FEASIBILITY STUDY ON ESTABLISHMENT OF 3 STARS

TOURIST HOTEL

Lemessa Bote
Three Stars
Hotel

PROJECT LOCATION AND IMPLEMENTED BY:

OROMIA NATIONAL REGIONAL STATE, AND
ADAMA CITY ADMINISTRATION

PROMOTER: LEMESSA BOTE LEBETA

MAY, 2023
ADAMA, ETHIOPIA

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EXCUTIVE SUMMARY 5

1.INTRODUCTION 6

2. PROJECT BACKGROUND OF THE STUDY 8

2.1. General Overview 8

2.2. Hospitality industry 9

2.3. Tourism and Hospitality Development in Ethiopia’s 11

3. PROFILE OF PROMOTER 13

3.1. Promoter Profile 13

3.2. Ambition of Building Modern Commercial Mall 14

4. GENERAL DESCRIPTION OF THE PROJECT AREA 15

4.1. Location 15

4.2. The Significance of the Project 15

4.3. Natural Resources Potential of the area 16

4.4. The physical Characteristics and Socio Economic Activities 17

5. PROJECT DESCRIPTION AND JUSTIFICATION 20

5.1. Project Rationale 20

5.2. Vision, Mission and Objectives 21

5.3. Capacity Utilization and Service delivery Programme 22

5.3.1. Service Capacity 22

5.3.2. Service Delivery Programme 23

5.4. Material and Input 24

4.5. Machinery and Equipment 25

4.5.1. Source of Technology 25

4.5.2. Engineering 27

5.5. Inventory 27

5.6. Depreciation schedules 27

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6. MARKETING ANALYSIS 29

6.1. Overview of Marketing 29

6.2. Market Analysis 29

6.3. Marketing Service Cycle 30

6.4. Target Customers 31

6.5. Competitor 31

6.6. The Potential Demand, Supply and Market Gap 33

6.7. Promotion Strategy 34

6.8. Pricing for service and products 36

6.10. Sales Forecast 36

7. LAND USE PLAN AND CIVIL WORK 38

7.1. Location 38

7.2. Structure and Civil Work 38

8.PROJECT IMPLEMENTATION SCHEDULE 40

9. ORGANIZATION AND MANAGEMENT 41

9.1 Organizational Management 41

9.2 Organizational Structure 41

9.4. Duties and Responsibilities Management 42

9.5. Manpower Requirement 43

9.6. Training Requirement 44

9.7. General and Administrative Expense 45

9.7. Pre-Operating Expense 45

10. FINANCIAL REQUIREMENT AND ANALYSIS 46

10.1. Financial Assumption 46

10.2. Total Initial Investment Cost 47

10.3. Working Capital 47

10.4. Source of Finance and Loan Repayment 48

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 10.4.1. Source of Finance and Contribution 48

10.4.2. Loan Repayment Schedule 48

10.4.3. Collateral, Loan term, Interest Rate and Grace Period 49

10.6. Financial Statements 50

5.6.1. Projected Income and Loss Statement 50

10.6.2. Projected Cash Flow Statement 51

10.6.3. Projected Balance Sheet 52

10.7. Financial Analysis and Evaluation 54

10.8. Sensitivity Analysis 56

11.1. Socioeconomic Considerations 58

11.2. Project Risk and Assumption 58

11.3. Conclusion and Recommendation 60

11.3.1. Conclusion 60

11.3.2. Recommendation 60

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EXCUTIVE SUMMARY

1. Project Name 3 star Hotel

2. Project Owner Obbo Lemessa Bote Lebeta

3. Nationality Ethiopian

Oromia National Regional State, Adama City

4. Project location administration

5.Premissess Required 7,500m2

Accommodation and Hostility Service

6.Project Composition

The project creates employment opportunity

for 203Individuals. From them 171 and 32
7.Employment Opportunity would be skilled &unskilled respectively. All of
them are permanent.

ETB 67.85 million from this amount 30%

(ETB 20.35 million from owner equity and
8.Total Initial Investment Cost
70% (ETB 49.49 million) from bank loan.

Provide better benefits for creation of

employment opportunities, source of income,
9.Benefits of the project for the benefited local community and stimulates
city, region/country Adama city administration and Surrounding
economy.

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1.INTRODUCTION

Three-star hotels provide a variety of specialized facilities and services, such as

personalized concierge assistance, refined dining options, numerous swimming pools
and hot tubs, premium fitness centers, professional porter services, prompt room
service, convenient valet parking, indulgent day spas, luxurious limousine
transportation, and a diverse selection of exclusive suites.

A hotel refers to a lodging facility that offers temporary accommodation to

individuals for a specified period of time, typically overnight, in exchange for a fee.
Reservations are generally required prior to check-in. The hotels are equipped with
state-of-the-art infrastructure and amenities, providing tourists with a superior
quality of accommodation and dining experience. The establishment cordially greets
its client base, with a particular focus on those who hold prominent positions
within the upper echelons of the corporate world.

The hotel industry reveals exemplary growth and stands as one of the most rapidly
expanding sectors of the contemporary economy. The hospitality sector represents
a thriving and expanding business, with a significant contribution to the economy,
amounting to billions of dollars. The opportunity presented is characterized by
constant stimulation, devoid of monotony, and positioned to provide boundless
prospects. The hotel industry presents a wide array of occupational specializations
that enable individuals to engage in areas of personal interest while maintaining
employment within the field. This phenomenon transcends beyond the boundaries
of Ethiopia and can be observed at the global level. Contemporary lodging
establishments offer sophisticated amenities to their patrons. The prevailing belief is
that the patrons or visitors hold a certain level of authority and are always
justified in their opinions or judgments. The application of management principles
in the hotel industry was necessitated by this principle, leading hotel professionals
to recognize the significance of marketing principles in effectively managing the
hotel industry. The Ethiopia.co Hotel is an establishment that offers
accommodation to travellers and other revenue-generating guests, along with
supplementary services such as meals and other amenities. The establishment offers
6
remunerated accommodation, traditionally for a brief duration. Hotels frequently
offer numerous supplementary amenities for their guests, which may include on-
site dining establishments, laundry facilities, aquatic recreational areas, or childcare
services. Several hotels offer conference services and meeting rooms to promote
groups to organize conventions, functions, and meetings at their premises. Hotels
are ubiquitous across a plethora of urban areas. Accommodation establishments
function continuously, throughout every hour of the day, seven complete days in a
week. The pivotal determinant of guests' attitudes towards a hotel is typically the
quality of service, although various other amenities, including the physical
accommodations, cuisine and drink offerings, also constitute critical tangible

determinants.

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2. PROJECT BACKGROUND OF THE STUDY

2.1. General Overview

Private sector is key in economic development and improving lives, but challenges
remain in achieving inclusive growth and reducing poverty. The private sector can
promote inclusive growth, reduce poverty, create jobs, provide essential goods and
services, and generate tax revenues. The hotel industry has a rich history, evolving
from inns to hospitality (Michael and Richard, 2001).

Tourism has significantly impacted the business. The growth of travel has led to the
development of the hotel industry, including in Ethiopia. Hotels in Ethiopia surge;
accommodation surges, construction improves. Tourist arrivals in Ethiopia grew
from 76,844 in 1989 to 523,438 in 2011 with a target of 1million by
2014/15. Hotel investment returns depend on tourist demand, and this
relationship works both ways. No tourists, no hotels. No hotels, no tourism.

A symbiotic relationship on the supply side. Public incentives can boost hotel sector
investment. Ethiopia has few poor quality hotels, with far fewer international
Three Star options compared to Egypt, Morocco, and Kenya. The Embassy of
Japan in Ethiopia (2008) reported 140,000+ hotels in Egypt, 80,000+ in
Morocco, and 65,000+ in Kenya.

Ethiopia follows an international star rating system for its categorized hotels. In
2009, Ethiopia had 426 hotels, but current data is unknown. Estimating the
number of hotels in 2012: 20% growths from 2009 equals 511 hotels, including
all categories. The hotel industry in Ethiopia has a large gap between demand and
supply. There is a growing need for international three-star hotels. As inbound
tourism rises, opportunities arise in the hotel industry.

Boosting the quality and quantity of accommodations is crucial for sector

competitiveness. Hotel construction is vital for better quality accommodations and
economic growth. The Ethiopian hotel sector is increasingly privatized due to rapid
private sector hotel building. The state still controls many top assets in the hotel
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industry, but there are good reasons for gradual privatization. Hotels can connect
other industries to local markets. Hotels connect with other sectors like agriculture,
restaurants, handicrafts, infrastructure, and trade.

Ethiopian hotels prioritize buying locally. Hotels can improve other sectors by using
their purchasing power and acting as an interface. This will reduce poverty and
contribute to growth. Better banking and customs procedures will also help the
economy. The hotel industry needs government and private banks to commit
funding. It has potential for growth and warrants loans from financial institutions.
The hotel stock in Ethiopia has surged recently with improvement and new
construction at major attractions.

The presence of international organizations in Addis Ababa has increased the

demand for hotels. Many new hotels are under construction due to the
government's initiative and the rise in demand. The hotel industry creates jobs and
reduces poverty, benefitting tourism and related industries. Industry services are
crucial for developing hospitality to tourists and business people.

The Ethiopian government recognizes the significance of tourism through its

ministry reforms. The Tourism commission became the Ministry of Culture and
Tourism (MoCT) in 2005, taking on responsibility for cultural issues previously
handled by the Ministry of Youth and Sports. Tourism is a key economic driver in
Ethiopia and the third biggest source of foreign currency. In 2005, only 230,000
tourists visited Ethiopia, much fewer than other African countries. Despite having
more World Heritage sites than Egypt, they are not utilized to their full potential.
GOE's initiative will boost future industry growth with tourism stats from MoCT
following UNWTO standards. No analysis of tourist trends to plan infrastructure
for future development.

2.2. Hospitality industry

The hospitality industry is part of the pioneering tourism business. This industry
provides travel services including lodging, dining, and leisure activities for travelers

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for various reasons. The hospitality industry creates jobs and boosts foreign
exchange through tourism spending.

Hotel offers short-term paid lodging with varying room options including modest
to luxurious amenities such as bigger beds, dressers, refrigerators, flat screen
televisions, and en-suite bathrooms. Cheap hotels have limited services while
expensive ones have more amenities like pools, gyms, spas, and event spaces. Hotels
number or name rooms for guests to identify. The main goal is to provide travelers
with shelter, food, and other services that are typically found in households but not
available while away.

The hotel needs a reception area and 5 bedrooms with en suite bathrooms. Hotel:
Accessible 24/7. Restaurant: Serves breakfast and dinner daily. The hotel needs a
liquor license and serving area. It should meet 3-star standards for cleanliness,
maintenance, hospitality, facility quality, and service. Registered guests have 24/7
access without a key. Restaurant opens at least 6 days/week with bar snacks or
more. Hotel must have nearby restaurant with 24/7 room service including cooked
breakfast and dinner.

A good hotel must have comfy rooms with essential amenities like coffee maker,
cable TV, hair dryer, and a cozy bed, making it convenient for travelers. Unique
hotels offer an authentic experience through their architecture, location and extras.
Hotels get star ratings to indicate their level of service and enable trust in trade.
Hotels are categorized on a 1-5 scale, with 1 being the lowest and 5 being the
highest standard. Services, facilities, and concepts must match the star rating.

