PURPOSE BLACK ETHIOPIA TRADING SC

Feasibility Study to Establish Potato Chips Processing

Factory

Prepared By:
Strategy, Planning and Business Development
Addis Ababa, Ethiopia
July 2022
Table of Contents
I. EXECUTIVE SUMMARY............................................................................................................ 2
1 Introduction....................................................................................................................................... 3
1.1 Over View of the Company....................................................................................3
1.1.1 Vision of the PBETH SC........................................................................................4
1.1.2 Mission....................................................................................................................5
1.1.3 Goals........................................................................................................................5
1.1.4 Targets.....................................................................................................................5
1.1.5 Value........................................................................................................................5
1.2 Legal Forms and Licenses............................................................................................5
2 BACKGROUND OF THE PROJECT.......................................................................................... 7
2.1 General Overview of Macroeconomic and Industry/Sector.............................7
2.2 Objectives of the Project..........................................................................................7
2.3 Project Rationale.......................................................................................................7
3. KEY SUCCESS & RISK FACTORS AND SWOT ANALYSIS...................................................9
3.1. Key Success Factors.................................................................................................9
3.2. Risk Factors and Mitigation Mechanisms...........................................................10
3.3. SWOT Analysis.......................................................................................................11
4. MARKET STUDY...................................................................................................................... 12
4.1. Product Description...............................................................................................12
4.2. Market Segmentation.............................................................................................12
4.3. Domestic Demand Analysis.................................................................................12
4.3.1. Demand Determinants...................................................................................12
4.3.2. Domestic Consumption.................................................................................13
4.3.3. Demand Projection.........................................................................................13
4.4. Supply Analysis of Potato Chips.........................................................................13
4.4.1. Domestic Production......................................................................................14
4.4.2. Total Supply Projection..................................................................................15
4.5. Proposed Marketing Strategy...............................................................................15
4.6. Price Analysis.........................................................................................................16
5.TECHNICAL STUDY...................................................................................................................... 17
5.1 Land and Location......................................................................................................17
5.2 Inputs/Raw Materials Required & Availability....................................................17
5.3 Production Process of Potato Chips....................................................................17
5.3.1 Production Process of Potato Chips..................................................................18
5.3.2 Food Processing Quality Control System.......................................................22
5.4 Capacity Utilization and Production Program..................................................22
5.5 Fixed Investment Requirements of the Project..................................................23
5.5.1 Buildings and Civil Works................................................................................23
5.5.2 Machinery and Equipment...............................................................................23
5.6 Truck & Vehicles....................................................................................................23
5.7 Auxiliary & Utility Equipment’s..........................................................................24
5.8 Office Equipment and Furniture..............................................................................24
5.8 Environmental Impact Assessment.....................................................................24
 5.9 Implementation Schedule of the Project.............................................................25
6 ORGANIZATION, MANAGEMENT & MANPOWER...........................................................27
6.1 Organizational Structure.......................................................................................27
6.2 Management...........................................................................................................29
6.3 Manpower Requirement, Source & Availability...............................................29
6.4 Training Requirement...........................................................................................30
7 FINANCIAL STUDY................................................................................................................. 32
7.1 Basic Assumptions for Financial Analysis.........................................................32
7.1.1 Project Life.......................................................................................................32
7.1.2 Repair and Maintenance Cost.......................................................................32
7.1.3 Depreciation and Amortization....................................................................32
7.1.4 Working Capital..............................................................................................32
7.1.5 Financing Considerations..............................................................................33
7.1.6 Gross Revenue.................................................................................................34
7.2 Result of Financial Analysis.................................................................................34
7.2.1 Total Investment Cost and Share of Each Investment Components.......34
7.2.2 Proposed Financing Scheme.........................................................................35
7.2.3 Income Statement or Profit or Loss Statement...........................................37
7.2.4 Cash flow.........................................................................................................37
7.2.5 Internal Rate of Return (IRR)........................................................................37
7.2.6 Net Present Value (NPV)...............................................................................37
7.2.7 Payback Period................................................................................................38
7.2.8 Sensitivity Analysis........................................................................................38
7.3 Socio Economic Benefits of the Project................................................................38
11. ANNESES.................................................................................................................................. 39
Annex 1: Assumptions Employed in Financial Analysis...................................................39
Annex 2: Inputs/Raw Material Requirement and Cost at Full Capacity...........................48
Annex 4: Working Capital Requirements of the Project.....................................................51
Annex 5: Income Statement Projection of the Project.........................................................52
Annex 6: Cash Flow projection of the Project.....................................................................53
Annex 7: Balance Sheet of the Project.................................................................................54
Annex 8: Internal Rate of Return (IRR) of the Project.......................................................57
Annex 12: Depreciation and Amortization Schedule of the Project...................................61

I. EXECUTIVE SUMMARY
The potato chips industry nowadays is a popular food item which still gets a steady
increase in the global market. Purpose Black Ethiopia Trading SC has planned to
process Baked and fried potato in different flavor located in Oromia Regional State,
Assela town.

All the inputs or raw materials are locally available has opportunities and
comparative advantages such as very limited number of local manufacturers,
increasing local demand of the planned product and existing supply from foreign
source that can be substituted and have backward linkage with potato production
agricultural sub-sector and foreign exchange saving effect to the country by
substituting the current imports of planned products.

The total investment requirement of the planned project is estimated at Birr

13,035,212 out of which around Birr 11,548,577 is required for fixed investment
items, Birr 1,276,811is required for working capital and Birr 209,824 is required for
pre-production cost.

The technical analysis result indicated that the project is technically viable in terms
of technology selection and simplicity of technology utilization. The project is
planned to be financed by bank loan (lease finance modality) and company equity of
Birr 9,099,920 and Birr 3,935,292 respectively. Financial projections show that
the project is profitable and viable venture and can repay its loan as per the
schedule. The project is financially viable with after tax internal rate of return (IRR)
of 34% and after-tax net present value (NPV) of Birr 11,166,898.

The projected profit and loss statement for 10 years shows that the project will earn a
net profit of Birr 2,896,957 during the first year and a net profit of Birr 6,831,164 at
the end of the projection period.
1 Introduction
1.1 Over View of the Company
Purpose Black Ethiopia (PBETH) is an initiative launched in May 2020 through
collaborative effort of more than 135 individuals. Purpose Black works for the
offering of economic solutions to the major problems of the Black communities in
African and all over the world. The initiative is a multi-billion-birr endeavor which
encompasses the construction and launching of a mega Agro-processing complex,
and e-commerce marketplace, hyper markets, big supermarkets, and a chain of more
than 1000 retail & distribution stores all over Ethiopia. The initiative has plan of
starting multiple agricultural endeavors which will be established through joint
ventures with farmers throughout Ethiopia. Its authorized capital is 10 Billion Birr.

The initiative will be based on a vertically integrated end-to-end product-to-

consumer (P2C) model where Purpose Black Ethiopia and PB-AFRICA will directly
work with farmers to process farm products and sell the processed products directly
to consumers through its channels of e-commerce and retail outlets. The approach is
expected to make farmers direct beneficiaries of the system by eliminating
middlemen and adding value to the farmers’ products. Accordingly, the company is
working in the following three main sectors which are: -
 Commercial Agriculture,
 Agro-Processing, and
 Retail Outlets (Hyper Markets, Supper markets and Mini Retail Shops)
 Media
Currently the company is in operation in all above mentioned sectors which is
detailed here under.
Commercial Farms:
 South Omo two farms on 1,300 hectares, and
 Arsi (Bekoji) on 371 hectares
Agro Processing:
 Traditional Agro Processed Foods in Wolaita Sodo, and
 Traditional Agro Processed Foods in Arba Minch
Retail Outlets:
 Six Supper markets in Addis Ababa, and
 Truck Vegetable Sales in Addis Ababa and Wolaita Sodo
E-Commerce:
 Online application-based retailing outlet
Media:

 Through social media (You tube, Telegram, Facebook, LinkedIn.)

 KeGeberew Agricultural TV Channel (on the process)

The objectives include the helping the stabilize the market and creating a win-win
situation for all involved in the process and creating job opportunities for thousands
of Ethiopian citizens who are looking to get the chance. The job creation task is
guided by the principle of gender equality with prioritizing of providing
opportunity for the women who are involved in the sector.

1.1.1 Vision of the PBETH SC

“To see an economically developed, influential and respected Black communities in
African and throughout the World”

1.1.2 Mission
“Leveraging technology, operate economically developed, influential and respected
African Farmers in the World.”

1.1.3 Goals
 Helping farmers to produce globally competitive products and get fair prices,
 Reducing youth unemployment,
 Promote Diaspora Investment,
 Promote export, and
 Promoting and facilitating agricultural technology transfer
1.1.4 Targets
 Constructing a mega Agro-processing complex that has 50 factories in it,
 Launching 500 joint farming projects with Farmers in Ethiopia,
 Establish 5 Hyper Markets,
 Establish 10 big supermarkets
 Establish Mini Supermarkets
 Establish Mini Shops
 Build 1000 retail outlets and distribution centers,
 Launching and expanding world level e-commerce platform, and
 Establish a media center to promote the services and products of the PBETH
and its partner’s farmers.

