Yusuf Aman Aliyi Combine & Tractor Business Plan

FEASIBILITY STUDY FOR THE PURCHASE OF
COMBINE HARVESTER AND AGRICULTURAL

TRACTOR
PROMOTER: MR. YUSUF AMAN ALIYI
LOCATION: OROMIA REGION, WEST ARSI ZONE, SHASHAMANE TOWN
PREPARED BY:
YUSUF AMAN
ECONOMIC DEVELOPMENT, BUSINESS AND INVESTMENT CONSULTANT
0916-51-80-14 / 0916-49-44-44
MAY, 2023
FEASIBILITY STUDY FOR THE PURCHASE OF COMBINE HARVESTER AND TRACTOR
Table of Contents
1. Executive summary..............................................................................................................3
2. The project back ground.....................................................................................................4
2.1. The promoter and the project information.......................................................................4
2.2. Promoter’s profile........................................................................................................4
2.3. The goal and objective of the project..........................................................................4
2.3.1. Vision and mission...............................................................................................5
2.3.2. The project outcomes...........................................................................................5
2.4. Credit exposure and experience.......................................................................................5
2.5. Driving factors for bank finance, amount of loan and purpose.......................................5
2.6 Keys to success.................................................................................................................6
3. Market analysis....................................................................................................................6
3.1. General consideration......................................................................................................6
3.1.1 Market organization and supply chain actors............................................................8
3.1.2. Importers/dealers......................................................................................................8
3.2. Competition...................................................................................................................10
3.3. Supply and demand analysis.........................................................................................11
3.3.1. The demand sides....................................................................................................11
3.3.2. The supply sides......................................................................................................12
3.3.3. The Supply and Demand gap..................................................................................13
3.4. Pricing............................................................................................................................13
3.5. Marketing strategy and promotion................................................................................13
3.6. SWOT analysis of the project........................................................................................14
3.6.1. Strength...................................................................................................................14
3.6.2. Weaknesses.............................................................................................................15
3.6.3. Opportunities..........................................................................................................15
3.6.4. Threats....................................................................................................................15
4. Technical study...................................................................................................................16
4.1. Proposed location..........................................................................................................16
4.2. The proposed machineries.............................................................................................16
4.3. Environmental impact of the project.............................................................................17
4.3.1. Potential adverse impacts and proposed mitigation measures................................17
4.4. Insurance........................................................................................................................18
4.5. Collaterals and source of repayment.............................................................................18
4.6. Operational plan and major activities............................................................................18
5. Management of the business and organizational structure............................................18
5.1. Personnel..........................................................................................................................19
6. Financial plan.....................................................................................................................19
6.1. Basic assumptions.........................................................................................................19
6.2. Revenues and costs........................................................................................................21
1 PROMOTER: MR. YUSUF AMAN ALIYI
6.2.1. Revenue..................................................................................................................21
6.2.2. Costs........................................................................................................................21
6.2.2.1. Initial working capital determination...................................................................22
6.2.2.2. Bank lease (loan) repayment program.................................................................22
6.2.2.3. Depreciation value of fixed asset.........................................................................22
6.3. Financial analysis............................................................................................................23
6.3.1. Statement of financial position (Balance sheet).........................................................23
6.3.2. Statement of financial performance (Income statement)............................................23
6.3.3. Cash flow statement...................................................................................................24
6.4. Financial viability and other measures of project worth............................................25
6.4.1. Profitability Index (Benefit/Cost ratio)......................................................................25
6.4.2. Payback period...........................................................................................................25
6.4.3. The Net Present Value................................................................................................25
6.4.4. Break-Even point........................................................................................................26
6.4.5. Internal Rate of Return...............................................................................................26
7. Future development and exit strategy..............................................................................26
8. Socio-economic benefits of the project.............................................................................26
9. Conclusion and recommendation....................................................................................27
10. Appendix:..........................................................................................................................28
10.1. Statement of financial performance (Income statement) projection...........................28
10.2. Statement of financial position (Balance sheet) projection.........................................29
10.3. Cash flow projection....................................................................................................29

1. Executive summary
This profile describes the business plan to acquire a Combine harvester and Agricultural
Tractor. The planned combine harvester and tractor is for the purpose of collecting
agricultural products and ploughing farm and generating income through rental. Mr. Yusuf
Aman Aliyi the owner and the manager of the business is residing in Oromia region, West
Arsi zone, Shashamane town in the area where the rural population used to collect
agricultural products and plough farm land by traditional means because of lack of sufficient
number of the Combine harvester and Tractor machine. Therefore, the area needs combine
harvester and tractor that will be used either to support the owner of the business or to fulfill
the society need of the agricultural machinery at any time they need by increasing the access
or supply. The business owner Mr. Yusuf Aman Aliyi would like to acquire one set of
NEW HOLLAND COMBINE HARVESTER (TC5.80) at ETB 14,741,000.00 as per the
proforma invoice issued from MOENCO share company and one set of New Holland
agricultural Tractor (T6050), 127HP at a price of ETB 5,853,000.00 with one Disc
plough and one Disc harrows at 757,900.00 and 1,994,905.00 birr respectively as per the
proforma invoice issued from MOENCO share company. 100% (23,346,805.00) of the fund
needed for the purchase of Combine harvester and tractor will be covered by the financing
bank whereas the owner contributes ETB 4,669,361.00 for working capital. The financing
repayment including bank profit on the financing and other related transactional cost can
begin promptly within 90 days of the start date of operation. As per the market assessment
made income from agricultural machine is still encouraging and the machine may operate
widely in its area. On other hand, the growing trend of economy and the nation’s stretched
plan by its part would have another opportunity as the agriculture is the backbone of our
country economy. Due to above given fact, the agricultural machine will not face significant
market problems. Concerning the financial viability, the project profitability index
(Benefit/Cost ratio) of the project is 2.74 (Since this project generates 2.74 birr for each birr
invested (i.e., its profitability index is greaterthan1), the project is acceptable). The envisaged
project has a positive NPV of birr 48,789,778.41 after taxes and with 18.97% IRR. Regarding
payback period, the project will return more than its total initial investment cost in four years
and eight months of operation and as the projections depict the project will break even in the
first year of operation

2. The project back ground

2.1. The promoter and the project information
 Promoter: Mr. Yusuf Aman Aliyi
 Address: Oromia region, West Arsi zone, Shashamane town
 Marital status: Married
 Telephone: 0916518014/0916494444
 Tax identification number: 0019565262
 Project type: Agricultural mechanization service (Combine harvester and tractor)
 Type of ownership: Sole proprietorship
 Way of financing: Lease financing
 Source of finance:
a. Cost of machineries 100% covered by Development Bank of Ethiopia that is ETB
23,346,805.00 and
b. The owner contributes ETB 4,669,361.00 for working capital
 Lease repayment period: 5 years
 Total cost of the project including working capital: 28,016,166.00 ETB
2.2. Promoter’s profile
The promoter of the project Mr. Yusuf Aman Aliyi is an established active entrepreneur
with sufficient experience in agricultural activities in the area. Mr. Yusuf Aman Aliyi has
been currently operating farm business in west Arsi zone at Dodola woreda on rental land.
The experience and skill gained on managing his farm is inputs for the intended project
implementation. Moreover, the promoter has sufficient capital to implement the project.
2.3. The goal and objective of the project

The goal of the project is to create financial wealth for the owner of the business by
supporting trade activity of owner and to generate optimum income from the intended
business activity. The following are the specific objectives:
Assist the farmers in ploughing the farm and collecting their products timely.
Provide agricultural machine to the areas with affordable price.
Enhance and insure owner additional income from diversified business line.

