40.

PROFILE ON THE PRODUCTION OF

DISINFECTANT
 40-ii

TABLE OF CONTENTS

PAGE

I. SUMMARY 40-2

II. PRODUCT DESCRIPTION & APPLICATION 40-3

III. MARKET STUDY AND PLANT CAPACITY 40-3

A. MARKET STUDY 40-3
B. PLANT CAPACITY & PRODUCTION PROGRAM 40-6

IV. MATERIALS AND INPUTS 40-7

A. RAW & AUXILIARY MATERIALS 40-7
B. UTILITIES 40-7

V. TECHNOLOGY & ENGINEERING 40-8

A. TECHNOLOGY 40-8
B. ENGINEERING 40-9

VI. MANPOWER & TRAINING REQUIREMENT 40-13

A. MANPOWER REQUIREMENT 40-13
B. TRAINING REQUIREMENT 40-14

VII. FINANCIAL ANLYSIS 40-14

A. TOTAL INITIAL INVESTMENT COST 40-14
B. PRODUCTION COST 40-16
C. FINANCIAL EVALUATION 40-16
D. ECONOMIC & SOCIAL BENEFITS 48-18

I. SUMMARY
 40-iii

This profile envisages the establishment of a plant for the production of disinfectant with a
capacity of 300 tons of per annum. Disinfectants are substances that are applied to non-living
objects to destroy microorganisms that are living on the objects. Disinfectants are widely used in
the health care, food and pharmaceutical sectors to prevent unwanted microorganisms from
causing disease.

The demand for the product is met through import. The present (2012) demand for the products
is estimated at 250 tons per annum. The demand is projected to reach 335 tons and 427 tons by
the years 2018 and year 2023, respectively.

The principal raw materials required are high boiling tar acid, cresol, casein, borax, sodium
benzene, rosin, castor oil, soya bean oil, and caustic soda. Caustic soda and soya bean oil can be
obtained locally. The remaining raw materials have to be imported.

The total investment cost of the project including working capital is estimated at Birr 9.66
million. From the total investment cost the highest share (Birr 5.32 million or 55.12%) is
accounted by initial working capital followed by fixed investment cost (Birr 3.52 million or
36.51%) and pre operation cost (Birr 809.03 thousand or 8.37%).

The project is financially viable with an internal rate of return (IRR) of 29.76% and a net present
value (NPV) of Birr 15.73 million, discounted at 10%.

The project can create employment opportunities for 29 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 local producers of caustic soda and
soya bean oil and forward linkage with the service sector such as hotels, restaurants and hospitals
and also generates income for the Government in terms of tax revenue and payroll tax.

II. PRODUCT DESCRIPTION AND APPLICATION

 40-iv

Disinfectants are substances that are applied to non-living objects to destroy microorganisms that
are living on the objects. Disinfection refers to the reduction in the number of living
microorganisms to a level that is considered to be safe for the particular environment. Typically,
this entails the destruction of those microbes that are capable of causing disease.

There are a variety of disinfectants that can be used to reduce the microbial load on a surface or
in a solution.

A good disinfectant should also be a deodorant possessing good shelf qualities and it should be
effective against a host of microorganisms.

Disinfectants are frequently used in hospitals, dental surgeries, kitchens, and bathrooms to kill
infectious organisms. Today disinfectants are widely used in the health care, food and
pharmaceutical sectors to prevent unwanted microorganisms from causing disease.

III. MARKET AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Due to the absence of domestic production of disinfectants, the requirement of the country is
mainly met through import. The amount and value of different types of disinfectants supplied
from import during the past 12 years covering the period 2000--2011 is presented in Table 3.1.
 40-v

Table 3.1
IMPORT OF DISINFECTANT

Year Quantity Value

(Tons) ( ‘000 Birr)
2000 85.7 2,966
2001 93.4 1,167
2002 130.6 2,178
2003 209.4 2,875
2004 146.6 2,620
2005 175.1 2,164
2006 515.1 11,134
2007 432.7 11,978
2008 200.0 5,733
2009 81.8 2,150
2010 170.3 8,619
2011 96.1 6,823

Source: - Ethiopian Revenue and Customs Authority.

