Promoter: - Woy.

Meseret Goshu Page 1

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 Table of Contents
I. EXECUTIVE SUMMARY ..........................................................................................................2

II. PROJECT PROMOTER ............................................................................................................6

III. THE PROJECT ........................................................................................................................7

1. Description ...........................................................................................................................7

2. Project Status .......................................................................................................................8

3. Project Implementation Plan ..............................................................................................10

4. Beneficiaries of the Project .................................................................................................10

5. Project Rationales...............................................................................................................11

IV. ECONOMIC AND SECTOR REVIEW .......................................................................................11

1. Ethiopian Economy .............................................................................................................11

2. Tourism and Hotel Sector....................................................................................................14

V. MARKET- DEMAND & SUPPLY ANALYSIS AND STRATEGY.....................................................25

VI. TECHNICAL ANALYSIS..........................................................................................................40

VII. ORGANIZATION AND MANAGERMENT................................................................................43

1. Organization Structure........................................................................................................43

2. Management and Human resource .....................................................................................46

VIII. FINANCIAL ANALYSIS ..........................................................................................................49

1. Investment cost and financing structure .............................................................................49

2. Revenue Projection at full capacity .....................................................................................50

3. Operating Costs ..................................................................................................................52

4. Depreciation and amortization ...........................................................................................55

5. Initial Working capital.........................................................................................................56

6. Financial Results .................................................................................................................56

7. Sensitivity analysis..............................................................................................................61

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 I. EXECUTIVE SUMMARY
Ethiopia is one of the African countries that possess the highest number

of UNESCO World Heritage Sites in Africa, with different sites spread

throughout the whole country, and, therefore, has great potential to

develop itself as a tourist destination. The Government of Ethiopia (GOE)

has prioritized tourism development in its development strategy, to

optimize the existing tourism resources as a driving force of economic

growth for the whole country.

Ethiopia is a strategically important country in the Horn of Africa for

most countries and therefore, many international meetings and

conferences are held in Ethiopia. This creates huge demand for

accommodation at an international standard and even an increase in

such a demand is expected in the future because the importance of

Ethiopia has been growing and many international organizations have

been continuously strengthening their institutions and augmenting their

personnel in Ethiopia. The supply of accommodation, however, is far

below the level needed to meet the demand. Since the hotel industry

can create job opportunities for so-called blue collar workers, the

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development of the hotel industry is benefits not only the tourism sector

but also poverty reduction.

In the past twenty years the country has shown an encouraging private

investment in all areas of economic and social activities. The private

sector has been motivated by free market oriented economic policy on

the government. To stimulate private investment, the government

amended the investment proclamation several times which resulted in

booming of investment in all sectors of the economy.

Considering the attractive investment climate, Woy. Meseret Goshu has

decided to establish a three star hotel at Sebeta town of the Oromia

regional state. The promoter Meseret Goshu has secured a total leased

land with the area of 927 Square meters. The project building will

comprise B+G+5 main building.

The total investment cost of the project is estimated to be Birr 26.1

million. From the total investment cost, the promoter will contribute 30%

while the remaining 70 % is planned to be financed from bank loan.

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Hence, this feasibility study is conducted to determine the viability of the

project by capturing the current and future demand and supply of hotel

services at Sebeta town -a suburb to Addis Ababa.

The major Findings of the Feasibility Study are:

 The minimum net profit from service is expected to be Birr 3.0 million

in the first year and the maximum profit will be registered in year 10

that is more than birr 6.0 million. The cumulative net cash inflow is to

be Birr 85.5 million at the end of the project life.

 Using the major investment decision techniques, the launching of the

hotel project is found to be attractive showing the following financial

results:

 Net present value………………………Birr 26.5 million

 Internal rate of return………………29%

 The project will create job opportunity for more than 105 workers and

will generate income to the government in the form of profit tax

during its project life.

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 II. PROJECT PROMOTER
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A. Legality
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 Project promoter: - Woy. Meseret Goshu Gebere- Hiwot

 Project:- Three Star Hotel

 Address:-Oromia Region, Finfine special zone, Sebeta town, Kebele-02

H. No. 1434.

 Registered capital: - birr 40 million.