2.3.1. Vision and mission
The vision of Mr. Yusuf Aman Aliyi’s agricultural mechanization service is to be the
leading private provider of agricultural mechanization service in the country by 2033G.C.
Mr. Yusuf Aman Aliyi’s agricultural mechanization service emphasis will be on
providing a complete specialized supply of modern and innovative mechanization services
based on having a detailed knowledge of the sales destination and services being rendered. It
also assists the country and agricultural sector in supplying mechanized farming tools at
affordable price that help to minimize yield loss and to maximize productivity and
production.
2.3.2. The project outcomes
The intended project;

 Enables the owner to generate additional income
 Create job opportunity
 Strengthen the agricultural mechanization industry in the area
2.4. Credit exposure and experience
Mr. Yusuf Aman Aliyi has acquired small bakery machine from Oromia capital goods
finance and has been repaying his debt as per the schedule. Hence he has credit experience.
2.5. Driving factors for bank finance, amount of loan and purpose
Mr. Yusuf Aman Aliyi wants to own one Combine harvester and one tractor with its
accessories for his own business to generate income from the machine through rental.
Previously he has been engaged in agricultural farm business. Income currently generating
from the existing business would be another initiative factor to this agricultural machine. The
business owner Mr. Yusuf Aman Aliyi would like to acquire one set of NEW HOLLAND
COMBINE HARVESTER (TC5.80) at ETB 14,741,000.00 as per the proforma invoice
issued from MOENCO share company and one set of Farming Tractor (New Holland)
model 127HP at a price of ETB 5,853,000.00 with one Disc plough and one Disc harrows
at 757,900.00 and 1,994,905.00 birr respectively as per the proforma invoice issued from
MOENCO share company. 100% of the fund needed for the purchase of Combine
harvester and tractor that is ETB 23,346,805.00 will be covered by the financing bank

whereas the owner contributes ETB 4,669,361.00 for working capital. The intended project
will need total capital of ETB 28,016,166.00 ETB (twenty-eight million sixteen thousand
and one hundred sixty-six birr) and other related costs like title transfer and insurance
premium. Thus, assuming to cover total cost from internal source would bring working
capital constraint on existing business.
2.6 Keys to success

 Supply of innovative quality services.
 Individualized customer service - providing customers with what they want, when and
how they want it.
 Fully integrated programs to help customers/clients/ and increase revenue through menu
development, creative promotions, advertising, and custom marketing material.
3. Market analysis
3.1. General consideration

Agriculture in Ethiopia is the foundation, corner stone and a backbone of the country's
economy, accounting for half of gross domestic product (GDP), 83.9% of exports, and 80%
of total employment. Besides, having these roles, many other economic activities also depend
on agriculture, including marketing, processing, and export of agricultural products.
Since the country is endowed with almost all types of weather types from high lands to
lowlands, the country produces almost all types of crops. Principal crops include coffee,
pulses (e.g., beans), oil seeds, cereals, potatoes, sugarcane, and vegetables. Exports are
almost entirely agricultural commodities and coffee is the largest foreign exchange earner.
Ethiopia is also Africa's second biggest maize producer. Ethiopia's livestock population is
believed to be the largest in Africa, and in 2006/2007 livestock accounted for 10.6% of
Ethiopia's export income, with leather and leather products making up 7.5% and live animals
3.1%.
Despite the huge contribution of the sector to the country's economy, the system is
predominantly of subsistence, characterized by the use of traditional farming implements and
practices. The entire field operations at small scale agriculture, where about 83% of the
population is involved, are carried out using hand-tools and thousands of years old tillage
implements with human and animal power which mainly include oxen plow farming system
particularly in open cereal dominating production system. Similarly, farm operations in crop
production, animal husbandry and forestry by large are performed with bare hands or using
very rudimentary farm tools. To meet the food demand of the ever-increasing population and
finance the other sectors of the economy, it is imperative to increase production and
productivity. This is attainable by the introduction of a wise mix of bio-chemical, socio-
economic and physical science-based technologies to the agricultural sector. Thus,
developing appropriate mechanization technology will improve production and productivity,
reduce the huge production losses and it has a great contribution to food security. Moreover,
it is only when the environment is made conducive through proper use of animate and
inanimate energy and improved implements; other bio-chemical inputs could perform to their
optimum potential. They also improve working conditions and the performance of jobs that
would otherwise be difficult to accomplish in the traditional way. Since the country is
running toward industrialization, in these days’ projects in relation to industrial sector in our
country are feasible. These may be attributed to the incentives and initiatives the current
government has taken toward restructuring the sectors of the economy. Agricultural
Development Led Industrialization (ADLI) policy and other supportive measures the
government has taken have helped the sector to be profitable. Due attention has been taken
by the government to the sector of agriculture, since it is the cornerstone and backbone of the
country’s economy. Thus, investments in the sector of agriculture would be profitable.
Ethiopia has a long history of involvement with the 4WT. To nurture agricultural
mechanization, state farms both irrigated and rain fed have played a very big role, especially
during the second period of “socialist experimentation”, when large mechanized state farms
were established totaling about 200,000 hectares, out of which about 47,000 hectares were
irrigated. (FAO Vol. 20, 2013) Another mechanization approach tried in the 70s to 90s period
was government operated tractor hire schemes. These were later abandoned; partly due to
heavy financial burden on the government as a result of subsidizing the service (Sims, 2006).
Furthermore, timeliness of the agricultural operations was difficult to achieve because of
conflict among users of the service. Studies on the economic benefits of these schemes were
also carried out during this period and it was concluded, based on the various shortfalls
identified, that government managed and operated tractor hire schemes were not successful
and were consequently largely abandoned in the late 1990s. In Ethiopia, an estimated 5,090
tractors were in use as of 2010, a significant increase since 2004 when the number was about
3,000. The 2010 figure increases to about 6,000 when “walking” or pedestrian tractors are
included. The number of tractors per 100 square km of arable land was about 4.0 and 4.7
respectively with and without the pedestrian tractors. This steady increase in the number of
tractors is primarily attributable to the growing number of foreign private investors engaged
in large commercial agriculture in Ethiopia, mainly from China, India and Saudi Arabia (WB
report, No. 68237)
3.1.1 Market organization and supply chain actors

To understand the overall technology market system for small scale mechanization
technology it is useful to understand the key players involved in the system. The sub sector
analysis recognized the importance of three major group that have to work together to ensure
success. These are the private sectors, service providers and farmers. Each group has a
different role to play and represent different interests. For sustainable mechanization, the role
of each of this group should be clearly defined and there should be good coordination so that
there are complementary.
3.1.2. Importers/dealers
The private sector has greater role to play in the production, transformation and
commercialization of agricultural product. The agricultural mechanization private sector is
represented by local importer, manufacturer and dealer. Here in Ethiopia, we do have around
12 importers/manufactures /dealers that involved in agriculture machinery business. Some of
them are TGT PLC, KALEB service PLC, METEC, RIES Engineering, GEDEB
Engineering, ADEB Engineering, MOENCO, HAGBES, AETS, AMIO Engineering. On this
study I mentioned below in detail those companies that involved in 4WTs and 2WTs
business. Kaleb service farmers house PLC established 22 years ago with a vison to become
the biggest manufacturer in the country. The company imports and sells both heavy duty
tractors with range of 35-400 hp, combine harvesters and agricultural implements. The
heavy-duty tractors are CLAAS brand. During the last 22 years, the company imported 1000
combine harvesters which make the company to take the biggest market share in the combine
business so far the company imports and sold two-wheel tractors with12.5HP from China and
planning to import another brand from Italy. The company provides after sale service like
training for operator, maintenances and repairs for damaged components within one year of