As could be observed from Table 3.1, the import volume has been fluctuating from year to year.
During the period 2000-2003 the imported quantity has grown consistently from 85.7 tons to
209.4 tons. The average yearly growth during the initial four years of the data set was 36%,
which can be considered very high. But, in the following two years i.e. 2004/05 it fell to an
average of 161 tons. Surprisingly, the quantity imported increased sharply to an annual average
of 474 tons during year 2006/07, which is almost three fold of the previous two years average.
The erratic nature of the data again continued in the last four recent years of 2008-2011. During
this period the imported quantity ranged from the lowest 81.8 tons to the highest 200 tons with a
mean figure of 137 tons. The decline of import in the recent years is believed to be due to the
stock carry over from the period where high level of import was registered.
 40-vi

In the absence of a clear trend, the averages of the past six years, which includes the highest and
lowest figures, is taken to reflect the present demand. Accordingly, the present demand is
estimated at 250 tons.

2. Demand Projection

The demand for disinfectant is directly related with the expansion of urbanization, population
growth, income rise and expansion of health care system and awareness of the population.
Considering the combined effect of the above factors the future demand is assumed to grow by
5% per annum. The projected demand for disinfectant is presented in Table 3.2.

Table 3.2

PROJECTED DEMAND FOR DISINFECTANT (TONS)

Year Quantity
2013 263
2014 276
2015 289
2016 304
2017 319
2018 335
2019 352
2020 369
2021 388
2022 407
2023 427

The demand for disinfectant will grow from 263 tons in the year 2013 to 335 tons and 427 tons
by the year 2018 and year 2023, respectively.

3. Pricing and Distribution

 40-vii

Based on the average CIF value of imported disinfectants and adding duty and other costs the ex-
factory price is proposed to be Birr 85,200 per ton.

Since disinfectants are demanded by relatively huge number of end –users, the project has to
make arrangement with the existing distributors of the product. Among the possible distributors
are those that are currently engaged in pharmaceutical and health care related product vendors.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The market study shows that demand for disinfectant increases from 263 tons in the year 2013 to
427 tons in the year 2023. Based on the market study and period required to implement the
project and market penetration and technical skill development, the envisaged plant capacity is
300 tons per annum on a three shifts of 8 hours per day and 312 working days per year.

2. Production Program

In order to develop the operators’ skill in production and quality control, it is vital to have a
gradual capacity buildup. In addition to this, a period is required to penetrate to the market.
Hence, it is assumed that the plant will go into full capacity operation in four years’ time starting
with 70% capacity in the first year and progressively developing to 80%, 90% and 100% in the
second, third and fourth year and then- after, respectively. The production program of the
envisaged plant is given in Table 3.3.

Table 3.3

PRODUCTION PROGRAM OF THE ENVISAGED DISENFECTANT PLANT(TONS)

Sr. Item Description 1st year 2nd year 3rd year 4th -10th
No.
1 Production of disinfectant 210 240 270 300
2 (tons) utilization (%)
Capacity 70 80 90 100
 40-viii

IV. MATERIALS AND INPTUS

A. MATERIALS

The principal raw materials required are high boiling tar acid, cresol, casein, borax, sodium
benzene, rosin, castor oil, soya bean oil, and caustic soda. Caustic soda and soya bean oil can be
obtained locally. Packing material is the only auxiliary material required by the envisaged plant.
The total annual cost of raw material at full capacity operation is estimated at Birr 19,784,000.
The annual requirement of raw material and their estimated costs are presented in Table 4.1.

Table 4.1

ANNUAL REQUIREMENT FOR RAW AND AUXILIARY MATEIRALS AND THEIR

COST

Sr.No. Item Description Quantity LC FC TC

(’ 000 Birr) (’000 Birr) (‘000Birr)
1 Tar acid (tons) 48 - 17,600.00 17,600.00
2 Cresol, 6010 - 601.00 601.00
3 creosote(lt)
Casein and 2,995 - 449.25 449.25
4 borax(lt)
Sodium 2,995 - 624.00 624.00
5 benzene(lt)
Rosin(lt) 281 - 42.15 42.15
6 Castor oil and 468 93.60 - 93.60
7 soya bean
Caustic oil(lt))
soda(lt 600 13.80 - 13.80
8 Packing 120,000 - 360.00 360.00
material(kg)
Total 107.40 19,676.40 19,783.80

B. UTILITIES

Utilities required are electricity and water. The total annual cost of utilities is estimated at Birr
176,448. The annual quantities and cost of utilities is estimated as shown in Table 4.2.
 40-ix

Table 4.2

ANNUAL UTILITY REQUIREMENT AND COST

Sr.No. Description Qty Total

1 Electric 45,600 26.45

Power(kWh)
2 Water(m3) 15,000 150.00

Total 176.45

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The manufacture of black fluid disinfectants involves saponification of fatty oils. Soft soap is
prepared by adding a boiling solution of caustic soda (33 %) to a mixture of fatty oils and molten
rosin. The soft soap thus obtained is dissolved in hot water and the creosote and cresol are added.
The fluid thus obtained is dark brown or black in color. To manufacture white fluid disinfectants,
casein is dissolved in water and a homogenous solution is made. Borax is added to this casein
solution and stirred properly, which is then filtered and the requisite amounts of HBTA and
cresol and creosote are added. Subsequently, homogenization is done in shearing colloid mill.

