32.

PROFILE ON THE PRODUCTION OF CAR

BATTERY
 32-ii

TABLE OF CONTENTS

PAGE

I. SUMMARY 32-2

II. PRODUCT DESCRIPTION & APPLICATION 32-2

III. MARKET STUDY AND PLANT CAPACITY 32-3

A. MARKET STUDY 32-3
B. PLANT CAPACITY & PRODUCTION PROGRAM 32-6

IV. MATERIALS AND INPUTS 32-7

A. RAW & AUXILIARY MATERIALS 32-7
B. UTILITIES 32-7

V. TECHNOLOGY & ENGINEERING 32-8

A. TECHNOLOGY 32-8
B. ENGINEERING 32-10

VI. MANPOWER & TRAINING REQUIREMENT 32-14

A. MANPOWER REQUIREMENT 32-14
B. TRAINING REQUIREMENT 32-15

VII. FINANCIAL ANLYSIS 32-16

A. TOTAL INITIAL INVESTMENT COST 32-16
B. PRODUCTION COST 32-17
C. FINANCIAL EVALUATION 32-18
D. ECONOMIC & SOCIAL BENEFITS 32-20
 32-iii

I. SUMMARY

This profile envisages the establishment of a plant for the production of car battery with a
capacity of 20,000 pieces per annum. Car battery is a type of rechargeable battery that supplies
electric energy to an automobile.

The country`s requirement of car battery is largely met through import. The present (2012)
demand for car battery is estimated at 76,073 pieces. The demand for the product is projected to
reach at101, 253 pieces and 163,069 pieces by the year 2015 and 2020, respectively. By the
year 2023 the demand will reach at 197,313 pieces.

The principal raw materials required are lead, plates; separators, bitumen, plastic container, battery
cap and cork have to be imported

The total investment cost of the project including working capital is estimated at Birr 14.29
million. From the total investment cost, the highest share (Birr 7.29 million or 51.01%) is
accounted by fixed investment cost followed by initial working capital (Birr 5.60 million or
39.21%) and pre operation cost (Birr 1.40 million or 9.78%). From the total investment cost, Birr
1.95 million or 13.65% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 23.45% and a net present
value (NPV) of Birr 11.48 million, discounted at 10%.

The project can create employment for 43 persons. The establishment of such factory will have
a foreign exchange saving effect to the country by substituting the current imports. The project
will also create forward linkage with the local vehicle assembly sector and also generates income
for the Government in terms of tax revenue and payroll tax.

II. PRODUCT DESCRIPTION AND APPLICATION

Car battery is a type of rechargeable battery that supplies electric energy to an automobile. Usually
this refers to an SLI battery (starting, lighting, and ignition) to power the starter motor, the lights,
and the ignition system of a vehicle’s engine.
 32-iv

Automotive SLI batteries are usually lead-acid type, and are made of six galvanic cells in series to
provide a 12 volt system. Each cell provides 2.1 volts for a total of 12.6 volt at full charge. Heavy
vehicles such as highway trucks or tractors, often equipped with diesel engines, may have two
batteries in series for a 24 volt system, or may have parallel strings of batteries.

Lead-acid batteries are made up of plates of lead and separate plates of lead dioxide, which are
submerged into an electrolyte solution of about 35% sulfuric acid and 65% water.[2] This causes a
chemical reaction that releases electrons, allowing them to flow through conductors to produce
electricity. As the battery discharges, the acid of the electrolyte reacts with the materials of the
plates, changing their surface to lead sulfate. When the battery is recharged, the chemical reaction is
reversed: the lead sulfate reforms into lead oxide and lead. With the plates restored to their original
condition, the process may now be repeated.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Ethiopia imports a variety of batteries that are used for starting piston engines (auto battery, truck
battery etc.), lead acid accumulators, nickel-cadmium accumulators, nickel-iron accumulators
and other electric accumulators for solar and other renewable energy sources. For the purpose of
this project the market study has targeted only on auto battery and truck battery that are used for
starting piston engines. Import of the Lead Acid Accumulators for starting piston engines for the
past twelve years is shown in Table 3.1.
 32-v