warranty period. The company imports tractor attachments, forage cutters, trailers, planters,
Sheller, threshers, sprayers and harrows. The implements are generally the heavy-duty
tractors attachment types. Mechanical seed drill, Sheller and multi-crop threshers are being
manufactured by the company locally. The company participates on trade fair, demonstration
and personal contact as a means of promoting the product and equipment’s. The challenges
on importation of walking tractor especially from China are unwanted vibration as per
feedback from clients and after sale service since DONG FENG brand don’t have a sole
agent and the tractors are sold in many trading houses. Adama Agricultural Machinery
Industry (METEC–AAMI) Another major player in the tractor industry in Ethiopia is the
Adama Agricultural machinery industry which formerly called Nazareth Tractor Assembly
Plant (NTAP), a government factory that is engaged in assembling “semi-knocked down”
(SKD) tractor parts. The Nazareth plant was established in 1978 as part of an economic and
technical cooperation agreement between the Ethiopian government and the former Union of
Soviet Socialist Republics. NTAP is involved in assembling pedestrian-controlled tractors
with 8-15HP, small size tractors with 18-40HP (18, 25, 30 and 40 HPs) and heavy-duty
tractors with 57, 62, 81, 90, 105, and 130 HP). It is also engaged in the production of simple
implements such as disc harrows and disc plows, as well as in the assembly of 6, 8, 10- and
12-ton trailers for haulage and transportation of agricultural inputs and products. During the
period NTAP has been in operation, it has produced a total of about 6,000 tractors mostly
small to medium sized at the rate of one tractor per day using 3 man-day labors. NTAP was
renamed the Adama Agricultural Machinery Industry (AAMI) in 1992. It was transferred to
the Metal and Engineering Technology Corporation (METEC) in 2010. Within the last three
years, it is estimated that METEC has imported around 5000 tractors and 3000 two wheeled
tractors, increasing the previous estimate to around 10,000 tractors. So far, more than 1000 of
imported 2 WTs have been sold to the regions and Southern region took the biggest share by
purchasing 300 walking tractors. The walking tractors are multipurpose models which can
plough, harrow, plant, pump water, thresher and transport depending on the accessory
attached to them. The industry promotes the tractors and service through mass media,
broachers and displays on field and trade fairs. Sales are made both on cash and credit basis.
Agricultural Equipment and Technical Services (AETS) AETS established 25 years ago with
a vision to be a center for agricultural technology transformation in the country by rendering
an integrated and customer driven mechanization services, boost up productivity and
development of modern farms. Currently, the company does have many functions some of
them are importing, distributing of agricultural machinery, implements of tractors and
maintenance, technical training and consultancy service. The company does have a total
capital of 271,003,316 Birr and imported a total of 4, 832 tractors with different hp, 1000
combine harvesters, 10,000 agricultural implements and 24 two-wheel tractors. Out of the 24
two wheeled tractors imported from China in 2013, only 4 walking tractors sold so far and
the buyer were also private individual in Addis Ababa. As per the feedback from the clients,
they still didn’t hear any complaint on the quality of the tractors except one on safety belt
breakage. AMIO Engineering AMIO Engineering Imported 25 SIFANG and 2 DONG FENG
China made walking tractor in 2012 and sold 15 of them. The main reason for AMIO to bring
this two-brand tractor was to see their difference on performance and claimed DONG FENG
engine is poor and SIFANG also need modification to attach implement on the tractors. Sales
were made on cash basis. After sale service includes one-year warranty period and training
for operators. The challenges for not selling the entire tractor to clients are affordability and
low tillage efficiency. AMIO also imports ploughs, trailers, harvesters/reapers, planters,
pumps, Sheller and forage cutters. The company maintains fast moving spare parts from
stock. Problems mentioned include: low market demand, low comfortableness of tractors, no
proper skill and training for operators to operate the tractors, no quality control system.
AMIO Engineering does have experience working with IDE Ethiopia on voucher system on
providing subside water pump for unions. They believe 2WTs do have a potential to scale up
in specific area but all depend on soil type and awareness creation for clients.
3.2. Competition
The level of competition that the project will face depends on the production and supply of
substitutes at local market, particularly surrounding the project area. This is because the
project aims serve both local community and state farms. As it is a service providing project,
with no met demand and competition may not be an issue for the coming few years, the
company will strategize itself on how to compete with its competitors. Therefore, one of this
is, to put its maximum effort in maintaining the standard of the service at each step. And the
other is, following competitors’ matrix (analysis) is also another strategy that will be utilized
to see how competitors are doing and adjust its marketing strategy accordingly.

3.3. Supply and demand analysis
3.3.1. The demand sides

Guush Birhane et,el (2017) has undertaken research in relation to agricultural mechanization
status in Ethiopia. They found that, in land preparation, an average 78.8 percent of plots were
prepared by animals, compared to 0.7 percent prepared by machine; and with threshing,
almost 50 percent of plots were worked manually, 47.9 percent with animals, and only 0.8 by
machines. In addition, the research explored mechanization of different crop types, finding
wheat as the dominant crop in which machinery is used in Ethiopia, albeit still low compared
to Africa as a whole. Over time, the research shows a huge change in imports of agricultural
machinery - notably tractors - up until 2014. These tractor imports were mostly driven by the
expansion of the AAMI (Adama Agricultural Machinery Industry) – Ethiopia’s main
importer of tractors. However, since then, the AAMI has experienced a rapid decline in sales
of all types of tractors. Yet, there has been a rapid increase in combine-harvester imports over
these same periods which continue to grow. In Ethiopia, the research carried out shows strong
spatial patterns in mechanization, concentrated largely in the Arsi/Bale area, Western Tigray
and parts of Somali region. The reasons for this concentration of machinery in the south-east
of the country could be attributed to the presence of commercial farms or generally larger
smallholder farms, a history of interventions, higher rural wages, flat and stone-free terrain,
and two harvests which add pressure to get the work done on time, hence the important use of
machinery. The demand for the machine in different zones of Oromia is mainly determined
by the growth rate of agricultural products to collect.

Table: Production and productivity in Arsi, West Arsi, Bale and East Bale zones of Oromia
Arsi West Arsi Bale East Bale
Production
Types of product Producation Producativ Producati on Producativty Producati on Producativty Producation Producativty
year Land (ha) Land (ha) Land (ha) Land (ha)
(kun) ty (kun/ha) (kun) (kun/ha) (kun) (kun/ha) (kun) (kun/ha)
Wheat 233,635.0 9,008,744.6 38.6 105,776.9 4,290,407.7 40.6 160,618.5 5,358,628.0 33.4
Bread Wheat 227,399.5 8,767,565.2 38.6 105,776.9 4,290,407.7 40.6 126,031.5 3,879,491.0 30.8
Durum Wheat 6,235.5 241,179.4 38.7 34,587.0 1,479,137.0 42.8
2009/10
Barely 104,246.4 4,854,822.2 46.6 87,325.5 4,025,639.1 46.1 32,699.0 1,273,086.0 38.9
Food Barley 57,487.0 2,989,324.0 52.0 47,206.4 2,454,733.3 52.0 30,103.0 1,204,120.0 40.0
Barley malt 46,759.4 1,865,498.2 39.9 40,119.1 1,570,905.8 39.2 2,596.0 68,966.0 26.6
Total of the year 337,881.4 13,863,566.8 174,651.1 8,316,046.8 193,317.5 6,631,714.0
Wheat 241,207.3 8,442,209.2 35.0 105,510.3 3,876,681.9 36.7 163,169.0 6,204,887.0 38.0
Bread Wheat 240,013.3 8,360,670.2 34.8 105,493.3 3,876,171.9 36.7 127,637.0 4,830,998.0 37.8
Durum Wheat 1,194.0 81,539.0 68.3 17.0 510.0 30.0 35,532.0 1,373,889.0 38.7
2010/11
Barely 100,233.3 3,416,610.4 34.1 89,795.8 3,013,163.1 33.6 30,598.0 789,044.0 25.8
Food Barley 62,002.8 1,653,886.8 26.7 40,162.3 1,223,761.2 30.5 27,049.0 699,615.0 25.9
Barley malt 38,230.6 1,762,723.7 46.1 49,633.5 1,789,401.9 36.1 3,549.0 89,429.0 25.2
Total of the year 341,440.6 11,858,819.7 195,306.1 6,889,845.0 193,767.0 6,993,931.0
Wheat 226,309.0 7,865,088.8 34.8 104,815.5 4,272,352.0 40.8 108,654.0 4,105,818.5 37.8 66,579.0 2,224,724.0 33.4
Bread Wheat 225,742.0 7,844,535.0 34.8 104,815.5 4,272,352.0 40.8 101,941.0 3,836,761.5 37.6 58,038.0 1,950,332.0 33.6
Durum Wheat 567.0 20,553.8 36.3 0.0 0.0 6,713.0 269,057.0 40.1 8,541.0 274,392.0 32.1
20012/13
Barely 106,268.0 3,911,899.0 36.8 94,185.2 3,856,457.3 40.9 34,470.0 1,135,048.0 32.9 5,979.0 175,565.0 29.4
Food Barley 43,529.0 1,392,928.0 32.0 39,056.1 1,392,799.0 35.7 29,210.0 956,911.0 32.8 5,979.0 175,565.0 29.4
Barley malt 62,739.0 2,518,971.0 40.2 55,129.1 2,463,658.3 44.7 5,260.0 178,137.0 33.9 0.0 0.0
Total of the year 332,577.0 11,776,987.8 199,000.7 8,128,809.3 143,124.0 5,240,866.5 72,558.0 2,400,289.0
Wheat 251,777.0 9,176,748.0 36.4 106,563.5 3,276,432.0 30.7 115,228.0 4,298,642.5 37.3 70,051.5 1,863,662.0 26.6
Bread Wheat 251,418.0 9,161,997.0 36.4 106,563.5 3,276,432.0 30.7 111,713.0 4,149,222.0 37.1 51,617.0 1,410,181.0 27.3
Durum Wheat 359.0 14,751.0 41.1 0.0 3,515.0 149,420.5 42.5 18,434.5 453,481.0 24.6
2013/14
Barely 119,513.0 4,783,894.0 40.0 94,635.5 3,768,188.8 39.8 31,908.0 1,075,405.0 33.7 6,325.0 122,380.0 19.3
Food Barley 48,965.0 1,694,552.0 34.6 36,329.0 1,307,678.8 36.0 26,251.0 885,683.0 33.7 6,325.0 122,380.0 19.3
Barley malt 70,548.0 3,089,342.0 43.8 58,306.5 2,460,510.0 42.2 5,657.0 189,722.0 33.5
Total of the year 371,290.0 13,960,642.0 201,199.0 7,044,620.8 147,136.0 5,374,047.5 90,992.5 2,853,770.0
Wheat 275,526.0 10,464,526.0 38.0 126,074.8 4,536,730.0 36.0 238,120.0 8,995,456.0 37.8 93,072.0 3,665,924.0 39.4
Bread Wheat 275,177.0 10,450,163.0 38.0 126,074.8 4,536,730.0 36.0 232,493.0 8,781,020.0 37.8 78,897.0 3,079,484.0 39.0
Durum Wheat 349.0 14,363.0 41.2 5,627.0 214,436.0 38.1 14,175.0 586,440.0 41.4
2014/15
Barely 128,780.0 5,558,271.0 43.2 93,679.5 3,895,272.0 41.6 33,863.0 1,275,118.0 37.7 3,130.0 90,313.0 28.9
Food Barley 51,403.0 1,850,508.0 36.0 29,836.0 1,110,585.0 37.2 23,761.0 853,625.0 35.9 3,091.0 88,870.0 28.8
Barley malt 77,377.0 3,707,763.0 47.9 63,843.5 2,784,687.0 43.6 10,102.0 421,493.0 41.7 39.0 1,443.0 37.0
Total of the year 404,306.0 16,022,797.0 219,754.3 8,432,002.0 271,983.0 10,270,574.0 96,202.0 3,756,237.0
Source: Oromia Bureau of Agriculture
3.3.2. The supply sides