 Form of Business:- sole proprietorship

 Investment License:-KID/IH/H2515/03 issued on 06.05.2003

 Authorizing government body:-Oromia Regional Government,

Investment bureau.

B. Background

Woy. Meseret Goshu as a sole trader started business before many

years. She has started her business activity by establishing standard

hotel in Negele Borena town of Oromia regional state Negele Borena

zone. The hotel is called after her father, ‘Goshu hotel’.

Considering the natural link between the tour and travel business with

the hotel service, the promoter later on has established a travel and tour

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business in Addis Ababa. The travel and tour company is called after her

name Meseret Goshu travel and tour.

It is the income generated from both businesses has now becomes an

equity source for the construction of a three star hotel project under

consideration.

III. THE PROJECT

1. Description

The project under consideration is construction of all comprehensive

three star hotel located at one of the fastest growing suburb town of

Sebeta which is located about 14 kilometers distance from Addis Ababa

on the road to Addis- Jima.

The hotel will have the following facilities for all of its customers.

 24 hours laundry service

 Transportation services from and to air port and to the city.

 Recreational activities like beauty center & shopping centers.

Further excursion programs will be offered by the travel and tour

business mentioned above.

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2. Project Status

 Land

The project is implemented on a plot of land with area of 927 square

meters.

The land is acquired on lease basis for 40 years from Sebeta town

municipality office. Per the agreement, the annual rental payment is birr

7,771. From the total lease value of birr 411,988, down payment of 10%

or birr 101 149 is already paid by the promoter.

 Building

The total construction cost consists of Basement+G+5 hotel building.

The construction cost is estimated to be Birr 7,000,000. Per engineer

estimate the building is 30% completed.

 Hotel furnishing Items

Hotel furnishing items include machinery, equipment, soft furnishings,

kitchen and utensils, furniture and equipment are determined and to be

purchased locally.

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  Vehicles

For the employees and gusts service and transportation of goods the

project will have two vehicles. One coaster and one pick up.

 Pre-operating Expenses

Out of the total pre-operating expenses of Birr 200,000, payments in

relation to Bill of quantity and plan preparation for the building are

covered by the promoter. Payment for utility lines is to be covered via

bank borrowing. The list of expenses is shown below.

Pre-operating Expenditure
Description Value in birr
Building plan & Bill of quantity 50,000
Water Line 50,000
Plan amendment and soil test 12,0000
Electric light 100,000
Total Pre-operating 200,000

Total investment made so far

Investment made so far

Description Value
Land 101,149
Building 2,100,000
Pre-operating Expenses 200,000
Total 2,401,149

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3. Project Implementation Plan

Year Activity Jan. Feb Mar April May June July Aug Sep Oct Nov Dec

2010 Land acquisition

Legal document
Preparation

Construction of
2011 Buildings

Debt financing

Acquisition of hotel
2012 furnishing

Finishing Construction

Operation

As indicated in the above schedule, the project inception was started in

June, 2010 and majority works have been done thus far. The remaining

works would be finalized within a year and the hotel become operational

in the month of December, 2012.

4. Beneficiaries of the Project

The major benefits include the following:-

 returns on investment
 supply of quality hotel and accommodation services
 tax to the government
 Foreign currency generation
 Job opportunity for productive and unemployed labor force and
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  Indirect benefits accrue to the country as a whole in the form of
generating potential investment capital.
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5. Project Rationales
The promoter, woy. Meseret Goshu is also owner of a tour and travel

business. As a means of forward business integration strategy she wants

to expand her business. The government privileged the sector by giving

duty free import of appliances & equipments and availing land.

The project is very near to the capital Addis Ababa, which is known, as

centre of Africa, the seat of diplomats, suitable condition for foreign

direct investment, and the attraction of tourists. Considering these

favorable market conditions, the promoter decided to construct a three

star hotel.

IV. ECONOMIC AND SECTOR REVIEW

1. Ethiopian Economy
The services sector of the country’s economy has—for the first time in

the history—overtaken agriculture as the largest segment of the

Ethiopian economy. This reverses a centuries-long economic structure,

wherein agriculture was the dominant sector, followed in a distant

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 second place by the services sector, and lastly a very small industrial

sector. The recent release of FY 2008/09 GDP statistics, however,

revealed that the service sector is now clearly at top, comprising 45.1

percent of GDP, followed by agriculture at 43.2 percent, and Industry at

just 13.0 percent.