Table 3.1

IMPORT OF AUTO AND TRUCK BATTERIES

Quantity Weight Value

Year
(Pieces) (Tons) ( ‘000 Birr)
2000 150,442 689 8,823
2001 182,243 1,615 22,103
2002 70,615 1,002 14,344
2003 108,819 1,665 24,474
2004 109,120 1,413 20,997
2005 97,274 1,471 26,141
2006 80,045 1,091 19,611
2007 51,086 542 12,819
2008 130,043 585 20,892
2009 1,982 2,264 77,521
2010 87,950 1,246 66,407
2011 64,196 1,932 133,791

Source: - Ethiopian Revenues and Customs Authority.

As could be observed from Table 3.1, the import volume has been fluctuating from year to year
wit. The average import of car batteries excluding an outlier exhibited in 2009 is 102,894 pieces.
However, there seems to be a general decline in the import of car batteries, particularly in the last
two years of the data set. This is partially explained by the recent new locally manufactured
supply. Awash Auto Batteries Plc, a 25 million Birr company established in Dukem town by two
Indians, expected to add 20,000 pieces of the product every single month to the Ethiopian auto-
batteries market.

Accordingly, the present effective demand is estimated considering the last two years average as
unsatisfied demand which is 76,073.
 32-vi

2. Demand Projection

The demand for car batteries is directly related with the number vehicles. According to local
manufacturers estimate demand for car battery in the past years has been growing by an annual
average of 10%. Taking this as a base the forecasted unsatisfied demand for car batteries up to
the year 2023 is given in Table 3.2.

Table 3.2
PROJECTED UNSATISFIED DEMAND FOR CAR BATTRIES ( PIECES)

Year Projected
Demand
2013 83,680
2014 92,048
2015 101,253
2016 111,378
2017 122,516
2018 134,767
2019 148,244
2020 163,069
2021 179,376
2022 197,313

Unsatisfied demand for car batteries will increase from 83,680 units in 2013 to 101,253 pieces
and 163,069 pieces by the year 2015 and 2020, respectively. By the year 2023 the unsatisfied
demand will reach at 197,313 pieces.

3. Pricing and Distribution

The price of car batteries varies according to the brand and type of vehicle, and other factors.
The average current price for typical 12 volt car battery is Birr 1,750 per unit. To be competitive
 32-vii

with the imported products of similar quality a factory gate price of Birr 1,600 per pieces is
recommended for the envisaged product.

As a new product competing established brands in the market the product should be distributed
mainly through own retail outlets as well as retailers shop.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The annual capacity of the envisaged car battery plant is proposed to be 20,000 pieces based on the
market study, minimum economies of scale, investment capital requirement, the period required for
implementation of the project and full capacity attainment and considering 20% market share. The
plant operates 300 days per year.

2. Production Program

The envisaged plant is recommended to start at relatively lower capacity to get enough time to
penetrate market and develop skill. The production build-up program is, hence, made to start at
relatively lower (70%) and then gradually rise to full capacity in the 4 thyear of operation. The
detailed production program is given in Table 3.3.

Table 3.3
PRODUCTION PROGRAM

Year of Production 1st Year 2nd Year 3rd Year 4th-10th Year
Capacity utilization (%) 70 80 90 100
Car battery (pieces) 14,000 16,000 18,000 20,000

The production program is set considering Sundays and public holidays and assuming that
maintenance works will be carried out during off-working hours.
 32-viii

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The raw materials required for the production of car battery are lead, plates, separators, bitumen,
plastic container, battery cap, cork and distilled water. The total annual cost of raw material is
estimated at Birr 23,193,000. The total annual materials requirement and cost of the plant is given in
Table 4.1.
Table 4.1
ANNUAL CONSUMPTION OF RAW MATERIALS AND COST