A Luxury Hotel offers luxurious accommodation without standard ratings. 3-star

hotels provide deluxe service and experience for guests, with high-quality design
and a larger range of facilities than budget options. Some 4-5 star hotels may also
dub themselves as "luxury." Hotels near city centers offer amenities like dining,
GYMs, and pools to please guests. 3-star hotel amenities: Meeting Hall, Banquet
Hall, Auditorium, Bar, Restaurant, 24Hr Reception, and Laundry. Public areas
have 24/7 reception, valet parking, room availability, F&B packages,
heating/cooling, lobby seating, and clean restrooms.
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Hotel rooms should have: under lit bed, local travel guides, clean towels, hammock,
Wi-Fi, showerhead with speaker. 4-star hotels have better amenities. 3-star:
Multiple room, restaurant, gym, and conference/business options. On-site bars,
swimming pool, crèche, and concierge services also available.

Ethiopia, in the Horn of Africa, boasts unique historical and cultural heritage,
stunning scenery, cool climate, diverse wildlife, notable archaeological sites, and
friendly people. It's also the hub for African Union and other international
gatherings. Ethiopia's growing role in Africa has led to an increase in international
organizations and personnel. This creates a demand for high-quality
accommodations, which is expected to continue. Tourism in Ethiopia is rapidly
growing, with hotels increasing significantly and creating job opportunities while
boosting the service sector. Ethiopia attracts many visitors each year, generating
economic and social benefits. Addis Ababa hotels are crucial for tourism growth.
With increasing demand from diplomats and corporate clients, hotel groups there
are expanding rapidly. By 2020, Ethiopia aims to be a top five tourist destination
in Africa (AHA, 2014).

2.3. Tourism and Hospitality Development in Ethiopia’s

The tourism and hospitality industry is a highly profitable, albeit initiatively

precarious, sphere of trade. The issue of sustainability necessitates extensive
expertise and proficiency. It is imperative to emphasize the practicality of
philosophical approaches concerning various issues such as human behavior,
economics, finance, management, culture, and political ideology. This chapter
provides a critical assessment of trans-disciplinary approaches that can facilitate
responsible stakeholders in undertaking remedial actions and making informed
decisions for sustainable growth and development in Ethiopia.

The present paper elucidates crucial yet advantageous measures that necessitate a
prompt invocation for the enhancement of tourism and hospitality in Ethiopia. It is
essential to underscore that a destination should not prioritize decline over
rejuvenation. Expert reliance on technology can enhance profitability and optimize

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utilization of local resources to maintain a sustainable tourism and hospitality
enterprise. In summary, a dynamic and integrative approach utilizing growth and
development factors across various disciplinary boundaries has the capacity to
challenge and potentially supersede the prevailing hegemonic paradigm in the
Ethiopian tourism and hospitality industries.

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3. PROFILE OF PROMOTER

3.1. Promoter Profile

I entered the world as the offspring of Obbo Bote Lebeta and Adde. Workitu Daksa
has been present since the year 1978 according to the Ethiopian calendar. As a
person, I feel fortunate to have the opportunity to be in a marriage and have been
given the responsibility of raising three children.

After earning a Bachelor's Degree in Tourism Management from the University of

Gondar in 2001 E.C, the individual was hired by the Shashamane Culture and
Tourism Office and worked there conscientiously from 2002 to 2004 E.C. For more
than 10 years, I have held diverse job roles at Haile Hotels and Resorts up until now.

At the moment, I am serving as the General Manager at the Adama branch of Haile
Resort. My interest in investing in this enterprise stems from the fact that most
shopping malls in Adama do not meet current standards and are therefore not the
preferred shopping destinations for city shoppers.

Frequently, hotels provide an array of amenities, such as housekeeping, laundry,

and guidance from a concierge. It's possible that you could discover a hotel offering
a mouth-watering breakfast spread. Despite the fact that hotels provide fewer
amenities compared to apartments or Airbnbs. Typically, these hotels possess
increased elegance and comfort compared to their one and two-star counterparts,
while also boasting an extensive spectrum of offerings and conveniences such as
exercise facilities, swimming pools, business-oriented facilities, in-house dining,
room delivery, meeting places, and personalized valet provisions.

A hotel, which is widely prevalent in the hotel industry, refers to a facility that
provides overnight lodgings, dining and supplementary amenities. While locals can
make use of them too, these services are primarily geared towards visitors and
tourists. Hoteling establishments offer separate accommodations, typically with
attached lavatories.

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Operating a profitable hotel necessitates a strategic combination of factors, including
location, competitive pricing, superior property quality, effective marketing tactics,
committed workforce, as well as supportive management partners and investors.
Despite being a hotel, generating profit is not automatic and requires a substantial
amount of effort.

Generally, a profitable margin of approximately 10% is considered commendable,

whereas a margin below 5% is considered meager and a margin exceeding 20% is
extraordinarily high. One way hotels can offset a small profit margin is by increasing
their revenue per booking with the use of ancillary revenue and upselling techniques.
To achieve their future goals, the author has developed a collection of skills, qualities,
and previous experiences, while also utilizing various strategies.

The entire project will span across a 7,500 square meters plot and is estimated to
cost around Birr 67.85 million. The promoter plans to bear 30% of the project cost
through equity.

3.2. Ambition of Building Modern Commercial Mall

Based on an initial market analysis, there is a significant customer demand for

commercial malls, but a limited supply means there is a considerable service gap.
Regrettably, there does not exist a fully occupied and contemporary shopping
center within the vicinity. Despite the presence of a few malls in the vicinity, there
is still a significant discrepancy between the demand and supply of commercial
establishments in Adama city.

The service has gained substantial acceptance among diverse groups including
residents of Adama, individuals working in government and private sectors,
tourists, locals and even affluent households to a certain degree. There is a
promising opportunity to establish and sustain contemporary commercial mall
services in Adama and throughout the nation. In the current circumstances, it is
crucial to establish and three star hotel that satisfy to human needs.

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4. GENERAL DESCRIPTION OF THE PROJECT AREA

4.1. Location

Adama City is the highly growing city of infra-structure and urbanization are
developed among other towns of Oromia Regional state. Adama is just situated on
the main road Addis Ababa to Djibouti which is advantage to the port. Currently,
the Adama City Administration is working day and night to expand infrastructures
that were not covered before. This project is very crucial to add aesthetic value and
increase growth of the town. The community of the city and surrounding rural
Kebele will have a chance of job opportunities on permanent and temporary basis,
adaption of new technology. More over the project owner and the government are
benefited from revenue generated. The premises require 7,500m2 of land for the
realization of the project.

4.2. The Significance of the Project

The envisaged project deemed to contribute to the economic development of the

nation in general and the region in specific with following ways:

A. Supply of Quality Service: Lemessa Bote Three star hotel will be providing quality
service at affordable price for local community.

B. Source of Revenue: As public policy of any nation, the government collects

different forms of taxes from different business organizations and individuals. Among
the different forms of taxes, business income taxes, VAT and payroll taxes are
collected from undertaking business activities. Therefore, the factory will serve as
sources of revenue for both the region and nation in general.

C. Employment Opportunity: One of the problems that our country faced is

unemployment. Therefore, the current objective of the government is working on
tackling the problem of unemployment and fostering the development process either

15
through creating self-employment or employment in other organization. Hence, this
factory previously was creating for 203 employments.

D. Benefit for the Local Community: As a corporate responsibility the modern

commercial mall will engage in different development activities on the surrounding
areas (the district). This will better worse the community and contribute for the
development of the region.

E. Stimulate the Local Economy: This modern commercial mall has positive
externality in the city administration/zone that will encourage the economic
movement of local economy. There will be economic relationship and transactions
among different sectors.

4.3. Natural Resources Potential of the area

The city is the center and a place of East Showa Zone and it is one which growing
among the Cities of the country. It is surrounded by rural Woreda and towns of East
Showa Zone. The surrounding rural population is economically based on vegetable
farming (Onion, tomato, Potato), cereal framings, which are: Teff, Wheat, Maize,
Corn, Bean, Pean, Sorghum &etc. and animal rearing, also there is traditional and
small scale irrigation in some district of East Showa Zone. While the urban people
are participating in commercial activities like Trade, shops, laundry, bar and
Restaurant and Cafeteria, an employment for the private, government and NGOs
and etc.

With regard to the construction materials, stones, quarry, and others found near
the project at the vicinity of the City available nearby. In general, these major
resource potentials and prospect of the surrounding initiate any person intend to
invest in the area. The main justifications behind the selection of this location are:

 Strategically located to the central and largest market of the

nation next to (Addis Ababa)

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  Relatively advanced development in infrastructure (Power, Water,
Telephone internet, road etc.
 All road to the nearest market outlets Accessibility of raw
materials and skilled labor force
 Near to the main road to port of Djibouti and Modijo dry port
that will make ease for to import raw materials for the factory
and machines
 Conducive investment policy and governance
 Environmentally fit to steel milling manufacturing
4.4. The physical Characteristics and Socio Economic Activities

A. History
Adama, an old city in Ethiopia since 1917, has served as a center for various
administrations. In 1946, it became the seat of Yarer and Kereyu Awraja and
later, East Shoa Administrative Region. Now, it serves as Oromia National Regional
State/Chefea Oromia's second seat and as a hub for industry, trade, culture, and
conferences. The city is now under the authority of the Mayor and has a city
Administration status, reporting directly to the president of Oromia National
Regional State. Solid waste service began in the early 1960s.
Adama is a busy transport center situated on the Addis Ababa-Dire Dawa road.
Many trucks use this route to go to and from Djibouti and Asseb ports. The Addis
Ababa-Djibouti rail road also passes through Adama. Adama University is in
Adama, with Adama Stadium as the home of Adama City FC. Adama's name
comes from the Oromo word adaamii, which means a cactus or cactus-like tree,
specifically Euphorbia candelabrum. Hadaamii means Indian fig. After WWII,
Emperor Haile renamed the town Nazareth, but in 2000 it was officially changed
back to Adama, yet Nazareth still commonly used.

In 2000, the government controversially moved Oromia's regional capital to

Adama from Addis Ababa amid concerns that it aimed to downplay Addis Ababa's
presence in Oromia.

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The government claimed Addis Ababa was inconvenient for Oromo culture. OPDO
announced plans to move the capital to Finfinne amid Ethiopia's democratic
elections. Opposition parties thought the move aimed to divide them by riling up
non-Oromo residents against Oromia's return to Addis Ababa. But their only
response was to criticize the original move to Adama as a costly and deadly
crackdown on protesting Oromo students. Non-Oromo groups supported returning
Oromia offices to Addis Ababa.

