ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on the Establishment of paints,

varnishes and pigments making plant

Development Studies Associates

(DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary..........................................................................................1
2. Product Description and Application..............................................................1
3. Market Study, Plant Capacity and Production Program..............................2
3.1 Market Study...................................................................................................................2
3.1.1 Present Demand and Supply....................................................................................2
3.1.2 Projected Demand....................................................................................................2
3.1.3 Pricing and Distribution...........................................................................................3
3.2 Plant Capacity..................................................................................................................3
3.3 Production Program.........................................................................................................4
4. Raw Materials and Utilities..............................................................................4
4.1 Availability and Source of Raw Materials.......................................................................4
4.2 Annual Requirement and Cost of Raw Materials and Utilities.......................................4
5 Location and Site...............................................................................................5
6 Technology and Engineering............................................................................5
6.1 Production Process...........................................................................................................5
6.2 Machinery and Equipment...............................................................................................6
6.3 Civil Engineering Cost....................................................................................................7
7 Human Resource and Training Requirement................................................8
7.1 Human Resource..............................................................................................................8
7.2 Training Requirement......................................................................................................8
8 Financial Analysis.............................................................................................9
8.1 Underlying Assumption...................................................................................................9
8.2 Investment........................................................................................................................9
8.3 Production Costs............................................................................................................10
8.4 Financial Evaluation......................................................................................................11
9 Economic and Social Benefit and Justification.............................................12
ANNEXES...............................................................................................................13
 1. Executive Summary
This project profile deals with the establishment of paints making plant in Amhara National
Regional State. The following presents the main findings of the study

Demand projection divulges that the domestic demand for paint is substantial and is increasing
with time. Accordingly, the planned plant is set to produce 200 thousand liters of paint annually.
The total investment cost of the project including working capital is estimated at Birr 2.9 million
and creates 39 jobs opportunity and 398,160 Birr of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 22.2% of capacity utilization and it will
payback fully the initial investment less working capital in 2 years. The result further show that
the calculated IRR of the project is 94.1 and NPV discounted at 18% of Birr 5,193,745

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

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

2. Product Description and Application

Paint is a fluid suspension of finely ground pigments in a resinous liquid known as the "vehicle."
When applied to a surface as a thin liquid film, it changes to solid. Generally, paint is largely
organic coatings applied to surfaces to provide both protective and decorative functions

Paint is made in batches because the huge variety of uses and variation in raw materials require
adjustments of its properties. The kind of plant varies somewhat according to the kinds and
amounts of paint to be made and whether the process starts with raw or partially processed
materials.

1
 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

At present there are 9 firms engaged in the production of paint (CSA, Annual abstract 2008). The
outputs are used to decorate walls of buildings and metallic materials such as doors, window
frames and the like. Table 1 shows the annual domestic demand for the products.

Table 1: Domestic Demand for Paints (in liters)

Year Demand
2008/09 13,774,519
2009/10 15,151,971
2010/11 16,667,168
2011/12 18,333,885
2012/13 20,167,273
2013/14 22,184,001
2014/15 24,402,401
2015/16 26,842,641

Source: CSA, (various yeas)

The above table shows that there is huge demand for paint where the demand has grown by
about 153% from 13.77 million liters in 2008/09 to 26.84 million litters in 2015/16. In general,
the performance reveals that the sector is growing on average by 16.4% every year. Measured by
any standard, this growth rate is very substantial and pinpoints the relevance of establishing a
small scale plant.

3.1.2 Projected Demand

The future demand for the product mainly depends on the expansion in the construction of new
residential and business complexes as well as repair of the existing ones. Currently the country is
witnessing a boom in the construction sector throughout the country. Especially in Addis Ababa
a number of high rise buildings are under construction in a number of locations. This promising
growth of the sector is expected to continue in the future as well. In projecting the future demand

2
for the product, 10% growth rate is assumed conservatively although, the average annual growth
rate has been 16.4% for the past several years under consideration. Accordingly, the forecasted
demand is presented in table 2 below.

Table 2: Projected Demand for Paints

Year Projected Demand

2015/16 26,842,641
2016/17 29,526,905
2017/18 32479596
2018/19 35727555
2019/20 39300311
2020/21 43230342
2021/22 47553376
2022/23 52308713
2023/24 57539585
2024/25 63293543

As shown in table 2 above, demand for the product attractively increases in the future
highlighting the relevance of establishing a small scale plant.

