15.

PROFILE ON THE PRODUCTION OF

MARGARINE
 15-1

TABLE OF CONTENTS

PAGE

I. SUMMARY 15-2

II. PRODUCT DESCRIPTION & APPLICATION 15-2

III. MARKET STUDY AND PLANT CAPACITY 15-3

A. MARKET STUDY 15-3
B. PLANT CAPACITY & PRODUCTION PROGRAM 15-5

IV. MATERIALS AND INPUTS 15-6

A. RAW & AUXILIARY MATERIALS 15-6
B. UTILITIES 15-7

V. TECHNOLOGY & ENGINEERING 15-7

A. TECHNOLOGY 15-7
B. ENGINEERING 15-8

VI. HUMAN RESOURCE & TRAINING REQUIREMENT 15-12

A. HUMAN RESOURCE REQUIREMENT 15-12
B. TRAINING REQUIREMENT 15-13

VII. FINANCIAL ANLYSIS 15-13

A. TOTAL INITIAL INVESTMENT COST 15-14
B. PRODUCTION COST 15-15
C. FINANCIAL EVALUATION 15-16
D. ECONOMIC & SOCIAL BENEFITS 15-18
 15-2

I. SUMMARY

This profile envisages the establishment of a plant for the production of margarine with a
capacity of 25,000 kg per annum. Margarine is widely used as a table spread in bakeries,
pastries and as an ingredient in various food preparations, shortenings, basic input in baked
products like bread, biscuit and the like.

The country`s requirement of margarine is met through import. The present (2012) demand
for margarine is estimated at 670 tons. The demand for the products is projected to reach 898
tones and 1,092 tones by the year 2018 and year 2022, respectively.

The principal raw materials required are partially hydrogenated cotton seed oil, animal fats
and skimmed milk which are available locally.

The total investment cost of the project including working capital is estimated at Birr 6.74
million. From the total investment cost the highest share (Birr 5.68 million or 84.23%) is
accounted by fixed investment cost followed by pre operation cost (Birr 655.20 thousand or
9.71%) and initial working capital (Birr 408.56 thousand or 6.06%). From the total
investment cost Birr 1.70 million or 25.29% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 21.14% and a net
present value (NPV) of Birr 3.57 million, discounted at 10%.

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

II. PRODUCT DESCRIPTION AND APPLICATION

 15-3

Margarine is butter - like product obtained by mixing animal and vegetable fats with or
without milk. Margarine was originally marketed as an imitation butter. However, it now
has a recognized identity to its own. The proportion of the fat blend and other ingredients
varies with the type of margarine and with the country of manufacture.

The product is widely used as a table spread in bakeries, pastries and as an ingredient in
various food preparations, shortenings, basic input in baked products like bread, biscuit and
the like.

Margarine is a resource based product that will substitute import.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

Due to absence of plants in the country that manufacture margarine the entire requirement is
met through import and the yearly import is shown in Table 3.1.

Table 3.1

IMPORT OF MARGARINE (TONS)

Year Import
2001 77
2002 59
2003 104
2004 70
2005 99
2006 423
2007 171
2008 379
2009 776
2010 339
2011 896

Source: -Ethiopian Revenue and Customs Authority.

 15-4

Although import of margarine has shown fluctuation over the years considered, a general
increasing trend is observed. This can be clearly seen when the data set is analyzed in to three
years interval. The yearly average imported quantity which was about 90 tons during the
period 2001--2003 has increased to annual average of about 198 tons during the period
2004--2006, which is more than double of the previous three years average. Similarly the
yearly average quantity imported during the period 2007 –2009 has increased to 442 tons.
During the recent two years i.e. 2009--2011 the yearly average has reached to a level of 618
tones. Generally, import of the product has been growing by more than 25% annually during
the past ten years, which increased from 77 tons in the year 2001 to 896 by the year 2011.

In order to determine the current effective demand, the recent three years average has been
used since imports fluctuated over the period of study. Accordingly, the present effective
demand is estimated at 670 tons.