1.1.5 Value
 Adaptability

 Flexibility

 Agility

1.2 Legal Forms and Licenses

 Form of the Company: Share Company
 Principal registration Certification: BL/AA/3/0024416/2013
 Investment Certification No: አኢፈ 120762/14
 Tax Payer Identification Number (TIN): 0073022656
 Business License No: BL/AA/14/673/7195696/2013
 VAT Registration No: 18362570010
2 BACKGROUND OF THE PROJECT
2.1 General Overview of Macroeconomic and Industry/Sector
The government of the country has given due emphasis for the industrial sector to
lead the country’s economy and achieve Sustainable Development Goals which in
turn leads to high demand for industrial manufacturing activities like food
processing projects.

The food processing industry is the dominant group of large and medium-scale
manufacturing industries in Ethiopia in terms of product varieties, number of
establishments, gross value of production and value-added at market prices.

Considering the untapped market potential as well as government’s attractive

incentives and conducive economic environment, Purpose Black Ethiopia Trading Sc
decided to commit its resources by investing in modern Baked and fried potato
chips manufacturing plant in Oromia Regional State Assela town.

2.2 Objectives of the Project

The major objectives of the project are:
 To produce high quality standard Fried and Baked potato chips;
 To save foreign currency through import substitution;
 To contribute for the development of the country’s economy in general and
to the food processing sector in particular;
 To maximize profit of the company and generate income to the government
in the form of tax; and
 To create employment opportunities for several employees

2.3 Project Rationale

Manufacturing sector is the top priority areas of the government under its Growth
and Transformation Plan. In this strategic plan, the government has a plan to
transform the economy from agricultural-led economy to industrial-led economy in
which a backward and forward integration linkage between agriculture and
industry will be created. Food processing in general and foods that reduce cooking
time ready to eat foods such as fried and baked potato chips are one of the industries
given top priority. This is mainly because food processing has a direct linkage with
agricultural sector, has great capacity to reduce poverty, and contribute for hard
currency saving by substituting import.

It is evident that fried and baked potato chips are convenient food products (ready
to eat), highly demanded by the whole society mainly urban society. In this regard,
the country has great market potential.

In addition to strategic importance of the products and wide market potential, the
subject project will get a great advantage in easily accessing the basic inputs and raw
materials locally as the country is one of the major producers of such
crops/vegetables. The location of the project is also ideal in that basic infrastructures
are available, and it is near to potentially growing market areas.

Due to low local production and increased demand for the product, the demand for
the products is not yet met. Therefore, the country is still dependent on imports. The
establishment of this project therefore contributes towards satisfying the demand
with its capacity by substituting the current import.

The demand for these baked and fries, potato chips products is directly related with
the growth in the economic capacity of the society which in turn depends on the
overall economic development of the country. The continuous double-digit
economic growth of the country has positively influenced the demand increment of
these products and as well with continuous urban population and economic growth,
it is expected even to rise sustainably in the future. Therefore, the rationale behind
this project is the huge existing and future demand supply gap for the planned
products in the country.
3. KEY SUCCESS & RISK FACTORS AND SWOT ANALYSIS
3.1. Key Success Factors
 Macroeconomic Success Factors
 The country has registered double digit economic growth for the past decade
and thus the country’s gross domestic product is increasing which in turn
improve peoples’ purchasing power, so that domestic aggregate demand is
increasing.
 There are incentives to attract domestic and foreign direct investment at the
federal and regional government level such as duty exemption and tax holidays
for certain years.
 The country’s infrastructural facilities are improving from time to time and hence
the processing industries would not face significant level of difficulty to access
and mobilize inputs from markets and supplying its output to planned market
destinations while other things remaining constant.
 In terms of the availability of factors of production, the country has huge
capacity for investment in the availability of land, inputs/raw materials and
human resources for many industrial and service sectors.
 Strong government support for export oriented or import substitution processing
industries with incentives like:
 Encouraging profit /corporate tax holiday period;
 Provision of land at competitive lease price; and
 Customs duty exemptions-extra protections for machineries procured from
abroad.

 Sector Specific Success Factors

 There is very limited number of small-scale French fried and baked potato chips
producers locally. Thus, the demand for these products is satisfied from both
local and import source. Therefore, engaging in manufacturing will enable the
company to sell its product with lesser price compared to the imported ones.
 Recent government’s direction is imposing investors to involve in production of
products for export or import substitution by giving high incentive packages.
 The major input/raw material of the planned project which are raw potato and
are widely cultivated in the country and others as well available locally except
few like processing chemicals and few packing materials. This will reduce cost of
production; and the company has a privilege of selling its product with lesser
price as compared to the imported ones.

3.2. Risk Factors and Mitigation Mechanisms

 Price increment of Inputs or Raw Materials Required
Since the major input/raw materials which are raw potato are agricultural products
that the production varies with different seasons in the country, there will be supply
fluctuation and price change in different seasons. This will increase the operational
cost and ultimately affects the revenue. For this, the company will make a supply
agreement with commercial farmers for continuous supply and produce more
potato from our farms. Moreover, about input cost increment, whenever cost
streams are increasing, the selling price of the final product will increase. These
mitigation mechanisms will ensure sustainable supply of inputs and keeps the
planned profit margin of the project the same.

 Market Competition for the Final Product

The final product of the planned project which are fried and baked potato chips
having different favors are supplied from local and import sources. Therefore, the
project has planned to produce best quality product locally using almost all inputs
from local source, that enable the company to sell at lesser reasonable price by
reducing its profit margin and benefit from bulk sales, that the importers of the final
product cannot.

 Product Price Risks

Sources of marketing risks include price risks due to increase in supply or changed
demand; loss of marketing power due to cheaper price of local, imported similar
items or others. However, since there are very limited number of similar product
processors in the country, the supply side from local source currently is not believed
to create such product price risks for the project under analysis; and with regard to
supply of the product from import source, the company rather has competitive edge
as compared to importers of the final product due to our own farm products, lesser
transportation and usage of local raw material. Hence, product price risks will not
affect the planned project.

3.3. SWOT Analysis

Strengths Opportunities
 Experience of the management in  There is even more input or raw
managing different businesses material supply side increment
 securing major input or raw material  Dependence of the project almost all in
supply agreement of raw potato and all on local input or raw materials
our own farm products,  High domestic market demand for the
 Organic baked potato is safe for product
human health  Country population and household
 Organic French fries are valuable income increment
source of vitamins, minerals and  Strong government policy that support
fibers to agro-processing industries.
Weaknesses Threats
 Availability of natural inputs for  Future supply side increment from
processing local production that has a potential of
 Higher consumer price than creating shortage of raw materials and
conventional processed products high supply of the product to the local
because the production cost is market
higher.  Competition from import
 Raw potato price fluctuation
 4. MARKET STUDY
4.1. Product Description
The planned products to be produced by the project are: Baked and fried potato
chips. Chips are the most popular snacks and are consumed all around the world by
the people of all age groups from all income segments. Potato chips are deep-fried or
dried slices. Crispy, crunchy and delicious, chips, they are the most popular
processed food items resulting in substantial value-addition and simply irresistible.
potato chips offer some nutritional value, potato chips contain less carbs. The
description of these products is given here under.

Fried potato chips: Fried chips are peeled, long cut thin pieces of potato that are
fried in oil or fat and flavored.

Baked Potato Chips: Bake is the healthier way to cook food.

4.2. Market Segmentation

The promoter planned to produce baked and fried potato chips to meet a portion of
the unsatisfied demand of the local market. Moreover, country level experience
shows that all the domestic production is consumed locally and there is no export of
the products from Ethiopia to the world. A market can also be segmented by the
end-product for which the major raw material (potato) were utilized which looks
like the following:
 Fried potato chips; &
 Baked Potato chips;
Hence, this market study mainly focuses on domestic market for Baked and fried
potato chips.

4.3. Domestic Demand Analysis

4.3.1. Demand Determinants
The domestic demand for baked and fried potato chips is affected by different
factors which include:
 Price of the goods;
  tastes and preferences of the consumers;
 number of consumers;
 incomes of consumers;
 prices of competing produce;
 Range of products available to consumers; &
 Rate of growth of Urbanization.

4.3.2. Domestic Consumption

Major market outlets of potato chips are:
 E-commerce
 Delivery
 bars;
 Supermarkets;
 Retail sores
 Households

Different research studies show that the domestic consumption of chips is highly
related with urban population growth and hence it is determined by using per
capita consumption approach.

4.3.3. Demand Projection

Growing population, growing disposable income of the nation (purchasing power),
cultural change towards processed products, change in life style of urban population
and other demand determinants positively affecting consumption of the products in
the country.

4.4. Supply Analysis of Potato Chips

The supply of potato chips in Ethiopia emanates from domestic production and
import. Hence, total supply is the sum of domestic production and import.
4.4.1. Domestic Production
In the country, there is one operational potato chips processing factory, which is
called Senselet Food Processing. It is a potato processing company that was set up
by Veris Investments1 in 2015 to contribute to developing the potato value chain in
Ethiopia. Ethiopia is a country that has large potential for growing potato, but this
potential has been largely untapped. The potato value chain is underdeveloped due
to a shortage of high-quality seed varieties, producers of seed, technology, logistics,
storage, potato knowledge and processing. Purpose black invests in the potato value
chain and wants to link farmers to the market. Purpose Black’s factory will set up in
accordance with European standards and knowledge and produces high quality
potato crisps, branded as Kegeberew that are sold locally in the Ethiopian market.