With no manufacturers of combine-harvesters or tractors in the country, high taxation rates,
and limited access to foreign exchange, these have all contributed to the hurdles encountered
by farmers wishing to use modern machinery. The situation however, has alleviated slightly
with greater priority from the government to improve mechanization and from the
involvement of the private sector in dealerships. The research shows that 60 percent of
tractors are owned by commercial farmer’s/state farms, with the remaining 40 percent owned
by service providers. In the case of combine-harvesters, 90 percent are owned by service
providers which play a massive role in delivering services to farmers – but this comes at a

cost. Almost more than 90% of agricultural machineries specifically combine harvester and
farming tractor are owned by commercial farmers and government mechanization center.
Because of its high cost, farmers are unable to purchase these machineries by their own
finance sources. The type of financing like the one undertaken by the development bank
needs to be implemented at root level. Since the payment is periodical, it might be easy for
many farmers to own the machines over time.
Table: The expansion of Mechanization Technology in some zones of Oromia region
Data taken
Arsi zone West Arsi zone Bale+EastBale zones Arsi+West Arsi+ two Bale zones
from the Technology/inputs
Year Functional Not Functional Total Functional Not Functional Total Functional Not Functional Total Total Functional Total not Functional Grand total
Tractors
John Deere 89 4 93 164 0 164 85 0 85 338 4 342
New Holland 52 3 55 65 0 65 43 0 43 160 3 163
CASE IH 75 15 90 85 30 115 67 0 67 227 45 272
ClAAS 60 12 72 65 11 76 13 0 13 138 23 161
Others 81 20 101 75 26 101 69 14 83 225 60 285
2014/15 Sub Total 357 54 411 454 67 521 277 14 291 1088 135 1223
Combiners
John Deere 9 15 24 10 16 26 14 6 20 33 37 70
CLAAS 50 4 54 82 5 87 54 2 56 186 11 197
New Holland 27 4 31 45 4 49 23 0 23 95 8 103
Tukano 13 6 19 20 8 28 9 0 9 42 14 56
Messey Fergusen 15 7 22 16 9 25 4 0 4 35 16 51
Sub Total 114 36 150 173 42 215 104 8 112 391 86 477
Source: Agriculture Office of Arsi, West Arsi and Bale zones
3.3.3. The Supply and Demand gap

It is prevailing structure in a market economy determining price of the sector. The demand
and supply gap are influenced by the nature and structure of the product/service which
prevails in the market, not at one point in time, but in a period of time. It is this-gap,
therefore, which a prospective investor intends to fill it.
3.4. Pricing
The current price of harvesting is birr 120.00 per quintal, for purpose of this project, price per
quintal is assumed at birr 90.00 and the current price of ploughing a hectare of land ranges
from 3,500 to 4,500 birr. For better marketing, Mr. Yusuf Aman Aliyi is going to charge
only the lower limit which is birr 3,500.00 per hectare on average for different types of soil.
3.5. Marketing strategy and promotion

The marketing strategy mainly focuses on satisfying the needs of its customers and keeping
their preferences to the services. Customer satisfaction is measured in terms of quality and
quantity, fairness and competitiveness of the service. Different marketing strategies will be

employed to reach customers, retain existing and attract new once. Among the different
marketing strategies and tools for promotion the following will be used:
 Participation in different community and local events

 Producing and sponsoring publications and magazines are some of the ways
3.6. SWOT analysis of the project
As a strategic planning tool, the firm conducts SWOT analysis that helps the business to
focus on key issues. It is the first stage of planning and looks the strength, weakness,
opportunities and treats involved in a business venture. Strengths and weakness are internal
aspects. This means that they are within the control of the business. They may refer to aspect
of marketing, finance, operation or organization. Opportunities and threats are external
factors. This means that they are outside the control of the business. These may include the
environment, the economic situation, social changes or technological advances and change in
taste and preference.
3.6.1. Strength
 The owner of the business is currently running agricultural farming business on rental
land and has experience in this area.
 Has a strong concept –based on offering a wide range of well designed, customer center
services at fair prices
 Availability of easily trainable work force at low cost
 Its capacity to win significant private and government competitors.
 The business will have capable and qualified owner/manager who has the best experience
at all level.
 The capacity of the owner/manager on efficient use of resources and readiness to use new
technologies.
 Owner/manager creativity, efficiency, competency, sociability, communicability, and
experience in managing, coordinating and supervising, and capacity to plan and organize
his own work. Experience in working with local community of mechanized farming
areas.
 Strongly participate on exhibitions and bazaars to market its product, helping for
promoting itself. Believes in creating log-term partnership with its customers,
 The business has strong in fulfilling responsibilities on time: tax and other responsibilities

 Finally, the owner Mr. Yusuf Aman Aliyi is a renowned businessman with the necessary
experience that will allow the business attain all its goals and objectives
3.6.2. Weaknesses
 Although it is a new business, its weakness may not be defined well, however, it needs to
develop and implement appropriate marketing strategy based on the ever-changing and
dynamic business environment so that to be proactive in the sector.
 Shortage of sufficient working capital to operate at high capacity
3.6.3. Opportunities
 Increased awareness of the community on the benefit of mechanized farming by using
tractors, combines, and etc. And the pushing agriculture extension services orientation of
the farmer to use them.
 Government encouragement to mobilize the community to use such mechanized farming
tools to minimize yield loss and to maximize productivity and production.
 Sustainable and supportive agricultural development strategy for selected priority sectors
including mechanized farming and incentives for investment –duty free imports of
machineries, particularly for import substitution industries.
 Government support in terms of lease financing, allocation of working premises,
technical capacity building such as training given on business planning by DBE
 Transformation of the agriculture economy to industrial –led economy development
 Transformation of rain feed wheat production agriculture to irrigation wheat production
2-3 times per year, which needs tractor and combine harvesting all over the year
 Expansion of higher institutions such as: Universities and TVET colleges with focus on
technology –enable to sufficiently get technical employees from the market
 Relatively large local market.
3.6.4. Threats
 Unpredictable weather condition;
 Increased cost of inputs due to inflation, particularly imported raw materials and spare
parts
 Currently observed political instability, which is expected to be reverted in the coming
near period

