25.

PROFILE ON THE PRODUCTION OF ACETONE

 25-ii

TABLE OF CONTENTS

PAGE

I. SUMMARY 25-2

II. PRODUCT DESCRIPTION & APPLICATION 25-3

III. MARKET STUDY AND PLANT CAPACITY 25-4

A. MARKET STUDY 25-4
B. PLANT CAPACITY & PRODUCTION PROGRAM 25-7

IV. MATERIALS AND INPUTS 25-8

A. RAW & AUXILIARY MATERIALS 25-8
B. UTILITIES 25-8

V. TECHNOLOGY & ENGINEERING 25-9

A. TECHNOLOGY 25-9
B. ENGINEERING 25-9

VI. MANPOWER & TRAINING REQUIREMENT 25-13

A. MANPOWER REQUIREMENT 25-13
B. TRAINING REQUIREMENT 25-14

VII. FINANCIAL ANLYSIS 25-14

A. TOTAL INITIAL INVESTMENT COST 25-15
B. PRODUCTION COST 25-16
C. FINANCIAL EVALUATION 25-16
D. ECONOMIC & SOCIAL BENEFITS 25-18
 25-iii

I. SUMMARY

This profile envisages the establishment of a plant for the production of acetone with a capacity
of 175 tons of per annum. Acetone is used as a solvent by the pharmaceutical industry and as a
denaturant in denatured alcohol and also it is used an excipient in some pharmaceutical drugs.
Acetone is also the primary component in cleaning agents such as nail polish remover. Acetone is a
component of superglue remover and easily removes residues from glass and porcelain.

Since there are no local producers of acetone, the demand for the product is entirely met through
import. The present (2012) demand for the products is estimated at 106 tons per annum. The
demand is projected to reach 171 tons and 275 tons by the year 2017 and year 2022, respectively.

The major raw materials required by the project are propylene or ISO-propyl alcohol and catalyst
which have to be imported.

The total investment cost of the project including working capital is estimated at Birr 14.33
million. From the total investment cost , the highest share (Birr 12.28 million or 85.68%) is
accounted by fixed investment cost followed by pre production cost (1.367 million or 9.54%)
and initial working capital (Birr 684.94 thousand or 4.78%). From the total investment cost Birr
5.73 million or 39.98% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 22.12%and a net present
value (NPV) of Birr 8.66 million, discounted at 10%.

The project can create employment for 19 persons. The establishment of such factory will have a
foreign exchange saving effect to the country by substituting the current imports. The project
will also create forward linkage with the manufacturing sector and also generates income for the
Government in terms of tax revenue and payroll tax.
 25-iv

II. PRODUCT DESCRIPTION AND APPLICATION

Acetone is a colorless volatile and inflammable liquid with a mildly pungent and aromatic odor. It
is miscible in all proportions with water and organic solvents such as diethyl ether, methanol, ethyl
alcohol and esters.

Acetone is produced mainly for use as a solvent and production of methyl methacrylate and
bisphenol A. It is a common building block in organic chemistry.

Acetone is a good solvent for most plastics and synthetic fibers including those used in laboratory
bottles made of polystyrene, polycarbonate and some types of polypropylene. It is ideal for thinning
fiberglass resin, cleaning fiberglass tools and dissolving two-part epoxies and superglue before
hardening. It is used as a volatile component of some paints and varnishes. As a heavy-duty
degreaser, it is useful in the preparation of metal prior to painting; it also thins polyester resins, vinyl
and adhesives. It is also useful for high reliability soldering applications to remove solder rosin after
soldering is complete. This helps to prevent the Rusty bolt effect from occurring due to dirty solder
contacts.

Acetone is used as a solvent by the pharmaceutical industry and as a denaturant in denatured

alcohol. Acetone is also present as an excipient in some pharmaceutical drugs.

Acetone is often the primary component in cleaning agents such as nail polish remover. Acetone is
a component of superglue remover and easily removes residues from glass and porcelain.

It is used as an artistic agent; when rubbed on the back of a laser print or photocopy placed face-
down on another surface and burnished firmly, the toner of the image transfers to the destination
surface.

Make-up artists use acetone to remove skin adhesive from the netting of wigs and moustaches by
immersing the item in an acetone bath, then removing the softened glue residue with a stiff brush.
 25-v

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The country's requirement for acetone is entirely met through import. The major suppliers of
acetone to the Ethiopian market are European and Asian countries, mainly Belgium, the
Netherlands, Italy, Taiwan, Republic of Korea, and India. Data obtained from the Ethiopian
Revenue and Customs Authority (ERCA), with regard to import of acetone, for the period
covering 2000--2011 is given in Table 3.1.