Purpose Black aims to contribute to food security by helping to increase availability

of potatoes, increasing farmer income and building a more stable potato value chain.
More than one million farmers grow potatoes in Ethiopia, but yields are estimated
around 20% of the potential. Training of farmers, better seed and other inputs, better
storage and long term off-take agreements for potatoes that reward quality will
result in an improvement of the potato value chain and incomes of smallholder
farmers through stable prices and higher yields. This will start the fly wheel of more
investment, higher quality and more productivity.

Purpose Black is part of the project “Potato Processing in Ethiopia: missing link in
the value chain and involved on training of agronomists and smallholder farmers,
advices on the potato value chain and procedures and systems with respect to
amongst others food safety.

4.4.2. Total Supply Projection

The total supply projection of potato chips in Ethiopia is the summation of domestic
production projection and import projection. The average growth rate for domestic
production and constant import is used for supply projection

4.4.3 Demand Supply Gap Analysis

1
The demand supply gap analysis for the coming years shows that there is a large
and increasing demand supply gap for the projection years implying that the
product has potential market in the country and it is a welcoming environment for
new investors.

4.5. Proposed Marketing Strategy

The project plans to employ different types of marketing strategies for the successful
penetration of the market using whole sellers and retailers. The following are the
major strategies of the project:

 Product
The project plans to produce quality potato chips which can easily penetrate the
market. Similarly, it planned to pack its products in quality and attractive packing
material that contains brand name and logo.

 Price trend & pricing

The project shall use a market penetration pricing strategy. Thus, the price of potato
chips will be determined considering the prevailing market price and cost of
production and it will be offered for the market at the lowest possible profit margin
in the initial years of production.

 Distribution
Experienced wholesalers in food staffs can be appointed to distribute the product.
The end users of the product i.e. households and individuals can obtain it at
different retail outlets such as café, bars, shops and super markets and the project
can directly distribute to these outlets through contractual agreements made
between them.

 Promotion
It is imperative that the products will be advertised for market penetration and for
introduction of customers in the targeted markets. Accordingly, the project’s
products shall be advertised through the possible electronic and non-electronic
media extensively at the introduction stage.
4.6. Price Analysis
Factory gate prices of produced potato chips vary depending on the size of packing
material as well as the type of the product.

5.TECHNICAL STUDY
5.1 Land and Location
The planned location for this project under analysis is Oromia Regional State, Bekoji
town at 130Km to East of the capital Addis Ababa. This location is selected due to
the factors that govern cost of production, available raw materials, planned
destination market and availability of other required infrastructural developments.

5.2 Inputs/Raw Materials Required & Availability

The planned products of the project are potato chips. The inputs or raw materials
required for potato chips are potato, salt and flavor (chili powder) and Processing
inputs and chemicals such as water, oil, brine solution, caustic soda, sodium
hypochlorite, and top up solvent; packing and labeling materials required are
polymer bag, poly-sheet, carton box, scotch tape, and labeling materials.

These major inputs or raw materials are potato which are locally available all the
time; except change in price or price fluctuations by seasons since these major raw
materials are agricultural products. However, processing chemicals and packing
materials are sourced from foreign source via two ways of either direct procurement
of the planned project or by local suppliers. Therefore, the project can get these items
either import by itself or procure from local suppliers.

The major raw material for planned products which are potato are agricultural
product adaptable and grows well in wide areas of the country. There is enough
production that can entertain such projects utilizing potato, their cost fluctuates with
production seasons. Therefore, about the availability of the major input/raw
material which are raw potato the project can access easily and even can sustain the
supply by making legal formal agreement with major potato farmers; hence the
company will not face any sustainable supply problem.

5.3 Production Process of Potato Chips

The planned products to be produced by the project are: Baked and fried potato
chips. The description of these products is given here under.

Potato Chips: Potato crisps are snack foods that are made from deep fried potato
slices. They may be flavored with salt or synthetic flavorings and packaged in
polypropylene bags.
The production process of Baked and fried potato chips varies with the level of
technology intensification, consumer preference of the planned market destination
(vary with ingredients added), and the like. The general industrial level production
processes of these products are described here under in detail.

5.3.1 Production Process of Potato Chips

The first step in producing any product is obtaining the required inputs or raw
materials. The inputs or raw materials required for processing potato chips are
potato and flavorings.
Diagram: Production Process Flow of Potato Chips

Receiving Raw Potato

De-stoning & Washing

Peeling & Trimming

Slicing

Blanching

Frying

Draining, Salting &

Flavoring

Potato Chips Packing

Storage & Distribution

 De-stoning & Washing

Raw potatoes that are suitable for chips/crisp making are received and washed
thoroughly to remove all traces of dirt and soil. Potato varieties with high sugar
content are the best to use as they produce a golden color when fried.

 Peeling & Trimming

Peeling and trimming of potatoes can be by hand using a sharp knife (manual peeler
for small scale chips production) or automatic by abrasive potato peelers or lye
peeling for bulk chips production. Lye peeling is an option for larger scale
operations. Thus, by means of either manual or mechanical ways the skin of potato
is peeled. The damage to potato tubes may affect the color and texture of chips.
Peeled potatoes are additionally washed to avoid darkening. After peeling,
trimming of eyes, bruises, dark and green spots, and decayed parts takes place. In
shallow eyed tubers, peeling losses are much lesser than deep eyed tubers. Peeling
losses are minimal with smooth potatoes.

 Slicing
Slice the potatoes as thinly as possible; either using a sharp knife or a slicing
machine, the slices should be of a uniform thickness to ensure that they all cook at
the same rate. Therefore, slicing is important quality factor of chips; slice thickness
should range between 0.7 and 1.8 mm (opt. 1.0–1.2 mm). Then sliced potatoes are
washed to remove starch, sugars, etc., and protect them against browning reactions.
This also ensures 1the production of crispy and light-colored chips. Followed by
washing of sliced potatoes will take place.

 Blanching
This process receives sliced and washed potatoes and starts its operation. Blanching
of chips before frying by immersing them in water or salt solutions (sodium
bisulfite) at 65°C–95°C for about 1 minute improves their color. After blanching and
before frying, partial drying of slices should occur to avoid excessive oil absorption
by the product.

 Frying
Slices are stayed to dry before adding to the hot oil. Heat the oil in large pan or for
greater control over the temperature a thermostatically controlled fat fryer is used.
While frying, too many crisps at one time should not be added as this lowers the
temperature of the oil and the crisps may stick together. Slices are fried until they
are golden brown. The oil affects the taste, texture and keeping quality of the final
product. Any rancidity of the oil results in strong flavors and odors that are
transferred to the fried food and spoils the taste and flavor of the product. Fresh oil
produces a higher quality product. Thus, oils should not be used for frying more
than a few times because new oil sticks to the product less than old oil. The
temperature of the oil should not reach the smoke point as this increases the rate at
which it deteriorates; since higher temperatures during frying cause less oil to be
retained on the product.

In modern processing plants, potato chips are continuously fried. Owing to

evaporation of water during frying, the weight of potato slices decreases, and
consequently they float into the oil. Oil temperature ranges, initially, between 175°C
and 190°C, and terminally between 160°C and 170°C. Frying time usually ranges
between 1.5 and 3 min and depends on the slices flow into the fryer and the potato
dry matter content.

 Draining, Salting & Flavoring

Removed chips from the hot oil are drained for excessive oil or fat removal. This can
be drain on absorbent paper or use a centrifugal spinner to remove excess oil. Poorly
drained products are unattractive as the oil leaves a greasy film on the packaging
material and accelerates rancidity and deterioration of the product. Fans and
absorbent paper can be used to remove excess oil. At this stage flavorings (salt,
pepper, chili powder etc.) will be added as desired by manufacturer. Then, they can
cool and conveyed for packaging, after burnt or broken chips are removed.

 Packaging
Potato Chips are very hygroscopic, that is they rapidly absorb moisture form the
surrounding air. Therefore, they should be packaged as soon as they are drained,
salted, flavored and cooled. After chips are filled in packages, should not be sealed
immediately before they are cool as condensation will form inside the packet and
make the contents soft. Packaging should be airtight and moisture proof. Packaging
materials (polymeric, laminated films) are shaped into bags, filled with weighed
portions of chips, heat sealed, secondary packaged, palletized, and transported to
the storage area. Packed potato chips should be stored correctly (in a cool place, out
of direct sunlight and away from strong aromas); in this way potato chips/crisps
have a storage life of about 6 months. Then, potato chips are distributed to the
destination markets.
 5.3.2 Food Processing Quality Control System
Nowadays, establishing quality control system in the food processing industries is
becoming a matter of increasing concern. It is a very essential tool for the survival of
food processors in the industry. Because of this fact, the company of the subject
project has envisaged to install modern quality control system in the production
process steps from purchase of raw materials to shipping and marketing of the final
products to the consumers. Some of the main activities to be carried out in the
quality control are:

 Use of appropriate cleaning and sanitizing techniques including the use of

approved and effective agents at appropriate level and frequency to prevent
microbial build up on processing equipment and other food contact surfaces,
 Developing the skills and knowledge of personnel involved in the handling
and processing of foods,
 Use of other sanitary measures that are specifically needed because of the
nature of the food being processed, the processing technology, the facilities in
which the processing takes place, etc.