Sr.No. Description Unit of Qty. Cost in '000 Birr

Measur F.C L.C T.C
e
1 Plates Pcs -
2,520,000 13,608.0 13,608.0
2 Separator Pcs -
2,400,000 1,749.6 1,749.6
3 Hard plastic Pcs -
container
20,000 2,565.0 2,565.0
4 Lead Tons -
100 4,212.0 4,212.0
5 Bitumen Tons -
16 280.8 280.8
6 Battery cap Pcs -
120,000 648.0 648.0
7 Cork Pcs -
120,000 129.6 129.6
Total -
23,193.0 23,193.0

B. UTILITIES

Utilities required for manufacturing car battery production include electric power, fuel oil and water
(potable, process and distilled). The total annual cost of utilities is estimated at Birr 2,200,400. The
detail of the utility consumption and cost is given in Table 4.2.
 32-ix

Table 4.2
ANNUAL CONSUMPTION OF UTILITIES AND COST

Description Unit of Qty. Cost in

Measur '000 Birr
e
Electricity kWh 320,000 185.6
Fuel oil Lt. 85,000 1,264.8
Water m3 75,000 750.0
Total 2,200.4

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

A car battery has the following components:

 An outer casing made of a plastic polymer,

 Positive and negative plates made of lead,
 Separators made of porous synthetic material,
 Electrolyte, a mixture of sulphuric acid and water, and
 Lead terminal connectors, the connection point for the vehicles electrical circuitry.
 32-x

The battery manufacturing process begins with the production of a plastic container and cover.
Most automotive battery containers and their covers are made of polypropylene. For a typical 12-
volt car battery, the case is divided into six sections, or cells, shaped somewhat like one row in
an ice-cube tray. The cover will be sealed to the top of the container when the battery is finished.

The process continues with the making of grids or plates from lead or an alloy of lead and other
metals. A battery must have positive and negative plates to conduct a charge.

Next, a mud-like paste mixture of lead oxide powder, sulphuric acid and water (plus a small
amount of additives depending on whether the paste is for positive or negative plates) is applied
to the grids.

Inside the battery, the pasted positive and negative plates must be separated to prevent short
circuits. Separators are thin sheets of porous, insulating material used as spacers between the
positive and negative plates. Fine pores in the separators allow electrical current to flow between
the plates while preventing short circuits.

In the next step, a positive plate is paired with a negative plate and a separator. This is known as
an element, there is one element per battery cell, or compartment in the battery container.
Elements are dropped into the cells in the battery case. The cells are connected with a metal
(usually lead) that conducts electricity. The terminals, or posts, (usually made of lead) are
welded on. The battery is then filled with electrolyte, a mixture of sulphuric acid and water, and
the cover is attached.
 32-xi

Now the final part, charging. A power source is connected to the battery terminals and the
battery is charged for many hours. During this process the paste in the positive plate is converted
to a different form of lead oxide and the paste in the negative plate is converted to spongy lead.
When the battery is fully charged the process is complete and the battery is ready for market.
 32-xii

2. Environmental Impact Assessment

The effect of lead on the health of children has been extensively studied. It is therefore very
important that environmental releases of lead be kept to a minimum. For battery factories, the
most polluting air emissions should be filtered. All process waste (usually an acidic lead-bearing
slurry) should be processed at an effluent treatment plant to neutralize the acid and settle out the
lead from the suspension. The investment cost of the effluent treatment unit is included in the cost
of machinery and equipment.

B. ENGINEERING

1. Machinery and Equipment

The list of production machinery and equipment required for the plant is provided in Table 5.1. The
total cost of plant machinery and equipment is estimated at Birr 3.25 million, out of which Birr 1.95
million will be required in foreign currency.

Table 5.1
LIST OF MACHINERY AND EQUIPMENT REQUIRED

Sr. Machinery Description Quantity

No.
1 Melting pot 1
2 Burner 1
3 Dies 16
4 Welding torch 4
5 LPG cylinder with regulator 4
6 Oxygen cylinder 4
7 Compressor 1
8 Battery tester 4
9 Resistance/capacity discharge tester 2
10 Hydrometer 8
11 Temperature meter 2
12 Battery charger 2
 32-xiii

13 Effluent treatment unit 1 set

2. Land, Building and Civil Works

The total area will be 1,500 m2. The built-up area of the plant will be 700 m 2. The plant will have
production buildings, stores, office buildings and other civil structures. The total cost of buildings
and civil works shall be Birr 2.8 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.
 32-xiv

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

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

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

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

The last and the third zone, Expansion Zone, is classified into four levels and covers areas that
are considered to be in the outskirts of the city, where the city is expected to expand in the future.
The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191 per m 2 (see
Table 5.2).
 32-xv

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, 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 for this profile.