B. Topography
Topography of the city is characterized by flat land that is surrounded by ridges.
The plain land is covered by lacustrine sediments and reworked volcanic, while the
ridges are made of volcanic rocks. The nature of topography has created three
drainage sub catchments. One that drain to Awash river and the others two closed
basins, absence of appropriate drainage network, lack of natural out let and un
planned human intervention have made the city vulnerable to flooding.
C. Geology
The city is built on volcanic rock from a rift, with alluvial and lacustrine sediment
on the floor. The NE-SW tectonic lines in the rift floor form local graben and horst
structures and are rooted by central volcanoes with collapsed calderas. The Boku
caldera is located in the south part of Adama in the MER. The Boku volcano
produces alkaline and per alkaline rhyolite lava and pyroclastic falls, covering
ignimbrite deposits. Major products include rhyolite lava flows, obsidian flows,
pumice falls, and spatter cones with associated basaltic lava flows. After the emission
of these products, the caldera collapsed and formed post caldera products, including
scoria cones and basaltic lava flows. The Boku ridge peaks at 1875m above sea level.
D. Nature of the soil
Sediment of alluvial and lacustrine origin covers the catchment of the city basin. The
laboratory analysis made on the soil samples taken at the bed and bank of the main
canal that drain to the western catchment indicated that the bed of the channel is
covered by sandy soil ( 6% silt and 94% sand) while the bank is covered by sandy
loam soil ( 38% silt and 64% sand).

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E. Rainfall
The rainfall recorded at Adama meteorological station for the past 49 years
(1953-2001) E.C indicated that the average annual rainfall is about 866.25 mm.
most of the rain occurs in the summer season (June to September). Rainfall
intensity data is not available for the city. Thus the data recorded at the nearby
stations of Bishoftu, Kulumsa and Matahara are adopted. Accordingly, the average
of maximum intensity of rain fall in the three stations for the past 27 years (1975-
2002) E.C is about 39.7 mm/hr.
F. Temperature
The mean annual temperature of the city is 21Co. The city temperature can be
classified as semi humid to semi-arid environment, which characterizes the altitude
range between 1300 to 1800m a.s.l. The hottest month with the maximum mean
temperature of 31Co is May. The monthly minimum temperature is Nov & Dec (11.5
Co). The maximum temperature varies between 25.8Co and 31Co while the
minimum monthly temperature varies between 11.5Co and 17Co.
G. Climate
Ethiopia is situated within the tropics and therefore is subject to comparatively
small seasonal variations in temperature, but experiences considerable diurnal
fluctuations temperature. However, the project area shows great seasonal variation
in rainfall and humidity. Most of the annual rainfall occurs between late June and
mid-September. The driest time of the year is usually the months of November to
May.
H. Demographics.

Adama has a population of 220,212 (72.25% increase from 1994), with a

density of 7,374.82 urban inhabitants per 29.86 km². Adama has 60,174
households with an average of 3.66 persons per household, and 59,431 housing
units. The four largest ethnic groups are Oromo, Amhara, Gurage, and Silte,
making up 91.55% of the population. 59.25% spoke Amharic, 26.25% spoke
Oromiffa, and 6.28% spoke Guragiegna. 63.62% practiced Ethiopian Orthodox
Christianity, 24.7% were Muslim, and 10.57% were Protestant. In 1994, this
town had 127,842 people with 61,965 males and 65,877 females.

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5. PROJECT DESCRIPTION AND JUSTIFICATION

5.1. Project Rationale

Tourism involves enterprises that provide accommodation, food, transportation,

and services for visitors staying more than 24 hours but less than a year. Same-
day guests stay for less than 24 hours. Two types of tourists: domestic (inside the
country) and international (from another country). Domestic tourists boost
lodgings amid a decrease in international visitors. Business hotels must meet
location, service, technology, dining, and leisure standards, including competent
personnel and conference amenities.

Three stars hotel is a high-class hotel with services including bedrooms, catering,
meeting rooms, pools, spas, sports facilities, and entertainment venues. It
generates revenue for local economies through tourist spending. Tourism benefits
economies through retail purchases and hospitality services for travelers.
Hospitality is crucial for trips and business, and comprises five segments: food,
lodging, travel, tourism and recreation. Segments often interconnect, like a hotel
with a restaurant, theater and shop.

"Figure 5.1 shows the tourism industry network. Hotels now provide both lodging
and dining services." The hotel bedroom is the primary function, with additional
services like recreational facilities and meeting rooms. Non-residents can access
various facilities at the 3-star international hotel, including catering, meeting
rooms, sports facilities, and more. The promoter wants Adama city Administration
to approve a 7,500m2 plot for a 3-stars hotel project.

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Fig 5.1: of the Tourism Industry

5.2. Vision, Mission and Objectives

i. Vision: Provide globally sounds Hotel and Tourism service through continuous

improvement.

ii. Mission: Through proving quality service to our customers and maximize the

wealth of the promoter.

A. Economic Mission: operate and grow at a profitable rate through

sound economic decisions.

B. Service Mission: Provide customers the finest quality service in the

most efficient time.

C. Community Mission: provide community support through

community development involvements

iii. Objective

The promoter is planning and takes into consideration to address the following
objective:

 To generate a continuous income by giving rental service for the next twenty
years and to maximize her wealth.
 To solve the problem of accommodation and hospitality in the city.

21
  Create employment opportunity to a number of man powers during
construction and in operation period, so that it will benefit the surrounding
population in double phase. One of the problems that our country faced is
unemployment. Therefore, the current objective of the government is
working on tackling the problem of unemployment and fostering the
development process either through creating self-employment or
employment in other organization. Hence, this 3 star Hotel will hire around
230persons
 Generate revenue for the government which will be collected in different
form of tax and land rental payment which contributes much for the national
economy.
 As a corporate responsibility the company will engage in different
development activities on the surrounding areas (the district). This will
better worse the community and contribute for the development of the
region.
 This hospitality business has positive externality in the zone that will
encourage the economic movement of local economy. There will be economic
relationship
 Provide quality services at fair and equitable price, as well as contribute to
the development of tourism in the country and transactions among different
sectors.

5.3. Capacity Utilization and Service delivery Programme

5.3.1. Service Capacity

The project expansion will be completed within two to three years. Therefore, the
project completed at capacity utilization 75%, 85% and 100% respectively. Full
service provision shall be attained at the end of third year and then after.

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5.3.2. Service Delivery Programme

The proposed service provision program is shown in Table 5.1 below. Lemessa Bote
3 star hotels service is classified hotels are preferred 25% (for foreign) and 75%
(local) tourists providing hostility service.

Analyzing tourist accommodations, both Ethiopian and foreign, in 3 star

international Hotel, in the dynamic, we observe a steady upward trend, which
shows that the demand for high quality accommodation services is growing in
Ethiopia.

For this reason we believe that it is now appropriate to build a Three Star Hotel in
Adama, its connection to Rift Valley can be a major advantage especially for both
local and foreign tourists. Given the hotel’s location, we believe that it may have an
optimal number of 40 rooms, of which: 3 room’s swift type, 32 standard rooms,
4double rooms and 1 presidential executed bedroom.

 Three Conference rooms; one large and two mini meeting hall
 Walkways, gardens, green spaces for relaxation; internet access
 Laundry and ironing services;
 Staff for the supervising of children / elderly;
 The organization of banquets, receptions, formal dinners, weddings;
From the market study, it is observed that there is a great demand gap between
the demand and supply of international tourist Three Star Hotel service. Therefore,
taking in to account the market study and economic scale of service provision the
envisaged tourist 4Star Hotel will have capacities as shown below in table 4.3
below.

Table 4.3. Service capacity of the envisaged international tourist 3 star Hotel
annual
Sr. No Type of service measurement working days daily weekly monthly annually
capacity utilization
cultural Restaurant
1 Service person 360 80 560 2240 26880

23
 2 bar service person 360 60 420 1680 20160
3 café person 360 70 490 1960 23520
4 Bed Room Service person 360 58 403 1613 19354
4.1 family-bed room-8% person 360 4 29 116 1393
4.2 standard -bed room 75% person 360 43 302 1210 14515
4.3 twin-bed room 17% person 360 10 69 274 3290
5 Assembly Hall person 360 3 12 144
6 Gymnasium person 360 0 60 720
7 Swimming pool person 360 20 140 560 6720
8 children playing game person 360 30 120 1440
sauna/steam bath and
9 spa person 360 30 210 840 10080

total 375 2,656 10,685 128,216

5.4. Material and Input

A. Raw Materials
The annual cost of service and list of raw materials are indicated in Table 4.4
Table 4.4 annual materials and consumable requirement at full service capacity
estimated birr 38.79 million.

Unit PurchaseAmount (ETB)

Sr. No Description Quantity price(ETB) Full capacity 70% 85% 1.00
1 Raw materials
1.1 Meat 15,073 400.00 6,029,072.01 4,220,350.41 5,124,711 6,029,072.01
1.2 Eeg 4,604 5.00 23,020.40 16,114.28 19,567 23,020.40
1.3 Pasta 4,589 35.00 160,620.12 112,434.09 136,527 160,620.12
1.4 Vegetable 2,295 30.00 68,837.20 48,186.04 58,512 68,837.20
1.5 Flour 325 27.00 8,761.54 6,133.08 7,447 8,761.54
1.6 Others 1,422 20.50 29,159.28 20,411.49 24,785 29,159.28
1.7 Different spices 20% of RM LS 1,719,250.00 1,203,475.00 1,461,363 1,719,250.00
Sub Total 8,038,720.54 5,627,104.38 6,832,912.46 8,038,720.54
2 Beverage - -
2.1 Soft Drink(create) 678 259.20 175,757.49 123,030.25 149,394 175,757.49
2.2 Botteled Water(dozen) 2,965 50.40 149,414.43 104,590.10 127,002 149,414.43
2.3 Beer(create) 1,215 237.60 288,777.70 202,144.39 245,461 288,777.70
2.4 Wine(create) 2,179 3,600.00 7,842,685.50 5,489,879.85 6,666,283 7,842,685.50
2.5 Wiskey(bottle) 15,383 1,440.00 22,151,020.32 15,505,714.22 18,828,367 22,151,020.32
2.6 other alchols(create) 1,282 114.00 146,135.20 102,294.64 124,215 146,135.20
Sub Total 30,753,790.65 21,527,653.45 26,140,722.05 30,753,790.65
Grand Total 46,480,958.86 27,154,757.84 32,973,634.51 38,792,511.19

B. Utilities

The utilities required for the service provision are electricity for lighting, for
running of facility and equipment, and cold water for all services available,
24
gardening, drinking, etc. The hotel also needs telephone for both local and
international communication including Internet service and LPG gas for various
kitchens, diesel and petrol fuel for diesel generators and for running vehicles. Based
on past trends of utilities consumption by the existing facilities of similar hotels,
the annual requirement of utilities by the envisaged international tourist Three
Star Hotel is estimated at ETB 1,069,000.00. The details of the utilities required
with their corresponding annual cost is shown in table 4.4 below

Table 4.4: utilities requirement and cost

Sr./No Description Unit of Measurement Qty Unit Cost Total Cost

1 Electricity Kwh Kwh 300,000 0.55 165,000.00
2 Water m3 50,000 10.00 500,000.00
3 Diesels lit 25,000 16.00 400,000.00
4 LPG lit 250 16.00 4,000.00
Total 1,069,000

4.5. Machinery and Equipment

4.5.1. Source of Technology

The technical data has been complied by visiting the existing standard Lemessa
Bote 3 stars Hotel with in Adama and discussion with various professionals in
similar fields and review of technical documents about the international tourist
Three Star Hotels.

i. Bedroom
The hotel will have bedrooms and will offer versatile services and facilities, of the
total 40 rooms, 4 will be double rooms, 32 standard rooms, 4 luxuries room and
1presdencial executed. Bedrooms will be more spacious allowing ample and
generous ease of movement, comfort and relaxation for guests. Among the features
of the guest rooms the major ones are:

 Rooms of excellent quality both smoking and non- smoking, and with
luxurious standard of furniture, wall coverings quality paintings and
excellent quality floors,

25
  Rooms with absolutely minimal internal and external noise levels,
 Very good quality beds with superior head board or similar,
 Multi-channel color TV with remote control for watching local and
international news, movies, sports, and music and guest charge systems. In
addition to terrestrial channels video channels would be included,
 Private bath and shower room, all bath rooms equipped with an excellent
quality of sanitary wares and fittings,
 Newspaper and magazine,
 Radio with several channels,
 Hot and cold water,
ii. Bar and Restaurant
 Bar: The bar will provide in-house and terrace food and beverage services
.Its total capacity is estimated to be 60 persons at a time.
 Restaurant: Two restaurants one modern and the other traditional with a
capacity of 200 at a time each will be established. The restaurants will
basically serve breakfast, lunch and dinner by providing daily menu, weekly
buffet, and other choices of customers.
iii. Multipurpose Assembly Hall
The proposed capacity of two multi-purpose assembly hall is 100 seats each. The
hall is planned to accommodate and serve multiple purposes. It can be used for
multi-purpose activities by rearranging of seats and adding appropriate facilities
on time and site. The hotel has various options to use available rooms such as for
conventions, wedding services, training, workshops, and others other public
gatherings.

iv. Laundry Center: The laundry center provides in-house cleaning service to
bed room, and sauna/stem bathrooms by providing clean towels, linens,
covers and uniform of the employees with the required time and quantity.
The main processes of laundry center are sewing (if any), washing, and
squeezing drying, folding and pressing.
The laundry center will have a daily capacity of providing 200 clean sets of towels,
300 sets of linen and cover 100 sets of uniforms and other miscellaneous items.

26
4.5.2. Engineering

I. Furniture
The total cost of hotel fixed and mobile Furniture as the Performa invoice
estimated as preform Birr 36,279,746.25

II. Generator and Transformer

Sr. No Description Quantity unit price Amount
1 Generators 1 1,250,000.00 1,250,000.00
2 Transformer 1 750,000 750,000.00
Total 2,000,000.00
III. Vehicles
The Vehicles will be bought in duty free as investment insensitive given to investor.
Then the promoter will be planning to buy two vehicles as a lump sum birr 4.10
million (on duty free).

Sr. No Description Unit Qty. Unit Price Total Amount

Double pickup 4 wheel Toyota
1 2022 No 1 2,850,000.00 2,850,000.00
2 Service Mini-Bus No 1 1,250,000.00 1,250,000.00
Total 4,100,000.00

5.5. Inventory

Inventory is valued in average inventory method. The Inventory re-ordered point is

re-order when stock balance reach 40% and ending inventory presented in
financial statement 10% of purchase.

5.6. Depreciation schedules

The organization use stright line method of deperciation that described in table 5.4
below.

27
Table 5.4: Deperciation schedule
Sr. No Description Book Value Dep. rate Dep. Amount

1 Hotel Building 36,279,746.25 5% 1,813,987.31

2 Hotel Equipment and furniture 22,655,212.94 10% 2,265,521.29
3 Vehicles 4,100,000.00 20% 820,000.00
4 Stand by Generator and Transformer 2,000,000.00 10% 200,000.00
5 Pre-Operating Expense 1,321,666.67 10% 132,166.67

6 Total 11,838,986.19 5,231,675.27

28
6. MARKETING ANALYSIS

6.1. Overview of Marketing

Marketing: Selling the right product in the right place at the right time and price,
or meeting needs profitably. Marketing is exchanging goods and services for money.
Hospitality is a growing multibillion dollar industry globally. This sector dominates
Ethiopia's economy with various components like food service, tourism, and hotels.
The hotels include restaurants, lodging, transportation, cruise lines, theme parks,
events, and more. Hotels offer services from luxury to budget for clients, but others
also profit such as tour operators and travel agencies. Hotels benefit people through
rooms, restaurants, travel services, and more, which generate revenue.

In Ethiopia, hotels are classified based on features and facilities offered, such as five
star deluxe, five star, 3 star, two star, one star, and heritage hotels due to intense
competition. Ministry of Tourism in Ethiopia classifies hotels. Many international
giants are entering the market. Hotels are entering Ethiopia through joint
ventures, management contracts, or franchise acquisition, due to the country's
diverse attractions that draw tourists locally and globally. Hotels adapt to new
tech & tourism segments like medical, cruise & casinos due to tourist potential.
Adama, Ethiopia is a prominent state for growth in economy and hospitality.
Adama's top hotels draw repeat tourists. Expanding economy brings numerous
business travelers to the state, offering a broad array of hotels to meet every
customer's needs, from ultra-luxury to budget accommodations. Due to high
demand, many companies target Ethiopia. Standalone hotels must develop and
compete with effective marketing. To succeed in the market, hotels need to
differentiate and gain a competitive advantage through effective methods.

6.2. Market Analysis

Adama is the strategic proximity/ position where the city had been established in
north it is far 100 km from the capital city of Addis Ababa and the second biggest
city, in the South it is the incoming door of Kenya and South East of the country.
29
Adama city administration is well organized infrastructure with road, utilities,
transport service, telecommunication, and Lemessa Bote 3 star hotel provide
accommodation and hostility and the others service in the city. Adama city prefer
by the residence, investor, tourist because of it conducts different conference and
meeting, weeding, social occasional and economic activities throughout the years.

6.3. Marketing Service Cycle

Preparing and administering customer surveys with concern for guest satisfaction,
advertising methods, and incentive promotions.

A. Reservation: Developing and monitoring a reservation system with respect to

ease of access to toll-free numbers, fax, national reservation system, and
telephone manner of personnel handling reservations, cancellations,
accommodation availability, complimentary services and products, and
general information.
B. Registration: Developing and monitoring a registration system with respect to
concern for managing a guest transportation shuttle system, ensuring a first
contact greeting; providing assistance with luggage; organizing an efficient
check-in procedure; maintaining a room status system; processing credit
cards; operating a guest information system that centralizes all
communication between the guest and the hotel about housekeeping, food and
beverage, maintenance, and other hotel departments.
C. Guest stay: Coordinating guest communications with all departments in then
hotel to ensure guest satisfaction in restaurants, lounges, room service, gift
shops, housekeeping services, security, wake-up calls, telephone system, and
guest side availability.
D. Check-out: Developing and providing an efficient check-out system with
respect to coordinating flexible check-out times, providing assistance with
luggage, maintaining in-room video check-out option, monitoring guest wait-
time in line, and providing folio accuracy and printout.

30
6.4. Target Customers

As clearly indicated in the introductory part of this proposal, Adama City is the
dynamically growing town of Oromia regional state government and crossed by
the high way road of Addis Ababa to Adama express way. Hence, the proposed
specific location is found in the direction that the country used the main road for
imported and exported all goods. Thus, it opens an opportunity for reaping the
maximum from very high traffic flow passing through the area. Moreover the
current hotel service in the area cannot fulfill the gap between demand and
supply.

The Adama City administration has been working hard to make the town
attractive to businesses and will create additional foot traffic. The owner believes
that the new location will be a big player in the area because of the new gas with
commercial service will encourage potential customers to stop in and visit the area.
Therefore, the target customers of this envisaged hotel include:

 The residents of the Adama City and surrounding populations.

 Long distance drivers
 The different occasional guests
 The government officials
 Traders and merchants coming to the city
 Individuals all over the country who are passing through and takes rest.
 The target customers visitors travelling to the area local or foreigner, local
community, middle and upper income bracket, returning visitors to the
area, business needing to hold small overnight planning, strategy sessions,
wedding parties/couples.

6.5. Competitor

There are different forms of competition that may face the envisaged Lemessa
Bote Hotel 3 star International Hotel. These are price and non-price based
competition. Moreover, there are different competitors that will compete with the

31
project either directly or indirectly. But the hotel under construction under
discussion has diversified marketing strategies that could enable it come up with
the different competitors in the market. Moreover, it will frequently conduct
competitors research which focuses on, the strength and the weaknesses, the
different competitor’s strategies, the techniques they use in rendering quality
service, their customer handling methods, use time appropriately; and others.
Generally the business has encountered few competitor in which competes with it.

The envisioned 3 star hotels will have a competition from much similar service
rendering in Adama city. However, the project understudy will have its own
marketing strategy to sustain in the market by designing different competitors
wining strategies its competitive basically service quality and the price that
charging for its service delivery that affordable by its customers advantages to be
successful. Some of the competent to Lemessa Bote 3 star hotel in delivering
hostility and accommodation service in Adama city is presented in the next table
6.1 below.

Table 6.1: Major competent of Lemessa Bote 3 star hotel International Hotel

No List of Competitor Institution Their no.(Quantity)

1 Hotels 138
2 Cafes and teahouse 281
3 Restaurants 286
4 Bars 93
5 Pension 178
6 Cinema halls 3
7 Night clubs 12
8 Parks and recreation center 5
9 lodge 1
Source: Adama city cultural and Tourism office report 2017

32
6.6. The Potential Demand, Supply and Market Gap

A relative increase of investment is recently observed in the hotel and tourism

sector. The hotel industry consists of many different services, including
accommodation, restaurants, and cafes and catering. The market for the hotel
industry, especially classified hotels in a developing country like Ethiopia, is closely
linked to the tourism industry, because a majority of consumers for the sector
services come from international tourists.

The Inbound Tourist Arrivals in Adama continued to grow from 601,558 in 2007
E.C, to 115,000 and reaching 779,035 in 2010 E.C. During the year 2010,
Ethiopia witnessed a positive tourist growth of 9 % over 2009 E.C. The compound
annual growth rate in Inbound Tourist Arrivals in Ethiopia during 1989 to 2011
was 9.7%. Source: from the computation estimated by office of cultural and
tourism minister. There exist many demand factors for better resort services in
Ethiopia as well as in Adama City. The main factors for rising in demands are;

 The city to be a center of trade, conference, tourism and industries

 Fast Economic Growth & economic growth/activity of the district
 Fast Population growth and density,
 Conference, Tourism , trade and industries center of the city
 The location of the city and accessibility for transportation and its
infrastructure
 High development of infrastructures and transport accessibility to the city
and within the city
According the report of Adama City cultural and tourism office June 30, 2018
annual report the flow of tourist is increasing by 9% whereas the accommodation
stock of bed room is increasing by 5% and the existing gap as per the annual
report of the Adama City cultural and tourism office is 85.6% which very high gap
and motivate the investor to join to investing in hostility business. The next table
shows the demand; supply and gap of hostility service existing capacity from year

33
(2007-2010E.C) and demand projection of 10 years (2011-2020 E.C) of the
Adama City showed in table 6.2 below.