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price of
washable plastic emulsion paint is set to be Birr 33.4 per litter and Birr 64 per liter of metallic
(synthetic enamel) paint. In distributing the output the firm shall use the available retail and
wholesale networks

3.2 Plant Capacity

Thus, given the expected demand for paints as presented earlier, and the planned technology, the
envisaged plant is set to produce 200 thousand litters annually of which 140 thousand is
washable plastic emulsion paint while the remaining 60 thousand is metallic paint. The capacity
of the envisaged plant is only 1.3% of the forecasted demand in 2018/19. The proposed plant
shall mainly produce paint colors that do have high demand in the market.

3
 3.3 Production Program
The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 70 percent capacity and then it grows to 85
percent in the 2nd year. The capacity will grow to 100 percent starting from the 3 rd year. This
consideration is developed based on the assumption that there is a high and growing demand for
the product so that market and logistics barriers would be eliminated within the first two years of
operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

The main raw materials used in the production process are pigments, solvents, resins, vegetable
oils, varnishes, alkyds and polyvinyl acetate (PVA) emulsions. Some of the raw materials
(pigments, solvents, polyvinyl acetate emulsions and resins) are imported from abroad because
the manufacturing requires complex, capital-intensive operations.   The other inputs (vegetable
oils, varnishes and alkyds) are purchased from domestic sources.

4.2 Annual Requirement and Cost of Raw Materials

and Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 here under

4
 Table 3 Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Pigments 20,000 lit 461880
Solvents 5,000 lit 230940
Resins 5,000 lit 320750
Polyvinyl acetate emulsions 10,000 lit 307920
Vegetable oils 5,000 lit 153960
Varnishes 10,000 538860
Alkyds 15,000 lit 769800
Packages-Tin 50,000 307920
Packages-Carton 12,5000 64150
Total Material Cost   1680730 1475450
Utility    
Electricity 185,000 101,750  
Water 7,000 m3 18,550  
Total Utility Cost   120,300  

According to the above table, the total cost of material and utility at full capacity of operation is
estimated to be Birr 3,276,480

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of infrastructure as
well as market for the output are Bahir Dar and Combolcha

6 Technology and Engineering

6.1 Production Process

For both large and small plants the main steps in paint manufacture are as follows.
I. Mixing and dispersion. 
Pigments are usually added to the vehicle by blending the ingredients in a paste mixer.  The paste
that is formed consists of poorly mixed aggregates of pigment and vehicle; this paste is brought
to a specified fineness and uniformity by using an appropriate mill.  "Grinding" or shearing wets
the individual pigment particles with the liquid vehicle and further reduces the size of the

5
pigment aggregates.   For emulsion paints, such as the PVA's, the pigments must be dispersed
separately in a mixture of surface-active agents and hydrophilic gums.

II. Thinning down and adjusting.

The paste is usually further blended with vehicle, driers, fungicides, and other additives.  It is
then tinted with colored dispersions to match a desired color standard.

III. Testing
The paint is tested against standards for color, application properties, and other features.   It is
then adjusted to meet agreed specifications and released for marketing.

IV. Filtration and packaging.

Filtration is often performed at the time of packaging to remove lumps from the product.

The alternative technological option available is related to the production of some part of the inputs used in the
production process. This however, requires huge capital investment and is not recommended in the short and
medium stage of the plant life.

6.2 Machinery and Equipment

The machineries and equipment required for producing paints is detailed in table 4 below

Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Steel tanks or drums (200-L) 1
Mixing tank (400 Lit) 1
Mixing tank (1,200 Lit) 1
Portable mixers (several) 1
large paddle mixer 1
Pebble mill (about 1,200 Lit capacity) 1
Sand mill (about 120 L/h capacity) 1
Small 3-roll mill 1
Several pumps 1
Filter press or centrifugal filter 1
Lift trucks 1
Stand-by electric generator 1
Storage tanks and filling line 1
Scales of different sizes 1

6
The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 1,154,700.

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

Address: 16, K. K. Gupta Industrial Estate, Mulund West,

Mumbai, Maharashtra - 400 080, India
Phone: +(91)-(22)-25677581/55974236

Irsha Engineers Pvt. Ltd.