 Increase technology changes on the production process that obsoletes the current ones in
terms of machineries, mechanization tools and etc.
 Competition from different actors providing similar services
Finally, the business responds to both internal and external issues in a proactive and dynamic
manner by using its strengths and reducing its weakness. A business can create opportunities
and counter threats by making the most of its strengths and addressing its weakness. A
business uses its strengths to take advantage of the opportunities that arise. In order to
improve performance, it must assess its external and competitive environment. This will
reveal the key opportunities it can take advantage of and the treats it must deal with. Through
this, it is able to generate the strong growth it needs to retain a strong identity in the market. It
will utilize key performance indicators (KPIs) to measure its performance occurred due to
and through its strengths in order to expand the strengths and resolve the weakness and at the
same time to utilize the opportunities prevailed for the sector. In the same way, the business
will work on coping mechanisms to revert the threats of the business. Bulk purchases and
creating long term partnership with the suppliers will enable the business to minimize the
challenges related to input cost rise and adequacy of supplies, proactive in innovation and
technology and entrepreneurial skill to upgrade quality is a plan of the business to resolve
issues related to change in preference and taste of customers and competition in the sector.
4. Technical study
4.1. Proposed location
The project is located in Oromia region, Shashamane woreda, Shashamane town. The owner
acquired shade through rental for the machines in Shashamane town. The proposed machine
can move from one area to another area. Since the time of farming in different areas of the
country differs to some extent, the machine can move to different parts of the country
specially Oromia region making its center Shashamane woreda. Thus, the market is
available in different parts of the country and regions with special attention given to zones of
East shewa, West Arsi, Arsi, East Bale, Bale, Guji and Borena.
4.2. The proposed machineries

The promoter planned to acquire:

 One New Holland combine harvester, model TC5.80, 207HP with 17 feet cereal header,
without straw chopper and Country of origin Poland.
 One Agricultural Tractor (New Holland), model T6050, 127HP,4WD,rops with sun roof
canopy
4.3. Environmental impact of the project

It is important to understand the potentially detrimental environmental impacts of the project
so that look for enhancement or mitigation measures. The impact can bring both positive
and negative effects caused by different activities. Any activity of a human being has its own
positive and negative impact on the environment we are living. However, the difference is
on the extent of its impact from activity to activity. Emphasis should be given to enhance the
positive impacts while mitigating the negative ones. The project’s positive and negative
impacts with mitigation strategies are discussed here below.
4.3.1. Potential adverse impacts and proposed mitigation measures
Protection issues
 Workers need to be provided with ear plugs to avoid noise and the equipment used shall
be in good mechanical conditions.
 Workers need to be provided with adequate protection (helmets, gloves, goggles and
boots) in order to avoid occupational hazards and accidents.
 Traffic signs will be posted to warn local communities of heavy traffic during
transportation and delivery of machines. transportation during off-peak hours
Waste disposal and management issues
Solid and liquid waste treatment: generation of waste materials from operation activities of
the machine is expected to be handled in a manner not to damage the surrounding water, air,
land and soil. Hazardous materials shall be treated separately. Solid waste will be segregated
in separate garbage cans according to type, and where necessary it will be incinerated without
causing air pollution.
Fire protection: international codes will be followed for the installation of automatic
Sprinkler systems, heat and smoke detection, emergency responses program, and others to be
utilized. Generally, working closely and in cooperation with local communities and
encouraging endogenous knowledge for the conservation and wise use of the natural
resources and mitigation of adverse effects is advisable. Furthermore, to ensure that the
damage to the environment is contained within acceptable limits, the project has to take every
appropriate and corrective measure in consultation with the local environmental agencies and
authorities.
4.4. Insurance
Product liability is a major consideration. Personal liability, ensuring life insurance, property
insurance and third-party insurance coverage will be needed. Important insurance coverage
shall be bought as deemed necessary and renewed periodically right after acquisition of the
property.
4.5. Collaterals and source of repayment

The projected financial statements and viability and profitability of the project is discussed in
section here under of this document. It is believed that the proposed project will generate
income that covers the repayment of the bank finance. To meet the legal terms of the bank an
applicant offers the machine which is purchased as physical collateral to secure the loan. Mr.
Yusuf Aman Aliyi experience in the business he has been running so far and the sound
business plan implementation are believed to make the intended business profitable and ease
the fund reimbursement on time.
4.6. Operational plan and major activities

A sound action or operational plan will be put in action in order to realize the project
objective and meet the project goal. The action plans with the major activities are outlined
here under.
Major activities of the project

 Business plan preparation
 Loan processing activities facilitation
 Acquiring the machine with accessories
 Legal work and insuring the property
 Hiring of employees
 Providing intended services directly to users.
 Repayment of loan
 Monitoring and controlling the project activities

 Maintenance
5. Management of the business and organizational structure
As the business is sole proprietor, it is managed and controlled by Mr. Yusuf Aman Aliyi
who has good experience in running and managing his business. The envisaged business has
the following organizational structure.
Figure 1: Organizational structure
The owner (Manager)
Machine operation and maintenance section Administration and finance section
5.1. Personnel
The planned work will require the employment of 7 employees including the owner
(manager). Their salary is paid per month for the whole year. Both salary and per diem will
increase over the years based on profitability and business performance.
S/N Description Number Monthly salary for one Monthly salary for all Annual salary
1 Operator 2 6.500.00 13,000.00 156,000.00
2 Assistant operator 2 3,000.00 6,000.00 72,000.00
3 Accountant 1 3,000.00 3,000.00 36,000.00
4 Security guard 1 2,000.00 2,000.00 24,000.00
Total 6 288,000.00
Benefit (20% of basic salary) 57,600.00
Grand total 345,600.00
6. Financial plan
6.1. Basic assumptions
a. Combine harvester
 The project life time is five years
 The machine gives services for six month in different areas
 The rate at which revenue increases is 10% from the base year onward
 450 quintals can be harvested per day

 The number of work day per month depends on the market, on average the machine will
work for 24 days per month.
 The machine will have a capacity of operating to the maximum of 144 days in a year.
 Tariff per quintal harvested is birr 90.00 for the base year and increase by 5% in the
subsequent years
 The total salary is assumed to increase by 5% per year.
 The total allowance (per diem) per day is birr 800.00 for the operator and assistant in the
number of working days i.e., 144 (24*6) it is increase by 10% per year. (115,200)
 Depreciation expense is 20% of the cost of machine.
 The total fuel, oil and lubricant expense are birr 8,320.00 per day *144=1,198,080.00
(increased by 5% per year).
 Insurance expense is assumed to be birr 400,000.00 per year and will increase by 5% per
year
 Repair and Maintenances expense is 200,000.00 per year and will increase by 5% per
year
 Inspection fee is birr 5,000.00 per year and will increase by 5% per year
 Cost of tire is birr 500,000.00 for the base year and increase by 5% in the subsequent
years
b. Tractor
 The project life time is five years
 For all fixed assets, historical costs have been assumed.
 The rate at which revenue increases is 10% from the base year onward
 The machine gives services in different areas of the country for about 6 months per year.
(Plough time in different parts of the country is assumed)
 Average number of hectares of land ploughed (plough plus harrows) per day to be 15 (a
typical machine will plough in average about 20 hectares of land per day) we assumed
only 8 hours per day.
 The number of working days per month depends on the market, on average the tractor
will work for 22 days per month.
 The machine will have a capacity of operating to the maximum of 132 days in a year.
 Tariff per hectare is birr 3,500.00 (plough plus harrows)
 The total salary is assumed to increase by 5% per year.
 The total allowance (per diem) of the driver and assistant per day is birr 800.00 in the
number of working days i.e., 132*800=105,600.00 it is increased by 10%/year.
 Depreciation expense is 20% of the cost of machine (tractor)