2. Demand Projection

The demand for margarine will grow as a result of urban population growth, rise in income
and change in the eating habit of the population. By considering the growth rate of import
over the past years, urban population growth of about 4% , and increasing income and
anticipating change in eating habit, a 5% annual average growth is adopted to forecast the
demand (see Table 3.2).

Table 3.2

PROJECTED DEMAND FOR MARGARINE (TONS)

Year Forecasted
2013 Demand
704
2014 739
2015 776
2016 815
2017 856
2018 898
2019 943
2020 990
2021 1,040
 15-5

2022 1,092

Demand for margarine will increase from 704 tones in the year 2013 to 898 tones and 1,092
tones by the year 2018 and year 2022, respectively.

3. Pricing and Distribution

The current average retail price of margarine is Birr 200 per kg. Accordingly, allowing 25%
margin for intermediaries a factory gate price of Birr 160 per kg is adopted for the envisaged
plant.

The product will find its market outlet through the food stores and groceries throughout the
county.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

Based on the projected demand for margarine and considering the economic scale of
production the capacity of the envisaged plant is proposed to be 25,000 kgs of margarine per
annum. This capacity is proposed on the basis of one shift of 8 hours per day and 300
working days per annum. The capacity, upon requirement, can be increased by increasing the
number of shifts per day.

2. Production Program

It is assumed that the envisaged project, at the initial stage of the production period may
require some time to capture a significant market share. Therefore, the envisaged plant has
to start production at 80% of its installed capacity which will grow to 90% in the second
year. Full capacity production shall be attained in the third year and onwards. Details of
annual production capacity are shown in Table 3.3.

Table 3.3
ANNUAL PRODUCTION PROGRAM
 15-6

Sr. Description Unit of Production Year

No. Measure 1st 2nd 3rd &
Onwards
1 Margarine from animal fat kg 20,000 22,500 25,000
2 Capacity utilization rate % 80 90 100
IV. MATERIAL AND INPUTS

A. RAW MATERIALS

The major raw materials required for production of margarine can broadly be classified into
three groups: fat, blend, aqueous phase and additives.

In this study, partially hydrogenated cotton seed oil and animal fats are major constituents of
the fat blend. Animal fat which is a by - product of cattle meet processing plant is the other
constituent the blend. Ripened or skimmed milk, salt, water and brine constitute of the
aqueous phase are also among the required raw materials. Cotton seed oil can be found from
the currently operating oil plants. Skimmed milk can be obtained from milk processing
plants. Thus, all these raw materials are locally available.

Lecithin, antioxidant, flavoring agents, fat-soluble dye, vitamins and aroma ingredients are
classified under the group of additives. Additives will be imported.

The annual requirement for raw materials and the estimated costs at full capacity operation of
the envisaged plant are shown in Table 4.1.

Table 4.1
ANNUAL RAW MATERIALS REQUIREMENT AND ESTIMATED COSTS

Sr. Description Unit of Required Unit Cost, ('000 Birr)

No. Measure Qty Price, F.C. L.C.
Birr/Unit Total
1 Hydrogenated
kg 22,500 43.75 984.37 984.37
oil and fat
2 Skimmed milk kg 4,250 12.00 51.00 51.00
3 Salt kg 625 2.50 1.56 1.56
4 Additives kg 1,125 42.00 37.80 9.45 47.25
 15-7

Total 37.80 1,046.38 1,084.18

The only auxiliary material required is packing material that is food grade aluminum foil.
The total annual cost of packing material at full capacity operation of the plant at lump sum
is estimated at Birr 315,000, out of which Birr 252,000 will be required in foreign currency.

B. UTILITIES

The power and utilities required for the envisaged project include electric power, water and
furnace oil. The annual power and utilities requirement at full capacity production of the
plant and the estimated costs are indicated in Table 4.2.

