ST MARY’S UNIVERSITY

BUSSINESS PLAN ON SOAP AND DETERGENT

GROUP MEMBER ID

1, Selam G\wold RAD/0991/2011

2, SamrawitFaris RAD/0989/2011
3, MeskeremYohannes RAD/0983/2011
4, Hanna Worku RAD/0966/2011
5, Helen Bereda RAD/0968/2011

SECTION Q

Submitted to: Tewodros .M

April 28

Addis Ababa, Ethiopia

Table of Contents

1. Executive Summary.....................................................................................................................1

2 Project Background and History...................................................................................................2

2.1 Project Background........................................................................................................2

2.2 Project History...........................................................................................................................2

2.3 Project Sponsors.........................................................................................................................3

3. Market analysis and marketing concept.......................................................................................3

3.1 Project Description.........................................................................................................3
3.1.1 Objective and Strategy....................................................................................4
3.2 Demand and market.......................................................................................................4
3.3 Demand projection.........................................................................................................4

4. Materials and Inputs.....................................................................................................................5

4.1 Raw Material..............................................................................................................................5

5 Location site and Environment.....................................................................................................7

5.1 Land Requirement and Use plan....................................................................................7
5.2 Preliminary Environmental Impact Assessment............................................................8

6 Technology and Engineering........................................................................................................8

6.1 Type and production process.........................................................................................8
6.2 Source of Technology....................................................................................................9
6.3 Engineering..................................................................................................................10

7 Organization and overhead cost..................................................................................................11

7.1 Organizational and layout............................................................................................11

8 Human Resource.........................................................................................................................12
8.1 Man Power Requirement and estimated annual human resource costs.......................12
9 Implementation...........................................................................................................................13
9.1 Implementation time scheduling..................................................................................13
9.2 Estimated implementation cost....................................................................................14

10 Financial Analysis and Investment...........................................................................................14

10.1 Total Investment Cost................................................................................................14

11 Conclusion................................................................................................................................18
List of Tables
Table 4.1 Annual Raw material, inputs and utility Requirement and Utility Consumption
Requirement and Cost at full capacity operation -SOAP PRODUCING LINE........................5

Table 4.2 Annual Raw material, inputs and utility Requirement and Utility Consumption
Requirement and Cost at full capacity operation -DETERGENTS PRODUCING LINE........6

Table 5.1 Land use plan.............................................................................................................7

Table 6.3 List of Machinery and Equipment – Soap...............................................................10

Table 8.1 Man power requirement...........................................................................................12

Table 9.1 Project implementation is converting the planned project idea to actual work. The
activity to be implemented is stated below..............................................................................13

Table 10.1 Investment Cost Summary....................................................................................14

Table 10.2 Cost of production.................................................................................................15

Table 10.3 Price of Product and Annual Revenue at Full Capacity Operation........................16
List of figure

Figure 1 Sketchy presentation of the organization...................................................................12

1. Executive Summary

This profile provides basic information on the manufacturing of soaps and detergents with a
production capacity of 2,500 tons of soaps and 1,500 tons of detergents per annum.
The present demand for soaps and detergents would grow to 67,709.4 ton and 5,050.14 ton
respectively in 2024, when the plant reaches at its full capacity operational.
The total initial investment requirement is Birr 29.55 million out of which Birr 11.65 million is
for machinery and equipment.
According to the financial evaluation, the project will have a financial internal rate of return of
123.73 percent and its net present value discounted at l3 percent is Birr 310.01 million..

1
2 Project Background and History

2.1 Project Background

Once again, the sustained growth performances in the economy tends to have resulted in a new
consumer revolution steadily gathering momentum, due to rising incomes and behavioral
changes linked to urbanization. This has in turn been reflected in an increased spending on
consumer basic household goods and private health facilities such as toiletries, soaps, detergents
and related services. In effect such expanding demand sink coupled with favorable investment
policy environment in the manufacturing sector has attracted new investments in various related
activities all along.
What’s more the trend in the current favorable demographics with an ever improving awareness
in sanitary and health values both in the urban and rural parts of the country has been an equally
important demand sink and hence pull factor for additional investment ventures and increased
production of soaps and detergents and cleaning products of all sorts there with. Currently,
nearly 57 percent of the demand is met through imports while domestic production covers the
consumption requirement of 47 percent.
2.2 Project History

On a par with the market fundamentals put in place as growth recipes of the Ethiopian economy,
a range of compatible reforms aimed at fostering private sector investment and business
activities have been endorsed and implemented. This has been in recognition of the key role the
private sector has for the development of both the industrial and export sector.
Already, the provision of such multifaceted support to the sector has created conducive
environment for investment. In response, a flourishing private investment in all areas of
engagement has been witnessed with the direction of its movement in the share of gross
domestic investment in GDP pointing upwards over the last 10 years. The Ethiopian economy
has witnessed remarkable double-digit performance records at annual average GDP growth rate
of 11.0 percent for the period 2003-2012.