Table 3.1
IMPORT OF ACETONE

Quantity Value
Year
(Tons) (‘000 Birr)
2000 24.8 203.7
2001 154.3 876.9
2002 34.0 350.4
2003 34.3 438.9
2004 57.7 563.3
2005 47.5 658.4
2006 84.2 1,023.1
2007 70.9 1,109.8
2008 123.4 2,179.8
2009 99.9 1,607.5
2010 96.1 2,197.8
2011 64.1 1,631.5

Source: - Ethiopian Revenue and Customs Authority (ERCA).

 25-vi

As can be seen from Table 3.1, although there is a general increase in the volume of imports
in the past twelve years the data is characterized by fluctuations. There were years in which
import figures were unusually high. This situation was clearly identified in the years 2001
and 2008 when their respective import figures were much higher than the imports in the
following years. In 2001, the import figure was 154.3 tons while in the following years, i.e.,
from 2002 to 2007 the yearly average import figure dropped to about 55 tons. Similarly,
import figure in the year 2008 was about 123.4 tons while in the following three consecutive
years, i.e., from 2009 - 2011 import ranges from 64 tons to about 100 tons. This probably
indicates that the high imports in some years were used as buffer stocks for the following
years. Hence, some portion of the imports was distributed among the subsequent years in
which recorded import figures were found to be comparatively low.

However, despite such fluctuation it has to be noted that there was a general increase in the
consumption of acetone in the past 12 years. The growth in the past supply/ consumption of
acetone can be clearly observed when the data set is analyzed on the averages of four year
interval. Accordingly, the yearly average level of supply which was 62 tons during the years
2001-2003 has increased to 65 tons during the period 2004-2007. A substantial growth is
observed during the period 2008-2011, which stood at an annual average of 96 tons. This
indicates that there was an annual average growth of about 12% in the past recent four years.

By looking to the above trend analysis, the present effective demand is estimated using the
following methodology.
- The average import figure in the recent past four years, i.e., 2008-2011 is taken as an
effective demand for the year 2011;

- Since the product is directly related with the growth of the manufacturing sector, an
annual average growth rate of 10 (which is slightly lower than the recorded growth rate
by the industrial sector in the past) is applied to arrive at the current (year 2012) demand.

Accordingly, current effective demand is estimated at 106 tons.

 25-vii

2. Demand Projection

The demand for acetone is directly related with the development of the industrial sector in
general and the chemical sector in particular. Taking this in to consideration, annual average
growth of 10% is applied to forecast the future demand. The forecasted demand up to the year
2022 is given in Table 3.2.

Table 3.2

PROJECTED DEMAND FOR ACETONE (TONS)

Year Projected
Demand
2013 117
2014 128
2015 141
2016 155
2017 171
2018 188
2019 206
2020 227
2021 250
2022 275

The demand for acetone will grow from 117 tons in the year 2013 to 171 tons and 275 tons by
the year 2017 and 2022, respectively.

3. Pricing and Distribution

The data collected from ERCA indicates that the average CIF price per ton of acetone in the year
2011 was Birr 36,452. Allowing 30% for customs duty and other import related expenses a
factory gate price of Birr 47,387 per ton is recommended for the project.
 25-viii

Currently, the product is mainly imported by the end user industries. The major end users of the
product are enterprises engaged in the manufacture of chemical products. Hence, since the end
users are limited and found mainly in the major cities of the country the distribution channel
proposed is direct sale to the end users without involving other intermediaries.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The annual capacity of the envisaged acetone plant is proposed to be 175 tons base on the market
study, economies of scale, period required for implementation of the project and full capacity
attainment. The plant operates 300 days per years.

2. Production Program

The envisaged plant is recommended to start at relatively lower capacity to get enough time to
penetrate market and develop skill. The production build-up program is, hence, made to start at
relatively lower (75%) and then gradually rise to full capacity in the 3 rd year of operation. The
detailed production program is given in Table 3.4.
Table 3.4
PRODUCTION PROGRAM
Year of Production 1st Year 2nd Year 3rd-10th
Year
Capacity utilization (%) 75 85 100
production(tons) 131.25 148.75 175

The production programme is set considering Sundays and public holidays and assuming that
maintenance works will be carried out during off-working hours.
 25-ix

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

Propylene or ISO-propyl alcohol is the only raw material used for manufacturing of acetone in the
presence of a catalyst. Packaging materials are required for delivering this product. The total annual
cost of raw material is estimated at Birr 1,840,500. The annual materials requirement and cost of the
plant is given in Table 4.1.