Address: 8, Aradhana, Pandit Deendayal Marg,

Dombivli (W), Thane, Maharashtra - 421 202, India
Phone: +(91)-(251)-2488262  
Fax: +(91)-(251)-2484814
Website: http://www.indiamart.com/company

Raymer Engineering

Address: 20, Thakkar Ind. Estate, 3rd- Floor, Unit No. 7,

Chapsi Bhimji Road, Mazgaon, Mumbai, Maharashtra - 400 010, India
Phone: +(91)-(22)-23774333  
Fax: +(91)-(22)-23729904
Website: http://www.raymerengineering.com

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 1500m 2 where 750m2 is allocated to
the production place and the remaining space is left for stores (50m 2), office buildings and
facilities (50m2). The remaining space is left for future expansion.

7
7 Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 5 below

Table 5: Human Resource Requirement

No. Monthly Total Annual

Position Required Salary Salary
Manager/Chemical Engineer 1 10264 123168
Administration and Finance 1 5132 61584
Accountant 1 2566 30792
Secretary 1 2181 26173
Sales Clerk 1 1540 18475
Chemist 1 2566 30792
Store Keeper 1 1540 18475
Technician 2 2566 61584
Supervisor 2 3079.2 73901
Operators 15 1540 277128
Laborers 6 770 55426
Cleaners 2 770 18475
Driver 1 1540 18475
Guards 4 770 36950
Benefit (20%)   170280
 Total 39 1021679

The envisaged plant creates 39 job opportunity and about Birr 1.02 million of income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

7.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. Birr 76,980 will be allocated as training expense.

8
8 Financial Analysis
8.1 Underlying Assumption
The financial analysis of paint producing plant is based on the data provided in the preceding
chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

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

B. Depreciation

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

C. Working Capital (Minimum Days of Coverage)

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

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 7.5 million
as shown in table 6 below. The Owner shall contribute 40% of the finance in the form of equity
while the remaining 60% is to be financed by bank loan.

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 Table 6: Total initial investment

Items L.C F.C Total

Land 90,000 90,000
Building and civil works 3849000 3849000
Office equipment 102640 102640
Vehicles 641500 641500
Plant machinery & equipment 1154700 1154700
Total fixed investment cost 4,683,140 1154700 5,837,840
Pre production capital expenditure* 287969.4 287969.4
Total initial investment 4,971,109 1154700 6,125,809
Working capital at full capacity 765876.6 1409709
Total 5,736,986 1154700 7,535,518

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

The foreign component of the project accounts for 24.1% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 5.31 million as detailed in
table 7 below.

Table 7: Production Cost

Items Cost
1. Raw materials 3156180
2. Utilities 120,300
3. Wages and Salaries 1021679
4. Spares and Maintenance 59703.7
Factory costs 4,357,862
5. Depreciation 504077.9
6. Financial costs 447423.2
  Total Production Cost 5,309,363

10
 8.4 Financial Evaluation

I. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 17%, 35% and 32% in
the first year and are gradually rising. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 22.2% of capacity utilization.

III. Payback Period

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

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 33.1%

V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
36.7% and the net present value at 18 % discount is Birr 5,193,745.2

VI. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector. This result is accompanied with payback period of 2 months and 4 years.

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9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that help promote the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It also
plays positive role in diversifying the economic activity by enhancing the industrial sector of the
region. The other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 22.1 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 8.1 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. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 39 professionals as well as support
stuffs. Consequently the project creates income of Birr 1,021,678 per year. This would be one of
the commendable accomplishments of the project.

12
ANNEXES

13
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0.00 0.00 70% 85% 100% 100%

1. Total Inventory 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Raw Materials in Stock- Total 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Raw Material-Local 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Raw Material-Foreign 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Factory Supplies in Stock 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Spare Parts in Stock and Maintenance 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Work in Progress 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Finished Products 0.00 0.00 570628.9 570628.9 570628.9 570628.9

2. Accounts Receivable 0.00 0.00 570628.9 570628.9 570628.9 570628.9

3. Cash in Hand 0.00 0.00 570628.9 570628.9 570628.9 570628.9

CURRENT ASSETS 0.00 0.00 570628.9 570628.9 570628.9 570628.9

4. Current Liabilities 0.00 0.00 570628.9 570628.9 570628.9 570628.9

Accounts Payable 0.00 0.00 570628.9 570628.9 570628.9 570628.9

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 570628.9 570628.9 570628.9 570628.9