2. Environmental Impact Assessment

The production of black disinfectant involves mainly a mixing unit operation and filling to a
desired packing material and these unit operations can be performed in a controlled manner.
Hence, the plant does not have any adverse impact on environment.
 40-x

B. ENGINEERING

1. Machinery and Equipment

The list of machinery and equipment required for the envisaged plant is given in Table 5.1. The
total cost of machinery and equipment is estimated at Birr 900,000.

Table 5.1

LIST OF MACHINERY & EQUIPMENT

Sr.
Description Qty.
No.

1 Cast iron pan 1

2 Soft soap dissolving vessel 1

3 Colloid mill 1

4 Hot water still direct fired 1

5 Casein solution tank 1

6 HBTA creosote mixing tank 1

7 Other tools and equipment LS

2. Land, Buildings & Civil Works

The total area required by the project is 1,500 m2, of which 500 m2 is built-up area. The cost of
building at unit cost of Birr 4,000 per m2 is, thus, estimated at Birr 2,000,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
 40-xi

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.

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.
 40-xii

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).

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

Floor
Zone Level Price/m2
1st 1,686
2nd 1,535
Central Market District
3rd 1,323
4th 1,085
5th 894
1st 1,035
2nd 935
Transitional zone
3rd 809
4th 685
5th 555
1st 355
Expansion zone 2nd 299
3rd 217
4th 191
 40-xiii

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

Table 5.3

INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Payment Down
Grace Completion Paymen
Scored Point Period Period t

Above 75% 5 Years 30 Years 10%

From 50 - 75% 5 Years 28 Years 10%

From 25 - 49% 4 Years 25 Years 10%

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

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

VI. HUMAN RESOURCE AND TRAINING REQUIREMENT

A. HUMAN RESOURCE REQUIREMENT

Total human resource required is 29 persons. The total annual cost of human resource is
estimated at Birr 673,500. The details of the human resource requirement and the estimated
annual labor cost including employees’ benefit are given in Table 6.1.

Table 6.1

HUMAN RESOURCE REQUIREMENT AND ESTIMATED LABOR COST (BIRR)

Sr.No Item Description Req.No. Monthly salary Annual Salary

1 . General Manager 1 6,000 72,000
2 Executive Secretary 1 1,500 18,000
3 Production & Technical Head 1 4,000 48,000
4 Commercial Head 1 4,000 48,000
5 Finance & Administration Head 1 4,000 48,000
6 Accountant 2 3,000 36,000
8 Cashier 1 1,500 18,000
9 Purchaser 1 2,000 24,000
10 Store Keeper 2 2,400 28,800
11 Chemist 1 2,000 24,000
12 Shift Leader 1 2,000 24,000
13 Operator 3 3,600 43,200
14 Assistant Operator 3 2,700 32,400
16 Mechanic 1 1,200 14,400
17 Electrician 1 1,200 14,400
18 Driver 2 1,400 16,800
19 Guard 6 2,400 28,800
Sub -Total 29 44,900 538,800
Employees benefit (25% of basic 11,225 134,700
Total
salary) 29 56,125 673,500
 40-xv

B. TRAINING REQUIREMENT

The production and technical head, mechanic, electrician and quality control worker need at least
two weeks training on the technology, maintenance and quality control. For the rest, on-the-job
training will be sufficient in the time of installation and commissioning by the specialists. Total
training cost is estimated at about Birr 45,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the disinfectant 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
Raw Material local 60 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 9.66
million (see Table 7.1). From the total investment cost the highest share (Birr 5.32 million or
55.12%) is accounted by initial working capital followed by fixed investment cost (Birr 3.52
million or 36.51%) and pre operation cost (Birr 809.03 thousand or 8.37%).
 40-xvi

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 26.60 - 26.60 0.28
1.2 Building and civil work 2,000.00 - 2,000.00 20.70
1.3 Machinery and equipment 900.00 - 900.00 9.32
1.4 Vehicles 450.00 - 450.00 4.66
1.5 Office furniture and equipment 150.00 - 150.00 1.55
Sub -total 3,526.60 - 3,526.60 36.51
2 Pre operating cost * -
2.1 Pre operating cost 177.05 - 177.05 1.83
2.2 Interest during construction 631.98 - 631.98 6.54
Sub -total 809.03 - 809.03 8.37
3 Working capital 5,324.68 - 5,324.68 55.12
Grand Total 9,660.32 - 9,660.32 100