Table 6.2: Tourist inflow, supply of bedroom and the demand gap of tourist of
Adama City from 2007E.C to 2020E.C
Annual Supply of
Year E.C Annual No of tourist Arrive accommodation Demand Gap
2007 601,558 324,192 277,366
2008 655,698 372,821 282,877
2,009 714,711 428,744 285,967
2,010 779,035.00 493,056 285,979
2,011 849,148.15 537,431.04 311,717
2,012 925,571.48 585,799.83 339,772
2,013 1,008,872.92 638,521.82 370,351
2,014 1,099,671.48 695,988.78 403,683
2,015 1,198,641.91 758,627.77 440,014
2,016 1,306,519.68 826,904.27 479,615
2,017 1,424,106.46 901,325.66 522,781
2,018 1,552,276.04 982,444.97 569,831
2,019 1,691,980.88 1,070,865.01 621,116
2,020 1,844,259.16 1,167,242.86 677,016
Source: Adama city cultural and tourism office 2010E.C annual report and own computation
Moreover, Adama city bed room distribution and types of bedroom by the same
source(Adama city cultural and tourism office 2010E.C) the total bed room that
the city have 1712 in number which is very low compared to the current existing
demands.

6.7. Promotion Strategy

A. Promotion Strategy

Promotion is vital in hotel marketing, with internal marketing recognizing the

importance of employee-customer interactions. EMPHASIS is on customer contact
employees to deliver marketing promises. HR managers use marketing to recruit

34
good communicators for hotels. Good service is crucial for customer happiness,
starting with product promotion. Staff who interact with customers are important
for providing the expected product. Motivated employees boost service quality via
internal marketing for top skills. Prefer employees with good service attitude - it
can't be taught. Short term training given after hiring, followed by induction
training for success. Training and career growth are essential in hospitality.

Incentives and rewards drive employee performance. Employees receive tangible

and intangible benefits such as bonuses, tips, free meals, excitement, fun, and
teamwork. Good feedback motivates employees for high service quality. Distribution
channels come with costs. 5.

B. Internal marketing

Promotion is key in a hotel's marketing mix. Internal marketing acknowledges the

significance of employee-customer interactions. Customer-contact employees are
emphasized in delivering pre-encounter marketing promises. Hotel HR managers
use marketing to recruit good communicators. Quality service is key for customer
satisfaction, beginning with product marketing.

Customer-contact employees play a vital role in delivering the promised product.

Motivated employees improve service quality. Internal marketing aims to acquire
top professional skills. Employees with innate “right service attitude” are preferable
as attitude cannot be taught. Once an employee is hired, short term training is
provided prior to the hotel's operation, followed by on job trainings called induction
training, which significantly impacts the overall success of the hotel. Continuous
training and career development are key to success in the hospitality business.
Incentive methods and reward systems are in place to motivate employees.
Employees get tangible benefits like bonuses, tips, and free meals. They also get
intangible benefits like excitement, fun, and teamwork. Good feedback motivates
employees to maintain high service quality. Distribution channels often come at a
cost, such as commissions.

35
6.8. Pricing for service and products

Organization prices are determined based on competitor pricing, market supply

and demand, sales volume, inflation, and all relevant factors. Here are Lemessa
Bote 3 star hotel's prices. In find prices for Lemessa Bote 3 star hotel services and
products ranges from Birr 75 to 6750.

6.10. Sales Forecast

A. Quantity Sold

Based on the service capacity of the hotel capacity from year one to the Revenue
that will be collected for the next ten years is projected in the next table 6.5
below.

Table 6.3. Quantity of service that will be sold by hotel

Quantity sold
70% 85% 100%
Sr. No Description Full capacity Yr-1 Yr-2 Yr-3-15
1 Food Item
1.1 Cake 487 341 414 487
1.2 Barger 8,152 5706 6929 8,152
1.3 Club sandwich 8,249 5775 7012 8,249
1.4 Pizza 3,709 2596 3152 3,709
1.5 Traditional and cultural food
1.6 Fried meat 24,250 16975 20613 24,250
1.7 Arusto 13,112 9178 11145 13,112
1.8 Pastalfurno 13,112 9178 11145 13,112
1.9 salads 13,112 9178 11145 13,112
1.1 other 8,128 5690 6909 8,128
2 Beverage 0 0 -
2.1 Hot drink 5,271 3690 4480 5,271
2.2 Soft drink 16,274 11392 13833 16,274
2.3 Bottled Water 17,787 12451 15119 17,787
2.4 Beer 29,169 20419 24794 29,169
2.5 Wine 26,142 18300 22221 26,142
2.6 Whiskey 15,383 10768 13075 15,383
2.7 Others alcohols 15,383 10768 13075 15,383
3 Bedroom & Assembly Hall
3.1 Swift 720 504 612 720
3.2 Single 6,480 4536 5508 6480
3.3 Double 1,440 1008 1224 1440
3.4 Prudential Executed 240 168 204 240
3.5 Hall
3.5.1 Hall-big 96 67 82 96
3.5.2 Hall-Small 192 134 163 192

36
B. Sales Amount

The capacity utilization will be increased by 15% from year one to three and 5%
afterward. Table 6.7 below showed the sales forecasted from year one to three.

Table 6.5: Sales forecasted from year one to fifteen.

Sr. No List of Beverage Yr-1 Yr-2 Yr-3 Yr-4 Yr-5

1 Hot Drink

1.1 Tea 96,390.00 112,455.00 128,520.00 144,585.00 160,650.00

1.2 Coffee 275,400.00 321,300.00 367,200.00 413,100.00 459,000.00

1.3 Milk 55,080.00 64,260.00 73,440.00 82,620.00 91,800.00

1.4 Makiyato 229,500.00 267,750.00 306,000.00 344,250.00 382,500.00

Sub Total 656,370.00 765,765.00 875,160.00 984,555.00 1,093,950.00

2 Cold Drink

2.1 Soft Drink 826,200.00 963,900.00 1,101,600.00 1,239,300.00 1,377,000.00

2.2 Bottled water 826,200.00 963,900.00 1,101,600.00 1,239,300.00 1,377,000.00

2.3 Juice 688,500.00 803,250.00 918,000.00 1,032,750.00 1,147,500.00

Sub Total 2,340,900.00 2,731,050.00 3,121,200.00 3,511,350.00 3,901,500.00

3 Alcohol Beverage

3.1 Wine 5,680,290.00 6,627,005.00 7,573,720.00 8,520,435.00 9,467,150.00

3.2 Bottled Beer 2,726,460.00 3,180,870.00 3,635,280.00 4,089,690.00 4,544,100.00

3.3 Vodka 3,304,800.00 3,855,600.00 4,406,400.00 4,957,200.00 5,508,000.00

3.4 Whisky 15,492,000.00 18,074,000.00 20,656,000.00 23,238,000.00 25,820,000.00

3.5 Rum 301,262.50 344,300.00 387,337.50 430,375.00

3.6 Distilled alcohol 722,960.00 826,240.00 929,520.00 1,032,800.00

Sub Total 32,761,697.50 37,441,940.00 42,122,182.50 46,802,425.00

Grand Total(Birr) 31,078,725.00 36,258,512.50 41,438,300.00 46,618,087.50 51,797,875.00

Bed room & assemble Hall 15,960,000.00 19,380,000.00 22,800,000.00 25,080,000.00 27,588,000.00

Total 47,038,725.00 55,638,512.50 64,238,300.00 71,698,087.50 79,385,875.00

37
7. LAND USE PLAN AND CIVIL WORK

7.1. Location

The development of hotels is inextricably linked with location which is its main
determinant in addition to a right service Programme. An attractive location is
connected with a possibility of both generating income (demand and price level)
and creating costs (availability and production factor costs) and, in consequence,
with economic effectiveness and hotel profitability. Location is of great importance
with reference to hotels which offer is addressed to business tourists who travel in
order to attend various meetings. For the purpose of this project study, Lemessa
Bote 3 star hotels described as ‘business hotels’.

Lemessa Bote 3 star hotel tourist Hotel is located in Oromia National Region State,
Adama city on total area 7,500m2.The new proposed 3 stars Hotel will have
contains the hotel building of different floors and its rooms used for different
purpose. The basement, ground floor, up to 3 star hotels. The location is preferred
because of Economic Overview of Adama and accessibility and Transportation

7.2. Structure and Civil Work

In general Lemessa Bote 3 star tourist Hotel will be capable of being kept clean
and provision should be made for keeping the sewerages drained out properly and
room temperature is attained to keep healthy environment. In most environments,
equipment should be totally enclosed in a light structure: where the climate is
suitable. A concrete floor, which can be swept, is usual and green and recreation
area should be designed and construct based on standard. The engineering cost
estimation of hotel building presented in table 7.1 below.

38
Table 7.1: Engineering cost estimation of hotel building
Total
Sr. No Description Area Cost/area(Br) Amount(Birr)
1 Three Star hotel Building 3,500
swimming pool and related
2 facility 500
3 Office and others hotel facility 500 4,822.40
36,168,000.00
4 Children play games 500
5 Garden and open Space 300
6 Parking and Fence 2,200
7 Advance Land Lease 111746.25

Total 7,500 36,279,746.25

39
8.PROJECT IMPLEMENTATION SCHEDULE

Carrying out projects is a critical aspect of project management and strategic

planning as it can uncover unforeseen problems and difficulties that planners
might not have projected, leading to improvements in the strategies, products,
and processes at the end. Table 8.1 outlines the specific steps involved in carrying
out the project to its final launch.

Table 8.1: The implementation schedule of the project

Sr. No Description Implementation Period

1 Preparing feasibility study April, 2023
Submitting The study for concerned approval gov't
2 bodies May,2023
3 Land Approval May-July, 2023
Land clearing, demolishing and construction of 3 star
4 hotel August 2023 - July 2026
5 Bank Loan Requesting & approval August-September2023
6 Importing machineries, equipment and furniture September –December 2025
7 Soft Opening January,2026
8 Grand Opening June,2026

40
9. ORGANIZATION AND MANAGEMENT

9.1 Organizational Management

Organizing is crucial for achieving organizational goals. It involves dividing tasks,

assigning departments, and delegating authority. Lodging managers must focus on
creating a quality-driven structure. Org structure must achieve objectives and
meet standards. Lodging businesses need a structure that aligns with their
strategy. Managers establish job specialization, organization, authority, and span of
control.

9.2 Organizational Structure

The structure includes all necessary personnel. A manager oversees the Hotel.
Auxiliary units exist under the general manager depending on the center's nature
and workload. The department head supervises employees in each unit and is
accountable to the general manager. Owner appoints GM.

Fig 9.1: Organization Structure of the Lemessa Bote three stars Hotel

41
9.4. Duties and Responsibilities Management

A. General Manager’s

 He/she will plan, organize, direct and control the overall activities of the
Hotel.
 He/she will devise policies and strategies that will enable the Hotel to be
profitable.
 He/she will incorporate modern technological innovation that will facilitate
the service delivery of the restaurant and bars, bed rooms, assembly hall and
gymnasium services that will increase customer’s satisfaction.
 He/she will plan, organize, direct and control the human and non-human
resources of the Hotel so as to achieve the short and long run objectives of
the organization.
B. Hotel Management Department

This is the core department of the project that has five main sections (Restaurant,
Bar and café, Bed Rooms, gymnasium, Assembly Hall service, gardening, game &
recreation area).

The main duties of this department is to render those outlined services of the
section and manage the overall service delivery system of the center in line with
the customer need and satisfaction.

C. Administration & Finance Department

The Admin & Finance Department of the Hotel is responsible for undertaking the
following activities:

 Manage the human resources and control employee’s activity

 Will manage non-human resources of the Hotel, which include: effective
handling of the different inventories of the Hotel, and devise strategies of
controlling against fraud and damage.