Table 4.2
ANNUAL POWER AND UTILITIES REQUIREMENT AND ESTIMATED COSTS

Sr. Description Unit of Annual Unit Cost, ('000 Birr)

No. Measure Req. Price, F.C. L.C. Total
Birr/Unit
1 Electric power kWh 30,000 0.5778   17.33 17.33
2 Water m3 2,500 10.00   25.00 25.00
3 Furnace oil lt 3,520 14.84   52.23 52.23
Total   94.56 94.56

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

The process of margarine production involves melting of raw oils and fats in the melting
tanks, blending it with salt, water, lactic substances, vitamins, coloring agents, aroma and
other ingredients in mixing tanks, emulsifying in the emulsifying tank, sterilizing in
continuous sterilizing equipment, rapid cooling in continuous cooling and kneading machine,
ageing the intermediate product for a while, forming into the prescribed shape and finally
packing and dispatching.
 15-8

2. Environmental Impact

The envisaged plant does not have any adverse impact on the environment. Thus the project is
environment friendly.

B. ENGINEERING

1. Machinery and Equipment

The major plant machinery and equipment required for the project comprise tanks for
melting, mixing, emulsifying and kneading of the ingredients; continuous sterilizing and
cooling equipment; forming and packing machine and boiler for process steam generation.
The total cost of machinery and equipment is estimated at Birr 2,131,979 of which Birr
1,705,583 will be required in foreign currency. List of the required plant machinery and
equipment and their total estimated cost is shown in Table 5.1.

Table 5.1
LIST OF MACHINERY AND EQUIPMENT AND ESTIMATED COST

Sr. Description Unit of Req.

No. Measure Cost, ('000 Birr)
Qty F.C. L.C. Total
1 Melting tanks set 2 324.06 81.02 405.08
2 Mixing tank set 1 153.50 38.38 191.88
3 Emulsifying tank set 1 204.67 51.17 255.84
4 Continuous sterilization set 1 255.84 63.96 319.80
equipment
5 Continuous cooling and set 1 238.78 59.70 298.48
mixing
6 Forming and packing set 1 255.84 63.96 319.80
machine
7 Boiler set 1 221.73 55.43 277.16
8 Other auxiliary equipment set 1 51.17 12.79 63.96
Total 1,705.58 426.396 2,131.98
 15-9

2. Land, Buildings and Civil Works

The total area of land required for the envisaged project is 900 m 2 out of which 350 m 2 will
be a built - up area. The cost of buildings and civil works at a unit construction rate of Birr
4,500/ m2 is estimated at Birr 1.575 million.

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

The legislation has also set the maximum on lease period and the payment of lease prices.
The lease period ranges from 99 years for education, cultural research health, sport, NGO ,
religious and residential area to 80 years for industry and 70 years for trade while the lease
payment period ranges from 10 years to 60 years based on the towns grade and type of
investment.

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

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

In Addis Ababa the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by
the City Administration for the promotion of the sector and all manufacturing projects are
assumed to be located in the developed industrial zones.
 15-10

Regarding land allocation of industrial zones if the land requirement of the project is below
5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the City’s Investment Authority. However, if
the land request is above 5,000 m2 the request is evaluated by the City’s Investment
Authority and passed with recommendation to the Land Development and Administration
Authority for decision, while the lease price is the same for both cases.

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

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

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

The last and the third zone, Expansion Zone, is classified into four levels and covers areas
that are considered to be in the outskirts of the city, where the city is expected to expand in
the future. The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191
per m2 (see Table 5.2).
 15-11

Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA

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

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

On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
 15-12

exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.3
shows incentives for lease payment.

Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point Grace Payment Compl. Down

Period Period Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

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

Accordingly, the total land lease cost at a rate of Birr 266 per m 2 is estimated at Birr 239,400
of which 10% or Birr 23,940 will be paid in advance. The remaining Birr 239,400 will be
paid in equal installments with in 28 years i.e. Birr 7,695 annually.