 The total fuel, oil and lubricant expense are birr 5,760.00 per day *132=760,320.00
(increased by 5% per year).
 Insurance expense is assumed to be birr 200,000.00/year
 Repair and maintenance expense are 200,000.00 per year.
 Inspection fee is birr 5,000.00
 Cost of tire is birr 360,000.00 for the base year and increase by 5% in the subsequent
years
6.2. Revenues and costs
6.2.1. Revenue
a. Combiner
Assumed number of Assumed average quintals Assumed tariff Total number of Total annual
working days in a year harvested per day by one per quintal in combine harvester revenue
Combine harvester birr
144 650 90.00 1 8,424,000.00
b.Tractor
Assumed number of Assumed average number of Assumed average tariff Total number Total annual
working days in a year hectares of land ploughed per hectare in birr of tractor revenue
(plough plus harrows) per day by (plough plus harrows)
one Tractor
132 15 3,500.00 1 6,930,000.00
6.2.2. Costs
Initial investment costs
 Insurance premium
 Purchase cost
Operational cost
 Salary and allowance
 Maintenance
 Insurance
 Depreciation
 Miscellaneous Expense

6.2.2.1. Initial working capital determination

Items Duration Coverage
F uel, oil and lubricant 1year 1,958,400.00
Per diem 1year 220,800.00
Salary and employee benefit 1year 345,600.00
Cost of Tire 1year 860,000.00
Repair and maintenance 1year 400,000.00
Insurance 1year 600,000.00
Inspection fee 1year 10,000.00
Miscellaneous expense 1year 52,210.48
Total 4,447,010.48
Contingecy (5%) 222,350.52
Total initial working capital 4,669,361.00
6.2.2.2. Bank lease (loan) repayment program
Birr 23,346,805.00 will be sourced from Bank loan which will be paid back within 5 years
with Profit (commission) of 11.5%
Lease (loan) repayment schedule
Year Principal payment Commision (Interest) (11.5%) Total annual payment Remaining principal balance
0 - - - 23,346,805.00
1 4,669,361.00 536,976.52 5,206,337.52 18,677,444.00
2 4,669,361.00 536,976.52 5,206,337.52 14,008,083.00
3 4,669,361.00 536,976.52 5,206,337.52 9,338,722.00
4 4,669,361.00 536,976.52 5,206,337.52 4,669,361.00
5 4,669,361.00 536,976.52 5,206,337.52 -
6.2.2.3. Depreciation value of fixed asset

S/N Description Depreciation rate per year Method of depreciation
Combine harvester
1 20% Pooling
and Tractor

YUSUF AMAN ALIYI

PLANT, PROPERTY AND EQUIPMENT (PPE)
COST YEAR 1 ADDITION YEAR 2 ADDITION YEAR 3 ADDITION YEAR 4 ADDITION YEAR 5
COMBINE HARVESTER AND TRACTOR 23,346,805.00 - 23,346,805.00 - 23,346,805.00 - 23,346,805.00 - 23,346,805.00
23,346,805.00 - 23,346,805.00 - 23,346,805.00 - 23,346,805.00 - 23,346,805.00
DEPRECIATION
COMBINE HARVESTER AND TRACTOR - 4,669,361.00 4,669,361.00 3,735,488.80 8,404,849.80 2,988,391.04 11,393,240.84 2,191,486.76 13,584,727.60
- 4,669,361.00 4,669,361.00 3,735,488.80 8,404,849.80 2,988,391.04 11,393,240.84 2,191,486.76 13,584,727.60
NET BOOK VALUE 23,346,805.00 18,677,444.00 14,941,955.20 11,953,564.16 9,762,077.40
6.3. Financial analysis
The establishment objective of the firm is primarily to generate profit; hence the project
should be financially viable for the promoter and further lending institution to allocate fund to
the project. Accordingly, some financial statements are employed to compare and analyze
the costs incurred and benefits generated through the project life. These are balance sheet,
income statement and cash flow statements.
6.3.1. Statement of financial position (Balance sheet)

Balance sheet projection is used to provide insight into assets and debts of the project at a
particular point in time. Total assets of the project expected to rise from birr 27,460,228.80
during the first operational year to birr 34,037,813.65 at the end of the (5th) year of projection.
Table: Projected statement of financial position
Items Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Total Assets 28,016,166.00 27,460,228.80 27,876,412.85 29,160,682.69 31,234,063.22 34,037,813.65
Total Current Assets 4,669,361.00 8,782,784.80 12,934,457.65 17,207,118.53 21,671,211.89 26,387,532.59
Total Fixed Assets net of depreciation 23,346,805.00 18,677,444.00 14,941,955.20 11,953,564.16 9,562,851.33 7,650,281.06
Total Liabilities 23,346,805.00 18,677,444.00 14,008,083.00 9,338,722.00 4,669,361.00 -
Total Current Liabilities - - - - - -
Total Long-term debt 23,346,805.00 18,677,444.00 14,008,083.00 9,338,722.00 4,669,361.00 -
Owners’ Equity 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00
Retained earnings 4,113,423.80 5,085,545.05 5,953,630.84 6,742,741.53 7,473,111.43
Cumulative retained earnings 4,113,423.80 9,198,968.85 15,152,599.69 21,895,341.22 29,368,452.65
Total Liabilities & Equity 28,016,166.00 27,460,228.80 27,876,412.85 29,160,682.69 31,234,063.22 34,037,813.65
Net worth 4,669,361.00 8,782,784.80 13,868,329.85 19,821,960.69 26,564,702.22 34,037,813.65
6.3.2. Statement of financial performance (Income statement)
Profit/loss forecast presents the results of project’s operations during a period of time. Total
project revenues and costs generated over the periods are compared here to see whether the
project generates profit or not. Starting from the first year of the project operation, the project

generates a reasonable amount of net profit for the owner through its life period. It shows
income earning from the project and expenses incurred in attaining the income. The projected
profit/loss statement of the project reveals that the project will earn profit after tax of birr
4,113,423.80 during first year of its operation and increasing thereafter and earn profit of birr
7,473,111.43 at the end of (5th) year of projection. This indicates that the project could run
profitable business venture and can maintain objective of its establishment at competitive
quality and price.
Table: Projected statement of financial performance for the period ending
Items Year 1 Year 2 Year 3 Year 4 Year 5
Revenue/Income 15,354,000.00 16,121,700.00 16,927,785.00 17,774,174.25 18,662,882.96
Costs and expenses:
Fuel, oil and lubricant 1,958,400.00 2,056,320.00 2,159,136.00 2,267,092.80 2,380,447.44
Per diem 220,800.00 242,880.00 267,168.00 293,884.80 323,273.28
Salary and employee benefit 345,600.00 362,880.00 381,024.00 400,075.20 420,078.96
Cost of Tire 860,000.00 903,000.00 948,150.00 995,557.50 1,045,335.38
Repair & maintenance 400,000.00 420,000.00 441,000.00 463,050.00 486,202.50
Insurance 0.00 0.00 0.00 0.00 0.00
Inspection fee 10,000.00 10,500.00 11,025.00 11,576.25 12,155.06
Miscellaneous expense 52,210.48 57,431.53 63,174.68 69,492.15 76,441.36
Depreciation expense 4,669,361.00 3,735,488.80 2,988,391.04 2,390,712.83 1,912,570.27
Commission(Profit) expense 536,976.52 536,976.52 536,976.52 536,976.52 536,976.52
Total costs and expenses 9,053,348.00 8,325,476.85 7,796,045.24 7,428,418.05 7,193,480.77
Profit before tax 6,300,652.00 7,796,223.15 9,131,739.76 10,345,756.20 11,469,402.20
Income tax 2,187,228.20 2,710,678.10 3,178,108.92 3,603,014.67 3,996,290.77
Net profit 4,113,423.80 5,085,545.05 5,953,630.84 6,742,741.53 7,473,111.43
6.3.3. Cash flow statement
Cash flow projection provides a look at the movement of cash in and out of the project. It is
important in determining whether or not a company has enough cash to pay its bills, handle
expenses and acquire assets. Thus, it is important to give due attention to identify whether the
total inflows of the project have the capacity to cover all cash outflows during its operational
period unless, the project will face liquidity crisis and fail before achieving its objective of
establishment. Based on this fact, the forecasted cumulative cash balance shows a balance of
birr 8,182,784.80 in the first year and will grow up to birr 23,387,532.59 at the end of (5th) year of
projection period, demonstrating that the project will not face liquidity constraint to finance
its operational costs as well as meeting its debt obligation.