To ensure the required quality of the final product, stage by stage quality control
and quality taste will be employed by the company using up to date quality testing
laboratory equipment’s that the project will purchase.

5.4 Capacity Utilization and Production Program

The project under study with two shift per day, 16 effective working hours per shift
and 300 working days per year has installed production capacity of 1200kg /Hour
potato chips production. However, till the employees of the company become
capable of fully utilizing the technologies employed and the company can obtain its
market share, it is planned to utilize 70% of the total capacity in its initial year. This
is expected to gradually increase to 80% and 90% during 2 nd and 3rd and above years
of the project.
 5.5 Fixed Investment Requirements of the Project
5.5.1 Buildings and Civil Works
The project has planned to operate in franchise premise; and the company has
acquired of premise having enough building and constructions with some partition
and redesign. Thus, there are no building and construction activities to be carried
out.

5.5.2 Machinery and Equipment

The planned products of the project are potato chips. Thus, the company has
planned to procure and selected appropriate machinery and equipment’s that enable
to produce these mentioned products. The total cost of the required machinery &
equipment’s is Birr 8,874,900.

Table 5.1: Planned Machineries & Equipment’s of the Project

No Description Quantity Price in Birr Total Price in Birr
Potato chips production
Set 8,874,900 8,874,900
1 processing machine
Total Cost in Birr 8,874,900

In addition, laboratory equipment’s are critical in such food producing industry to

ensure the quality and safe for consumption products. Thus, the company has
planned to procure and install the required laboratory equipment in the factory to
meet the standard requirements of the concerned government organ towards
producing quality and hygienic products. The total cost of laboratory equipment is
estimated at Birr 500,000.

5.6 Truck & Vehicles

The project requires truck & vehicles for smooth raw material collection, final
product delivery and managerial activities of the project. Thus, the company has
planned to procure one pick-up and one Isuzu NPR for the purpose of providing
transport services for managerial staff, transporting raw materials and final
products. The total costs the truck & a vehicle is estimated to Birr 2,000,000. The
detail is indicated below.
Table 5.2: Planned Truck & Vehicles of the Project
No Truck and Vehicles Quantity Unit Price Total Price
1 Isuzu NPR 1 2,000,000 2,000,000
Total Cost 1 2,000,000

5.7 Auxiliary & Utility Equipment’s

Availability of adequate water, electricity, telephone lines, etc. at the project site is
indispensable for smooth operation of the planned project. In this regard, the
franchise premise of the project already has necessary auxiliary & utility
requirements such as electric power supply and water supply at the site.

5.8 Office Equipment and Furniture

The office of the subject project will be located within the factory premises. In order
to run smooth business, the office of the factory will be equipped with required
office equipment and furniture. The total investment outlay for office equipment
and furniture is estimated to be Birr 359,432 as per the detail depicted below.

Planned office furniture

Equipment’s
N Quantit
o Items y Unit Price Total Price
1 Executive Table 1 10,686 10,686
2 Executive Chair 1 5,687 5,687
3 Office Table 1 7,843 7,843
4 Office Chair 1 3,486 3,486
5 Guest Chair 1 1,200 1,200
6 Desk top Computer 1 12,900 12,900
7 Printer 1 4,375 4,375
9 Cash Register 1 7,500 7,500
Total Cost 53,677

5.8 Environmental Impact Assessment

In modern world, all the investments planned incorporate environmental impact
mitigating technologies and the countries are also imposing investors to follow
environmental impact mitigation-based work. The production process of potato
chips does not produce a wastage that is hazardous to pollute the environment.
However, what so ever the impact is less, the project has to undertake
environmental impact assessment study and identify possible mitigation
mechanisms. The same study must be approved by the concerned government body.
Thus, the project will incorporate in its plan waste handling mechanism that will
serve to provide required standard in a way that will release lesser impact on the
environment. To mitigate these undesired impacts of the project, the following
mitigation measures are recommended in general.
 Use appropriate liquid waste (wash water) handling mechanism and
technology;
 Control properly all solid and liquid waste materials of the project; and
 Give due attention and training to employees of the company in order to
avoid physical hazards.

5.9 Implementation Schedule of the Project

Proper planning needs to be done to take up various activities without any break.
The activity wise schedule planning of implementation must be given crucial
emphasis for the project. The following table shows implementation schedule as
well as operational activity plan of the potato chips manufacturing project.
Table 5.5: Implementation Schedule of the Project
2022 2023
Project Execution Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Loan Processing
Investment Activities
Procurement of
Machinery & Equipment’s
Laboratory Equipment’s
Trucks &Vehicles
Auxiliary & Utility Equipment’s
Office Furniture & utilities
Raw Materials
Installation & Commissioning
Recruitment & Training
Operational Activities
Trial Production
Commercial Production
Marketing
6 ORGANIZATION, MANAGEMENT & MANPOWER
The success of any organization is highly associated with among other things, by
the way of its organizational structure and management. The management plays a
significant role in the operation and successfulness of a given organization. Hence,
the management must be organized in such a way of having responsibility and
accountability in the area of its sphere of influence. The management of different
level, the technical staff and the daily workers must be put in place in their proper
order.

6.1 Organizational Structure

The organizational structure of this project and the number of manpower
requirements is analyzed using the following considerations.
 The various distinct jobs that are performed according to the design
organizational chart and production flow of the project;
 The skill required for running the various activities or operations of the
planned potato chips manufacturing project; and
 The degree of automation and technology of machinery and equipment.

The project will be structured to have the general manager at the apex of the
project. The general manager of the project will be assigned by the shareholders as
per management capacity and merit. He will be responsible to plan, organize,
coordinate and supervise the overall activities of the factory.

Under general manager, there will be assisting auditor and next to the general
manager, there are three departments, which are directly responsible to the general
manager, and they oversee production & technical, administration & finance, and
marketing & procurement activities. Under each department, there are units with
their own duties and responsibilities. Accordingly, the envisaged organizational
structure of the project is shown below.
Fig 6.1: Organizational Structure of the Planned Project

General Manager

Production and Technical Marketing & Procurement

Administration & Finance
 6.2 Management
His academic background and experience in working at different companies at
different positions in the past together with the support he will have from other
experienced management members (professional department managers) that the
project will hire, he can lead the project to success.

The three operational department managers based on the organizational structure

will be recruited during the implementation of the intended project by scrutinizing
their qualification and experience in the sector. These are Production and Technical
Department, Marketing & Procurement Department, and Administration &
Finance Department. Production and Technical Department will be responsible to
over all the product processing and technical aspect of the company while the
marketing & procurement department will be responsible for procuring input and
raw material and marketing of the final product. On the other hand, administration
and finance department of the project will control the administrative, finance and
personnel issues of the project; while the auditor will assist the general manager in
providing overall up to date audit report of the project.

6.3 Manpower Requirement, Source & Availability

The major source for skilled work force requirement of the project will basically be
the existing local market. The local business and technical institution that are found
in the country are sources for skilled and semi-skilled manpower required by the
project, unskilled or daily labor is readily available in the project area. Moreover,
the project will create job opportunities for 21 permanent employees of different
disciplines and sizable number of daily labors after the successful implementation
of the project. Detail of the project’s manpower requirement and their respective
salaries is presented in the following table.

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 Description Required Number Monthly Salary Gross Annual Salary
Manager 1 25,000 300,000
Quality Controller 1 15,000 180,000
Machine Operator 1 10,000 120000
Production Worker 4 5,000 240,000
Packing Workers 2 4,000 96,000
Accountant 1 4,500 54,000
Cashier 1 3,500 42,000
Store Keeper 1 3,500 42,000
Secretary 1 4,000 48,000
Drivers 1 6,000 72,000
Security Guards 3 3,000 108,000
Purchaser 1 6,000 72,000
Sales Person 3 2,500 90,000
Total 21 92,000 1,464,000

6.4 Training Requirement

The analysis conducted has indicated there is no problem of accessing educated man
power in the country. However, when referring to the production & technical
department, though those educated man powers have general knowledge of food
processing, accessing educated as well as experienced man power in the specific
area of potato chips products processing in the country is not highly possible.
Therefore, the project has planned to arrange continuous trainings for these directly
involved in the processing of planned products by skilled and experienced
personnel’s or engineers from the machinery supplier company is planned to be
arranged practical training.

This planned first hand training for those involved in the processing of planned
products of the project will build their capacity to serve the project fruitfully in the
production of planned product. This training will be provided to all other workers
of the project to give them know how on the project’s product production and even

31 | P a g e
to the daily labors which work in the project by the trained educated workers of the
company.

This continuous training and capacity building will serve as a pillar to produce
quality final product. In doing so, the project will keep itself in the market to be able
to compete for the market of its product following international standards.

32 | P a g e
7 FINANCIAL STUDY
7.1 Basic Assumptions for Financial Analysis
7.1.1 Project Life
According to the implementation plan of the project, the implementation period
allotted for the entire project from the start of implementation to the final
implementation or start commercial production is one year and three months. With
regard to operational life of the project, 10 years is considered for this study.