Table 4.1
ANNUAL CONSUMPTION OF RAW MATERIALS AND COST
Description Unit of Qty. Cost in '000 Birr
measure F.C L.C T.C

Isopropanol Tons 185 1,480.0 - 1,480.0

Catalyst (silver or copper) Kg 3 10.5 - 10.5
Packaging(200kg barrel) Pcs 875 350.0 - 350.0
Total 1,840.5 - 1,840.5

B. UTILITIES

Utilities required for manufacturing acetone include electric power; potable and cooling water, and
steam. The total annual cost of utilities is estimated at Birr 1,123,983 (see Table 4.2).
Table 4.2
ANNUAL CONSUMPTION OF UTILITIES AND COST

Description Unit of Qty. Cost in

Measure '000 Birr
Electricity KWH 9,625 5.58
Furnace oil Lt. 55,000 818.40
Water m3 30,000 300.00
Total 1,123.98
 25-x

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The raw material is isopropanol. The isopropanol (IPA) feed is a near azeotropic mixture with water
at 88 wt % IPA at 25°C and 1 atm. The feed is heated, vaporized, and superheated in a heat
exchanger and it is then sent to the reactor in which acetone is formed.

The reactor effluent is cooled and partially condensed in a heat exchanger and it is then sent to a
separation unit in which all of the light gas (hydrogen) enters to absorption tower while the
remaining components (acetone, IPA, and water) distribute according to Raoult’s Law. Some of the
acetone with the light gas that comes out from the cooler is recovered by absorbing it into pure
water in absorption tower. The liquid from the cooler and absorption tower is distilled to produce
“pure” acetone in upstream and waste water (containing IPA) in down Stream.

2. Environmental Impact Assessment

Acetone is a significant groundwater contaminant due to its high solubility in water. The LD 50 of
acetone for fish is 8.3 g/L of water (or about 0.8%) over 96 hours, and its environmental half-life is
about 1 to 10 days. Acetone may pose a significant risk of oxygen depletion in aquatic systems due
to the microbial consumption. Therefore, the waste water to be generated has to be treated in
appropriately designed waste water treatment plant to avoid the adverse impact on environment.
The investment cost of the waste water treatment unit is included in the cost of machinery and
equipment.

B. ENGINEERING

1. Machinery and Equipment

The total cost of plant machinery and equipment is estimated at Birr 7.64 million, out of which Birr
5.73 million will be required in foreign currency. The list of production machinery and equipment
required for the plant is provided in Table 5.1.
 25-xi

Table 5.1
LIST OF MACHINERY AND EQUIPMENT REQUIRED

Sr. Equipment Description Quantity

No.
1 Vaporizer(heat exchanger) 3
2 Reactor 1
3 Cooler 1
4 Absorption tower 1
5 Acetone fractionation column with condenser and reboiler 1
6 Water fractionation column with condenser and reboiler 1
7 Storage tanks 2
8 Boiler 1
9 Handling facility Set
10 Waste water treatment unit Set
11 Laboratory equipment Set

2. Land, Building and Civil Works

The total area required for the envisaged project will be 1,500 m2. The built-up area of the plant will
be 800 m2. The plant will have production buildings, stores, office buildings and other civil
structures. The total cost of buildings and civil works shall be Birr 4,000,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
 25-xii

and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.

In Addis Ababa, the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
City Administration for the promotion of the sector and all manufacturing projects are assumed
to be located in the developed industrial zones.

Regarding land allocation of industrial zones if the land requirement of the project is below
5,000 m2, the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the City’s Investment Authority. However, if the
land request is above 5,000 m2 the request is evaluated by the City’s Investment Authority and
passed with recommendation to the Land Development and Administration Authority for
decision, while the lease price is the same for both cases.

Moreover, the Addis Ababa City Administration has recently adopted a new land lease floor
price for plots in the city. The new prices will be used as a benchmark for plots that are going to
be auctioned by the city government or transferred under the new “Urban Lands Lease Holding
Proclamation.”

The new regulation classified the city into three zones. The first Zone is Central Market District
 25-xiii

Zone, which is classified in five levels and the floor land lease price ranges from Birr 1,686 to
Birr 894 per m2. The rate for Central Market District Zone will be applicable in most areas of the
city that are considered to be main business areas that entertain high level of business activities.