42
  Will provide the right material or inventory to the center with right price at
the right time.
 Will plan, organize direct and control the financial transaction of the
building by using all the necessary documents.
 Accountant and cashers that will collect money from the customers.
 Will develop sound financial control system by developing modern financial
control systems.
 Will prepare the annual financial statements and prepare condensed reports
for both the General Manager and other concerned government body.
D. The Marketing Department

 Will handle the overall marketing activities of the organization which

include planning, organizing, directing, and controlling.
 Will develop the marketing strategies.
 Will develop effective customer handling strategies
 Plan and execute the promotion mix
9.5. Manpower Requirement

The total manpower required for the Three Stars Hotel will be 203 persons. The
manpower list and the corresponding labor cost are shown in table 9.1 below.

Table 9.1: List of employee and pay out

No of Monthly Salary Annual Salary

Sr. No Description persons (birr) (birr)
1 Hotel Manager 1 32,500.00 390,000.00
2 Executive Secretory 1 5,000.00 60,000.00
3 Finance And Admin 1 20,000.00 240,000.00
4 Marketing and sales dept. 1 20,000.00 240,000.00
5 Food & Beverage head 1 20,000.00 240,000.00
6 Room Service head 1 15,000.00 180,000.00
7 Accountant Senior 2 8,500.00 204,000.00
8 Junior Accountant 4 5,000.00 240,000.00
9 Cahier 2 3,500.00 84,000.00

43
 10 Reception 3 4,500.00 162,000.00
11 Shave 2 25,000.00 600,000.00
12 Assistant Shave 4 10,000.00 480,000.00
13 Driver 3 5,000.00 180,000.00
14 Guard 6 2,500.00 180,000.00
15 Waiter and Service staff 122 3,000.00 4,392,000.00
16 Massage Expert 6 4,500.00 324,000.00
17 Physiotherapist 2 4,500.00 108,000.00
18 Receptionist 4 2,500.00 120,000.00
19 Assembly hall Supervisor 1 3,200.00 38,400.00
20 Film Project Operator 3 2,500.00 90,000.00
21 Hall Attendant 3 2,500.00 90,000.00
22 Casher 4 2,000.00 96,000.00
23 Cleaner 11 1,200.00 158,400.00
24 Store keeper 2 2,000.00 48,000.00
25 Chief Sheave 1 10,500.00 126,000.00
26 Assistance Shave 2 5,000.00 120,000.00
27 Beauty salon worker-Female 3 2,500.00 90,000.00
28 Beauty salon worker-Male 3 2,500.00 90,000.00
29 GYM Expertise’s 4 5,000.00 240,000.00
Total 9,610,800.00
Employee Benefit 25% 2,402,700.00
Grand Total 203 12,013,500.00
Among the workers 35% are recruited on contractual way and from first to third
years the capacity of human resource utilization would be 75%, 90% and 100%
respectively.

9.6. Training Requirement

Before inter or beginning the hotel operation basic training in relation to service
delivery, finance and human resource management given by external consultancy.
Based on the Human Resource Management (HRM) manuals competent and
Qualified Employee recruited based on hotel operation schedules. The business use
external consultancy regularly which will be advice in service management,

44
financial resource and human resource management. The training cost will be
estimated to birr 275,000.00

9.7. General and Administrative Expense

The organization will be used birr 1,219,288.31 for general and administrative
expense at full capacity presented in table 9.2 below.

Table 9.2.General and administrative expense at full capacity

Sr. No Description Annual Cost in birr Assumption Used

1 Property Insurance 61,879.87 0.1% of fixed Investment Cost
2 Audit & Legal Fee 30,000.00 2500 per month
3 Uniforms 18,000.00 60*300 birr
4 Telephone, fax and postal 30,000.00 2500 per month
5 Cleaning goods supplies 60,000.00 5000 per month
6 Repair and maintenance 30,939.94 0.05% of the Fixed Cost
7 Advertisement 325,758.94 1% of sales
6 Stationery and other office supplies 14,400.00 1200 per month
10 Fuel 259,140.00 12340 lit*21 birr per year
11 Oil and lubricant 25,914.00 10% of fuel cost
12 Lease payment 34,255.56 for 40 years
Trainning 275,000.00
13 Miscellaneous Expense 54,000.00 4500 per month
Total 1,219,288.31

9.7. Pre-Operating Expense

Pre-operating expense includes costs that incurred before operation and consider
as part of fixed investment showed below in table 9.3 below.

Table 9.3: Pre-operating cost

Sr. No Description Amount(Birr)
1 Pre-Operating Expense
1.1 Feasibility Study 25,000.00
1.2 EIA 20,000.00
1.3 Legal Issue 7,500.00
1.4 Auditing fee 15,000.00
Sub Total 67,500.00
2 Interest During construction Period 1,254,166.67
Grand Total 1,321,666.67

45
10. FINANCIAL REQUIREMENT AND ANALYSIS

The total project cost required for Lemessa Bote 3 stars hotel (fixed investment
and working capital) is estimated Birr 67.85 million.

10.1. Financial Assumption

The financial study and analysis for Lemessa Bote 3 star hotel s in the preceding
sections based on the following assumptions presented in table 5.1 below.
Table 10.1: Major assumption for financial study and analysis
Description Assumption taken into Account
Construction and Finance
Construction period left for finishing& Equipping the hotel Less than three month
Tax holiday 3years
Source of finance
Owner Contribution from fixed investment 30%
Bank Loan 70%
Bank interest rate 12.5%
Operating Costs and raw materials Increase by 5% after year 3
Salary and wages benefit and incensement 20% after year 3
Annual Sales revenue increased by 5%- 15% after year 3
Depreciation used method straight line Methods
Building and Elevator 5%
Machinery and equipment 10%
Office furniture 10%
Vehicles 20%
Working Capital:
Raw materials 3 months
Salary and Benefit 3 months
Operating cost 3months
Utility 3 months
Insurance 1 year

46
10.2. Total Initial Investment Cost
The total investment cost is Estimated Birr 67.85 million. The fixed cost of the
project accounts 97% (66.35 million) and the working capital estimated to birr
2.49 million(3%) from the total project cost as it detailed described in table 10.2
below.

Table 10.2: Initial cost of the project

Sr. No Description Total Amount
1 Fixed Investment
1.1 Hotel Building 36,279,746.25
1.2 Hotel Equipment and furniture 22,655,212.94
1.3 Vehicles 4,100,000.00
1.4 Stand by Generator and Transformer 2,000,000.00
1.5 Pre-Operating Expense 1,321,666.67
Total Fixed Investment 66,356,625.86
2 Working Capital 2,494,347.14
Grand Total 67,851,000.00

10.3. Working Capital

Working capital is used to fund operations and meet short-term obligations. If a
company has enough working capital, it can continue to pay its employees and
suppliers and meet other obligations, such as interest payments and taxes, even if
it runs into cash flow challenges. Working capital is a daily necessity for businesses,
as they require a regular amount of cash to make routine payments, cover
unexpected costs, and purchase basic materials used in the production of goods.
Table 10.3 below shows the total working capital amount required for year one.

Table10.3: Working Capital for Year one.

Sr. No Description Total Amount
1 Raw material one months 1,982,393.23
2 Salary & benefit one months 267,984.00
3 Insurance premium for one year 11,838.99
4 Utility for one months 232,130.92
Total 2,494,347.14

47
10.4. Source of Finance and Loan Repayment
10.4.1. Source of Finance and Contribution
The project will be financing 30% (Birr 20.35million) with equity contribution and
70% (Birr47.95 million) through bank loan as it presented in table 10.3 below.

Table 10.3: Fund contribution

Sr. No Description % Amount( birr)
1 Owner Contribution 30% 20,355,300.00
2 Loan 70% 47,495,700.00
Total 67,851,000.00

10.4.2. Loan Repayment Schedule

The loan will be repaid quarterly in installment base for 40 periods in 10 years
(quarterly repayment) presented in table 10.4 below.

Table 10.4: Loan repayment schedule

Pmt. Payment Beginning Scheduled Total

No. Date Balance Payment Payment Principal Interest Ending Balance
1 4/1/2025 47,495,700.00 2,096,501.91 2,096,501.91 612,261.29 1,484,240.63 46,883,438.71
2 7/1/2025 46,883,438.71 2,096,501.91 2,096,501.91 631,394.45 1,465,107.46 46,252,044.26
3 10/1/2025 46,252,044.26 2,096,501.91 2,096,501.91 651,125.53 1,445,376.38 45,600,918.73
4 1/1/2026 45,600,918.73 2,096,501.91 2,096,501.91 671,473.20 1,425,028.71 44,929,445.53
5 4/1/2026 44,929,445.53 2,096,501.91 2,096,501.91 692,456.74 1,404,045.17 44,236,988.79
6 7/1/2026 44,236,988.79 2,096,501.91 2,096,501.91 714,096.01 1,382,405.90 43,522,892.77
7 10/1/2026 43,522,892.77 2,096,501.91 2,096,501.91 736,411.51 1,360,090.40 42,786,481.26
8 1/1/2027 42,786,481.26 2,096,501.91 2,096,501.91 759,424.37 1,337,077.54 42,027,056.89
9 4/1/2027 42,027,056.89 2,096,501.91 2,096,501.91 783,156.39 1,313,345.53 41,243,900.50
10 7/1/2027 41,243,900.50 2,096,501.91 2,096,501.91 807,630.02 1,288,871.89 40,436,270.48
11 10/1/2027 40,436,270.48 2,096,501.91 2,096,501.91 832,868.46 1,263,633.45 39,603,402.02
12 1/1/2028 39,603,402.02 2,096,501.91 2,096,501.91 858,895.60 1,237,606.31 38,744,506.42
13 4/1/2028 38,744,506.42 2,096,501.91 2,096,501.91 885,736.09 1,210,765.83 37,858,770.33
14 7/1/2028 37,858,770.33 2,096,501.91 2,096,501.91 913,415.34 1,183,086.57 36,945,354.99
15 10/1/2028 36,945,354.99 2,096,501.91 2,096,501.91 941,959.57 1,154,542.34 36,003,395.42
16 1/1/2029 36,003,395.42 2,096,501.91 2,096,501.91 971,395.81 1,125,106.11 35,031,999.62