The customary shorthand description of the Ethiopian economy-as

being overwhelmingly agriculture-based-has thus just becomes

obsolete. The overtaking of agriculture by services is not some

statistical blip or a one-off occurrence linked to a particularly poor crop

season.

Agriculture has actually been overtaken by services at a time when crop

output reached a record level of 17.1 million tons. Indeed, for close

observers, the trend lines have been prevalent for almost a decade:

agriculture was more than 50 percent of GDP as recently as 2000/01 but

started a gradual decline over the past decade, falling to about 47

percent in the middle of the decade and to a low of 43.2 percent of GDP

most recently. The services share of GDP moved slowly but consistently

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 in the other direction, moving up from just 38 percent at the start of the

decade to 45 percent of GDP most recently.

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 As indicated in the above statistical data the service sector GDP

contribution in the overall economy has grown year after year in a

row.

2. Tourism and Hotel Sector

 Tourism

Global Trend-Multi-speed recovery

International tourism recovered strongly in 2010 according to the

Advance Release of the UNWTO World Tourism Barometer. International

tourist arrivals were up by almost 7% to 935 million, following the 4%

decline in 2009 – the year hardest hit by the global economic crisis. The

vast majority of destinations worldwide posted positive figures, sufficient

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to offset recent losses or bring them close to this target. However,

recovery came at different speeds and was primarily driven by emerging

economies.

Boosted by improved economic conditions worldwide, international

tourism has recovered faster than expected from the impacts of the

global financial crisis and economic recession of late 2008 and 2009.

International tourist arrivals were up by 6.7% compared to 2009, with

positive growth reported in all world regions. Worldwide, the number of

international tourist arrivals reached 935 million, up 58 million from 2009

and 22 million more than the pre-crisis peak level of 2008 (913 million).

While all regions posted growth in international tourist arrivals,

emerging economies remain the main drivers of this recovery. This

multi-speed recovery, lower in advanced economies (+5%), faster in

emerging ones (+8%), is a reflection of the broader global economic

situation and is set to dominate 2011 and the foreseeable future.

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The recovery in international tourism is good news, especially for those

developing countries that rely on the sector for much-needed revenue

and jobs.

Following a year of global recovery in 2010, growth is expected to

continue for the tourism sector in 2011 but at a slower pace. UNWTO

forecasts international tourist arrivals to grow at between 4% to 5% in

2011, a rate slightly above the long-term average.

Tourism Forecasts
The World Tourism Organization's long-term forecast and assessment

of the development of tourism up to the first 20 years of the new

millennium. An essential outcome of the Tourism 2020 Vision is

quantitative forecasts covering a 25 years period, with 1995 as the base

year and forecasts for 2010 and 2020.

Although the evolution of tourism in the last few years has been

irregular, UNWTO maintains its long-term forecast for the moment. The

underlying structural trends of the forecast are believed not to have

significantly changed. Experience shows that in the short term, periods

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 of faster growth (1995, 1996, and 2000) alternate with periods of slow

growth (2001 to 2003). While the pace of growth till 2000 actually

exceeded the Tourism 2020 Vision forecast, it is generally expected that

the current slowdown will be compensated in the medium to long term.

The following graph shows the forecast.

UNWTO's Tourism 2020 Vision forecasts that international arrivals are

expected to reach nearly 1.6 billion by the year 2020. Of these

worldwide arrivals in 2020, 1.2 billion will be intraregional and 378

million will be long-haul travelers.

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 The total tourist arrivals by region shows that by 2020 the top three

receiving regions will be Europe (717 million tourists), East Asia and the

Pacific (397 million) and the Americas (282 million), followed by Africa,

the Middle East and South Asia.

East Asia and the Pacific, Asia, the Middle East and Africa are forecasted

to record growth at rates of over 5% year, compared to the world

average of 4.1%. The more mature regions Europe and Americas are

anticipated to show lower than average growth rates. Europe will

maintain the highest share of world arrivals, although there will be a

decline from 60 per cent in 1995 to 46 per cent in 2020.