The second zone, Transitional Zone, will also have five levels and the floor land lease price
ranges from Birr 1,035 to Birr 555 per m2 .This zone includes places that are surrounding the city
and are occupied by mainly residential units and industries.

The last and the third zone, Expansion Zone, is classified into four levels and covers areas that
are considered to be in the outskirts of the city, where the city is expected to expand in the future.
The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191 per m 2 (see
Table 5.2).
Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA

Floor
Zone Level Price/m2
1st 1686
2nd 1535
Central Market
3rd 1323
District
4th 1085
5th 894
1st 1035
2nd 935
Transitional zone 3rd 809
4th 685
5th 555
1st 355
2nd 299
Expansion zone
3rd 217
4th 191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all
new manufacturing projects will be located in industrial zones located in expansion zones.
Therefore, for the profile a land lease rate of Birr 266 per m 2 which is equivalent to the average
floor price of plots located in expansion zone is adopted.
 25-xiv

On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.
Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Payment Down
Grace Completion Paymen
Scored Point PERIOD Period t
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile, the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The land lease period for industry is 60
years.

Accordingly, the total land lease cost at a rate of Birr 266 per m 2 is estimated at Birr 399,000 of
which 10% or Birr 39,900 will be paid in advance. The remaining Birr 359,100 will be paid in
equal installments with in 28 years i.e. Birr 12,825 annually.

VI. HUMAN RESOURCE TRAINING REQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

The total human resource requirement of the plant will be 19. The total annual cost of human
resource is estimated at Birr 459,000. The monthly and annual salaries and wages are summarized
in Table 6.1.

Table 6.1
HUMAN RESOURCE REQUIREMENT AND COST (BIRR)
 25-xv

Sr. Description No of Monthly Annual

No. Persons Salary Salary
1 Manager 1 6,000 72,000
2 Secretary 1 1,500 18,000
3 Administration + Finance head 1 4,000 48,000
4 Sales & purchase head 1 4,000 48,000
5 Store keeper 1 900 10,800
6 Production supervisor 1 2,000 24,000
7 Operators 6 7,200 86,400
8 Mechanic and Electrician 2 3,000 36,000
9 Messenger, guard and cleaner 5 2,000 24,000
Sub -total 19 30,600 367,200
10 Employees benefit(25% of basic salary) 7,650 91,800
Total 19 38,250 459,000

B. TRAINING REQUIREMENT

On-the-Job training shall be carried out during plant erection and commissioning by experts of
machinery supplier. Therefore, the cost of training is estimated at Birr 50,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the acetone project is based on the data presented in the previous
chapters and the following assumptions:-
Construction period 1 year
Source of finance 30 % equity & 70 loan
Tax holidays 3 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material imported 120 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 2% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

 25-xvi

The total investment cost of the project including working capital is estimated at Birr 14.33
million (see Table 7.1). From the total investment cost , the highest share (Birr 12.28 million or
85.68%) is accounted by fixed investment cost followed by pre production cost (1.367 million or
9.54%) and initial working capital (Birr 684.94 thousand or 4.78%). From the total investment
cost Birr 5.73 million or 39.98% is required in foreign currency.

Table 7.1
INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Local Foreign Total %

No Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 39.90 39.90 0.28
1.2 Building and civil work 4,000.00 4,000.00 27.91
1.3 Machinery and equipment 1,910.00 5,730.00 7,640.00 53.31
1.4 Vehicles 450.00 450.00 3.14
1.5 Office furniture and equipment 150.00 150.00 1.05
Sub total 6,549.90 5,730.00 12,279.90 85.68
2 Pre operating cost *
2.1 Pre operating cost 429.20 429.20 2.99
2.2 Interest during construction 937.58 937.58 6.54
Sub total 1,366.78 1,366.78 9.54
3 Working capital ** 684.94 684.94 4.78
Grand Total 8,601.62 5,730.00 14,331.62 100

* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest during
construction.

** The total working capital required at full capacity operation is Birr 986.92 thousand.
However, only the initial working capital of 690.77 thousand during the first year of
production is assumed to be financed through external sources. During the remaining years
the working capital requirement will be financed by funds to be generated internally (for
detail working capital requirement see Appendix 7.A.1).