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

Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Payment Down
Grace Completion
Scored Point 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 399,000 of
which 10% or Birr 39,900 will be paid in advance. The remaining Birr 359,100 will be paid in
equal installments with in 28 years i.e. Birr 12,825 annually.

VI. HUMAN RESOURCE AND TRAININGREQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

The total human resource requirement of the plant will be 43. The total annual cost of human
resource is estimated at Birr 1,230,000. The monthly and annual salaries and wages are summarized
in Table 6.1.
 32-xvii

Table 6.1
HUMAN RESOURCE REQUIREMENT AND LABOUR COST (BIRR)

Sr.No Position No. of Monthly Annual

. Persons Salary Cost
1 General Manager 1 8,000 96,000
2 Secretary 1 2,000 24,000
3 Production and technical manager 1 6,000 72,000
4 Personnel 1 6,000 72,000
5 Accountants 2 6,000 72,000
6 Purchaser 2 6,000 72,000
7 Sales person 2 6,000 72,000
8 Store keeper 2 3,000 36,000
9 Cashier 2 3,000 36,000
10 Supervisor 1 3,000 36,000
11 Operator technician 6 9,000 108,000
12 Assistant operator technician 6 6,000 72,000
13 Chemist 1 12,000 144,000
14 Messenger and cleaner 6 2,400 28,800
15 Guards 9 3,600 43,200
Total 43 82,000 984,000
Employees benefit(25% of basic 20,500 246,000
salary)
Grand total 102,500 1,230,000

B. TRAINING REQUIREMENT

On-the-Job training for production and technical staff on operation, quality and maintenance of
machinery shall be carried out during plant erection and commissioning by experts of machinery
supplier at project site. Therefore, the cost of training is estimated at Birr 75,000.
 32-xviii

VII. FINANCIAL ANALYSIS

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

Construction period 1 year

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material imported 120 days
Work in progress 2 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 14.29
million (see Table 7.1). From the total investment cost, the highest share (Birr 7.29 million or
51.01%) is accounted by fixed investment cost followed by initial working capital (Birr 5.60
million or 39.21%) and pre operation cost (Birr 1.40 million or 9.78%). From the total
investment cost, Birr 1.95 million or 13.65% is required in foreign currency.
 32-xix

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Local Foreign Total %

No Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 39.90 39.90 0.28
1.2 Building and civil work 2,800.00 2,800.00 19.59
1.3 Machinery and equipment 1,300.00 1,950.00 3,250.00 22.74
1.4 Vehicles 900.00 900.00 6.30
Office furniture and
1.5 equipment 300.00 300.00 2.10
Sub total 5,339.90 1,950.00 7,289.90 51.01
2 Pre operating cost *
2.1 Pre operating cost 462.50 462.50 3.24
2.2 Interest during construction 934.84 934.84 6.54
Sub total 1,397.34 1,397.34 9.78
3 Working capital ** 5,602.52 5,602.52 39.21
Grand Total 12,339.77 1,950.00 14,289.77 100

* 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 8.06 million. However,
only the initial working capital of Birr 5.60 million 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

The annual production cost at full operation capacity is estimated at Birr 29.01 million (see Table
7.2). The cost of raw material account for 78.92% of the production cost. The other major
components of the production cost are utility, depreciation and financial cost which account for
7.49%, 4.02% and 3.40%, respectively. The remaining 9.21% is the share of labor, repair and
maintenance, labor overhead and administration cost. For detail production cost see Appendix
7.A.2.
 32-xx

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR FOUR)