7.1.2 Repair and Maintenance Cost

The annual repair and maintenance cost of the project is estimated based on the
following rates.
Item Rate
Machinery and equipment 1% of the total cost or Book value
Laboratory equipment’s 1% of the total cost or Book value
Truck & Vehicles 1% of the total cost or Book value
Auxiliary & Utility equipment’s 1% of the total cost or Book value
Office furniture and equipment 1% of the total cost or Book value

7.1.3 Depreciation and Amortization

The following depreciation rates are applied to depreciate the assets of the project:
Item Rate
Machinery and equipment’s 10% linear to scrap Value
Laboratory equipment’s 10% linear to scrap Value
Truck & Vehicles 20% linear to scrap Value
Auxiliary & Utility equipment’s 10% linear to scrap Value
Office furniture and equipment 10% linear to scrap Value
Pre-production expenditure 10% linear to scrap Value
NB: The detail depreciation and amortization schedule is presented in Annex part.

7.1.4 Working Capital

The working capital requirement of the project during operation is calculated based
on the minimum days of coverage needed for the different elements of the working

33 | P a g e
capital. Hence, the minimum days required for initial year are specified as follows
and the detail is attached in the annex part. The following table indicated working
capital requirement coverage and first year working capital requirement of the
project.

Table 7.1: Initial Year Working Capital Required Amount in Birr

Description Month Year-1
Direct Costs
Raw Materials Cost 1 420,257
Processing Chemicals Cost 3 28,000
Packing & Labeling Materials Cost 3 460,250
Sub-Total 908,507
Indirect costs
Utilities Expense 1 1,195
Salary Expense 1 112,000
Fuel & Lubricants Cost 1 10,256
Employee benefit 1 1,120
Travel and perdiem 1 1,120
Stationery 1 1,000
Workers uniform 6 400
Medical insurance 1 1,120
Miscellaneous expense 1 2,500
Repair & Maintenance Cost 1 9,524
Insurance Expense 12 85,714
Finished Product Holding 0.2 121,675
Sub-Total 347,624
Total Working Capital Required 1,256,131

7.1.5 Financing Considerations

The project planned to be established potato chips processing factory by
mobilizing fund from equity and bank loan.

The following factors are taken into considerations with regard to the loan to be
borrowed from domestic banks.
 Financing/borrowing modality of lease finance modality is considered;

34 | P a g e
  Interest rate on loan borrowed is assumed at 11.5% which is line with the
lending interest rate of the investment bank in the country for
manufacturing projects of machinery leasing;
 Grace period is assumed to be 6 (six) months after start of commercial
production for principal loan payment and then principal loan to be paid
every month after six months of commercial production operation; and
every month from the start of commercial production for interest payment
7.1.6 Gross Revenue
The proposed project has a final product namely potato chips. The planned Potato
chips production plant have theoretical capacity of 1200kg per hour at full
capacity.

After assessing the current market situation and period required to fully adopting
the technology, and to attain its market share, the factory is proposed to start at
70% of its capacity in the initial year and gradual increase its capacity to 80%, and
90% in 2nd, 3rd and above years respectively.

The total annual revenue to be generated by the project at planned capacity

operation, considering the proposed initial year is estimated at Birr 15,177,183 in
initial year. Necessary detail assumptions employed for the project analysis are
presented in Annex part of this report.

7.2 Result of Financial Analysis

7.2.1 Total Investment Cost and Share of Each Investment Components
The total investment cost of the project is estimated at Birr 13,035,212. From the
total investment cost the highest share (Birr 11,548,577 or 88.6%) is for fixed
investment followed by working capital cost (Birr 1,246,798 9.8%), and pre-
production cost (Birr 209,824 or 1.6%).

35 | P a g e
Table 7.2: Total Investment Cost and Share

Percentage
No Description Existing Planned Total Share
1 Building & Construction 120000 120000
8,874,
2 Machineries & Equipment’s - 8,874,900 900
500,
3 Laboratory Equipment’s - 500,000 000
2,000,
88.6%
4 Truck and Vehicles - 2,000,000 000
Office Furniture & 53,
5 Equipment’s - 53,677 677
11,548,
Sub Total - 11,548,577 577
1,276,
6 Working Capital - 1,276,811 811
9.8%
1,276,
Sub Total - 1,276,811 811
209,
7 Pre-Production Cost - 209,725 725
1.6%
209,
Sub Total - 209,824 824
13,035,
Total - 13,035,212 212 100%

7.2.2 Proposed Financing Scheme

The proposed bank borrowing scheme is lease finance and loan is expected to cover
70% of the total investment cost

Financial Plan
Bank Loan
Description Equity (Birr) (Birr) Total Cost (Birr)
Building & Construction 120000 120000
Machineries & Equipment’s 1,774,980 7,099,920 8,874,900
Laboratory Equipment’s 100,000 400,000 500,000
Truck and Vehicles 400,000 1,600,000 2,000,000
Office Furniture & Equipment’s 53,677 - 53,677
Sub Total 2,448,657 9,099,920 11,548,577
36 | P a g e
 Working Capital 1,276,811 - 1,276,811
Sub Total 1,276,811 - 1,276,811
Pre-Production Cost 209,824 - 209,824
Sub Total 209, 824 - 209,824
Total 3,935,292 9,099,920 13,035,212
Debt-Equity Ratio 30% 70% 100%

7.2.3 Income Statement or Profit or Loss Statement

Based on the projected profit and loss statement, the project will generate a profit
throughout its operation life. Annual net profit after tax increases from Birr
2,896,957 at the beginning of the project to Birr 6,831,164 during the last year of
operation year. The detail is presented in Annex part of this report.

7.2.4 Cash flow

The projected cash flow of the planned project shows that the project would
generate positive net cash flows throughout the operation years. Cumulative cash
flow generated by the project towards the end of the first operation year will
amount to Birr 3,223,893 At the end of the project life, this amount will rise to Birr
33,192,278. The detail is presented in Annex part of this report.

7.2.5 Internal Rate of Return (IRR)

The internal rate of return (IRR) is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the
rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of the project after tax is computed to be
34% indicating the viability of the project. The detail is presented in Annex part of
this report.

7.2.6 Net Present Value (NPV)

Net present value (NPV) is defined as the total present (discounted) value of a
time series of cash flows. NPV aggregates cash flows that occur during different
periods of time during the life of a project into a common measuring unit i.e.

37 | P a g e
present value. It is a standard method for using the time value of money to asses’
long-term projects. NPV is an indicator of how much value an investment or
project adds to the capital invested. In principle a project is accepted if the NPV is
non-negative. Accordingly, the after-tax net present value of the project at 10%
discount rate is found to be Birr 11,166,898 which is acceptable.

7.2.7 Payback Period

The payback period, also called pay–off period is defined as the period required
recovering the original investment outlay through the accumulated net cash flows
earned by the project. Accordingly, based on the projected cash flow it is estimated
that the project’s initial investment will be fully recovered within 5 years.

7.2.8 Sensitivity Analysis

A sensitivity analysis on selected cost components has been further conducted to
test the strength and viability of the project. In view of this, extreme conditions like
cost escalation on investment and production (operation) cost and a decrease of
sales price due to various factors have been therefore examined.

Overall the project can still sustain a 10% decrease in selling price and a 10%
increase in production (operation) & investment cost and still be viable. The after-
tax result 37% in decrease sales, 32% in increase investment items and 22% in
increase production (operation) cost. The results of the sensitivity analysis in all
cases the project will not face any problem and the results of the sensitivity
analysis of the project based on the various scenarios are presented in Annex part
of this report.

7.3 Socio Economic Benefits of the Project

The economic impact of the project can be viewed in several ways. It can be
viewed through its specific impact such as employment generation and increasing
government revenue. Moreover, other benefits such as import substitution of the
product and foreign currency saving should also be considered.
38 | P a g e
The project creates permanent employment opportunities for 21 permanent
workers. Moreover, during the life of the project it will generate corporate tax and
contributes to income in the form of payroll tax.

39 | P a g e
11. ANNESES
Annex 1: Assumptions Employed in Financial Analysis

1 Processing Capacity Assumptions

Working Hours per shift 8 Hours
No of Shifts per day 2 Shift/Day
Total working hours per day 16 Hours/day
Working days per year 300 Days/Year

1.1 Capacity of potato chips

Theoretical Capacity of a Plant per Hour 1,200 Kg per Hour
Theoretical Capacity of a Plant per Day 19,200 Kg per Day
Theoretical Capacity of a Plant per Year 5,760,000 Kg per Year

2 Production & Expected Yield

2.1 potato chips Production & Expected Yield
potato chips for processing 5,760,000 Kilogram
Loss during de-stoning and washing (soil, stone & other traces removal) 5% Percent
Net de-stoned & washed potato yield 5,472,000 Kilogram
Loss during peeling and trimming (skin, eyes and green portions removal) 20.0% Percent
Net peeled and trimmed potato yield 4,377,600 Kilogram
Loss during cutting and sizing (removal of too short, thin and discolored
sticks) 11% Percent
Net cut and sized stick yield 3,896,064 Kilogram
Loss during blanching (removal of some of the sugars from the surface of
sticks) 5.0% Percent

40 | P a g e
 Net blanches stick yield 3,701,261 Kilogram
Loss during drying (moisture removal) 28.0% Percent
Net blanches stick yield 2,664,908 Kilogram
Loss during frying (moisture removal in sticks & fat take up) 28.0% Percent
Net potato chips yield 1,918,734 Kilogram
potato Yield in Kg 1,918,734 Kilogram
Yield in Ton 1,919 Tons