2
The achievement has also been well within the budding of new engagements in the cleaning
products such as soaps and detergents manufacturing business at all levels of the medium, small
scale and cottage industries.

2.3 Project Sponsors

The project is expected to secure its long term financial requirement both from its own and
from bank loan. These two sources, i.e., equity capital and long term bank loan, are expected
to finance 30 percent and 70 percent of the total investment requirement (Birr 8.87 million
and Birr 20.69 million ) respectively.
3. Market analysis and marketing concept

3.1 Project Description

This is an investment plan on the establishment of cleaning products manufacturing plant that
produces soaps and detergents. Soaps and detergents are cleaning products that have become an
essential part in our daily lives. They play an essential role by safely and effectively removing
dirt, germs and other contaminants, and thus promote a hygienic lifestyle.
Soap is a cleansing and emulsifying agent that consists essentially of a mixture of water-soluble
sodium or potassium salts of fatty acids and that may contain other ingredients such as builders,
abrasive material, perfume and dyes.
The major application of laundry soap is for washing or cleansing clothes. It is produced in bar
form for use in hand washing.
A detergent is a product which is used for cleaning purpose and is gradually replacing soap in
the household market because of its better performance as it can be formulated to produce a
product of the desired characteristics ranging from maximum cleaning power to maximum
cleaning per unit of cost. Detergent can be used in every household for cleaning of clothes and
household utensils. Besides better performances, its solubility in hard water calls for attention to
the manufacturing of this product as its application is wider ranging from the urban to the most
remote rural areas where un-treated hard water is used for cleaning purpose.
Basically, they are formulations comprising essential constituents such as surfactant which
perform the primary cleaning and budding of the washing action, and builders, which boost the
cleaning power and additives, which enhance the effect of the constituent raw-materials.

3
3.1.1 Objective and Strategy

The project perceives the viability of establishing a cleaning product manufacturing plant that
produces soaps and detergents of various types. It specifically aims at producing 2,500tons of
soaps and 1,500 tons of detergents per annum. In order to satisfy the demand stated above it
specifically aims at producing 2500 tons of soap and detergent per annual.
The plant is expected to operate 75% and 85% of the installed capacity in the first and second
years, respectively. The plant will reach full capacity on the third year. The rationale behind
such production build-up is that the production equipment’s are new, and operators usually take
some time to develop the specific skills and knowhow.

3.2 Demand and market

Past Supply and Present Demand

The supply of cleaning products soaps in Ethiopia is both from domestic production and import.
The average import of soaps and detergents is about 57% while the domestic production covers
43%. Among the imported products, Indonesia is the main supplier of soaps to the Ethiopian
market followed by South Korea. Since the total supply is dominated by imported products, at
the right quality level and packaging there is abundant demand for a new project to capture a
reasonable share of the market. In the past decade the annual average imported soaps volume
was 26,748 tons with an annual average growth rate of 5%. The annual average volume of
domestic production was 20,178 tons..
On the other hand, the total annual average consumption of detergents over the last five years
was 3500 tons.
Soaps and detergents have wider application in households for cleaning of clothes and house
hold utensils. Specifically, detergents are preferred mostly by urban households due to its
maximum cleaning powder and better performance and solubility in hard water in areas where
hard water is used for cleaning.