B. PRODUCTION COST
 25-xvii

The annual production cost at full operation capacity is estimated at Birr 6.89 million (see Table
7.2). Depreciation account for 27.24% of the production cost. The other major components of
the production cost are cost of raw material, financial cost and utility, which account for 27.24%,
13.35% and 16.63%, respectively. The remaining 14.98% is the share of repair and maintenance,
labor overhead and administration cost. For detail production cost see Appendix 7.A.2.
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY (year four)
Items Cost %
Raw Material and Inputs 1,840.5
0 27.24
Utilities 1,123.9
8 16.63
Maintenance and repair 152.8
0 2.26
Labour direct 367.2
0 5.43
Labour overheads 91.8
0 1.36
Administration Costs 150.0
0 2.22
Land lease cost - -
Cost of marketing and distribution 250.0
0 3.70
Total Operating Costs 3,976.2
8 58.84
Depreciation 1,878.8
4 27.80
Cost of Finance 1,031.3
4 13.35
Total Production Cost 6,886.4
6 100

C. FINANCIAL EVALUATION
 25-xviii

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax will grow from Birr 1.16 million to Birr 2.89 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 22.41 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point for capacity utilization and sales value estimated by using income statement projection are
computed as followed.

Break- Even Sales Value = Fixed Cost + Financial Cost = Birr 3,482,976
Variable Margin ratio (%)

Break - Even Capacity utilization = Break - even Sales Value X 100 = 46.62 %
Sales revenue

4. Pay-back Period
 25-xix

The pay- back period, also called pay – off period is defined as the period required for 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.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It 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 this project is computed to be 22.12% indicating the viability of the
project.

6. Net Present Value

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 in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise 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 net present value of the project at 10% discount rate is found to be Birr 8.66
million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

 25-xx

The project can create employment for 19 persons. The project will generate Birr 6.84 million
in terms of tax revenue and also generate revenue to the government in terms of payroll tax. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports. The project will also create forward linkage with the
manufacturing sector.
 25-xxi

Appendix 7.A

FINANCIAL ANALYSES SUPPORTING TABLES

 25-21

Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Total inventory 414.11 460.13 460.13 460.13 460.13 460.13 460.13 460.13 460.13 460.13

Accounts receivable 300.30 331.36 331.36 331.36 332.43 332.43 332.43 332.43 332.43 332.43

Cash-in-hand 9.52 10.58 10.58 10.58 10.76 10.76 10.76 10.76 10.76 10.76

CURRENT ASSETS 723.94 802.06 802.06 802.06 803.31 803.31 803.31 803.31 803.31 803.31

Accounts payable 39.00 43.33 43.33 43.33 43.33 43.33 43.33 43.33 43.33 43.33

CURRENT LIABILITIES 39.00 43.33 43.33 43.33 43.33 43.33 43.33 43.33 43.33 43.33
TOTAL WORKING
CAPITAL 684.94 758.73 758.73 758.73 759.98 759.98 759.98 759.98 759.98 759.98
 25-22

Appendix 7.A.2
PRODUCTION COST ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Raw Material and Inputs 1,656 1,841 1,841 1,841 1,841 1,841 1,841 1,841 1,841 1,841

Utilities 1,012 1,124 1,124 1,124 1,124 1,124 1,124 1,124 1,124 1,124

Maintenance and repair 138 153 153 153 153 153 153 153 153 153

Labour direct 330 367 367 367 367 367 367 367 367 367

Labour overheads 83 92 92 92 92 92 92 92 92 92

Administration Costs 135 150 150 150 150 150 150 150 150 150

Land lease cost 0 0 0 0 13 13 13 13 13 13

Cost of marketing
and distribution 250 250 250 250 250 250 250 250 250 250

Total Operating Costs 3,604 3,976 3,976 3,976 3,989 3,989 3,989 3,989 3,989 3,989

Depreciation 1,879 1,879 1,879 1,879 1,879 175 175 175 175 175

Cost of Finance 0 1,031 902 774 645 516 387 258 129 0

Total Production Cost 5,482 6,886 6,758 6,629 6,513 4,680 4,551 4,422 4,293 4,164
 25-23

Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)

Year Year Year Year Year Year Year Year

Item 2 3 4 5 6 7 8 9 Year 10 Year 11

Sales revenue 6,220 7,049 8,293 8,293 8,293 8,293 8,293 8,293 8,293 8,293
Less variable costs 3,354 3,726 3,726 3,726 3,726 3,726 3,726 3,726 3,726 3,726

VARIABLE MARGIN 2,866 3,323 4,567 4,567 4,567 4,567 4,567 4,567 4,567 4,567
in % of sales revenue 46.08 47.14 55.07 55.07 55.07 55.07 55.07 55.07 55.07 55.07
Less fixed costs 2,129 2,129 2,129 2,129 2,142 438 438 438 438 438