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Ethiopia with its diversified natural endowments can be one of those

main tourist attraction countries in the world.

The main features of the natural tourist attractions of the country are its

landscape with numerous scales of topographies, attractive rivers and

waterfalls, gorges, caves, rift valley, lakes, fauna and flora, monuments

and artifacts, and diverse ethnic and cultural blends. Being an ancient

country it has got rich history. The famous historical routes are Addis

Ababa, Bahir Dar, Gonder, Axum, Lalibela, Mekelle, Sof Oumer, Arba

Minch, Hawassa, etc. These areas are famous for monasteries, ritual

oblisks, manuscripts, castles, rift valley and lakes, monolithic stones, etc.

The archeological attractions are Haddar in Awash Valley, Melka Kontur,

Dilla and Dire Dawa areas. Ethiopia is the cradle of mankind where a four

million years old remains (Selam) has been recently found. The unique

character of the country are its attractive cultures and more than 80

ethnic groups having over 200 dialect, varied traditions and customs,

very interesting music, folk songs and dancing. In addition to this, Addis

Ababa is the centre of Africa, the seat of numerous diplomatic missions

and representatives of international organizations. It is a venue of many

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conferences and seminars and a home for thriving commercial

community.

Frommer’s Travel Guides, which has been offering the best tourist

destination sites for those planning the perfect travel excursion for the

last 50 years, posted on Frommer’s.com scoured the globe, and polled

its stable of authors and experts to identify twelve surprising, thriving, or

emerging travel destinations. Following this, Ethiopia is selected one of

the top ten travel destinations.

Former’s Travel Guides also disclosed Ethiopia as finally emerged out

of the shadows caused by year’s political strife, economic hardship, and

famine. The improved infrastructure has made travelling in Ethiopia

increasingly popular, especially for those seeking adventure. Ethiopia is

reverted for its rich history as one of the earliest Christian country, the

town of Axum which is the home of the ancient ark of the covenants as

well as the monolithic rock-hewn churches of Lalibelaare some of the

tourist attraction sites in Ethiopia. The country has a unique calendar of

its own and it has celebrated its own Millennium. The African Union

head of states on its summit decided the Ethiopian Millennium to be

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called as the African Millennium. This helps the country to promote its

tourism industry throughout the world.

Statistical report on most developing countries show that the demand

for facilities such as hotels, transportation, banking, insurance,

telecommunications, road, electricity, etc are rising and should assist the

growing tourism industry. It is, therefore, high time for the country to

develop and improve its tourist facilities to a level of internationally

acceptable standard.

 Hotel

Modern hotel Businesses in the country begin at the end of the 19th c,

particularly during the Emperor Minelik II period. At the end of 1890’s

a modern hotel was built with the name of “Taitu Hotel” with the aim

to serve the royal families, embassy workers, envoys and tourists. In

addition, Italian invention was contributed to the development of the

sector through the establishment of Italian owned hotels in major cities

and towns of the country. More specifically, they have started to

establish better equipped hotels in Addis Ababa Diredawa and other

towns with main objective of providing hotel services to the Italian

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armies and beside to this, to strength its colonial position by introducing

economic colonization. In addition, factors like the following contributed

towards the development of the sector:-

 The construction of Ethio-Djibouti railways

 The existence of various tourist sites

 The strengthening of Ethiopia’s foreign relations

 The increasing settlement of foreign citizens from countries like

Armenia, Greece, Italy, and India who all helped to bring

entrepreneurial capacity to develop the hotel services locally.

 The establishment of various international organizations such as AAU

and ECA in Addis Ababa which resulted in the increase in the

demand of conference tourism in the country.

Although the number of foreign travelers who were interested in the

natural, cultural, and historical attractions of Ethiopia had been

increasing from year to year since Mimili’s time (late 19th century),

tourism as an economic activity and important industry was given due

attention in the early 1960s. Thus, in Ethiopia, modern tourism activity

was started not more than 45 years ago.