2.2 Production at Planned Capacity Utilization

Project Years Year-1 Year-2 Year-3 & Above

Capacity Utilization 70% 80% 90%
potato chips 1,343,114 1,534,987 1,726,860
Total 1,343,114 1,534,987 1,726,860

3 Revenue projection at planned production capacity

Product type Packing Mix Selling price per kg in Year-1 Year-2 Year-3 and above
Birr
Fried potato chips 30% 50
2,014,670 2,302,480 2,590,290
Baked Potato chips 70% 70
13,162,512 15,042,871 16,923,230
Total Revenue at
planned capacity
15,177,183 17,345,352 19,513,521

41 | P a g e
 4 Operational Costs
Direct Costs
4.1 Input/Raw Materials Requirement & Cost at Planned Capacity Utilization
Input/Raw Material Type Input/Raw Material Cost Over Project Years
Project Years Year-1 Year-2 Year-3 & Above
Capacity Utilization 70% 80% 90%
Potato 5,040,000 5,760,000 6,480,000
Salt 1,680 1,920 2,160
Flavor (Chilli powder) 1,400 1,600 1,800
Total 5,043,081 5,763,521 6,483,961

4.2 Processing Inputs & Processing Chemical Cost at Planned Capacity Utilization
Processing Chemical Cost Over Project Years
Project Years Year-1 Year-2 Year-3 & Above
Capacity Utilization 70% 80% 90%
List of Processing Chemicals
Caustic soda 37,100 42,400 47,700
Sodium Hypochlorite 21,700 24,800 27,900
Top up solvent 53,200 60,800 68,400
Sub-Total 112,000 128,000 144,000

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4.3 Packing & Labeling Materials Requirement & Cost at Planned Capacity Utilization
Packing Material Type Packing Material Cost Over Project Years
Project Years Year-1 Year-2 Year-3 & Above
Capacity Utilization 70% 80% 90%
fried potato chips 525,000 600,000 675,000
baked potato chips 1,316,000 1,504,000 1,692,000
Total Packing & Labeling Material Cost 1,841,000 2,104,000 2,367,000

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 Indirect Costs
4.4 Utilities Expense
4.4.1. Electric Requirement & Cost
Electric Cost @ Full Capacity
Electric Requirement 200 KW
Kilo Watt Hour Used 20,000.00 KWH
Description Power (Kwh) Cost per KWH Total Cost in Birr
Electricity consumption 20,000 0.69 13,886
Service charge per month 53.57 643
Total 14,529

4.4.2. Water Requirement & Cost

Cost per m3 in Consumption
Description Birr per m3 per Year Total Cost per Year
Water for Processing 3.80 1,000 3,800
Water for other purposes 3.80 96 365
Total 4,165

Total Utilities Cost at Planned Capacity

Annual electric
Year Capacity rate
Cost (Birr)
Year-1 70% 14,335
Year-2 80% 15,788
Year-3 & Above 90% 17,241

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 4.5 Salary Expense
Required Monthly Gross Annual
Description Number Salary Salary
Manager 1 25,000 300,000
Quality Controller 1 15,000 180,000
Machine Operator 1 10,000 120000
Production Worker 4 5,000 240,000
Packing Workers 2 4,000 96,000
Accountant 1 4,500 54,000
Cashier 1 3,500 42,000
Store Keeper 1 3,500 42,000
Secretary 1 4,000 48,000
Drivers 1 6,000 72,000
Security Guards 3 3,000 108,000
Purchaser 1 6,000 72,000
Sales Person 3 2,500 90,000
Total 21 92,000 1,464,000

4.6 Fuel and Lubricants cost

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 S/N Description Total cost
1 Quantity Km,Hr/ Lt / Cost/Lt. Total
Year Km,Hr (Birr) Cost
Isuzu FSR 1 0.14 47
45,000 302,143
4..8Repair & Maintenance Cost
Sub-total cost
Repair & Repair & 302,147
Description
Oil and lubricant cost 2% Maintain ace rate Original Value Maintainace Cost
6,043
Building & Construction 1% 120,000 1,200
Total fuel cost
Machineries & Equipment’s 1% 8,874,900 88,749 308,186

Laboratory Equipment’s 1% 500,000 5,000

Truck and Vehicles 1% 2,000,000 20,000

4.7 Other Overhead Costs
Office Furniture & Equipment’s 1% 53,677 537
Description Costs Assumptions Annual Cost
Employee benefit (% of salary)
Total Cost 11,428,577 1% 14,640
114,286
Travel and perdiem (% of salary) 1% 14,640
Stationery (1,500 per month) 1,000 12,000
Workers uniform (800 per year) 800 800
4.9 Insurance Expense
Medical insurance (% of salary) 1% 14,640
Miscellaneous expense (30,000 annually)
Description Insurance Rate Original30,000
Value 30,000
Insurance Cost
Total Cost 86,720
Building & Construction 0.75% 120,000 900

Machineries & Equipment’s 0.75% 8,874,900 66,562

Laboratory Equipment’s 0.75% 500,000 3,750 46 | P a g e

Truck and Vehicles 0.75% 2,000,000 15,000

Office Furniture & Equipment’s 0.75% 53,677 403

Total Cost 11,428,577 85,714

 Annex 2: Inputs/Raw Material Requirement and Cost at Full Capacity

Inputs/Raw Material Requirement & Cost at Full Capacity

Assumption

Working Hours per shift 8 Hours

No of Shifts per day 2 Shift/day

Working days per year 300 Days/Year

Capacity of potato chips

Theoretical Capacity of a Plant per Hour 1,200 Kg /Hour

Theoretical Capacity of a Plant per Day 19,200 Kg /day

Theoretical Capacity of a Plant per Year 5,760,00

0 Kg /Year
2 Annual Input/Raw Material Requirement
N Percentage Annual Unit Cost per
o Description Mix Requirement in kg Kg/Lt Total Cost

1.1 Potato 100.0% 720,000 10 7,200,000

2.2 Salt 1.7% 200 12 2,400

2.3 Flavor (Chilli powder) 0.9% 50 40 2,000

Total Cost in Birr
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 7,204,400
Annual Packing & Labeling Material
Requirement Cost
Annual requirement per year in Unit Price per Total Cost per
No Description Packing Mix Pieces Pieces in Birr Year in Birr
750,0
1.1 fried potato chips 30% 250,000 3.0 00
1,880,0
1.2 baked potato chips 70% 470,000 4.0 00
Total Cost of Primary Packing Materials
in Birr 100% 720,000 7 2,630,000

5 Annual Processing Inputs & Processing

Chemical Requirement & Cost

N Description Rate/ton Annual Requirement in Ltr Unit Cost per Kg/Lt Total Cost
o

5.1 Water 1,000 50 0.0038 0

5.2 Oil 50 25 65 1,625

5.3 Brine Solution 0.15 20 37 740

5.4 Caustic soda 2 1,000 53 53,000

5.5 Sodium Hypochlorite 1 500 62 31,000

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 5.6 Top up solvent 1 2,000 38 76,000

Total Cost in Birr 162,365

Total Input/Raw Material, Packing & Labeling Material, and Processing 9,996,765
chemical Cost in Birr

Operating cost

Description Project Years

1 2 3 4 5 6 7 8 9 10
Direct Costs
Raw Materials Cost 8,689,128
5,043,081 5,763,521 6,483,961 6,808,159 7,148,567 7,505,995 7,881,295 8,275,360 9,123,584
Processing 192,974
Chemicals Cost 112,000 128,000 144,000 151,200 158,760 166,698 175,033 183,785 202,622
Packing & Labeling 3,172,006
Materials Cost 1,841,000 2,104,000 2,367,000 2,485,350 2,609,618 2,740,098 2,877,103 3,020,958 3,330,607
Sub – total 12,054,108
6,996,081 7,995,521 8,994,961 9,444,709 9,916,944 10,412,792 10,933,431 11,480,103 12,656,813
Indirect Costs
Utilities Expense 23,104
14,335 15,788 17,241 18,103 19,008 19,958 20,956 22,004 24,259
Salary Expense 1,961,900
1,464,000 1,464,000 1,464,000 1,537,200 1,614,060 1,694,763 1,779,501 1,868,476 2,059,995
Fuel & Lubricants 412,998
Cost 308,186 308,186 308,186 323,595 339,775 356,763 374,602 393,332 433,648
Employee benefit 19,619
49 | P a g e
 14,640 14,640 14,640 15,372 16,141 16,948 17,795 18,685 20,600
Travel and perdiem 19,619
14,640 14,640 14,640 15,372 16,141 16,948 17,795 18,685 20,600
Stationery 16,081
12,000 12,000 12,000 12,600 13,230 13,892 14,586 15,315 16,885
Workers uniform 1,072
800 800 800 840 882 926 972 1,021 1,126
Medical insurance 19,619
14,640 14,640 14,640 15,372 16,141 16,948 17,795 18,685 20,600
Miscellaneous 40,203
expense 30,000 30,000 30,000 31,500 33,075 34,729 36,465 38,288 42,213
Repair & 153,154
Maintenance Cost 114,286 114,286 114,286 120,000 126,000 132,300 138,915 145,861 160,812
Insurance Expense 114,865
85,714 85,714 85,714 90,000 94,500 99,225 104,186 109,396 120,609
Sub – total 2,782,235
2,073,241 2,074,694 2,076,147 2,179,954 2,288,952 2,403,399 2,523,569 2,649,748 2,921,347
Total 14,836,343
9,069,321 10,070,214 11,071,107 11,624,663 12,205,896 12,816,191 13,457,000 14,129,850 15,578,160

