Men’s Dress Shirt Making plant is based on the data provided in the
preceding chapters and the following assumptions.

A. Construction and Finance

Construction Period 2 Years

Source Of Finance 30% Equity and 70% Loan
Tax Holidays 2 Years
Bank Interest Rate 12%

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Discount For Cash Flow 18%
Value Of Land Based on Lease Rate of ANRS
Spare Parts, Repair & Maintenance 3% of the Fixed Investment

B. Depreciation

Building 5%
Machinery And Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%

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 C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30 Days

Raw Material-Foreign 120 Days
Factory Supplies In Stock 30 Days
Spare Parts In Stock And Maintenance 30 Days
Work In Progress 10 Days
Finished Products 15 Days
Accounts Receivable 30 Days
Cash In Hand 30 Days
Accounts Payable 30 Days

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 5 million as
shown in Table 8.1 below. The owner shall contribute 30 % of the finance in the form of equity
while the remaining 70 % is to be financed by bank loan.
Table 8.1
Total Initial Investment

Items L.C F.C Total

Land 5,450   5,450
Building And Civil Works 3,079,200   3,079,200
Office Equipment 256,600   256,600
Vehicles -    
Plant Machinery & Equipment - 3,849,000 3,849,000
Total Fixed Investment Cost 3,341,250 3,849,000 7,190,250
Pre Production Capital
Expenditure*
167,491   359,941
Total Initial Investment 167,491 3,849,000 7,558,725
Working Capital at Full Capacity 4,902,908   5,301,972
Total 5,070,398 3,849,000 12,860,697

*Pre-production capital expenditure includes - all expenses for pre-investment studies,

consultancy fee during construction and expenses for company‘s establishment, project
administration expenses, commission expenses, preproduction marketing and interest expenses
during construction.

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The foreign component of the project accounts for Birr 1.5 million or 33 % of the total
investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 11.1 million (See Table
8.2). Raw materials and utilities account for 85.8 %.
Table 8.2
PRODUCTION COST AT FULL CAPACITY

Raw Material Requirement Cost

1.Local Raw Materials 8,700,000
2.Foreign Raw Materials 356,400

Total Production Cost at full Capacity

Items Cost
1.      Raw materials 23,238,722
2.      Utilities 39,610
3.      Wages and Salaries 2,224,414
4.      Spares and Maintenance 215,965
Factory Costs 25,780,741
5.      Depreciation 636,509
6.      Financial Costs 771,642
  Total Production Cost 52,907,603

8.4 Financial Evaluation

I. Profitability
According to the projected income statement (See Annex 4) the project will generate profit
beginning from the first year of operation and increases on wards. The income statement and
other profitability indicators also show that the project is viable.

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 II. Breakeven Analysis
The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 18 % of capacity utilization

III. Payback Period

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

IV. Simple Rate of Return

The project’s simple rate of return (SRR) is given by the formula:
SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.
The SRR would be 41 % at full capacity utilization.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the
project is 44.9 % and the net present value (NPV) at 18 % discount is Birr 11,670 thousands.

VI. Sensitivity Analysis

The sensitivity test result which undertaken by increasing the cost of production by 10 % still
indicates that the project would be viable.

9. Economic and Social Benefit and Justification

Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general, the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State. These benefits are listed as follows:

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 A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 27.51 million
per year and Birr 45.41 million within the project life. Such result induces the project promoters
to reinvest the profit which, therefore, increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 11.54 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

C. Export Promotion and Foreign Exchange Earning

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

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to 65 professionals as well as support
stuffs. Consequently the project creates income of Birr 2.2 million per year. This would be one
of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