* 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 6.65 million. However,
only the initial working capital of Birr 5.32 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).
 40-xvii

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 21.93 million (see Table
7.2). The cost of raw material account for 90.18% of the production cost. The other major
components of the production cost are financial cost, direct labor and depreciation which account
for 2.77%, 2.46% and 1.83%, respectively. The remaining 2.08% 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 FIVE)

Items Cost %
(in 000 Birr)
Raw Material and Inputs 19,783.80 90.18
Utilities 176.45 0.80
Maintenance and repair 45.00 0.21
Labor direct 538.80 2.46
Labor overheads 134.70 0.61
Administration Costs 100.00 0.46
Land lease cost - -
Cost of marketing and distribution 150.00 0.68
Total Operating Costs 20,928.75 95.40
Depreciation 400.41 1.83
Cost of Finance 608.28 2.77
Total Production Cost 21,937.44 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through out its
operation life. Annual net profit after tax ranges from Birr 2.59 million to Birr 3.62 million
 40-xviii

during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 33.15 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.

Brake- Even Sales Value = Fixed Cost + Financial Cost = Birr 7,923,600

Variable Margin ratio (%)

Brake -Even Capacity utilization = Brake -even Sales Value X 100 = 31%

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 3 years.
 40-xix

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 29.76% 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 15.73
million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment opportunities for 29 persons. The project will generate Birr
8.78 million in terms of tax revenue and also generates income for the Government in terms
payroll tax. The establishment of such factory will have a foreign exchange saving effect to the
country by substituting the current imports. The project will also create backward linkage with
local producers of caustic soda and soya bean oil and forward linkage with the service sector
such as hotels, restaurants and hospitals.
 40-xx

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES
 40-21

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

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

4,451.3 4,945.9 4,945.9

Total inventory 3,956.76 6 4,945.95 4,945.95 5 4,945.95 4,945.95 4,945.95 5 4,945.95

1,570.9 1,744.7 1,744.7

Accounts receivable 1,397.75 1 1,744.06 1,744.06 8 1,744.78 1,744.78 1,744.78 8 1,744.78

Cash-in-hand 9.09 10.23 11.37 11.37 11.49 11.49 11.49 11.49 11.49 11.49

6,032.4 6,702.2 6,702.2

CURRENT ASSETS 5,363.60 9 6,701.38 6,701.38 1 6,702.21 6,702.21 6,702.21 1 6,702.21

Accounts payable 38.92 43.79 48.65 48.65 48.65 48.65 48.65 48.65 48.65 48.65

CURRENT LIABILITIES 38.92 43.79 48.65 48.65 48.65 48.65 48.65 48.65 48.65 48.65

TOTAL WORKING 5,988.7 6,653.5 6,653.5

CAPITAL 5,324.68 1 6,652.73 6,652.73 6 6,653.56 6,653.56 6,653.56 6 6,653.56
 40-22

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

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

Raw Material and Inputs 15,827 17,805 19,784 19,784 19,784 19,784 19,784 19,784 19,784 19,784

Utilities 141 159 176 176 176 176 176 176 176 176

Maintenance and repair 36 41 45 45 45 45 45 45 45 45

Labour direct 431 485 539 539 539 539 539 539 539 539

Labour overheads 108 121 135 135 135 135 135 135 135 135

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

Land lease cost 0 0 0 0 9 9 9 9 9 9

Cost of marketing 150 150 150 150 150 150 150 150 150 150
and distribution
Total Operating Costs 16,773 18,851 20,929 20,929 20,937 20,937 20,937 20,937 20,937 20,937

Depreciation 400 400 400 400 400 95 95 95 95 95

Cost of Finance 0 695 608 521 434 348 261 174 87 0

 40-23

Total Production Cost 17,173 19,946 21,937 21,851 21,772 21,380 21,293 21,206 21,119 21,032

Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)
Item Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Sales revenue 20,448 23,004 25,560 25,560 25,560 25,560 25,560 25,560 25,560 25,560
Less variable costs 16,623 18,701 20,779 20,779 20,779 20,779 20,779 20,779 20,779 20,779
VARIABLE MARGIN 3,825 4,303 4,781 4,781 4,781 4,781 4,781 4,781 4,781 4,781
in % of sales revenue 18.71 18.71 18.71 18.71 18.71 18.71 18.71 18.71 18.71 18.71
Less fixed costs 550 550 550 550 559 254 254 254 254 254
OPERATIONAL MARGIN 3,275 3,753 4,231 4,231 4,222 4,528 4,528 4,528 4,528 4,528
in % of sales revenue 16.01 16.31 16.55 16.55 16.52 17.71 17.71 17.71 17.71 17.71
Financial costs 695 608 521 434 348 261 174 87 0
GROSS PROFIT 3,275 3,058 3,623 3,709 3,788 4,180 4,267 4,354 4,441 4,528
in % of sales revenue 16.01 13.29 14.17 14.51 14.82 16.35 16.69 17.03 17.37 17.71
Income tax 0 0 0 1,113 1,136 1,254 1,280 1,306 1,332 1,358
NET PROFIT 3,275 3,058 3,623 2,597 2,651 2,926 2,987 3,048 3,109 3,169
in % of sales revenue 16.01 13.29 14.17 10.16 10.37 11.45 11.69 11.92 12.16 12.40
 40-24

Appendix 7.A.4
CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)
Year Year
Item 1 Year 2 Year 3 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Scrap

TOTAL CASH
3,704 26,444 23,009 25,565 25,560 25,560 25,560 25,560 25,560 25,560 25,560 8,512
INFLOW
Inflow funds 3,704 5,996 5 5 0 0 0 0 0 0 0 0
Inflow operation 0 20,448 23,004 25,560 25,560 25,560 25,560 25,560 25,560 25,560 25,560 0
Other income 0 0 0 0 0 0 0 0 0 0 0 8,512
TOTAL CASH
3,704 22,769 21,084 23,075 23,432 23,378 23,408 23,347 23,286 23,225 22,296 0
OUTFLOW
Increase in fixed
3,704 0 0 0 0 0 0 0 0 0 0 0
assets
Increase in current 0 5,364 669 669 0 1 0 0 0 0 0 0
assets
Operating costs 0 16,623 18,701 20,779 20,779 20,787 20,787 20,787 20,787 20,787 20,787 0
Marketing cost 0 150 150 150 150 150 150 150 150 150 150 0
Income tax 0 0 0 0 1,113 1,136 1,254 1,280 1,306 1,332 1,358 0
Financial costs 0 632 695 608 521 434 348 261 174 87 0 0
Loan repayment 0 0 869 869 869 869 869 869 869 869 0 0
SURPLUS 0 3,675 1,925 2,490 2,128 2,182 2,152 2,213 2,274 2,335 3,264 8,512
(DEFICIT)
 40-25

CUMULATIVE 0 3,675 5,600 8,090 10,218 12,400 14,552 16,765 19,039 21,373 24,638 33,150
CASH BALANCE
Appendix 7.A.5
DISCOUNTED CASH FLOW ( 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 0 20,448 23,004 25,560 25,560 25,560 25,560 25,560 25,560 25,560 25,560 8,512
Inflow operation 0 20,448 23,004 25,560 25,560 25,560 25,560 25,560 25,560 25,560 25,560 0
Other income 0 0 0 0 0 0 0 0 0 0 0 8,512
TOTAL CASH OUTFLOW 9,028 17,437 19,515 20,929 22,042 22,074 22,191 22,217 22,243 22,270 22,296 0
Increase in fixed assets 3,704 0 0 0 0 0 0 0 0 0 0 0
Increase in net working 5,325 664 664 0 1 0 0 0 0 0 0 0
capital
Operating costs 0 16,623 18,701 20,779 20,779 20,787 20,787 20,787 20,787 20,787 20,787 0
Marketing cost 0 150 150 150 150 150 150 150 150 150 150 0
Income tax 0 0 0 1,113 1,136 1,254 1,280 1,306 1,332 1,358 0
NET CASH FLOW -9,028 3,011 3,489 4,631 3,518 3,486 3,369 3,343 3,317 3,290 3,264 8,512
CUMULATIVE NET CASH -9,028 -6,017 -2,528 2,103 5,621 9,107 12,476 15,818 19,135 22,425 25,690 34,202
FLOW
Net present value -9,028 2,737 2,884 3,480 2,403 2,165 1,902 1,715 1,547 1,395 1,259 3,282
Cumulative net present value -9,028 -6,291 -3,408 72 2,475 4,639 6,541 8,256 9,803 11,199 12,457 15,739

NET PRESENT VALUE 15,739

INTERNAL RATE OF
29.76%
RETURN
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PAYBACK 3 years