Table: Projected cash flow statement

Items Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
28,016,166.0 15,354,000.0 16,121,700.0 16,927,785.0 17,774,174.2 18,662,882.9
Total cash inflow
0 0 0 0 5 6
28,016,166.0
Inflow of funds
0

15,354,000.0 16,121,700.0 16,927,785.0 17,774,174.2 18,662,882.9
Inflow of operation 0 0 0 5 6
Other income
23,346,805.0 11,840,576.2 12,570,027.1 13,255,124.1 13,910,080.8 14,546,562.2
Total cash outflow
0 0 5 2 9 7
23,346,805.0
Increase in fixed assets
0 - - - - -
600,000.0 600,000.0 600,000.0 600,000.0 600,000.0
Increase in current assets
0 0 0 0 0
3,847,010.4 4,053,011.5 4,270,677.6 4,500,728.7 4,743,933.9
Operating costs 8 3 8 0 8
2,187,228.2 2,710,678.1 3,178,108.9 3,603,014.6 3,996,290.7
Income tax
0 0 2 7 7
536,976.5 536,976.5 536,976.5 536,976.5 536,976.5
Financial Costs
2 2 2 2 2
4,669,361.0 4,669,361.0 4,669,361.0 4,669,361.0 4,669,361.0
Repayment 0 0 0 0 0
Withdrawal
4,669,361.0 3,513,423.8 3,551,672.8 3,672,660.8 3,864,093.3 4,116,320.6
Surplus (deficit)
0 0 5 8 6 9
4,669,361.0 8,182,784.8 11,734,457.6 15,407,118.5 19,271,211.8 23,387,532.5
Cumulative cash balance
0 0 5 3 9 9
6.4. Financial viability and other measures of project worth
6.4.1. Profitability Index (Benefit/Cost ratio)
The profitability index is the ratio of the total PV of future cash inflows to the initial
investment, that is, PV/I. PI=PV/I=76,805,944.41/28,016,166.00=2.74
Since this project generates 2.74 birr for each birr invested (i.e., its profitability index is
greaterthan1), the project is acceptable

6.4.2. Payback period
Based on the projected income statement and investment over the period, the project will
return more than its total initial investment cost in the four years and eight months of
operation
6.4.3. The Net Present Value

This is the present value of future net benefits discounted at the appropriate cost of capital
minus the cost of investment. To calculate NPV, we need to find the present value of
expected net benefits of the project discounted at 11.5 per cent and subtract it from the initial
cost of the project. The envisaged project has a positive NPV of birr 48,789,778.41 after
taxes.
6.4.4. Break-Even point

It is number of units that must be sold in order to produce a profit of zero, point that recovers
all associated costs. In other words, the beak–even point is the point at which your product
stops costing you money to produce and sell, and starts to generate a profit for your company,
as the projections depict the project will break even in the first year of operation.
6.4.5. Internal Rate of Return

Internal rate of return (IRR) is defined as the rate of interest that equates initial investment (I)
with the present value (PV) of future cash inflows. In other words, at IRR, PV=I or NPV=0
Since the IRR of the investment 18.97% is greater than the cost of capital (11.5 per cent), the
project is accepted.
7. Future development and exit strategy
The business’s operation is within the dynamic circumstance that requires proactive to this
reality. With the intention to minimize risks and overcome uncertainties of the future an
operator should design and devise effective strategies that enable the promoter to be
successful in the operation. As an entrepreneur, the promoter considers and calculated risks.
Strategies like diversification of the business to other allied activities are recommendable.
Business expansion to additional venture is also another strategy. Besides, the promoter can
also create a joint venture with other investors to share risks associated with the business. As
a final option, selling the machine could be taken as eliminating the risk.

8. Socio-economic benefits of the project

a. Economic benefits
 Contribution to the national economic goals
The project has the capacity to generate revenue for the government through increasing tax
base; from its profit /income and employees’ salary.
 Creating employment opportunities
The project will create direct employment opportunities for the local people; for both skilled
and unskilled. As indicated on the project, it will create job for 6 people permanently.
b. Social benefits
 Local community income generation and livelihood improvement
The employment opportunity that will be created by the project will have social benefits
beyond the economic benefits. Employees engaged on the project will earn substantial
income. These benefits will contribute to improve employees and their households’
livelihood: feeding, schooling and health etc. At the same time, it has a role on poverty
reduction at least by increasing the income level of those employed by the project.
9. Conclusion and recommendation

It is unhidden fact that, agriculture is the backbone of the Ethiopian economy. The sector
needs to be supplemented by different technology including mechanization. Hence, the sector
needs both private and government interferences. A sector carrying more than 80% labor
force of the country and more than 85% of foreign currency earning cannot be independently
developed. It needs mutual support from both private and government sector. Therefore,
engaging in such activity will have many proceeds. The proceeds may be in terms of income
that will be gained from the activity, and mental and social satisfaction by helping the country
feeds its nation and specifically supporting the community so that they can be self-sufficient.
As per the market, economic, technical and financial analysis presented in previous sections
of this proposal put in picture, the project is worth to invest on. The project has positive net
income starting from first year of operation, positive cash flow throughout the project
period, and all the viability rations are indicating the project’s viability.

Significant employment creating nature of the project in the locality also justifies the
investment. Moreover, the project contributes significantly for the achievement of the overall
national goal of the nation. Therefore, in view of the above all considerations,
implementation of the project deserve to be given one of the priorities and supported by the
concerned authorities and financial institution in facilitating the project implementation.
Finally, the government and the financing bank deserve gratitude for preparing such fertile
ground to engage in such business activity and for their support to acquire the agricultural
machineries through lease financing.

10. Appendix:
10.1. Statement of financial performance (Income statement) projection
Items Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revenue/Income 15,354,000.00 16,121,700.00 16,927,785.00 17,774,174.25 18,662,882.96 19,596,027.11 20,575,828.47 21,604,619.89 22,684,850.88 23,819,093.43
Costs and expenses:
Fuel, oil and lubricant 1,958,400.00 2,056,320.00 2,159,136.00 2,267,092.80 2,380,447.44 2,499,469.81 2,624,443.30 2,755,665.47 2,893,448.74 3,038,121.18
Per diem 220,800.00 242,880.00 267,168.00 293,884.80 323,273.28 355,600.61 391,160.67 430,276.74 473,304.41 520,634.85
Salary and employee benefit 345,600.00 362,880.00 381,024.00 400,075.20 420,078.96 441,082.91 463,137.05 486,293.91 510,608.60 536,139.03
Cost of Tire 860,000.00 903,000.00 948,150.00 995,557.50 1,045,335.38 1,097,602.14 1,152,482.25 1,210,106.36 1,270,611.68 1,334,142.27
Repair & maintenance 400,000.00 420,000.00 441,000.00 463,050.00 486,202.50 510,512.63 536,038.26 562,840.17 590,982.18 620,531.29
Insurance 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Inspection fee 10,000.00 10,500.00 11,025.00 11,576.25 12,155.06 12,762.82 13,400.96 14,071.00 14,774.55 15,513.28
Miscellaneous expense 52,210.48 57,431.53 63,174.68 69,492.15 76,441.36 84,085.50 92,494.05 101,743.46 111,917.80 123,109.58
Depreciation expense 4,669,361.00 3,735,488.80 2,988,391.04 2,390,712.83 1,912,570.27 1,530,056.21 1,224,044.97 979,235.98 783,388.78 626,711.02
Commision(Interest) expense 536,976.52 536,976.52 536,976.52 536,976.52 536,976.52 0.00 0.00 0.00 0.00 0.00
Total costs and expenses 9,053,348.00 8,325,476.85 7,796,045.24 7,428,418.05 7,193,480.77 6,531,172.62 6,497,201.51 6,540,233.08 6,649,036.75 6,814,902.50
Prof it bef ore tax 6,300,652.00 7,796,223.15 9,131,739.76 10,345,756.20 11,469,402.20 13,064,854.49 14,078,626.96 15,064,386.81 16,035,814.14 17,004,190.93
Income tax 2,187,228.20 2,710,678.10 3,178,108.92 3,603,014.67 3,996,290.77 4,554,699.07 4,909,519.44 5,254,535.38 5,594,534.95 5,933,466.83
Net profit 4,113,423.80 5,085,545.05 5,953,630.84 6,742,741.53 7,473,111.43 8,510,155.42 9,169,107.52 9,809,851.43 10,441,279.19 11,070,724.10