48
 17 4/1/2029 35,031,999.62 2,096,501.91 2,096,501.91 1,001,751.92 1,094,749.99 34,030,247.69
18 7/1/2029 34,030,247.69 2,096,501.91 2,096,501.91 1,033,056.67 1,063,445.24 32,997,191.02
19 10/1/2029 32,997,191.02 2,096,501.91 2,096,501.91 1,065,339.69 1,031,162.22 31,931,851.32
20 1/1/2030 31,931,851.32 2,096,501.91 2,096,501.91 1,098,631.56 997,870.35 30,833,219.77
21 4/1/2030 30,833,219.77 2,096,501.91 2,096,501.91 1,132,963.80 963,538.12 29,700,255.97
22 7/1/2030 29,700,255.97 2,096,501.91 2,096,501.91 1,168,368.91 928,133.00 28,531,887.06
23 10/1/2030 28,531,887.06 2,096,501.91 2,096,501.91 1,204,880.44 891,621.47 27,327,006.61
24 1/1/2031 27,327,006.61 2,096,501.91 2,096,501.91 1,242,532.96 853,968.96 26,084,473.66
25 4/1/2031 26,084,473.66 2,096,501.91 2,096,501.91 1,281,362.11 815,139.80 24,803,111.55
26 7/1/2031 24,803,111.55 2,096,501.91 2,096,501.91 1,321,404.68 775,097.24 23,481,706.87
27 10/1/2031 23,481,706.87 2,096,501.91 2,096,501.91 1,362,698.57 733,803.34 22,119,008.30
28 1/1/2032 22,119,008.30 2,096,501.91 2,096,501.91 1,405,282.90 691,219.01 20,713,725.39
29 4/1/2032 20,713,725.39 2,096,501.91 2,096,501.91 1,449,197.99 647,303.92 19,264,527.40
30 7/1/2032 19,264,527.40 2,096,501.91 2,096,501.91 1,494,485.43 602,016.48 17,770,041.97
31 10/1/2032 17,770,041.97 2,096,501.91 2,096,501.91 1,541,188.10 555,313.81 16,228,853.87
32 1/1/2033 16,228,853.87 2,096,501.91 2,096,501.91 1,589,350.23 507,151.68 14,639,503.64
33 4/1/2033 14,639,503.64 2,096,501.91 2,096,501.91 1,639,017.42 457,484.49 13,000,486.21
34 7/1/2033 13,000,486.21 2,096,501.91 2,096,501.91 1,690,236.72 406,265.19 11,310,249.49
35 10/1/2033 11,310,249.49 2,096,501.91 2,096,501.91 1,743,056.62 353,445.30 9,567,192.88
36 1/1/2034 9,567,192.88 2,096,501.91 2,096,501.91 1,797,527.14 298,974.78 7,769,665.74
37 4/1/2034 7,769,665.74 2,096,501.91 2,096,501.91 1,853,699.86 242,802.05 5,915,965.88
38 7/1/2034 5,915,965.88 2,096,501.91 2,096,501.91 1,911,627.98 184,873.93 4,004,337.91
39 10/1/2034 4,004,337.91 2,096,501.91 2,096,501.91 1,971,366.35 125,135.56 2,032,971.55
40 1/1/2035 2,032,971.55 2,096,501.91 2,032,971.55 1,969,441.19 63,530.36 -

10.4.3. Collateral, Loan term, Interest Rate and Grace Period

A. Collateral

Lemessa Bote 3 star hotel building is the collateral to secure this long term loan
which is an estimated market value more than birr 45 million.

A. Loan and Grace Period: The term loan will be repaid back within 10 years
after 2 year grace.
B. Interest Rate: The long term loan that repaid within 10 years, Bank charges
interest as the bank policy and procedure charges 12.5%. The promoter
expect to one year grace period to repay the loan in quarterly base which
will be the summation of principal and interest for 40 periods.

49
10.6. Financial Statements

This section defines certain key financial accounts used by this proposal from the
standard. The definitions are provided in two main sections, (1) those found on the
income statement; and (2) those found on a balance sheet. There is additional cash
flow statement which used to measure the business liquidity position.

5.6.1. Projected Income and Loss Statement

Lemessa Bote 3 star hotel expects to make a reasonable after- tax profit of Birr
1.46 million and Birr 15.90 million from in year 1 and 10 respectively. This is
before the owner’s drawings. Any owner’s drawings will be contingent on
performance being better than that expected in the plan and expected to earn
monthly income in the form of owner drawing account.

The income statement is also known as the profit and loss statement. It is a flow
statement that summarizes all financial activity during a stated period of time,
usually a month, quarter or year. It displays all revenues and expenses for a stated
over 10 years. The bottom line of an income statement is the net income (or net
profit or surplus) for the period.

50
 LEMESSA BOTE 3 STAR HOTEL
PROJECTED PROFIT (LOSS) STATEMENT
FOR THE PERIOD OF YR1- 10
Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Revene
Food & Beverage 34,848,000.00 46,464,000.00 58,080,000.00 63,888,000.00 70,276,800.00 73,790,640.00 77,480,172.00 81,354,180.60 85,421,889.63 89,692,984.11
Bed Room ,& 15,960,000.00 19,380,000.00 22,800,000.00 25,080,000.00 27,588,000.00 30,346,800.00 33,381,480.00 36,719,628.00 40,391,590.80 44,430,749.88
Total Revenue 50,808,000.00 65,844,000.00 80,880,000.00 88,968,000.00 97,864,800.00 104,137,440.00 110,861,652.00 118,073,808.60 125,813,480.43 134,123,733.99
Begging Inventory 4,757,743.76 6,121,274.42 7,145,383.78 7,993,352.51 8,826,077.15 9,310,686.71 9,780,551.62 10,270,012.25 10,783,556.17
Purchase of Raw 47,577,437.55 56,455,000.48 65,332,563.40 72,788,141.33 80,267,419.00 84,280,789.95 88,494,829.45 92,919,570.92 97,565,549.47 102,443,826.94
Total raw material 47,577,437.55 61,212,744.23 71,453,837.82 79,933,525.11 88,260,771.51 93,106,867.10 97,805,516.16 102,700,122.54 107,835,561.72 113,227,383.11
Less: Ending 4,757,743.76 6,121,274.42 7,145,383.78 7,993,352.51 8,826,077.15 9,310,686.71 9,780,551.62 10,270,012.25 10,783,556.17 11,322,738.31
Cost of Goods Sold 42,819,693.80 55,091,469.81 64,308,454.04 71,940,172.60 79,434,694.36 83,796,180.39 88,024,964.54 92,430,110.28 97,052,005.55 101,904,644.80
Gross Profit 7,988,306.21 10,752,530.19 16,571,545.96 17,027,827.40 18,430,105.64 20,341,259.61 22,836,687.46 25,643,698.32 28,761,474.88 32,219,089.19
General and
Salary and benefit 1,394,100.00 1,858,800.00 2,323,500.00 2,439,675.00 2,561,658.75 2,689,741.69 2,824,228.77 2,965,440.21 3,113,712.22 3,269,397.83
Running cost 853,501.82 1,036,395.06 1,219,288.31 1,280,252.73 1,344,265.36 1,411,478.63 1,482,052.56 1,556,155.19 1,633,962.95 1,715,661.10
Utilities 1,581,120.00 1,791,936.00 2,108,160.00 2,213,568.00 2,324,246.00 2,440,459.00 2,562,482.00 2,690,606.00 2,825,136.00 2,966,393.00
Depreciation 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 Dep. Amount
Total Expense 8,379,136.08 9,237,545.32 10,201,362.57 10,483,909.99 10,780,584.37 11,092,093.58 11,419,177.59 11,762,615.66 12,123,225.43 7,951,451.93
Income before (390,829.87) 1,514,984.87 6,370,183.39 6,543,917.42 7,649,521.27 9,249,166.03 11,417,509.86 13,881,082.66 16,638,249.45 24,267,637.26
Interest Expense 5,908,804.34 5,567,526.80 5,181,547.91 - 4,745,012.59 4,251,298.81 3,692,917.23 3,061,397.48 2,347,159.77 1,539,369.48
Income before (6,299,634.21) (4,052,541.93) 1,188,635.48 6,543,917.42 2,904,508.68 4,997,867.22 7,724,592.64 10,819,685.17 14,291,089.68 22,728,267.78
Profit Tax 2,290,371.10 1,016,578.04 1,749,253.53 2,703,607.42 3,786,889.81 5,001,881.39 7,954,893.72

Net Profit(loss) (6,299,634.21) (4,052,541.93) 1,188,635.48 4,253,546.32 1,887,930.64 3,248,613.69 5,020,985.21 7,032,795.36 9,289,208.29 14,773,374.06

10.6.2. Projected Cash Flow Statement

The cash flow projections for the year show that a positive cumulative cash flow and year-end year 1 and year 10
Birr 4.3 million and Birr 731.17 million after the owner has forecasting additional investment loan financing of
ETB 10.03 million that will be repaid within eight years. The owner has further considering 5% changes in receipt
& payment to see the impacts of the changes. In our cash flow projection, we have assumed the whole ETB 10.03

51
million additional financing has come from a bank loan. We have assumed & allowed for interest on the
outstanding amount for the whole periods.

LEMESSA BOTE 3 STAR HOTEL

CASH FLOW STATEMENT
FOR THE PERIOD OF YEAR 1 -10
Description Year -1 Year -2 Year -3 Year -4 Year -5 Year -6 Year -7 Year -8 Year -9 Year -10

Income before Tax (6,299,634.21) (4,052,541.93) 1,188,635.48 6,543,917.42 2,904,508.68 4,997,867.22 7,724,592.64 10,819,685.17 14,291,089.68 22,728,267.78

Inventory 4,757,743.76 6,121,274.42 7,145,383.78 7,993,352.51 8,826,077.15 9,310,686.71 9,780,551.62 10,270,012.25 10,783,556.17 11,322,738.31
Loan Proceed 48,222,457.12
Depreciation 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26 4,550,414.26
Total cash in flow 51,230,980.93 6,619,146.75 12,884,433.52 19,087,684.19 16,281,000.09 18,858,968.19 22,055,558.51 25,640,111.69 29,625,060.12 38,601,420.35

Fixed Investment 48,222,457.12

Employee Benefit 613,872.00 695,721.60 818,496.00 859,420.80 902,391.84 947,511.43 994,887.00 1,044,631.35 1,096,862.92 1,151,706.07

Profit Tax - - - 2,290,371.10 1,016,578.04 1,749,253.53 2,703,607.42 3,786,889.81 5,001,881.39 7,954,893.72

loan repayment 2,605,522.11 2,946,799.64 3,332,778.53 - 3,769,313.86 4,263,027.63 4,821,409.21 5,452,928.96 6,167,166.67 6,974,956.96
Total Cash Out 51,441,851.22 3,642,521.24 4,151,274.53 3,149,791.90 5,688,283.73 6,959,792.58 8,519,903.63 10,284,450.12 12,265,910.98 16,081,556.75

Cash surplus / (210,870.30) 2,976,625.51 8,733,158.99 15,937,892.29 10,592,716.36 11,899,175.60 13,535,654.88 15,355,661.57 17,359,149.13 22,519,863.60
Beginning Cash 14,333,333.33 20,666,767.34 23,643,392.85 32,376,551.84 48,314,444.13 58,907,160.49 70,806,336.09 84,341,990.97 99,697,652.54 117,056,801.67

End Cash Balance 20,666,767.34 23,643,392.85 32,376,551.84 48,314,444.13 58,907,160.49 70,806,336.09 84,341,990.97 99,697,652.54 117,056,801.67 139,576,665.27
cumulative cash 20,666,767.34 44,310,160.18 76,686,712.02 125,001,156.15 183,908,316.64 254,714,652.74 339,056,643.71 438,754,296.25 555,811,097.92 695,387,763.20

10.6.3. Projected Balance Sheet

The balance sheet of the firm will shows what the asset liabilities and owner’s capital for specific date especially end
of the year, because the firm’s fiscal year runs from July 1 to June 30 in E.C each year shows balance sheet
projections of Lemessa Bote 3 star hotel. Inventory at the end of the year amounted to Birr 4.57 million and
11.32 million from year 1and 10 respectively. We want to control our inventory levels very carefully. We will
purchase only what we need.