3.3 Demand projection

Future demand for detergent powder is projected based on the total effective consumption of
soaps and detergents, estimated at 46,926 tons and 3,500 tons respectively for the year 2021,
which also is considered as the base year. Taking a moderate annual growth rate of the industrial
sector at 13 percent to be a lead variable and coefficient of projection, the projected demand for
4
soaps and detergents is expected to grow to 67,709.4 ton and 5,050.14 ton respectively when the
project starts to reach its full capacity operation in 2024.
Pricing and Distribution
A quick survey of the prevailing ex-factory and retail price of imported and domestically
produced soaps and detergents at Addis Ababa indicates that it is averaged at Birr 40 per kg ( 1
bar=250 gram) and Birr 54 per kg( 1 pack = 200gram) respectively. To stand out the
competition as a new entrant to the industry, the recommended price for the new project is,
therefore, Birr 30.00 per kg and 45 per kg of soaps and detergents respectively.
The products will be distributed through the existing outlets and direct delivery to major
distributors.

4. Materials and Inputs

Soaps

The total annual raw material and utility consumption requirement and cost for the soap
producing line at full capacity operation presented in Table 3 below, is estimated at Br.
13,094,199.44. Of which, Br. 12,992,100.40 is cost of raw material ( Table 1 section I) and Br.
102,099.04 constitutes cost of utilities( Table 1 section II)
4.1 Raw Material
Table 4.1 Annual Raw material, inputs and utility Requirement and Utility Consumption Requirement and Cost
at full capacity operation -SOAP PRODUCING LINE
Annual Unit
No Item UO Quantit price(Br. Total
. Description M y ) Price(Br.)

I.   Raw
  materials        

1 Palm fatty acid Ton 4320 1975.5 8,534,160.00

2 NaOH Ton 1780 2310.1 4,111,978.00
Sodium
3 chloride Ton 168 1339.3 225,002.40

4 Bleaching earth Ton 96 450 43,200.00

5 Additives ton 144 540 77,760.00
12,992,100.4
  Sub total 0
II.          Utilitie
  s        
1 Electricity kwh 136400 0.4736 64,599.04

5
 2 Water M3 10000 3.75 37,500.00
  Sub total 102,099.04
13,094,199.4
  Total Cost 4

Detergents

The annual consumption of raw materials, auxiliary inputs and utilities for the detergent
producing line at full capacity operation, summarized in Table 4, is estimated at Br.
17,055.49976. Packaging and gluing materials are the auxiliaries for this product given in Table
2 section II. Also, the utilities required include:
 Electric powder
 Portable and industrial water
 Steam
 Fuel oil
 Compressed air

Table 4.2 Annual Raw material, inputs and utility Requirement and Utility Consumption Requirement and Cost
at full capacity operation -DETERGENTS PRODUCING LINE

No Description Annual consumption Total cost('000 Birr)

  I.      Direct raw materials    
1.
1 D.D.B.S.A 392ton 3160.4
l.2 Caustic Soda 65.32ton 294
l.3 Sodium tripody phosphate 489.6ton 3652.28
l.4 Sodium Sulphate 268ton 766.48
l.5 Sodium Silicate 359.48ton 952.6
l.6 Light Soda-ash 196ton 254.8
l.7 Fillers 75.4litre 427.344
     
  II.  Auxiliary materials  
2.
1 Glue   533.2
2.
2 Packing material   5200
     
  III. Utilities  
3.
1 Electric Energy 81.6MWH 38.64576
3.
2 Industrial and potable Water 333320litre 1249.95
3.
3 Fuel Oil 489.6litre 524.52
     
  Total   17,055.49976
6
5 Location site and Environment

The location of the project is perceived to be at Gelan City Administration. Gelan is found in the
district of Akaki, East Shewa Zone of the Oromia Regional State, at about 25kms east of Addis
Ababa, on the main highway to Adama. According to a 2009 projection, its total population is
estimated at a total size of 404,793.
Topographically, Gelan town is situated at about 1500-1700 meters above sea level,
characterized by a mountainous areas and plains. Its landmass may basically be categorized as
having a subtropical climate. The wider portion of Gelan’s landmass is covered by vertisols, a
soil type which muddy during rainy season and cracks during dry season. There are also few
areas of the town which bear a nitosol type of soil.