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ANNEXES

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 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
Capacity Utilization (%) 0 0 50% 75% 100% 100%
3,941,32 5,911,99 7,882,65 7,882,65
1. Total Inventory 0 0 6 0 3 3
1,417,21 2,125,82 2,834,43 2,834,43
Raw Materials in Stock- Total 0 0 6 4 2 2
1,217,68 1,826,52 2,435,36 2,435,36
Raw Material-Local 0 0 4 5 7 7
Raw Material-Foreign 0 0 199,532 299,298 399,064 399,064
Factory Supplies in Stock 0 0 14,409 21,614 28,819 28,819
Spare Parts in Stock and Maintenance 0 0 11,780 17,670 23,560 23,560
Work in Progress 0 0 360,235 540,353 720,470 720,470
1,080,70 1,440,94 1,440,94
Finished Products 0 0 720,470 6 1 1
1,847,52 2,771,28 3,695,04 3,695,04
2. Accounts Receivable 0 0 0 0 0 0
3. Cash in Hand 0 0 126,876 190,313 253,751 253,751
4,498,50 6,747,75 8,997,01 8,997,01
CURRENT ASSETS 0 0 6 9 2 2
1,847,52 2,771,28 3,695,04 3,695,04
4. Current Liabilities 0 0 0 0 0 0
1,847,52 2,771,28 3,695,04 3,695,04
Accounts Payable 0 0 0 0 0 0
2,650,98 3,976,47 5,301,97 5,301,97
TOTAL NET WORKING CAPITAL REQUIRMENTS 0 0 6 9 2 2
2,650,98 1,325,49 1,325,49
INCREASE IN NET WORKING CAPITAL 0 0 6 3 3 -

Annex 1: Total Net Working Capital Requirements (in Birr) (continued)

1
 PRODUCTION
  5 6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100% 100%
7,882,65 7,882,6 7,882,6 7,882,6 7,882,6 7,882,6
1. Total Inventory 3 53 53 53 53 53
2,834,43 2,834,4 2,834,4 2,834,4 2,834,4 2,834,4
Raw Materials in Stock-Total 2 32 32 32 32 32
2,435,36 2,435,3 2,435,3 2,435,3 2,435,3 2,435,3
Raw Material-Local 7 67 67 67 67 67
399,06 399,06 399,06 399,06 399,06 399,06
Raw Material-Foreign 4 4 4 4 4 4
28,81 28,81 28,81 28,81 28,81 28,81
Factory Supplies in Stock 9 9 9 9 9 9
23,56 23,56 23,56 23,56 23,56 23,56
Spare Parts in Stock and Maintenance 0 0 0 0 0 0
720,47 720,47 720,47 720,47 720,47 720,47
Work in Progress 0 0 0 0 0 0
1,440,94 1,440,9 1,440,9 1,440,9 1,440,9 1,440,9
Finished Products 1 41 41 41 41 41
3,695,04 3,695,0 3,695,0 3,695,0 3,695,0 3,695,0
2. Accounts Receivable 0 40 40 40 40 40
253,75 253,75 253,75 253,75 253,75 253,75
3. Cash in Hand 1 1 1 1 1 1
8,997,01 8,997,0 8,997,0 8,997,0 8,997,0 8,997,0
CURRENT ASSETS 2 12 12 12 12 12
3,695,04 3,695,0 3,695,0 3,695,0 3,695,0 3,695,0
4. Current Liabilities 0 40 40 40 40 40
3,695,04 3,695,0 3,695,0 3,695,0 3,695,0 3,695,0
Accounts Payable 0 40 40 40 40 40
5,301,97 5,301,9 5,301,9 5,301,9 5,301,9 5,301,9
TOTAL NET WORKING CAPITAL REQUIRMENTS 2 72 72 72 72 72
INCREASE IN NET WORKING CAPITAL - - - - - -

Annex 2: Cash Flow Statement (in Birr)

2
 CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 3,779,362 9,081,334 18,783,120 26,327,160 34,794,960 33,871,200
1. Inflow Funds 3,779,362 9,081,334 1,847,520 923,760 923,760 -
Total Equity 1,511,745 3,632,534 - - - -
Total Long Term Loan 2,267,617 5,448,801 - - - -
Total Short Term Finances - - 1,847,520 923,760 923,760 -
2. Inflow Operation - - 16,935,600 25,403,400 33,871,200 33,871,200
Sales Revenue - - 16,935,600 25,403,400 33,871,200 33,871,200
Interest on Securities - - - - - -
3. Other Income - - - - - -
TOTAL CASH OUTFLOW 3,779,362 3,779,362 19,443,160 23,911,635 32,181,185 29,823,902
4. Increase In Fixed Assets 3,779,362 3,779,362 - - - -
Fixed Investments 3,599,392 3,599,392 - - - -
Pre-production Expenditures 179,970 179,970 - - - -
5. Increase in Current Assets - - 4,498,506 2,249,253 2,249,253 -
6. Operating Costs - - 12,993,105 19,450,342 25,907,579 25,907,579
7. Corporate Tax Paid - - - - 1,966,641 2,012,940
8. Interest Paid - - 1,951,549 925,970 771,642 617,313
9.Loan Repayments - - - 1,286,070 1,286,070 1,286,070
10.Dividends Paid - - - - - -
Surplus(Deficit) - 5,301,972 (660,040) 2,415,525 2,613,775 4,047,298
Cumulative Cash Balance - 5,301,972 4,641,933 7,057,458 9,671,233 13,718,531