VI. HUMAN RESOURCE AND TRAINING REQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

The total human resource requirement of the envisaged project is 27 persons. The human
resource requirement along with the estimated annual labor cost, including fringe benefits, is
given in Table 6.1.
 15-13

Table 6.1
HUMAN RESOURCE REQUIREMENT AND LABOUR LABOR COST

Sr. Required Salary, Birr

N No. of Monthl
o. Job Title Persons y Annual
1 General manager 1 5,000 60,000
2 Sales officer 1 900 10,800
3 Accountant 1 900 10,800
4 Cashier 1 900 10,800
5 Purchaser 1 800 9,600
6 Personnel 1 800 9,600
7 Store keeper 1 900 10,800
8 Production head 1 3,500 42,000
9 Mechanic 1 1,000 12,000
10 Electrician 1 1,000 12,000
Quality controller
11 (chemist) 1 1,500 18,000
12 Driver 1 800 9,600
13 Operator 4 2,400 28,800
14 Laborer 6 2,400 28,800
15 Guard 3 1,200 14,400
288,00
Sub- total 25 24,000 0
Fringe benefits (20% Basic salary) 4,800 57,600
345,60
Total 28,800 0

B. TRAINING REQUIREMENT

Four operators should be given a two weeks on – the – job training by the advanced
technician of the machinery supplier during plant erection and commissioning. The total
training cost is estimated at Birr 150,000.
 15-14

VII. FINANCIAL ANALYSIS

The financial analysis of the margarine project is based on the data presented in the previous
chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 5 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 6.74
million (See Table 7.1). From the total investment cost the highest share (Birr 5.68 million
or 84.23%) is accounted by fixed investment cost followed by pre operation cost (Birr 655.20
thousand or 9.71%) and initial working capital (Birr 408.56 thousand or 6.06%). From the
total investment cost Birr 1.70 million or 25.29% is required in foreign currency.
 15-15

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Local Foreign Total %

Sr.No Cost Items Cost Cost Cost Share
1 Fixed investment        
1.1 Land Lease 23.94   23.94 0.35
1.2 Building and civil work 1,575.00   1,575.00 23.35
1.3 Machinery and equipment 426.40 1,705.58 2,131.98 31.61
1.4 Vehicles 1,500.00   1,500.00 22.24
1.5 Office furniture and equipment 450.00   450.00 6.67
  Sub total 3,975.34 1,705.58 5,680.92 84.23
2 Pre operating cost *        
2.1 Pre operating cost 213.96   213.96 3.17
2.2 Interest during construction 441.24   441.24 6.54
  Sub total 655.20   655.20 9.71
3 Working capital ** 408.56   408.56 6.06
  Grand Total 5,039.10 1,705.58 6,744.68 100

* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest
during construction.
** The total working capital required at full capacity operation is Birr 552.46 thousand.
However, only the initial working capital of Birr 408.56 thousand during the first year of
production is assumed to be funded through external sources. During the remaining years
the working capital requirement will be financed by funds to be generated internally (for
detail working capital requirement see Appendix 7.A.1).

B. PRODUCTION COST
 15-16

The annual production cost at full operation capacity is estimated at Birr 3.50 million (see
Table 7.2). The cost of raw material account for 40.00% of the production cost. The other
major components of the production cost are depreciation, financial cost and labor, which
account for 25.08%, 12.14% and 8.23% respectively. The remaining 14.55% is the share of
utility, repair and maintenance, labor overhead and administration cost. For detail production
cost see Appendix 7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (year three)

Items Cost %
Raw Material and Inputs 1,399.1
8 40.00
Utilities 94.5
7 2.70
Maintenance and repair 106.6
0 3.05
Labour direct 288.0
0 8.23
Labour overheads 57.6
0 1.65
Administration Costs 100.0
0 2.86
Land lease cost - -
Cost of marketing and destribution 150.0
0 4.29
Total Operating Costs 2,195.9
5 62.78
Depreciation 877.1
9 25.08
Cost of Finance 424.6
9 12.14
Total Production Cost 3,497.8
3 100

C. FINANCIAL EVALUATION

1. Profitability
 15-17

Based on the projected profit and loss statement, the project will generate a profit throughout
its operation life. Annual net profit after tax ranges from Birr 394 thousand to Birr 1.18
million during the life of the project. Moreover, at the end of the project life the accumulated
net cash flow amounts to Birr 9.48 million. For profit and loss statement and cash flow
projection see Appendix 7.A.3 and 7.A.4, respectively.