7
5.1 Land Requirement and Use plan

This plant requires a building of about 25 mts. high i.e. 3 to 4 storeys due to the nature of the
process. The total land requirement plant is estimated at 7,500 m 2 .The land is to be acquired on
a lease basis from Gelan City Administration located at Gelan area. The total lease cost, for a
period of 60 years at a cost of Birr 520 per m 2, is estimated at Birr 3,900,000.00, of which 10
percent or Birr 390,000 will be paid in advance. The remaining Birr 3,510,000.00 will be paid in
equal installments within 28 years at Birr 125,357.14 annually.
The total cost of civil work and construction is estimated at Br. 3,380,000.00.
Table 5.1 Land use plan
Number of
OBJECT Base area Total Area
floors
1. Offices and goods delivery 40*30 1 1,200
building
2. Raw material store 50*40 1 2,000
3.Production hall 30*60 1 2,000
4. General purpose 30*10 1 300
5. Others(parking lots, internal roads 20*25 500
and paths, cafeteria, guest club etc )
Total built-up area 2,600
6. Effluent treatment 3,200
7. Expansion purpose 1,700
Total area 7,000

5.2 Preliminary Environmental Impact Assessment

Owing to its proximity to Addis Ababa, easier market accessibility along the main road to and
from Djibouti for importing and exporting of raw materials and finished products, Gelan is one
of the industrial areas in the Oromia Regional State. Generally speaking, there are several
manufacturing areas of economic activities and engagements in Gelan such as, garment, metal
welding, medicine manufacturing, food items manufacturing and quarries. There are also other
service businesses including recreational centers, hotels and restaurants which constitute
significant proportion of the economic activities in the town.
The environmental implication issues of soaps and detergent manufacturing is all too
apparent in the use of the ingredients, transporting of the raw materials and ineffective
control of wastes and its ill-effects during the manufacturing process. In terms of volume and
cost, the three prime ingredients of soaps and detergents constitute, perfumes, caustic, and oil.
8
Oils and perfume are insoluble in water and if spilled can cause a problem. In recent times,
there has been seen a strong move among the soap and detergent manufacturers to use
biodegradable ingredients in place of environmentally hazardous biologically stable
detergents used in the past. The sulphonic acid and nonionic detergents that are used to
produce both liquid and powder detergents have found to be completely biodegradable and
comply with the relevant environmental standards and guidelines. The nonionic surfactants
are ethoxylated long chain alcohols and the sulphonic acid is produced from a highly linear
alkylbenzene, primarily dodecylbenzene. The sodium lauryl ether sulphates that are used in
liquid detergents, soaps and shampoos are highly biodegradable as they are made from either
natural or synthetic linear C12 - C15 alcohols.

6 Technology and Engineering

6.1 Type and production process

Soaps

The production process of the technology for soaps involves slowly melting of the raw materials
in a vessel. In order to eliminate the moisture, vacuum dehydration process will be carried out at
a certain temperature. Then bleaching earth is added and the solution will be stirred vigorously.
Fats and oils separated from the bleaching earth are pumped to saponification kettle and caustic
soda solution of a required concentration is then added in small quantity at a time. The soap
charged passes through different stage en-route to complete saponification. When the
saponification process is finished a concentrated salt solution is added to separate the lye. The
liquid soap from the tank is heated and pumped to the vacuum spray-drying unit. The soap
powder from the dryer is removed by a set of scrapers and directed to the plodder. Noodles from
the plodder are cut into pieces. The pieces are given further homogenization and together with
some additives, pressed into bars. The piece of soap is finally cut to the desired size by the cutter
and are then stamped and wrapped.

Detergents

Among the five manufacturing techniques of detergent powder, the vast majority of household
detergent powders are manufactured by the 'ballestra' spray drying process because of its many
advantages over the other techniques. A continuous feeding system of ingredients is

9
recommended for manufacturing of detergent powder with a spray - drying system as its
advantages outweigh the advantages of batch feeding system. The basic steps of the
manufacturing process involve:

 Solid and liquid ingredients are stored in their respective storage bins and vessels.

 Ingredients for detergent glory are proportioned by their respective load cells and
volumetric pumps and conveyed to glory mixing vessel.

 The mixed glory is transferred to the ageing vessel and agitated till it becomes ready for
spraying.

 The aged glory then passes through a mechanical fitter, a homogenizing pump and is
sprayed to the drying tower with a high-pressure pump.

 Drying air generated in a hot-air generating furnace is blown to the drying tower using
the two synchronized blowers.

 The dried powder drops at the bottom of the tower and conveyed to the settling vessel
with an air-lift fan.

 The powder is then screened by a vibrating give and transferred to a storage silo from
where it is conveyed to a perfuming unit and a carton filling machine bring ready for
shipping.

6.2 Source of Technology

The machinery and equipment required for the production of soaps and detergents can be
acquired can be obtained from an Indian company with the following address.