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Accordingly, the first tourist organization was established in 1961 and

consequently, to develop tourism and attract investors in the sector, the

Imperial Government promulgated a decree in 1962. The main objective

of the decree was to initiate private investment in tourism sector. At this

time, tourism infrastructure was very poor and there were inadequate

number of hotels to accommodate tourists. Therefore, the Imperial

government emphasized in building hotels and other infrastructure.

With this view, government established various hotels and resorts in the

capital city and major tourist attraction areas. The Hilton Hotel, Ras

hotel, Ethiopia hotel and Gihon hotel counts among the hotel chains

established in the capital and major tourist areas of the country during

the Imperial Hailessellassie era. During this period, tourism and hotel

business was in the process of rapid expansion.

However, because of the change of government in 1974, the rapid

growth of tourism had been hindered significantly. Even during this

period, though several efforts were made to develop the tourism sector,

due to the government’s ideology, the sector’s performance was left

behind the pre 1974 period. Therefore, the performance of tourism and

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hotel Business during the military regime had been disappointing, owing

to the hostile environment for international tourists, restrictions imposed

on private sector participation, low level of investment on tourism

promotion and development, inadequate tourist facilities and poor

transport and other infrastructure (Survey of Tourism, 1998; MEDaC, 1999). All

these factors accounted for the poor performance of the sector in terms

of tourist flows, foreign exchange generation, and job creation.

Finally, the military government issued ‘mixed economic policy’ in

1989 and the private sector was invited to participate in tourism

business.

In 1991, after the collapse of the military government, a transitional

government was established and it campaigned for the shift from

command economy to free market economy. This change of economic

policy further encouraged the participation of private investment that

was already started because of the mixed economy in 1989.

Consequently, the government introduced reforms in the tourism sector

and Ethiopia was open for tourists from all parts of the world.

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The new policy allows the participation of private investors in the

tourism sector. As a result, several private tour operators and travel

agencies have been established. Accordingly, the hotel sector became

one of the beneficiaries of the new economic policy. Thus, there is a

relatively conducive investment opportunity in hotel industry and the

trend shows that tourism will be one of the main contributors to the

balance of payments as well as pro-poor economic growth opportunities

in the future. Thus, the very intent of this project is to take advantage of

this opportunity and expand and improve the existing hotel business

near to the most vibrant and growing city (ADDIS ABABA).

V. MARKET- DEMAND & SUPPLY ANALYSIS AND STRATEGY

To undertake the demand and market analysis both primary and

secondary data was collected from primary and secondary sources. The

primary data was collected by personal observation, and interviewing

administrators, contractors, investment bureau employees, customers

and different peoples who work in similar business in Addis Ababa.

Secondary data was collected from governmental institutions such as

investment office, ministry of tourism and culture. These collected

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information are about market potential and shares, demand of

community for both satisfied and unsatisfied portions, pricing strategies

and related impacts on the raw material and their suppliers ,business

environments (location) influences form both internal and external etc.

A. Customers /Target market

In light of market research and previous experience of other businesses

in the industry, our target markets are tourists, transit tourists and Addis

Ababa residents. The detail description of our target market is listed as

follows:

Foreign tourists: - the existence of many tourist attraction sites of the

country in general and that of the city in particular are attracting a large

number of tourists to the country. Hence, these tourists prefer our hotel

services since they demand international standard high quality hotel

services.

In addition, participants of international conference (seminars), business

travelers, transit passengers, foreign diplomats, officials of different

international organizations, NGOs and Ethiopian diasporas who came

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home for different reasons are the users of our hotel services. Based on

the information obtained from the Ethiopian tourism commission, the

number of tourists visiting Ethiopia is growing fast from year to year.

Residents of Addis Ababa (local tourists):- The hotel is located at

Sebeta town which is the nearest suburb of the capital Addis, where

most of expatriates, Diasporas, icon business men and high rank

politicians are residing. Hence, they are one of targeted customers of the

hotel.

B. Demand and Supply Gap Analysis

Demand

Ethiopia is endowed with unique cultural heritages, striking scenery,

favorable climate, rich flaura fauna, as well as important archeological

sites. These blessings coupled with the government’s initiative to

promote the tourist attraction centers demanded the country to invest

on hotel constructions as more tourist arrival is expected in the future.