Annex 4: Working Capital Requirements of the Project

Description Month Coefficient Project Years
Direct Costs 1 2 3 4 5 6 7 8 9 10
Raw Materials Cost 1 0.08 760,299
420,257 480,293 540,330 567,347 595,714 625,500 656,775 689,613 724,094
Processing Chemicals 2 0.17 33,770
Cost 18,667 21,333 24,000 25,200 26,460 27,783 29,172 30,631 32,162
Packing & Labeling 3 0.25 832,652
Materials Cost 460,250 526,000 591,750 621,338 652,404 685,025 719,276 755,240 793,002
Sub-Total 1,626,721
899,173 1,027,627 1,156,08 1,213,884 1,274,578 1,338,30 1,405,223 1,475,48 1,549,258
0 7 4

50 | P a g e
Indirect costs
Utilities Expense 1 0.08 2,022
1,195 1,316 1,437 1,509 1,584 1,663 1,746 1,834 1,925
Salary Expense 1 0.08 171,666
122,000 122,000 122,000 128,100 134,505 141,230 148,292 155,706 163,492
Fuel & Lubricants Cost 1 0.08 36,137
25,682 25,682 25,682 26,966 28,315 29,730 31,217 32,778 34,417
Employee benefit 1 0.08 1,717
1,220 1,220 1,220 1,281 1,345 1,412 1,483 1,557 1,635
Travel and perdiem 1 0.08 1,717
1,220 1,220 1,220 1,281 1,345 1,412 1,483 1,557 1,635
Stationery 1 0.08 1,407
1,000 1,000 1,000 1,050 1,103 1,158 1,216 1,276 1,340
Workers uniform 6 0.50 563
400 400 400 420 441 463 486 511 536
Medical insurance 1 0.08 1,717
1,220 1,220 1,220 1,281 1,345 1,412 1,483 1,557 1,635
Miscellaneous expense 1 0.08 3,518
2,500 2,500 2,500 2,625 2,756 2,894 3,039 3,191 3,350
Repair & Maintenance 1 0.08 13,401
Cost 9,524 9,524 9,524 10,000 10,500 11,025 11,576 12,155 12,763
Insurance Expense 12 1.00 120,609
85,714 85,714 85,714 90,000 94,500 99,225 104,186 109,396 114,865
Finished Product Holding 0.2 0.01 216,363
125,963 139,864 153,765 161,454 169,526 178,003 186,903 196,248 206,060
Sub-Total 570,836
377,638 391,660 405,682 425,967 447,265 469,628 493,109 517,765 543,653
Total Working Capital 2,197,557
Required 1,276,81 1,419,287 1,561,76 1,639,851 1,721,843 1,807,93 1,898,332 1,993,24 2,092,911
1 2 5 9
Increase in Working - 104,646
Capital 142,476 142,476 78,088 81,993 86,092 90,397 94,917 99,662

51 | P a g e
 Annex 5: Income Statement Projection of the Project
Description Project Years
1 2 3 4 5 6 7 8 9 10
Gross revenue 17,345,352
15,177,18 19,513,52 19,513,52 19,513,52 19,513,52 19,513,52 19,513,52 19,513,52 19,513,52
3 1 1 1 1 1 1 1 1
Less- operating costs 10,070,214
9,069,321 11,071,10 11,624,66 12,205,89 12,816,19 13,457,00 14,129,85 14,836,34 15,578,16
7 3 6 1 0 0 3 0
Income before interest, 7,275,137
depr. & tax 6,107,861 8,442,413 7,888,858 7,307,625 6,697,330 6,056,520 5,383,670 4,677,178 3,935,361
Less- interest 1,819,589
281,164 1,420,382 881,003 341,625 (197,754) -
Income before depr. & tax 5,455,548
5,826,697 7,022,031 7,007,855 6,966,000 6,895,084 6,056,520 5,383,670 4,677,178 3,935,361
Less- depreciation 1,369,840
1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840
Income before tax 4,085,708
4,456,857 5,652,191 5,638,014 5,596,160 5,525,244 4,686,680 4,013,830 3,307,338 2,565,521
Less- income tax (35%) 1,429,998
1,559,900 1,978,267 1,973,305 1,958,656 1,933,835 1,640,338 1,404,841 1,157,568 897,932
Net profit 2,655,710
2,896,957 3,673,924 3,664,709 3,637,504 3,591,408 3,046,342 2,608,990 2,149,770 1,667,588

Annex 6: Cash Flow projection of the Project

Description Project Years
0 1 2 3 4 5 6 7 8 9 10
Cash Inflow
Equity
52 | P a g e
 3,935,292
Loan
9,099,920
Net profit
2,896,95 2,655,710 3,673,924 3,664,709 3,637,504 3,591,408 3,046,342 2,608,990 2,149,770 1,667,588
7
Depreciation
1,369,84 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840 1,369,840
0
Total Cash Inflow
13,035,21 4,266,79 4,025,550 5,043,764 5,034,550 5,007,344 4,961,248 4,416,182 3,978,830 3,519,610 3,037,428
2 7
Cash Outflow
Investment in fixed
assets 11,548,57
7
Increase in working -
capital - 142,476 142,476 78,088 81,993 86,092 90,397 94,917 99,662 104,646
Replacements -
- - - - 2,000,000 - - - - -
Pre-operating Costs
209,824
Loan repayment
- (9,661,07 4,690,248 4,690,248 4,690,248 4,690,248
2)
Dividend/Withdrawal
1,042,90 956,056 1,322,613 1,319,295 1,309,501 1,292,907 1,096,683 939,236 773,917 600,332
5
Total Cash Outflow
11,758,40 1,042,90 (8,562,54 6,155,336 6,087,632 8,081,742 6,069,247 1,187,080 1,034,153 873,579 704,977
1 5 1)
Net cash flow
1,276,811 3,223,89 12,588,09 (1,111,57 (1,053,08 (3,074,39 (1,107,99 3,229,102 2,944,677 2,646,030 2,332,451
3 1 2) 2) 8) 9)
Cumulative balance
53 | P a g e
 3,223,89 15,811,98 14,700,41 13,647,33 10,572,93 9,464,933 12,694,03 15,638,71 18,284,74 20,617,19
3 4 2 0 2 5 2 2 3

Annex 7: Balance Sheet of the Project

Description Project Years
0 1 2 3 4 5 6 7 8 9 10
Assets
Current Assets
Cash
- 3,223,893 15,811,984 14,700,41 13,647,33 10,572,93 9,464,933 12,694,03 15,638,71 18,284,74 20,617,19
2 0 2 5 2 2 3
Inventory
1,276,811 1,276,811 1,419,287 1,561,762 1,639,851 1,721,843 1,807,935 1,898,332 1,993,249 2,092,911 2,197,557
Total current
assets 1,276,811 4,500,704 17,231,270 16,262,17 15,287,18 12,294,77 11,272,86 14,592,36 17,631,96 20,377,65 22,814,75
4 0 5 8 7 1 3 0
Fixed Assets
Building &
Construction 120,000 114,000 108,000 102,000 96,000 90,000 84,000 78,000 72,000 66,000 60,000
Machineries &
Equipments 8,874,900 7,987,410 7,099,920 6,212,430 5,324,940 4,437,450 3,549,960 2,662,470 1,774,980 887,490 -
Laboratory
Equipments 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 -
Truck and
Vehicles 2,000,000 1,600,000 1,200,000 800,000 400,000 2,000,000 1,600,000 1,200,000 800,000 400,000 -
Office Furniture

54 | P a g e
& Equepments 53,677 48,309 42,942 37,574 32,206 26,839 21,471 16,103 10,735 5,368 -
Total fixed assets
11,548,57 10,199,719 8,850,862 7,502,004 6,153,146 6,804,289 5,455,431 4,106,573 2,757,715 1,408,858 60,000
7
Pre-Production
Cost 209,824 188,841 167,859 146,877 125,894 104,912 83,930 62,947 41,965 20,982 (0)
Sub-total
209,824 188,841 167,859 146,877 125,894 104,912 83,930 62,947 41,965 20,982 (0)
Total Assets
13,035,21 14,889,264.4 26,249,991 23,911,05 21,566,22 19,203,97 16,812,22 18,761,88 20,431,64 21,807,49 22,874,75
2 8 5 1 5 8 7 1 3 0
Liabilities and
Capital
Liabilities
Bank Loan
9,099,920 9,099,920 18,760,992 14,070,74 9,380,496 4,690,248 - - - - -
4
Capital
Equity
3,935,292 3,935,292 3,935,292 3,935,292 3,935,292 3,935,292 3,935,292 3,935,292 3,935,292 3,935,292 3,935,292
Retained Earnings
- 1,854,053 3,553,707 5,905,019 8,250,433 10,578,43 12,876,93 14,826,59 16,496,34 17,872,20 18,939,45
5 7 6 9 2 8
Total Capital
3,935,292 5,789,344 7,488,999 9,840,311 12,185,72 14,513,72 16,812,22 18,761,88 20,431,64 21,807,49 22,874,75
5 7 8 7 1 3 0
Total Liabilities
and Capital 13,035,21 14,889,264 26,249,991 23,911,05 21,566,22 19,203,97 16,812,22 18,761,88 20,431,64 21,807,49 22,874,75
2 5 1 5 8 7 1 3 0
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