Frigmaires International
Maharashtra -400 013,India
Tel: +91-22-24944108
Fax: +91-22-22186046

6.3Engineering

Machinery and Equipment

Most of the machinery and equipment required for the production of soaps and detergents are
imported. The total cost of the machineries and equipment for both the soaps and detergents,
taken as a turnkey are estimated at a CIF price of Br. 11,648,910.00,, i.e., at Br. 2,705,000.00
for soap and Br. 8,943,910.00 for detergents.
The respective list and cost of each line is presented in Table 1 and Table 2 as follows.

10
Soaps
The total cost of machinery and equipment is estimated at CIF price of Br. 2,705,000.00.

Table 6.3 List of Machinery and Equipment – Soap

Sr. No Description Qty

1 Pump 5
2 Mixer with agitator & heating Coil 1
3 Boiling kettle 5
4 Filter press 2
5 Heat Exchanger 1
6 Booster Compressor 1
7 Screw Conveyor 1
8 Weight mixer 2
9 Cutting machine 3
10 Stamper 2
11 Wrapper 2

Detergents
The total cost of machinery and equipment is estimated at CIF price of Br. 8,943,910.00

Table 6.4 List Machinery and equipment - Detergents

Qty
No Description
A. Processing unit
1 Sleeve filler 5
2 Powder Silos 5
3 Automatic proportioning Scales 5
Storage vessels for liquids
4 Paste Preparation tank 3
5 Paste storage tank 1
6 Volumetric pump 1
7 Premix Screw Conveyor 2
8 Glory mixer 2
9 Ageing Vessel 1
l0 Feeding filter 1
11 Homogenizing pump 2
12 Self-cleaning filter 2
13 High pressure pump 2
14 Piping 2
15 Furnace -
16 Blowers 1
17 Drying Tower 2
18 Cyclones 1
19 Separator 8
11
 20 Fans 1
21 Vibrating Sieve 2
22 Storage Silo 1
23 Perfume dosing unit 1
1
B. Carton filling machine
1 Carton folding machine 2
2 Steam boiler & Utilities 2
3 Water treatment unit 1
4 Fuel oil system 1
5 Air compressor
6 Steam and oil piping and insulation 1
Cooling water system -
7 -
-

7 Organization and overhead cost

7.1 Organizational and layout

A sketchy presentation of the organizational structure is provided below.

Board of Directors

General Manager

Marketing & Sales Section Finance & Administration

Technical Section
Section

Figure 1 Sketchy presentation of the organization

12
8 Human Resource

8.1 Man Power Requirement and estimated annual human resource costs

A total of 57 employees, are to be required. The total annual cost of man power requirement is
Br. 1,322,055.00.

Table 8.1 Man power requirement

S.No Number Unit Monthly Total Annual
. Description Required Salary(Birr) Salary(Birr)
6,880. 82,560.0
1 Plant Manager 1 00 0
1,500. 18,000.0
2 Executive secretary 1 00 0
3,620. 43,440.0
3 Quality control head 1 00 0
2,280. 54,720.0
4 Chemist 2 00 0
43,440.0
5 Production & technical head 1 3,620.00 0
3,200. 38,400.0
6 Commercial head 1 00 0
Finance & administration 3,200. 38,400.0
7 head 1 00 0
2,200. 26,400.0
8 Personnel 1 00 0
850.0 20,400.0
9 Store keeper 2 0 0
1,200. 14,400.0
10 Purchaser 1 00 0
1,500. 18,000.0
11 Salesperson 1 00 0
2,280. 27,360.0
12 Accountant 1 00 0
1,100. 13,200.0
13 Cashier 1 00 0
1,055. 12,660.0
14 Clerk 1 00 0
2,900. 104,400.0
15 Production shift leader 3 00 0
1,990. 238,800.0
16 Operator 10 00 0
13
 670.0 96,480.0
17 Laborers 12 0 0
16,920.0
18 Janitors 3 470.00 0
1,424. 51,264.0
19 Mechanic 3 00 0
950.0 34,200.0
20 Electrician 3 0 0
670.0 8,040.0
21 Grease & oil man 1 0 0
1,320. 31,680.0
22 Driver 2 00 0

510.0 24,480.0
23 Guard 4 0 0
1,057,644.0
  Total 57   0
264,411.0
  Benefits (25 %)     0
1,322,055.0
  Grand Total     0