2. Ratios

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

3. Break-even Analysis

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

Break -Even Sales Value = Fixed Cost + Financial Cost = Birr 1,680,000
Variable Margin ratio (%)

Break- Even Capacity utilization = Break even Sales Value X 100 = 52.57 %
Sales revenue

4. Pay-back Period
 15-18

The pay-back -period, also called pay – off period is defined as the period required for
recovering the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the project’s
initial investment will be fully recovered within 6 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can
be earned on the invested capital, i.e., the yield on the investment. Put another way, the
internal rate of return for an investment is the discount rate that makes the net present value
of the investment's income stream total to zero. It is an indicator of the efficiency or quality
of an investment. A project is a good investment proposition if its IRR is greater than the rate
of return that could be earned by alternate investments or putting the money in a bank
account. Accordingly, the IRR of this project is computed to be 21.14% indicating the
viability of the project.

6. Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time series of
cash flows. NPV aggregates cash flows that occur during different periods of time during the
life of a project in to a common measuring unit i.e. present value. It is a standard method for
using the time value of money to appraise long-term projects. NPV is an indicator of how
much value an investment or project adds to the capital invested. In principle, a project is
accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 10% discount rate is found to be Birr 3.57
million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 25 persons. The project will generate Birr 2.70
million in terms of tax revenue. The establishment of such factory will have a foreign
exchange saving effect to the country by substituting the current imports. The project will
 15-19

also create backward linkage with the agro processing sub sector and forward linkage with
the food processing sub sector and also generates income for the Government in terms of
payroll tax.

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
 15-20

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

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

Total inventory 279.84 314.82 349.80 349.80 349.80 349.80 349.80 349.80 349.80 349.80

Accounts receivable 148.90 165.95 183.00 183.00 183.64 183.64 183.64 183.64 183.64 183.64

Cash-in-hand 6.14 6.90 7.67 7.67 7.78 7.78 7.78 7.78 7.78 7.78

CURRENT ASSETS 434.87 487.66 540.46 540.46 541.21 541.21 541.21 541.21 541.21 541.21

Accounts payable 26.31 29.60 32.88 32.88 32.88 32.88 32.88 32.88 32.88 32.88

CURRENT LIABILITIES 26.31 29.60 32.88 32.88 32.88 32.88 32.88 32.88 32.88 32.88
TOTAL WORKING
CAPITAL 408.56 458.07 507.58 507.58 508.33 508.33 508.33 508.33 508.33 508.33

Appendix 7.A.2
 15-21

PRODUCTION COST ( in 000 Birr)

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

Raw Material and Inputs 1,119 1,259 1,399 1,399 1,399 1,399 1,399 1,399 1,399 1,399

Utilities 76 85 95 95 95 95 95 95 95 95

Maintenance and repair 85 96 107 107 107 107 107 107 107 107

Labour direct 230 259 288 288 288 288 288 288 288 288

Labour overheads 46 52 58 58 58 58 58 58 58 58

Administration Costs 80 90 100 100 100 100 100 100 100 100

Land lease cost 0 0 0 0 7.70 7.70 7.70 7.70 7.70 7.70

Cost of marketing
and distribution 150 150 150 150 150 150 150 150 150 150

Total Operating Costs 1,787 1,991 2,196 2,196 2,204 2,204 2,204 2,204 2,204 2,204

Depreciation 877 877 877 877 877 108 108 108 108 108

Cost of Finance 0 485 425 364 303 243 182 121 61 0

Total Production Cost 2,664 3,354 3,498 3,437 3,384 2,554 2,494 2,433 2,372 2,312

Appendix 7.A.3
 15-22

INCOME STATEMENT ( in 000 Birr)

Year Year Year Year Year Year Year Year

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

Sales revenue 3,200 3,600 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000
Less variable costs 1,637 1,841 2,046 2,046 2,046 2,046 2,046 2,046 2,046 2,046

VARIABLE MARGIN 1,563 1,759 1,954 1,954 1,954 1,954 1,954 1,954 1,954 1,954
in % of sales revenue 48.85 48.85 48.85 48.85 48.85 48.85 48.85 48.85 48.85 48.85
Less fixed costs 1,027 1,027 1,027 1,027 1,035 266 266 266 266 266