55 | P a g e
 Annex 8: Internal Rate of Return (IRR) of the Project
Project Revenue Working Fixed Total Initial Replacement Operating Income Total Costs Net Benefit Net Benefit
Years Capital Asset Benefits Investment Costs Costs Tax Before Tax After Tax
Recovery Recover
y
0 13,035,212 13,03 (13,035, (13,035,212
- 5,212 212) )
1 15,17 15,177, 9,06 1,55 10,62 6,107, 4,547,961
7,183 183 9,321 9,900 9,222 861
2 17,34 17,345, 10,07 1,42 11,50 7,275, 5,845,139
5,352 352 0,214 9,998 0,212 137
3 19,51 19,513, 11,07 1,97 13,04 8,442, 6,464,146
3,521 521 1,107 8,267 9,374 413
4 19,51 19,513, 11,62 1,97 13,59 7,888, 5,915,553
3,521 521 4,663 3,305 7,968 858
5 19,51 19,513, 2,000,000 12,20 1,95 16,16 5,307, 3,348,969
3,521 521 5,896 8,656 4,552 625
6 19,51 19,513, 12,81 1,93 14,75 6,697, 4,763,495
3,521 521 6,191 3,835 0,026 330
7 19,51 19,513, 13,45 1,64 15,09 6,056, 4,416,182
3,521 521 7,000 0,338 7,338 520
8 19,51 19,513, 14,12 1,40 15,53 5,383, 3,978,830
3,521 521 9,850 4,841 4,691 670
9 19,51 19,513, 14,83 1,15 15,99 4,677, 3,519,610

56 | P a g e
 3,521 521 6,343 7,568 3,911 178
10 19,51 2,197,557 60 21,771, 15,57 89 16,47 6,192, 5,294,985
3,521 ,000 077 8,160 7,932 6,092 917
IRR before tax 52%

IRR after tax 34%

When Revenue Decreases by 10% and Cost Remains Constant

Working
Capital Fixed Initial
Project Recover Asset Total Investmen Replacement Operating Income Total Net Benefit
Years Revenue y Recovery Benefits t Costs Costs Tax Costs Before Tax Net Benefit After Tax
13,03 13,03 (13,035,
0 - 5,212 - 5,212 212) (13,035,212)
13,6 13,659, 9,0 8 9,06 5,471,
1 59,464 464 69,321 81,742 9,321 885 4,590,143
15,6 15,610, 10,0 7 10,07 6,245,
2 10,817 817 70,214 05,352 0,214 954 5,540,602
17,5 17,562, 11,0 1,1 11,07 7,601,
3 62,169 169 71,107 10,252 1,107 313 6,491,061
17,5 17,562, 11,6 1,1 11,62 7,043,
4 62,169 169 24,663 05,999 4,663 505 5,937,506
17,5 17,562, 12,2 1,0 14,20 4,449,
5 62,169 169 2,000,000 05,896 93,442 5,896 715 3,356,273
17,5 17,562, 12,8 1,0 12,81 5,818,
6 62,169 169 16,191 72,167 6,191 145 4,745,978
17,5 17,562, 13,4 8 13,45 4,925,
7 62,169 169 57,000 20,598 7,000 767 4,105,168
17,5 17,562, 14,1 6 14,12 4,051,
8 62,169 169 29,850 18,743 9,850 062 3,432,318
17,5 17,562, 14,8 4 14,83 3,132,
9 62,169 169 36,343 06,796 6,343 621 2,725,826
10 17,5 2,197 60 19,819, 15,5 1 15,57 4,425, 4,241,565
57 | P a g e
 62,169 ,557 ,000 725 78,160 84,251 8,160 816
FIRR before tax 47%
FIRR after tax 37%

When Operating cost increases by 10% and Revenue Remains Constant

Workin
g Fixed
Capital Asset Initial Net Net
Project Recover Recover Total Investme Replaceme Operatin Income Total Benefit Benefit
Years Revenue y y Benefits nt nt Costs g Costs Tax Costs Before Tax After Tax

13,0 13,0 (13,035,212 (13,035,21

0 - 35,212 35,212 ) 2)
15, 15,177 9, 1, 11,5
1 177,183 ,183 976,254 559,900 36,154 5,200,929 3,641,029
17, 17,345 11, 1, 12,5
2 345,352 ,352 077,236 429,998 07,234 6,268,116 4,838,118
19, 19,513 12, 1, 14,1
3 513,521 ,521 178,218 978,267 56,485 7,335,302 5,357,036
19, 19,513 12, 1, 14,7
4 513,521 ,521 787,129 973,305 60,434 6,726,392 4,753,086
19, 19,513 13, 1, 17,3
5 513,521 ,521 2,000,000 426,486 958,656 85,142 4,087,035 2,128,379
19, 19,513 14, 1, 16,0
6 513,521 ,521 097,810 933,835 31,645 5,415,711 3,481,876
19, 19,513 14, 1, 16,4
7 513,521 ,521 802,700 640,338 43,038 4,710,820 3,070,482
19, 19,513 15, 1, 16,9
8 513,521 ,521 542,835 404,841 47,676 3,970,685 2,565,845
19, 19,513 16, 1, 17,4
9 513,521 ,521 319,977 157,568 77,545 3,193,544 2,035,975

58 | P a g e
 19, 2,19 6 21,771 17, 18,0
10 513,521 7,557 0,000 ,077 135,976 897,932 33,908 4,635,101 3,737,169
FIRR before tax 43%
FIRR after tax 22%
When investment cost increase by 10%
Project Revenue Working Fixed Total Initial Replacement Operating Income Tax Total Costs Net Benefit Net Benefit
Years Capital Asset Benefits Investmen Costs Costs Before Tax After Tax
Recover Recovery t
y
0 14,33 14,338, (14,338, (14,338,73
- 8,733 733 733) 3)
1 15,1 15,177, 9,0 1,559,90 10,629, 6,107, 4,547,96
77,183 183 69,321 0 222 861 1
2 17,3 17,345, 10,0 1,429,99 11,500, 7,275, 5,845,13
45,352 352 70,214 8 212 137 9
3 19,5 19,513, 11,0 1,978,26 13,049, 8,442, 6,464,14
13,521 521 71,107 7 374 413 6
4 19,5 19,513, 11,6 1,973,30 13,597, 7,888, 5,915,55
13,521 521 24,663 5 968 858 3
5 19,5 19,513, 2,200,000 12,2 1,958,65 14,164, 7,307, 5,348,96
13,521 521 05,896 6 552 625 9
6 19,5 19,513, 12,8 1,933,83 14,750, 6,697, 4,763,49
13,521 521 16,191 5 026 330 5
7 19,5 19,513, 13,4 1,640,33 15,097, 6,056, 4,416,18
13,521 521 57,000 8 338 520 2

59 | P a g e
8 19,5 19,513, 14,1 1,404,84 15,534, 5,383, 3,978,83
13,521 521 29,850 1 691 670 0
9 19,5 19,513, 14,8 1,157,56 15,993, 4,677, 3,519,61
13,521 521 36,343 8 911 178 0
10 19,5 2,417 66 21,996, 15,5 897,93 16,476, 6,418, 5,520,74
13,521 ,312 ,000 833 78,160 2 092 673 1
IRR before tax 48%

IRR after tax 32%

Annex 12: Depreciation and Amortization Schedule of the Project

Description Original Rate Depr.& Project Years
Value Amort.
1 2 3 4 5 6 7 8 9 10

Building & 120,000.00 5% 84,000.00 78,000.00 72,000.00 66,000.00 60,000.00

Construction 6,000.00 114,000.00 108,000.00 102,000.00 96,000.00 90,000.00
Machineries & 8,874,900 10% 3,549,960 2,662,470 1,774,980 887,490 -
Equipments 887,490 7,987,410 7,099,920 6,212,430 5,324,940 4,437,450
Laboratory 500,000 10% 50,000 200,000 150,000 100,000 50,000 -
Equipments 450,000 400,000 350,000 300,000 250,000
Truck and 2,000,000 20% 1,600,000 1,200,000 800,000 400,000 -
Vehicles 400,000 1,600,000 1,200,000 800,000 400,000 2,000,000
Office Furniture & 53,677 10% 5,368 42,942 37,574 21,471 16,103 10,735 5,368 -
Equepments 48,309 32,206 26,839
Sub-Total 11,548,577 5,455,431 4,106,573 2,757,715 1,408,858 60,000
1,348,858 10,199,719 8,850,862 7,502,004 6,153,146 6,804,289
Pre-Production 209,824 10% 20,982 83,930 62,947 41,965 20,982 (0)
Cost 188,841 167,859 146,877 125,894 104,912
Sub-Total 209,824 20,982 83,930 62,947 41,965 20,982 (0)
188,841 167,859 146,877 125,894 104,912
Grand-Total 11,758,401 5,539,360 4,169,520 2,799,680 1,429,840 60,000
1,369,840 10,388,561 9,018,721 7,648,881 6,279,040 6,909,200
Replacements
2,000,000

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61 | P a g e