Annex 2: Cash Flow Statement (in Birr): Continued

  PRODUCTION

3
 5 6 7 8 9 10
TOTAL CASH INFLOW 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
1. Inflow Funds - - - - - -
Total Equity - - - - - -
Total Long Term Loan - - - - - -
Total Short Term Finances - - - - - -
2. Inflow Operation 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
Sales Revenue 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
Interest on Securities - - - - - -
3. Other Income - - - - - -
TOTAL CASH OUTFLOW 29,715,872 29,629,438 29,521,409 28,127,309 28,127,309 28,127,309
4. Increase In Fixed Assets - - - - - -
Fixed Investments - - - - - -
Pre-production Expenditures - - - - - -
5. Increase in Current Assets - - - - - -
6. Operating Costs 25,907,579 25,907,579 25,907,579 25,907,579 25,907,579 25,907,579
7. Corporate Tax Paid 2,059,238 2,127,133 2,173,432 2,219,730 2,219,730 2,219,730
8. Interest Paid 462,985 308,657 154,328 - - -
9. Loan Repayments 1,286,070 1,286,070 1,286,070 - - -
10.Dividends Paid - - - - - -
Surplus(Deficit) 4,155,328 4,241,762 4,349,791 5,743,891 5,743,891 5,743,891
Cumulative Cash Balance 17,873,859 22,115,621 26,465,412 32,209,303 37,953,194 43,697,085

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

4
 33,871,20 33,871,20
TOTAL CASH INFLOW - - 16,935,600 25,403,400 0 0
33,871,20 33,871,20
1. Inflow Operation - - 16,935,600 25,403,400 0 0
33,871,20 33,871,20
Sales Revenue - - 16,935,600 25,403,400 0 0
Interest on Securities - - - - - -
2. Other Income - - - - - -
27,233,07 27,920,51
TOTAL CASH OUTFLOW 3,779,362 3,779,362 15,644,091 20,775,835 2 9
3. Increase in Fixed Assets 3,779,362 3,779,362 - - - -
Fixed Investments 3,599,392 3,599,392 - - - -
Pre-production Expenditures 179,970 179,970 - - - -
1,325,49
4. Increase in Net Working Capital - - 2,650,986 1,325,493 3 -
25,907,57 25,907,57
5. Operating Costs - - 12,993,105 19,450,342 9 9
2,012,94
6. Corporate Tax Paid - - - - - 0
(3,779,362 (3,779,362 6,638,12 5,950,68
NET CASH FLOW ) ) 1,291,509 4,627,565 8 1
(3,779,362 (7,558,724 (6,267,215 (1,639,650 4,998,47 10,949,16
CUMMULATIVE NET CASH FLOW ) ) ) ) 8 0
(3,779,362 (3,202,849 3,423,87 2,601,09
Net Present Value (at 18%) ) ) 927,542 2,816,479 3 8
(3,779,362 (6,982,211 (6,054,669 (3,238,190 185,68 2,786,78
Cumulative Net present Value ) ) ) ) 2 0

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

PRODUCTION
  5 6 7 8 9 10

5
TOTAL CASH INFLOW 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
1. Inflow Operation 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
Sales Revenue 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
Interest on Securities - - - - - -
2. Other Income - - - - - -
TOTAL CASH OUTFLOW 27,966,817 28,034,712 28,081,011 28,127,309 28,127,309 28,127,309
3. Increase in Fixed Assets - - - - - -
Fixed Investments - - - - - -
Pre-production Expenditures - - - - - -
4. Increase in Net Working Capital - - - - - -
5. Operating Costs 25,907,579 25,907,579 25,907,579 25,907,579 25,907,579 25,907,579
6. Corporate Tax Paid 2,059,238 2,127,133 2,173,432 2,219,730 2,219,730 2,219,730
NET CASH FLOW 5,904,383 5,836,488 5,790,189 5,743,891 5,743,891 5,743,891
CUMMULATIVE NET CASH FLOW 16,853,542 22,690,030 28,480,220 34,224,110 39,968,001 45,711,892
Net Present Value (at 18%) 2,187,170 1,832,220 1,540,411 1,294,995 1,097,453 930,045
Cumulative Net present Value 4,973,949 6,806,169 8,346,580 9,641,575 10,739,029 11,669,074
Net Present Value (at 18%) 11,669,074