52
 LEMESSA BOTE 3 STAR HOTEL
PROJECTED BALANCE SHEET
AS OF JUNE 30 FROM YR1-10
Description Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10

Asset

Current Asset

Cash 71,391.96 8,651,243.68 8,055,112.05 5,545,898.13 8,744,869.05 10,686,124.25 12,719,365.39 14,472,226.94 15,865,566.69 2,045,034.93

Inventory 4,757,743.76 6,121,274.42 7,145,383.78 7,993,352.51 8,826,077.15 9,310,686.71 9,780,551.62 10,270,012.25 10,783,556.17 11,322,738.31

Total Current 4,829,135.72 14,772,518.10 15,200,495.83 13,539,250.64 17,570,946.21 19,996,810.96 22,499,917.00 24,742,239.19 26,649,122.86 13,367,773.24
Fixed Asset(Net)

Hotel Building 36,209,934.00 34,304,148.00 32,398,362.00 30,492,576.00 28,586,790.00 26,681,004.00 24,775,218.00 22,869,432.00 20,963,646.00 19,057,860.00

Hotel Equipment 13,432,154.34 11,939,692.75 10,447,231.16 8,954,769.56 7,462,307.97 5,969,846.37 4,477,384.78 2,984,923.19 1,492,461.59 14,924,615.94

Vehicles 3,280,000.00 2,460,000.00 1,640,000.00 820,000.00 4,100,000.00 3,280,000.00 2,460,000.00 1,640,000.00 820,000.00 4,100,000.00
Stand by

Generator and 1,800,000.00 1,600,000.00 1,400,000.00 1,200,000.00 1,000,000.00 800,000.00 600,000.00 400,000.00 200,000.00 2,000,000.00

Pre-Operating 1,189,500.00 1,057,333.34 925,166.67 793,000.00 1,321,666.67 1,189,500.00 1,057,333.34 925,166.67 793,000.00 1,321,666.67
Total Fixed Asset 55,911,588.35 51,361,174.09 46,810,759.82 42,260,345.56 42,470,764.64 37,920,350.38 33,369,936.12 28,819,521.86 24,269,107.60 41,404,142.61

Total Asset 60,740,724.06 66,133,692.18 62,011,255.65 55,799,596.21 60,041,710.84 57,917,161.34 55,869,853.12 53,561,761.05 50,918,230.46 54,771,915.85
Liability

Current Liabilities

Employee Benefit 613,872.00 695,721.60 818,496.00 859,420.80 902,391.84 947,511.43 994,887.00 1,044,631.35 1,096,862.92 1,151,706.07

Profit Tax payable - - - 2,290,371.10 1,016,578.04 1,749,253.53 2,703,607.42 3,786,889.81 5,001,881.39 7,954,893.72
Total current 613,872.00 695,721.60 818,496.00 3,149,791.90 1,918,969.88 2,696,764.96 3,698,494.42 4,831,521.16 6,098,744.31 9,106,599.79
Long term

Long term loan 45,616,935.01 5,567,526.80 39,337,356.84 - 35,568,042.99 31,305,015.36 26,483,606.15 21,030,677.19 14,863,510.52 7,888,553.56

Total Liability 46,230,807.01 6,263,248.40 40,155,852.84 3,149,791.90 37,487,012.86 34,001,780.31 30,182,100.57 25,862,198.35 20,962,254.82 9,106,599.79

Owners’ Equity

Lemessa Bote, 20,666,767.34 20,666,767.34 20,666,767.34 20,666,767.34 20,666,767.34 20,666,767.34 20,666,767.34 20,666,767.34 20,666,767.34 20,666,767.34

Additional 142,783.92 43,256,218.38 27,729,490.65 10,225,174.66

Net Income (6,299,634.21) (4,052,541.93) 1,188,635.48 4,253,546.32 1,887,930.64 3,248,613.69 5,020,985.21 7,032,795.36 9,289,208.29 14,773,374.06

Total Equity 14,509,917.05 59,870,443.78 21,855,402.81 52,649,804.31 22,554,697.98 23,915,381.03 25,687,752.55 27,699,562.70 29,955,975.63 45,665,316.06

Total Liability & 60,740,724.06 66,133,692.18 62,011,255.65 55,799,596.21 60,041,710.84 57,917,161.34 55,869,853.12 53,561,761.05 50,918,230.46 54,771,915.85

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10.7. Financial Analysis and Evaluation
A. 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 4.30
million and Birr 15.69 million from year 1 and 10 during the life. Moreover, at
the end of the project life the accumulated cash flow amounts to Birr731.17
million at the end of 10thyear.

B. Financial Ratios

A financial ratio shows the business strength in viability, sustainability,

profitability, and other parameter to know the business efficiency and effectiveness.

Ratio analysis is a technique that involves computing some common ratios. These
ratios involve comparisons of certain numbers contained in the financial
statements/ a financial ratio shows the business strength in viability, sustainability,
profitability, and other parameter to know the business efficiency and effectiveness.
Certain analysts are partial to certain ratios. While there are thousands of possible
ratios, there is a core group of common ratios.

These are divided into three groups: liquidity ratios, efficiency ratios, and
profitability ratios. When two companies are compared, it will often happen that
some ratios will favor one company and other ratios will favor the other. You have
to take all the ratios together, see how much difference there is, and weigh which
ones you will rely on. The choice is largely a matter of personal preference.

Liquidity Ratios

Liquidity ratios measure the ability of a company to generate cash and to pay its
obligations when they come due. The following are the most common liquidity
ratios:

Efficiency Ratios

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Efficiency ratios provide an indication of how well a company is managing its
resources. The common efficiency ratios are:

Profitability Ratios

According to the projected income statement, the project will start generating
profit in the first year of operation. Important ratios such as profit to total sales,
net profit to equity (Return on equity) and net profit plus interest on total
investment (return on total investment) will show an increasing trend during the
life-time of the project. The income statement and the other indicators of
profitability show that the project is viable. The financial ratio for year three at full
capacity operation is presented in the next table 10.5 below:

Table10.5: Common financial ratio at full capacity

S/No Description Formula Result %

A Liquidity Ratios
II Current ratio Current Assets/Current Liabilities 1.02 102%
III Quick ratio (Cash+A/R+Marketable/Secu)/C Liabilities 0.81 81%
B Efficiency Ratios
I Asset turnover (Net income/Average Total Assets 0.07 7%
II Debt to equity Total Liabilities/Total Equity 2.50 250%
C Profitability Ratios
I Profit Margin (Net income/Net sales) 0.10 10%

C. Break-even Analysis (BEA)

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 of the project including cost of finance when it
starts to operate at full capacity (year 3) is estimated by using income statement
projection.

Break even service Qty.= (Total cost + financial cost)

GP%
=39.59%
D. Payback Period

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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 2nd years.

E. 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 principal a project is accepted if the NPV is non-
negative. Accordingly, the net present value of the project at 12% discount rate is
found to be ETB 19.59 million which is acceptable.

F. 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 in a bank account. Accordingly, the IRR of this
project is computed to be 35.5 % that makes it zero indicating the viability of the
project.

10.8. Sensitivity Analysis

Sensitivity analysis is variants of scenario analysis in which each scenario represents

a change in only one variable, rather than a number of variables. For the proposed
project, the sensitivity of the project has been computed when Revenue decreased

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by 10%, if operating cost increase by 10% and an investment cost increasing by
10% as showed in table 5.5 below.

Table 5.5 Sensitivity test if Revenue decreases by 10% and both operating cost and
investment cost increasing by 10%

Alternative Scenarios IRR Before Tax IRR After Tax

Revenue decreased by 10% 36% 24%

Operating costs increased by 10% 45% 37%
Investment costs increased by 10% 55% 43%

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11. SOCIOECONOMIC AND ENVIRONMENTAL CONSIDERATIONS

Currently the issue of environment and envelopment get due emphasis and thus
every citizen called exert their maximum effort for fighting against any negative
impacts on the environment so as to result in a win-win solution on common
agenda that is creating environmentally friendly business environment. The project
has some impact on Air pollution and solid waste material on the physical
environment and the independent Environmental Impact Assessment (EIA) report
is required.

11.1. Socioeconomic Considerations

The Economic Significance of the Project

A. Employment Opportunity

One of the problems that our country faced is unemployment. Therefore, the
current objective of the government is working on tackling the problem of
unemployment and fostering the development process either through creating self-
employment or employment in other organization. In this regard, project will hire
203 employees.
B. Benefit for Local Community

Apart from employment opportunity for local community, as a corporate

responsibility the project has been engaged in different development activities. This
will better worth the community in particular and contribute for the development
of the nation as a whole.
C. Stimulate the Local Economy
The project will increase economic relationship and transactions among different
actors in the local economy, in Adama city Administration.

11.2. Project Risk and Assumption

A. Project Risks

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As any business project this project can be faced by different risks at different
level. So, as business the following risks are expected to face Lemessa Bote 3 stars
hotel during its implementation and operation.

 The joining of new competitors

 Shortage of supply inputs from the supply side
 Sudden shut off power supply
 Sudden Outbreak of sudden Fire
 Suddenly over flooded
 Of confidence to the creditor’s bank to get the loan without any hurdle.

B. Risk Management

To deal with the above possible risks that are external and unforeseen factors and
have their own effect on the life business and its smooth operation the following
assumptions are set to manage their effect as a risk.

 The joining of new competitors can be managed by advertising and promoting our
products produced Lemessa Bote 3 star hotel through print media to keep new
customers know about our machine and by refreshing existing clients.
 The risk of sudden shortage of inputs will be managed by holding reasonable stock
in the store with due attention to the date of expiration.
 The risk of the sudden shut off power will affect our production. So, Lemessa Bote
3 star hotel is ready to manage such risk through having power generator and
make it stand by for immediate solution.
 Since we are working with electric we feel that there might be a risk of getting
fire and being flooded. So, we planned to manage such risks through purchasing
insurance facility from the potential insurance institution that have insurance
coverage for such risks.

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11.3. Conclusion and Recommendation
11.3.1. Conclusion
At the end of the study of this project proposal analysis interpretation of data and
facts collected from the project area based on marketing principles. The followings
are conclusion made:
 Lemessa Bote 3 stars hotel has get land approval the land on his hand by
Oromia Region Investment Bureau and Adama city administration to
change innovative idea changed in to reality.
 Lemessa Bote 3 stars Hotel has lack of finance to fund this project and
needs financial assistance for fixed investment and working capital and it
must finance 70% project cost by local commercial Bank where as 30%
(Birr 20.35 million) of the project will be financed by equity contribution.
 Lemessa Bote 3 stars hotel needs 47.95 million loans from local commercial
Bank for fixed investment and for the management of working capital.

11.3.2. Recommendation

I would like to provide my recommendation to the points raised as conclusion in

the above conclusion section of this project study.

To this end the changing of this sacred idea into practice will be effective if the
critical and supportive assistance will be given to the following recommendation to
the points raise in the conclusion section of this project study:

 The promoter like to approve the land 5,000 square meters long live with
his family and him on his hand by Oromia Region Investment Bureau and
Adama city administration to change innovative idea changed in to reality.
 The promoter project needs 70% financial support from local commercial
bank to realize the existence of this 3 stars hotel in Adama city
administration.

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