INCREASE IN NET WORKING CAPITAL 0.00 0.00 2532118 542596.9 542596.9 0

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

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

1. Total Inventory 2091762 2091762 2091762 2091762 2091762 2091762

Raw Materials in Stock-Total 827185.1 827185.1 827185.1 827185.1 827185.1 827185.1

Raw Material-Local 183352.4 183352.4 183352.4 183352.4 183352.4 183352.4

Raw Material-Foreign 643832.7 643832.7 643832.7 643832.7 643832.7 643832.7

Factory Supplies in Stock 5507.149 5507.149 5507.149 5507.149 5507.149 5507.149

Spare Parts in Stock and Maintenance 18848.91 18848.91 18848.91 18848.91 18848.91 18848.91

Work in Progress 137678.7 137678.7 137678.7 137678.7 137678.7 137678.7

Finished Products 275357.5 275357.5 275357.5 275357.5 275357.5 275357.5

2. Accounts Receivable 929358.6 929358.6 929358.6 929358.6 929358.6 929358.6

3. Cash in Hand 145131.1 145131.1 145131.1 145131.1 145131.1 145131.1

CURRENT ASSETS 2339067 2339067 2339067 2339067 2339067 2339067

4. Current Liabilities 929358.6 929358.6 929358.6 929358.6 929358.6 929358.6

Accounts Payable 929358.6 929358.6 929358.6 929358.6 929358.6 929358.6

TOTAL NET WORKING CAPITAL REQUIRMENTS 1409708 1409708 1409708 1409708 1409708 1409708

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 3023678 4433387 6613935 7380656 8658524 8519120
1. Inflow Funds 3023678 4433387 650551 139403.8 139403.8 0
Total Equity 1209471 1773355 0 0 0 0
Total Long Term Loan 1814207 2660032 0 0 0 0
Total Short Term Finances 0 0 650551 139403.8 139403.8 0
2. Inflow Operation 0 0 5963384 7241252 8519120 8519120
Sales Revenue 0 0 5963384 7241252 8519120 8519120
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 3023678 3023678 6054326 5553030 7034352 6620853
4. Increase In Fixed Assets 3023678 3023678 0 0 0 0
Fixed Investments 2879694 2879694 0 0 0 0
Pre-production Expenditures 143984.7 143984.7 0 0 0 0
5. Increase in Current Assets 0 0 1637347 350860 350860 0
6. Operating Costs 0 0 3239000 3919555 4600109 4600109
7. Corporate Tax Paid 0 0 0 0 890252.7 917098.1
8. Interest Paid 0 0 1177979 536908.7 447423.9 357939.1
9. Loan Repayments 0 0 0 745706.5 745706.5 745706.5
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 0 1409708 559609.1 1827626 1624171 1898267
Cumulative Cash Balance 0 1409708 1969318 3796943 5421115 7319382

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

3
 PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 8519120 8519120 8519120 8519120 8519120 8519120
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 8519120 8519120 8519120 8519120 8519120 8519120
Sales Revenue 8519120 8519120 8519120 8519120 8519120 8519120
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 6558214 6551342 6488703 5680357 5680357 5680357
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 4600109 4600109 4600109 4600109 4600109 4600109
7. Corporate Tax Paid 943943.6 1026557 1053403 1080248 1080248 1080248
8. Interest Paid 268454.3 178969.5 89484.79 0 0 0
9. Loan Repayments 745706.5 745706.5 745706.5 0 0 0
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 1960906 1967778 2030417 2838763 2838763 2838763
Cumulative Cash Balance 9280288 11248066 13278483 16117245 18956008 21794771

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

4
 CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 5963384 7241252 8519120 8519120

1. Inflow Operation 0 0 5963384 7241252 8519120 8519120

Sales Revenue 0 0 5963384 7241252 8519120 8519120

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 3023678 3023678 4225796 4131011 4811566 5517207