Internal Rate of Return 44.9%

Annex 4: NET INCOME STATEMENT ( in Birr)

  PRODUCTION

6
 1 2 3 4 5
Capacity Utilization (%) 50% 75% 100% 100% 100%
16,935,60 25,403,40 33,871,20 33,871,20 33,871,20
1. Total Income 0 0 0 0 0
16,935,60 25,403,40 33,871,20 33,871,20 33,871,20
Sales Revenue 0 0 0 0 0
Other Income - - - - -
12,469,59 18,704,38 24,939,18 24,939,18 24,939,18
2. Less Variable Cost 1 7 3 3 3
4,466,00 6,699,01 8,932,01 8,932,01 8,932,01
VARIABLE MARGIN 9 3 7 7 7
(In % of Total Income) 68 68 68 68 68
1,160,02 1,382,46 1,604,90 1,604,90 1,604,90
3. Less Fixed Costs 1 3 4 4 4
3,305,98 5,316,55 7,327,11 7,327,11 7,327,11
OPERATIONAL MARGIN 7 0 3 3 3
(In % of Total Income) 50 54 56 56 56
1,951,54
4. Less Cost of Finance 9 925,970 771,642 617,313 462,985
1,354,43 4,390,58 6,555,47 6,709,80 6,864,12
5. GROSS PROFIT 8 0 2 0 8
1,966,64 2,012,94 2,059,23
6. Income (Corporate) Tax - - 1 0 8
1,354,43 4,390,58 4,588,83 4,696,86 4,804,89
7. NET PROFIT 8 0 0 0 0
RATIOS (%)  
Gross Profit/Sales 8.00% 17.28% 19.35% 19.81% 20.27%
Net Profit After Tax/Sales 8.00% 17.28% 13.55% 13.87% 14.19%
Return on Investment 32.38% 46.09% 41.68% 41.32% 40.96%
Return on Equity 26.33% 85.35% 89.20% 91.30% 93.40%
Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
  6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

7
1. Total Income 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
Sales Revenue 33,871,200 33,871,200 33,871,200 33,871,200 33,871,200
Other Income - - - - -
2. Less Variable Cost 24,939,183 24,939,183 24,939,183 24,939,183 24,939,183
VARIABLE MARGIN 8,932,017 8,932,017 8,932,017 8,932,017 8,932,017
(In % of Total Income) 68 68 68 68 68
3. Less Fixed Costs 1,532,916 1,532,916 1,532,916 1,532,916 1,532,916
OPERATIONAL MARGIN 7,399,101 7,399,101 7,399,101 7,399,101 7,399,101
(In % of Total Income) 56 56 56 56 56
4. Less Cost of Finance 308,657 154,328 - - -
5. GROSS PROFIT 7,090,444 7,244,773 7,399,101 7,399,101 7,399,101
6. Income (Corporate) Tax 2,127,133 2,173,432 2,219,730 2,219,730 2,219,730
7. NET PROFIT 4,963,311 5,071,341 5,179,371 5,179,371 5,179,371
RATIOS (%)  
Gross Profit/Sales 20.93% 21.39% 21.84% 21.84% 21.84%
Net Profit After Tax/Sales 14.65% 14.97% 15.29% 15.29% 15.29%
Return on Investment 40.99% 40.63% 40.27% 40.27% 40.27%
Return on Equity 96.48% 98.58% 100.68% 100.68% 100.68%

Annex 5: Projected Balance Sheet (in Birr)

CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 3,779,362 12,860,696 16,062,655 20,090,926 24,317,446 27,728,236
1. Total Current Assets - 5,301,972 9,140,439 13,805,217 18,668,246 22,715,544
Inventory on Materials and Supplies - - 1,443,405 2,165,108 2,886,810 2,886,810