OPERATIONAL MARGIN 536 731 927 927 919 1,688 1,688 1,688 1,688 1,688
in % of sales revenue 16.75 20.32 23.17 23.17 22.98 42.21 42.21 42.21 42.21 42.21
Financial costs   485 425 364 303 243 182 121 61 0
GROSS PROFIT 536 246 502 563 616 1,446 1,506 1,567 1,628 1,688
in % of sales revenue 16.75 6.84 12.55 14.07 15.40 36.14 37.66 39.18 40.69 42.21
Income (corporate) tax 0 0 0 169 185 434 452 470 488 507
NET PROFIT 536 246 502 394 431 1,012 1,054 1,097 1,139 1,182
in % of sales revenue 16.75 6.84 12.55 9.85 10.78 25.30 26.36 27.42 28.48 29.55

Appendix 7.A.4
 15-23

CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)

Scra
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 p
TOTAL CASH INFLOW 5,895 4,076 3,603 4,003 4,000 4,000 4,000 4,000 4,000 4,000 4,000 1,919
Inflow funds 5,895 876 3 3 0 0 0 0 0 0 0 0
Inflow operation 0 3,200 3,600 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 0
Other income 0 0 0 0 0 0 0 0 0 0 0 1,919
TOTAL CASH
OUTFLOW 5,895 2,663 3,136 3,280 3,336 3,299 3,487 3,444 3,402 3,359 2,710 0
Increase in fixed assets 5,895 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 435 53 53 0 1 0 0 0 0 0 0
Operating costs 0 1,637 1,841 2,046 2,046 2,054 2,054 2,054 2,054 2,054 2,054 0
Marketing and
Distribution cost 0 150 150 150 150 150 150 150 150 150 150 0
Income tax 0 0 0 0 169 185 434 452 470 488 507 0
Financial costs 0 441 485 425 364 303 243 182 121 61 0 0
Loan repayment 0 0 607 607 607 607 607 607 607 607 0 0
SURPLUS (DEFICIT) 0 1,413 467 723 664 701 513 556 598 641 1,290 1,919
CUMULATIVE CASH
BALANCE 0 1,413 1,880 2,603 3,268 3,969 4,482 5,038 5,636 6,277 7,566 9,485

Appendix 7.A.5
 15-24

DISCOUNTED CASH FLOW ( in 000 Birr)

Year Year Year Year Year Year Year

Item Year 1 2 Year 3 4 Year 5 6 7 8 Year 9 10 11 Scrap
TOTAL CASH INFLOW 0 3,200 3,600 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 1,919
Inflow operation 0 3,200 3,600 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 0
Other income 0 0 0 0 0 0 0 0 0 0 0 1,919

TOTAL CASH OUTFLOW 6,303 1,836 2,041 2,196 2,366 2,388 2,637 2,656 2,674 2,692 2,710 0
Increase in fixed assets 5,895 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 409 50 50 0 1 0 0 0 0 0 0 0
Operating costs 0 1,637 1,841 2,046 2,046 2,054 2,054 2,054 2,054 2,054 2,054 0

Marketing and Distribution cost 0 150 150 150 150 150 150 150 150 150 150 0
Income (corporate) tax   0 0 0 169 185 434 452 470 488 507 0

NET CASH FLOW -6,303 1,364 1,559 1,804 1,634 1,612 1,363 1,344 1,326 1,308 1,290 1,919

CUMULATIVE NET CASH FLOW -6,303 -4,940 -3,381 -1,577 58 1,670 3,032 4,377 5,703 7,011 8,301 10,219
Net present value -6,303 1,240 1,289 1,355 1,116 1,001 769 690 619 555 497 740
Cumulative net present value -6,303 -5,064 -3,775 -2,420 -1,303 -303 466 1,156 1,775 2,330 2,827 3,567

NET PRESENT VALUE 3,567

INTERNAL RATE OF RETURN 21.14%
NORMAL PAYBACK 6 years