Items Cost %
Raw Material and Inputs 23,193.0
0 78.92
Utilities 2,200.4
0 7.49
Maintenance and repair 97.5
0 0.33
Labour direct 984.0
0 3.35
Labour overheads 246.0
0 0.84
Administration Costs 150.0
0 0.51
Land lease cost - -
Cost of marketing and distribution 300.0
0 1.13
Total Operating Costs 27,170.9
0 92.57
Depreciation 1,064.5
0 4.02
Cost of Finance 771.2
5 3.40
Total Production Cost 29,006.6
5 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax ranges from Birr 2.09 million to Birr 3.27 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 30.02 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.
 32-xxi

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 12,096,000
Variable Margin ratio (%)

Break -Even Capacity utilization = Break- even Sales Value X 100 = 29.56 %
Sales revenue
4. Pay-back Period

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

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 23.45% 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 11.48
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 43 persons. The project will generate Birr 8.46 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 also create forward
linkage with the local vehicle assembly sector and also generates income for the Government in
terms of payroll tax.
 32-xxiii

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
 32-22

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 4,058.78 4,638.60 5,218.43 5,798.25 5,798.25 5,798.25 5,798.25 5,798.25 5,798.25 5,798.25

Accounts receivable 1,592.47 1,816.39 2,040.32 2,264.24 2,265.31 2,265.31 2,265.31 2,265.31 2,265.31 2,265.31

Cash-in-hand 14.36 16.42 18.47 20.52 20.70 20.70 20.70 20.70 20.70 20.70

CURRENT ASSETS 5,665.61 6,471.41 7,277.21 8,083.01 8,084.26 8,084.26 8,084.26 8,084.26 8,084.26 8,084.26

Accounts payable 63.09 72.10 81.11 90.13 90.13 90.13 90.13 90.13 90.13 90.13
CURRENT
LIABILITIES 63.09 72.10 81.11 90.13 90.13 90.13 90.13 90.13 90.13 90.13
TOTAL WORKING
CAPITAL 5,602.52 6,399.31 7,196.10 7,992.89 7,994.13 7,994.13 7,994.13 7,994.13 7,994.13 7,994.13
 32-23

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

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

Raw Material and Inputs 16,235 18,554 20,874 23,193 23,193 23,193 23,193 23,193 23,193 23,193

Utilities 1,540 1,760 1,980 2,200 2,200 2,200 2,200 2,200 2,200 2,200

Maintenance and repair 68 78 88 98 98 98 98 98 98 98

Labour direct 689 787 886 984 984 984 984 984 984 984

Labour overheads 172 197 221 246 246 246 246 246 246 246

Administration Costs 105 120 135 150 150 150 150 150 150 150

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

Cost of marketing
and distribution 300 300 300 300 300 300 300 300 300 300

Total Operating Costs 19,110 21,797 24,484 27,171 27,184 27,184 27,184 27,184 27,184 27,184

Depreciation 1,065 1,065 1,065 1,065 1,065 142 142 142 142 142

Cost of Finance 0 1,028 900 771 643 514 386 257 129 0

Total Production Cost 20,174 23,890 26,448 29,007 28,891 27,840 27,711 27,583 27,454 27,326
 32-24

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

Year Year Year YearYear Year Year Year

Item 2 3 4 5 6 7 8 9 Year 10 Year 11
32,00
Sales revenue 22,400 25,600 28,800 32,000 0 32,000 32,000 32,000 32,000 32,000
26,87
Less variable costs 18,810 21,497 24,184 26,871 1 26,871 26,871 26,871 26,871 26,871

VARIABLE MARGIN 3,590 4,103 4,616 5,129 5,129 5,129 5,129 5,129 5,129 5,129
in % of sales revenue 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03 16.03
Less fixed costs 1,365 1,365 1,365 1,365 1,377 455 455 455 455 455