8
 Work in Progress - - 360,235 540,353 720,470 720,470
Finished Products in Stock - - 720,470 1,080,706 1,440,941 1,440,941
Accounts Receivable - - 1,847,520 2,771,280 3,695,040 3,695,040
Cash in Hand - - 126,876 190,313 253,751 253,751
Cash Surplus, Finance Available - 5,301,972 4,641,933 7,057,458 9,671,233 13,718,531
Securities - - - - - -
2. Total Fixed Assets, Net of Depreciation 3,779,362 7,558,724 6,922,216 6,285,708 5,649,200 5,012,693
Fixed Investment - 3,599,392 7,198,785 7,198,785 7,198,785 7,198,785
Construction in Progress 3,599,392 3,599,392 - - - -
Pre-Production Expenditure 179,970 359,939 359,939 359,939 359,939 359,939
Less Accumulated Depreciation - - 636,508 1,273,016 1,909,524 2,546,031
3. Accumulated Losses Brought Forward - - - - - -
4. Loss in Current Year - - - - - -
TOTAL LIABILITIES 3,779,362 12,860,696 16,062,655 20,090,926 24,317,446 27,728,236
5. Total Current Liabilities - - 1,847,520 2,771,280 3,695,040 3,695,040
Accounts Payable - - 1,847,520 2,771,280 3,695,040 3,695,040
Bank Overdraft - - - - - -
6. Total Long-term Debt 2,267,617 7,716,418 7,716,418 6,430,348 5,144,279 3,858,209
Loan A 2,267,617 7,716,418 7,716,418 6,430,348 5,144,279 3,858,209
Loan B - - - - - -
7. Total Equity Capital 1,511,745 5,144,279 5,144,279 5,144,279 5,144,279 5,144,279
Ordinary Capital 1,511,745 5,144,279 5,144,279 5,144,279 5,144,279 5,144,279
Preference Capital - - - - - -
Subsidies - - - - - -
8. Reserves, Retained Profits Brought Forward - - - 1,354,438 5,745,019 10,333,849
9.Net Profit After Tax - - 1,354,438 4,390,580 4,588,830 4,696,860
Dividends Payable - - - - - -
Retained Profits - - 1,354,438 4,390,580 4,588,830 4,696,860

9
 Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL ASSETS 31,247,056 34,924,298 38,709,569 43,888,940 49,068,311 54,247,682
1. Total Current Assets 26,870,872 31,112,633 35,462,425 41,206,315 46,950,206 52,694,097
Inventory on Materials and Supplies 2,886,810 2,886,810 2,886,810 2,886,810 2,886,810 2,886,810
Work in Progress 720,470 720,470 720,470 720,470 720,470 720,470

10
 Finished Products in Stock 1,440,941 1,440,941 1,440,941 1,440,941 1,440,941 1,440,941
Accounts Receivable 3,695,040 3,695,040 3,695,040 3,695,040 3,695,040 3,695,040
Cash in Hand 253,751 253,751 253,751 253,751 253,751 253,751
Cash Surplus, Finance Available 17,873,859 22,115,621 26,465,412 32,209,303 37,953,194 43,697,085
Securities - - - - - -
2. Total Fixed Assets, Net of Depreciation 4,376,185 3,811,665 3,247,145 2,682,625 2,118,105 1,553,585
Fixed Investment 7,198,785 7,198,785 7,198,785 7,198,785 7,198,785 7,198,785
Construction in Progress - - - - - -
Pre-Production Expenditure 359,939 359,939 359,939 359,939 359,939 359,939
Less Accumulated Depreciation 3,182,539 3,747,059 4,311,579 4,876,099 5,440,619 6,005,139
3. Accumulated Losses Brought Forward - - - - - -
4. Loss in Current Year - - - - - -
TOTAL LIABILITIES 31,247,056 34,924,298 38,709,569 43,888,940 49,068,311 54,247,682
5. Total Current Liabilities 3,695,040 3,695,040 3,695,040 3,695,040 3,695,040 3,695,040
Accounts Payable 3,695,040 3,695,040 3,695,040 3,695,040 3,695,040 3,695,040
Bank Overdraft - - - - - -
6. Total Long-term Debt 2,572,139 1,286,070 - - - -
Loan A 2,572,139 1,286,070 - - - -
Loan B - - - - - -
7. Total Equity Capital 5,144,279 5,144,279 5,144,279 5,144,279 5,144,279 5,144,279
Ordinary Capital 5,144,279 5,144,279 5,144,279 5,144,279 5,144,279 5,144,279
Preference Capital - - - - - -
Subsidies - - - - - -
8. Reserves, Retained Profits Brought Forward 15,030,709 19,835,599 24,798,910 29,870,251 35,049,622 40,228,992
9. Net Profit After Tax 4,804,890 4,963,311 5,071,341 5,179,371 5,179,371 5,179,371
Dividends Payable - - - - - -
Retained Profits 4,804,890 4,963,311 5,071,341 5,179,371 5,179,371 5,179,371

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