9 Implementation

9.1 Implementation time scheduling

Table 9.1 Project implementation is converting the planned project idea to actual work. The activity to be
implemented is stated below
Major activity Requirement of time
Appointment of implementation team 15 days
Company formation 3 month
Governmental approval 1 month
Financial planning 2 month
Acquisition of land 4 month
Construction 8 month
Purchase of raw material 1 month
Purchase of machinery and equipment 3 month
Installation of machinery and equipment 15 days
Requirement of employee 1 month

9.2 Estimated implementation cost

Architects and survey fee 30,000.00
Documentation and license 2,000.00
Stationary 1,000.00
Total 33,000.00

10 Financial Analysis and Investment

10.1 Total Investment Cost

14
The total initial investment requirement for the establishment is Birr 29.55 million. While the
fixed investment constitutes about Birr 16.57 million, working capital and preproduction
capital expenditures comprise Birr 7.14 million and Birr 5.84 million respectively. The
preproduction expenditures include such expenses for license fee, feasibility study, interest
payment (comprises about Br. 4.69 million), consultancy and design, etc. Computation of
working capital is shown in section 9.1 Above.
Table 10.1 Investment Cost Summary
No Items Local (Birr) Foreign (Birr) Total (Birr)
1 Land 390,000.00 390,000.00
2 Site preparation and development, Civil 3,380,000.00 3,380,000.00
work and construction
3 Plant machinery and equipment 11,648,910.00 11,648,910.00
4 Auxiliary equipment 1,050,000.00 1,050,000.00
Vehicles 900,000.00 900,000.00
Office equipment 150,000.00 150,000.00
5 Contingencies 100,000.00 100,000.00
Total Fixed Investment 16,568,910.00
6 Pre-production capital expenditure(net of 1,150,000.00
interest)
7 Interest 4,691,849.47
8 Increase in net working capital 7,143,046.76
Total Investment Cost. 29,553,824.23

The financial analysis of the project is based on the data provided in the previous chapters and
the following assumptions. Their detailed analysis using Comfar is attached.
Assumptions
A. General–
 Project life 15 years
 Construction period 2 years
 Source of finance 30 percent equity; 70 percent loan
 Discount rate 13 percent
 Capacity utilization rate 75 % 1st year, 85 % 2nd year, and 100 %
afterwards
 Tax holiday 2 years
 Spare part, repair & maintenance 3% of the cost of plant machinery
& equipment

B. Depreciation –

 Machinery and equipment 10 percent

 Vehicle 20 percent
 Office furniture 10 Percent
 Buildings 5 percent
 Pre productions costs 20 percent

C. Working capital- Minimum Days of Coverage

 Accounts receivable 15
15
  Cash in hand 15
 Raw material

 Foreign 75
 Local 30

 Work in progress 5
 Finished products 7
 Accounts payable 15

Source of Finance

The project is expected to secure its long term financial requirement both from its own and
from bank loan. These two sources, i.e., equity capital and long term bank loan, are expected
to finance 30 percent and 70 percent of the total investment requirement (Birr 8.87 million
and Birr 20.69 million ) respectively.
Production cost

The total production cost at full capacity operation is estimated at Birr 35.44 million, with
raw material alone constituting the major share in the cost at Br. 22.497 million. (See
attached tables).
Table 10.2 Cost of production
No Items Cost (000 birr) Percent of the
total
1 Raw materials 22,497,524.40
2 Factory supplies 5,733,200.00
3 Utilities & Energy 1,813,115.76
4 Repaired and maintenance, spare part 592,468.50
5 Labor cost 1,057,644.00
6 Labor overhead 264,411.00
7 FACTORY COSTS 31,958,363.66
8 Administrative cost 62,000.00
9 OPERATING COSTS 32,020,363.66
10 Depreciation 1,813,391.00
11 Financial costs 1,558,510.31
12 Marketing overhead cost 50,000.00
COST OF PRODUCTS 35,442,264,97

Price and Product Determination

Taking the average existing market price of the various qualities of imported and locally
produced soaps and detergents, as suggested in section 6.3, the annual sales proceedings from

16
the two product mixes-soaps and detergents-at full capacity operation of the establishment is
estimated at about Birr 112.5 million as revenue, as in the following.