OPERATIONAL MARGIN 2,226 2,739 3,252 3,765 3,752 4,674 4,674 4,674 4,674 4,674
in % of sales revenue 9.94 10.70 11.29 11.76 11.72 14.61 14.61 14.61 14.61 14.61
Financial costs 1,028 900 771 643 514 386 257 129 0
GROSS PROFIT 2,226 1,710 2,352 2,993 3,109 4,160 4,289 4,417 4,546 4,674
in % of sales revenue 9.94 6.68 8.17 9.35 9.72 13.00 13.40 13.80 14.21 14.61
Income (corporate) tax 0 0 0 898 933 1,248 1,287 1,325 1,364 1,402
NET PROFIT 2,226 1,710 2,352 2,095 2,176 2,912 3,002 3,092 3,182 3,272
in % of sales revenue 9.94 6.68 8.17 6.55 6.80 9.10 9.38 9.66 9.94 10.22
32-25
 32-26

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

Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap
TOTAL CASH INFLOW 7,752 29,000 25,609 28,809 32,000 32,000 32,000 32,000 32,000 32,000 32,000 10,649
Inflow funds 7,752 6,600 9 9 0 0 0 0 0 0 0 0
Inflow operation 0 22,400 25,600 28,800 32,000 32,000 32,000 32,000 32,000 32,000 32,000 0
Other income 0 0 0 0 0 0 0 0 0 0 0 10,649
TOTAL CASH
OUTFLOW 7,752 25,710 24,916 27,475 30,931 30,046 30,231 30,141 30,051 29,961 28,586 0
Increase in fixed assets 7,752 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 5,666 806 806 806 1 0 0 0 0 0 0
Operating costs 0 18,810 21,497 24,184 26,871 26,884 26,884 26,884 26,884 26,884 26,884 0
Marketing and
Distribution cost 0 300 300 300 300 300 300 300 300 300 300 0
Income tax 0 0 0 0 898 933 1,248 1,287 1,325 1,364 1,402 0
Financial costs 0 935 1,028 900 771 643 514 386 257 129 0 0
Loan repayment 0 0 1,285 1,285 1,285 1,285 1,285 1,285 1,285 1,285 0 0
SURPLUS (DEFICIT) 0 3,290 693 1,334 1,069 1,954 1,769 1,859 1,949 2,039 3,414 10,649
CUMULATIVE CASH
BALANCE 0 3,290 3,983 5,317 6,386 8,340 10,109 11,967 13,916 15,955 19,369 30,018
 32-27

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

Year Year Year Year Year Scra

Item Year 1 2 Year 3 4 Year 5 6 Year 7 8 Year 9 10 Year 11 p
10,64
TOTAL CASH INFLOW 0 22,400 25,600 28,800 32,000 32,000 32,000 32,000 32,000 32,000 32,000 9
Inflow operation 0 22,400 25,600 28,800 32,000 32,000 32,000 32,000 32,000 32,000 32,000 0
10,64
Other income 0 0 0 0 0 0 0 0 0 0 0 9

TOTAL CASH OUTFLOW 13,355 19,906 22,594 25,281 28,070 28,116 28,432 28,470 28,509 28,547 28,586 0
Increase in fixed assets 7,752 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 5,603 797 797 797 1 0 0 0 0 0 0 0
Operating costs 0 18,810 21,497 24,184 26,871 26,884 26,884 26,884 26,884 26,884 26,884 0

Marketing and Distribution cost 0 300 300 300 300 300 300 300 300 300 300 0
Income (corporate) tax 0 0 0 898 933 1,248 1,287 1,325 1,364 1,402 0
10,64
NET CASH FLOW -13,355 2,494 3,006 3,519 3,930 3,884 3,568 3,530 3,491 3,453 3,414 9
- 31,58
CUMULATIVE NET CASH FLOW -13,355 10,861 -7,855 -4,335 -406 3,478 7,046 10,576 14,067 17,520 20,934 2
Net present value -13,355 2,267 2,485 2,644 2,684 2,411 2,014 1,811 1,629 1,464 1,316 4,106
- 11,47
Cumulative net present value -13,355 11,088 -8,603 -5,959 -3,275 -864 1,151 2,962 4,590 6,055 7,371 7

NET PRESENT VALUE 11,477

INTERNAL RATE OF RETURN 23.45%
NORMAL PAYBACK 5 years