3. Increase in Fixed Assets 3023678 3023678 0 0 0 0

Fixed Investments 2879694 2879694 0 0 0 0

Pre-production Expenditures 143984.7 143984.7 0 0 0 0

4. Increase in Net Working Capital 0 0 986795.9 211456.3 211456.3 0

5. Operating Costs 0 0 3239000 3919555 4600109 4600109

6. Corporate Tax Paid 0 0 0 0 0 917098.1

NET CASH FLOW -3023678 -3023678 1737588 3110241 3707554 3001913

CUMMULATIVE NET CASH FLOW -3023678 -6047356 -4309768 -1199527 2508027 5509940

Net Present Value (at 18%) -3023678 -2562439 1247909 1892989 1912315 1312164

Cumulative Net present Value -3023678 -5586117 -4338209 -2445220 -532905 779259.1

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

5
 PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 8519120 8519120 8519120 8519120 8519120 8519120

1. Inflow Operation 8519120 8519120 8519120 8519120 8519120 8519120

Sales Revenue 8519120 8519120 8519120 8519120 8519120 8519120

Interest on Securities 0 0 0 0 0 0

2. Other Income 0 0 0 0 0 0

TOTAL CASH OUTFLOW 5544053 5626666 5653512 5680357 5680357 5680357

3. Increase in Fixed Assets 0 0 0 0 0 0

Fixed Investments 0 0 0 0 0 0

Pre-production Expenditures 0 0 0 0 0 0

4. Increase in Net Working Capital 0 0 0 0 0 0

5. Operating Costs 4600109 4600109 4600109 4600109 4600109 4600109

6. Corporate Tax Paid 943943.6 1026557 1053403 1080248 1080248 1080248

NET CASH FLOW 2975067 2892454 2865608 2838763 2838763 2838763

CUMMULATIVE NET CASH FLOW 8485007 11377461 14243069 17081831 19920594 22759357

Net Present Value (at 18%) 1102059 908013.6 762361.1 640016.3 542386.7 459649.7

Cumulative Net present Value 1881318 2789331 3551693 4191709 4734096 5193745
5,193,745.25
Net Present Value (at 18%)

Internal Rate of Return 36.7%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 70% 85% 100% 100% 100%

1. Total Income 5963384 7241252 8519120 8519120 8519120

Sales Revenue 5963384 7241252 8519120 8519120 8519120
Other Income 0 0 0 0 0
2. Less Variable Cost 2889851 3509105 4128359 4128359 4128359.137
VARIABLE MARGIN 3073533 3732147 4390761 4390761 4390760.863
(In % of Total Income) 132.2516 132.2516 132.2516 132.2516 132.25164
3. Less Fixed Costs 853226.6 914527.3 975828 975828 975827.989
OPERATIONAL MARGIN 2220306 2817619 3414933 3414933 3414932.874
(In % of Total Income) 94.942 100.074 102.64 102.64 102.64
4. Less Cost of Finance 1177979 536908.7 447423.9 357939.1 268454.3298
5. GROSS PROFIT 1042327 2280711 2967509 3056994 3146478.544
6. Income (Corporate) Tax 0 0 890252.7 917098.1 943943.5658
7. NET PROFIT 1042327 2280711 2077256 2139896 2202534.978
RATIOS (%)  
Gross Profit/Sales 17% 31% 35% 36% 37%
Net Profit After Tax/Sales 17% 31% 24% 25% 26%
Return on Investment 32% 39% 34% 33% 33%
Return on Equity 35% 76% 70% 72% 74%

7
 Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
  6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 8519120 8519120 8519120 8519120 8519120

Sales Revenue 8519120 8519120 8519120 8519120 8519120
Other Income 0 0 0 0 0
2. Less Variable Cost 4128359 4128359 4128359 4128359 4128359.137
VARIABLE MARGIN 4390761 4390761 4390761 4390761 4390760.863
(In % of Total Income) 133.432 133.432 133.432 133.432 133.432
3. Less Fixed Costs 789934.1 789934.1 789934.1 789934.1 789934.119
OPERATIONAL MARGIN 3600827 3600827 3600827 3600827 3600826.744
(In % of Total Income) 107.772 107.772 107.772 107.772 107.772
4. Less Cost of Finance 178969.5 89484.79 0 0 0
5. GROSS PROFIT 3421857 3511342 3600827 3600827 3600826.744
6. Income (Corporate) Tax 1026557 1053403 1080248 1080248 1080248.023
7. NET PROFIT 2395300 2457939 2520579 2520579 2520578.721
RATIOS (%)  
Gross Profit/Sales 40% 41% 42% 42% 42%
Net Profit After Tax/Sales 28% 29% 30% 30% 30%
Return on Investment 35% 34% 34% 34% 34%
Return on Equity 80% 82% 85% 85% 85%