OPERATIONAL MARGIN 737 1,194 2,438 2,438 2,425 4,129 4,129 4,129 4,129 4,129
in % of sales revenue 11.85 16.94 29.40 29.40 29.24 49.79 49.79 49.79 49.79 49.79
Financial costs 1,031 902 774 645 516 387 258 129 0
GROSS PROFIT 737 162 1,535 1,664 1,780 3,613 3,742 3,871 4,000 4,129
in % of sales revenue 11.85 2.30 18.51 20.07 21.47 43.57 45.12 46.68 48.23 49.79
Income (corporate) tax 0 0 0 499 534 1,084 1,123 1,161 1,200 1,239
NET PROFIT 737 162 1,535 1,165 1,246 2,529 2,619 2,710 2,800 2,890
in % of sales revenue 11.85 2.30 18.51 14.05 15.03 30.50 31.59 32.67 33.76 34.85
 25-24

Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 12,709 7,881 7,053 8,293 8,293 8,293 8,293 8,293 8,293 8,293 8,293 4,137
Inflow funds 12,709 1,662 4 0 0 0 0 0 0 0 0 0
Inflow operation 0 6,220 7,049 8,293 8,293 8,293 8,293 8,293 8,293 8,293 8,293 0
Other income 0 0 0 0 0 0 0 0 0 0 0 4,137
TOTAL CASH
OUTFLOW 12,709 5,265 6,375 6,168 6,538 6,458 6,878 6,788 6,697 6,607 5,228 0
Increase in fixed assets 12,709 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 724 78 0 0 1 0 0 0 0 0 0
Operating costs 0 3,354 3,726 3,726 3,726 3,739 3,739 3,739 3,739 3,739 3,739 0
Marketing and
Distribution cost 0 250 250 250 250 250 250 250 250 250 250 0
Income tax 0 0 0 0 499 534 1,084 1,123 1,161 1,200 1,239 0
Financial costs 0 938 1,031 902 774 645 516 387 258 129 0 0
Loan repayment 0 0 1,289 1,289 1,289 1,289 1,289 1,289 1,289 1,289 0 0
SURPLUS (DEFICIT) 0 2,616 678 2,125 1,755 1,835 1,415 1,505 1,595 1,686 3,065 4,137
CUMULATIVE CASH
BALANCE 0 2,616 3,294 5,419 7,174 9,008 10,423 11,929 13,524 15,210 18,275 22,412
 25-25

Appendix 7.A.5
DISCOUNTED CASH FLOW ( in 000 Birr)

Year Year Year Year Year Year

Item Year 1 2 Year 3 4 Year 5 6 7 8 Year 9 10 Year 11 Scrap
TOTAL CASH INFLOW 0 6,220 7,049 8,293 8,293 8,293 8,293 8,293 8,293 8,293 8,293 4,137
Inflow operation 0 6,220 7,049 8,293 8,293 8,293 8,293 8,293 8,293 8,293 8,293 0
Other income 0 0 0 0 0 0 0 0 0 0 0 4,137

TOTAL CASH OUTFLOW 13,394 3,677 3,976 3,976 4,477 4,523 5,073 5,112 5,150 5,189 5,228 0
Increase in fixed assets 12,709 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 685 74 0 0 1 0 0 0 0 0 0 0
Operating costs 0 3,354 3,726 3,726 3,726 3,739 3,739 3,739 3,739 3,739 3,739 0

Marketing and Distribution cost 0 250 250 250 250 250 250 250 250 250 250 0
Income (corporate) tax 0 0 0 499 534 1,084 1,123 1,161 1,200 1,239 0

NET CASH FLOW -13,394 2,542 3,073 4,317 3,816 3,770 3,220 3,181 3,142 3,104 3,065 4,137
-
CUMULATIVE NET CASH FLOW -13,394 10,852 -7,779 -3,463 353 4,123 7,343 10,524 13,666 16,770 19,835 23,973
Net present value -13,394 2,311 2,539 3,243 2,606 2,341 1,817 1,632 1,466 1,316 1,182 1,595
-
Cumulative net present value -13,394 11,083 -8,544 -5,301 -2,694 -354 1,464 3,096 4,562 5,879 7,060 8,656

NET PRESENT VALUE 8,656

INTERNAL RATE OF RETURN 22.12%
NORMAL PAYBACK 5 years