10.2. Statement of financial position (Balance sheet) projection

Items Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
To tal Assets 28,016,166.00 27,460,228.80 27,876,412.85 29,160,682.69 31,234,063.22 34,037,813.65 42,547,969.06 51,717,076.59 61,526,928.01 71,968,207.20 83,038,931.31
Total Current Assets 4,669,361.00 8,782,784.80 12,934,457.65 17,207,118.53 21,671,211.89 26,387,532.59 36,427,744.21 46,820,896.71 57,609,984.11 68,834,652.08 80,532,087.21
Total Fixed Assets net of depreciation 23,346,805.00 18,677,444.00 14,941,955.20 11,953,564.16 9,562,851.33 7,650,281.06 6,120,224.85 4,896,179.88 3,916,943.90 3,133,555.12 2,506,844.10
To tal Liabilities 23,346,805.00 18,677,444.00 14,008,083.00 9,338,722.00 4,669,361.00 - - - - - -
Total Current Liabilities - - - - - - - - - -
Total Longterm debt 23,346,805.00 18,677,444.00 14,008,083.00 9,338,722.00 4,669,361.00 - - - - - -
Owners’ Equity 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00
Retained earnings 4,113,423.80 5,085,545.05 5,953,630.84 6,742,741.53 7,473,111.43 8,510,155.42 9,169,107.52 9,809,851.43 10,441,279.19 11,070,724.10
Cumulative retained earnings 4,113,423.80 9,198,968.85 15,152,599.69 21,895,341.22 29,368,452.65 37,878,608.06 47,047,715.59 56,857,567.01 67,298,846.20 78,369,570.31
To tal Liabilities & Equity 28,016,166.00 27,460,228.80 27,876,412.85 29,160,682.69 31,234,063.22 34,037,813.65 42,547,969.06 51,717,076.59 61,526,928.01 71,968,207.20 83,038,931.31
Net worth 4,669,361.00 8,782,784.80 13,868,329.85 19,821,960.69 26,564,702.22 34,037,813.65 42,547,969.06 51,717,076.59 61,526,928.01 71,968,207.20 83,038,931.31
10.3. Cash flow projection

Items Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
To tal cash inflow 28,016,166.00 15,354,000.00 16,121,700.00 16,927,785.00 17,774,174.25 18,662,882.96 19,596,027.11 20,575,828.47 21,604,619.89 22,684,850.88 23,819,093.43
Inflow of funds 28,016,166.00
Inflow of operation 15,354,000.00 16,121,700.00 16,927,785.00 17,774,174.25 18,662,882.96 19,596,027.11 20,575,828.47 21,604,619.89 22,684,850.88 23,819,093.43
Other income
To tal cash outflow 23,346,805.00 11,840,576.20 12,570,027.15 13,255,124.12 13,910,080.89 14,546,562.27 10,155,815.48 10,782,675.97 11,415,532.49 12,060,182.91 12,721,658.30
Increase in fixed assets 23,346,805.00 - - - - - - - - - -
Increase in current assets 600,000.00 600,000.00 600,000.00 600,000.00 600,000.00 600,000.00 600,000.00 600,000.00 600,000.00 600,000.00
Operating costs 3,847,010.48 4,053,011.53 4,270,677.68 4,500,728.70 4,743,933.98 5,001,116.41 5,273,156.54 5,560,997.10 5,865,647.97 6,188,191.47
Income tax 2,187,228.20 2,710,678.10 3,178,108.92 3,603,014.67 3,996,290.77 4,554,699.07 4,909,519.44 5,254,535.38 5,594,534.95 5,933,466.83
Financial Costs 536,976.52 536,976.52 536,976.52 536,976.52 536,976.52 - - - - -
Repayment 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 4,669,361.00 - - - - -
Withdrawal
Surplus (deficit) 4,669,361.00 3,513,423.80 3,551,672.85 3,672,660.88 3,864,093.36 4,116,320.69 9,440,211.63 9,793,152.49 10,189,087.40 10,624,667.97 11,097,435.13
Cumulative cash balance 4,669,361.00 8,182,784.80 11,734,457.65 15,407,118.53 19,271,211.89 23,387,532.59 32,827,744.21 42,620,896.71 52,809,984.11 63,434,652.08 74,532,087.21


Yusuf Aman Aliyi Combine &amp; Tractor Business Plan

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FEASIBILITY STUDY FOR THE PURCHASE OF

COMBINE HARVESTER AND AGRICULTURAL

PROMOTER: MR. YUSUF AMAN ALIYI

LOCATION: OROMIA REGION, WEST ARSI ZONE, SHASHAMANE TOWN

2 PROMOTER: MR. YUSUF AMAN ALIYI

3 PROMOTER: MR. YUSUF AMAN ALIYI

2. The project back ground

2.2. Promoter’s profile

2.3. The goal and objective of the project

4 PROMOTER: MR. YUSUF AMAN ALIYI

2.3.1. Vision and mission

2.3.2. The project outcomes

The intended project;

5 PROMOTER: MR. YUSUF AMAN ALIYI

2.6 Keys to success

3.1. General consideration

3.1.1 Market organization and supply chain actors

8 PROMOTER: MR. YUSUF AMAN ALIYI

10 PROMOTER: MR. YUSUF AMAN ALIYI

3.3. Supply and demand analysis

3.3.1. The demand sides

11 PROMOTER: MR. YUSUF AMAN ALIYI

Source: Oromia Bureau of Agriculture

3.3.2. The supply sides

12 PROMOTER: MR. YUSUF AMAN ALIYI

Source: Agriculture Office of Arsi, West Arsi and Bale zones

3.3.3. The Supply and Demand gap

3.5. Marketing strategy and promotion

13 PROMOTER: MR. YUSUF AMAN ALIYI

 Participation in different community and local events

14 PROMOTER: MR. YUSUF AMAN ALIYI

15 PROMOTER: MR. YUSUF AMAN ALIYI

4.2. The proposed machineries

16 PROMOTER: MR. YUSUF AMAN ALIYI

4.3. Environmental impact of the project

4.3.1. Potential adverse impacts and proposed mitigation measures

Waste disposal and management issues

4.5. Collaterals and source of repayment

4.6. Operational plan and major activities

Major activities of the project

18 PROMOTER: MR. YUSUF AMAN ALIYI

The owner (Manager)

Machine operation and maintenance section Administration and finance section

 450 quintals can be harvested per day

 Depreciation expense is 20% of the cost of machine (tractor)

21 PROMOTER: MR. YUSUF AMAN ALIYI

6.2.2.1. Initial working capital determination

6.2.2.2. Bank lease (loan) repayment program

6.2.2.3. Depreciation value of fixed asset

22 PROMOTER: MR. YUSUF AMAN ALIYI

YUSUF AMAN ALIYI

6.3. Financial analysis

6.3.1. Statement of financial position (Balance sheet)

6.3.2. Statement of financial performance (Income statement)

23 PROMOTER: MR. YUSUF AMAN ALIYI

24 PROMOTER: MR. YUSUF AMAN ALIYI

Table: Projected cash flow statement

25 PROMOTER: MR. YUSUF AMAN ALIYI

6.4.2. Payback period

6.4.3. The Net Present Value

6.4.4. Break-Even point

6.4.5. Internal Rate of Return

7. Future development and exit strategy

Yusuf Aman Aliyi Combine & Tractor Business Plan

Yusuf Aman Aliyi Combine & Tractor Business Plan