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 Annex 5: Projected Balance Sheet (in Birr)
  CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 3023678 7457065 9149943 10824350.99 12295305 13689494
1. Total Current Assets 0 1409708 3606664 5785150.384 7760182 9658449
Inventory on Materials and Supplies 0 0 596078.8 723809.9669 851541.1 851541.1
Work in Progress 0 0 96375.11 117026.9205 137678.7 137678.7
Finished Products in Stock 0 0 192750.2 234053.841 275357.5 275357.5
Accounts Receivable 0 0 650551 789954.7753 929358.6 929358.6
Cash in Hand 0 0 101591.8 123361.4251 145131.1 145131.1
Cash Surplus, Finance Available 0 1409708 1969318 3796943.455 5421115 7319382
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 3023678 6047356 5543278 5039200.61 4535123 4031045
Fixed Investment 0 2879694 5759387 5759387 5759387 5759387
Construction in Progress 2879694 2879694 0 0 0 0
Pre-Production Expenditure 143984.7 287969.4 287969.4 287969.35 287969.4 287969.4
Less Accumulated Depreciation 0 0 504077.9 1008155.74 1512234 2016311
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 3023678 7457065 9149943 10824350.99 12295305 13689494
5. Total Current Liabilities 0 0 650551 789954.7753 929358.6 929358.6
Accounts Payable 0 0 650551 789954.7753 929358.6 929358.6
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1814207 4474239 4474239 3728532.381 2982826 2237119
Loan A 1814207 4474239 4474239 3728532.381 2982826 2237119
Loan B 0 0 0 0 0 0
7. Total Equity Capital 1209471 2982826 2982826 2982825.915 2982826 2982826
Ordinary Capital 1209471 2982826 2982826 2982825.915 2982826 2982826
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 1042327.136 3323038 5400294
9. Net Profit After Tax 0 0 1042327 2280710.786 2077256 2139896
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 1042327 2280710.786 2077256 2139896

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 Annex 5: Projected Balance Sheet (in Birr): Continued
  PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 15146322 16795916 18508149 21028727.42 23549306 26069885
1. Total Current Assets 11619355 13587133 15617550 18456312.42 21295075 24133838
Inventory on Materials and Supplies 851541.1 851541.1 851541.1 851541.136 851541.1 851541.1
Work in Progress 137678.7 137678.7 137678.7 137678.73 137678.7 137678.7
Finished Products in Stock 275357.5 275357.5 275357.5 275357.46 275357.5 275357.5
Accounts Receivable 929358.6 929358.6 929358.6 929358.5501 929358.6 929358.6
Cash in Hand 145131.1 145131.1 145131.1 145131.0868 145131.1 145131.1
Cash Surplus, Finance Available 9280288 11248066 13278483 16117245.46 18956008 21794771
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 3526967 3208783 2890599 2572415 2254231 1936047
Fixed Investment 5759387 5759387 5759387 5759387 5759387 5759387
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 287969.4 287969.4 287969.4 287969.35 287969.4 287969.4
Less Accumulated Depreciation 2520389 2838573 3156757 3474941.35 3793125 4111309
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 15146322 16795916 18508149 21028727.42 23549306 26069885
5. Total Current Liabilities 929358.6 929358.6 929358.6 929358.5501 929358.6 929358.6
Accounts Payable 929358.6 929358.6 929358.6 929358.5501 929358.6 929358.6
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1491413 745706.5 0 0 0 0
Loan A 1491413 745706.5 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 2982826 2982826 2982826 2982825.915 2982826 2982826
Ordinary Capital 2982826 2982826 2982826 2982825.915 2982826 2982826
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 7540190 9742725 12138025 14595964.23 17116543 19637122
9. Net Profit After Tax 2202535 2395300 2457939 2520578.721 2520579 2520579
Dividends Payable 0 0 0 0 0 0
Retained Profits 2202535 2395300 2457939 2520578.721 2520579 2520579

10