Table 10.3 Price of Product and Annual Revenue at Full Capacity Operation
Product UOM Quantity at full Proposed unit Total
Capacity Selling Revenue(Birr)
Price(Birr )

Soaps Kg 2,,500,000 24.00 60,000,000.00

Detergents Kg 1,500,000 35.00 52,500,000.00

Total Revenue 112,500,000.00

Financial Projection Outcomes

Profit and Loss

According to the results of the forecasted profit and loss statements, the project is expected to
be profitable over its economic life, generating annual profit, net of tax, of Birr 55.92 million
in the first year of its operation period and about Birr 56.08 million afterwards. The increase
in its profit towards later years of its operation is associated with the decrease in the financial
commitments of different types.
Cash flow

Right from the outset, year one of the project’s operation, its cash flow shows a net positive
cash generation of Birr 48.19 million per year, showing an increasing trend to Birr 56.27
million cash flow towards the end of the operation of the project. As a result of its positive
cash flow, it will have a cumulative cash flow of Birr 836.26million at the end of its last
operation year, growing up to Birr 849.04million as the result of the sales of the assets at their
book value when the project reaches the end of its life.
Balance Sheet

The net worth of the project, reflecting its good financial performance is shown to become
Birr 849.04million at the end of the project life from its low Birr 9.09 million at the first year
of its operation. Other associated balance sheet variables of financial efficiency ratios
attesting the financial performance of the project, including such positions as liquidity, also
show sound results.
Payback Period
17
The normal payback period of the project, whereby the project will pay its investment back,
is computed at a reasonable duration of 2.41 years’ time.
NPV
With a net present value amounting Birr 310.02 million at 13 percent discount rate and IRR
of 123.73 percent, the discounted cash flow of the project indicates that it is viable. For the
detailed presentation of the results see the annexed financial analysis table.

Breakeven Analysis

As one of the important indicators, the break-even point of the project, where the project sees
no loss and no profit, is also viable. At its full production capacity, it will have break even
ratios at 27 percent of its capacity utilization rate.

Sensitivity Analysis

The financial performance of the project is also attested for the effect of adverse changes in
sales revenue, fixed assets and operating costs on its IRR. Based on the results of this test it is
found out that 20 percent change in these parameters will have a respective effect of 98.3
percent, 109.79 percent, and 116.85 percent in IRR of the project. The upshot is that it can
stand out up to 20 percent adverse change in any one of these parameters, except for sales
revenue. Conversely, any reversed improvement will have a positive impact on the
performance of the project. Here is how.
IRR
Sales revenue decrease by 20% 98.3%
Increase in fixed assets by 20% 109.79 %
Increase in operating costs by 20% 116.85%
Socio-economic Benefits
The project can create employment for 57 persons. In addition to supply of the domestic
needs, the project will generate income in terms of tax revenue when it starts to operate at full
capacity. Moreover, the Government can collect employment, income tax and sales tax
revenue. The establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports.

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11 Conclusion

This is an investment plan on the establishment of cleaning products manufacturing plant that
produces soap and detergents. This investment plan will help the demand (unsatisfied
demand) and also help the organization to generate profit. The source of technology will be
purchase from India. Machinery and equipment for soap and detergents are stated in the main
project. The source of finance is expected to secure its long term finance requirement both
from its own and from bank loan. This project is expected to be profitable over its economic
life, generating annual profit, net of tax, of birr 55.92 million in the first year of its operation
period and about birr 56.08 million afterwards. The cash flow shows a net positive cash
generation of birr 48.19 million per year. The financial performance of the project is also
attested for the effect of adverse Changes in sales revenue, fixed assets and operating costs on
its IRR. This investment project life is 1 year and the construction periods are 2 years. The
initial investment requirement for the establishment is birr 29.55 million. The source of
finance is 30% of equity and 70% of loan 30% of finance means birr 8.87 million and 70% of
loan finance means birr 20.69 million. The normal payback period of the project is computed
at a reasonable duration of 2.41 year. The total production cost is 35,442,264.97 birr the
annual sales proceedings from the two product mixes. Soaps and detergents at full capacity
operation of the establishment is estimated at about birr 112.5 million as revenue the price
and product determination is stated in the main body of the project. This project will require
total at 57 employee the total annual cost of man power requirement is birr 1,322,055. The
organizational structure is from board of director → general manager. The total land
requirements plant is estimated at 7,500m². The land is to be acquired on a lease basis from
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gelan city administration located at gelan area.

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