The capital -Addis Ababa is the venue of Africa being the seat of many

international and regional organizations including UN-ECA, AU, over 90

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permanent residents of diplomatic missions and direct and indirect

representative offices.

These diplomatic missions and organizations used to organize regular

and extraordinary meetings. Participants require standard

accommodation services and meeting places in the capital.

As it is well known, there are a number of factors affecting the demand

of hotel catering service. Mainly the factors are disposable income of the

population, its size, willingness and preference of the customer, quality

and availability of competitors in the sector. There are also implicit

factors attributable to the general political, economical and social

activities of the country in general and the city in particular.

In such circumstances, it is difficult to know the exact magnitude of

demand especially for local customers and hence what could be worked

out is a demand forecast based on historical tourist’s inbound trend to

Ethiopia. [[

Per ‘Ethiopian Tourism Commission ‘statistical abstract of the year

2008, (recent issue).

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  The actual International tourist arrivals to Ethiopia for the year 2008

were 383,399.

 An average annual growth rate of 7.9% over the next 10 years is

expected.

 A few numbers of domestic customers and domestic resident

diplomatic missions would use the services. For this project

purpose, it is assumed that about 10% of the number of tourists is

billed to the expected number of domestic customers-own

estimate. Based on the above facts and figures, the tourist forecast

for the coming 10 years is presented below.

Projected Tourists Inbound, Customers (Ethiopians Total Expected

7.9% growth rate per annum and Foreign residents) no. of customers
Project life Year A B =A x 0.1 C= A+B
Actual 2,008 383,399 383,399
2,009 413,688 41,369 455,056
2,010 446,369 44,637 491,006
2,011 481,632 48,163 529,795
1 2,012 519,681 51,968 571,649
2 2,013 560,736 56,074 616,809
3 2,014 605,034 60,503 665,537
4 2,015 652,831 65,283 718,115
5 2,016 704,405 70,441 774,846
6 2,017 760,053 76,005 836,058
7 2,018 820,097 82,010 902,107
8 2,019 884,885 88,489 973,374
9 2,020 954,791 95,479 1,050,270
10 2,021 1,030,219 103,022 1,133,241

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There would be from minimum 571 thousand to maximum 1.1 million

tourist arrival in the years between 2012-2021.

Supply Analysis

Ethiopia has a limited supply of Star and tourist standard hotels and

accommodations. The existing star hotels in the country are highly

slanted towards the capital city. Hotel and accommodation service in

Ethiopia is characterized by among others, the following features:

 Low educational qualification and training system,

 Poor service quality and limited domestic consumption,

 Limited supply of star hotels and over-pricing of the existing hotels

for what they offered

 Lack of hotel plain rating system, which prevents the existing licensing

authority from downgrading them,

 Less access to market information and poor infrastructure,

Supply of hotels service is not a mere forecast of the number of available

rooms, it includes assessment of establishment and constructions,

expansions, quality of the service and factors that deal with the process

of service delivery.

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The distribution of tourist class hotels by Region:

REGIONAL STATES NUMBER OF HOTELS Rooms Beds

1- ADDIS ABEBA 88 4449 5916
2- AFAR 9 174 221
3- AMHARA 66 1781 2429
4- BENSHANGUL 6 122 133
5- DIRE DAWA 16 551 712
6- GAMBELA 4 61 85
7- HARARI 9 251 314
8- OROMIA 115 3083 3706
9- SOMALI 11 215 245
10-SPNN 70 1661 1910
11-TIGRAI 43 1335 1546
12-TOTAL 437 13,683 17,217
Source: Ministry of Culture & Tourism Statistical Bulletin, 2008

As shown in table above the total number of star hotels room in Ethiopia

in the year 2008 is only 13,683 out of which 4,449 are found in Addis

Ababa. Including the recommended and unclassified hotel rooms, the

national supply of rooms and beds is 13,683 and 17,217 respectively.

From this magnitude, Addis Ababa shares 4,449 rooms and 5,916 beds.

The number of rooms and beds are not similar because of existence of 2

beds in one room, which is commonly referred as double bedrooms.

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However, each and every double bedroom wouldn’t necessarily be

occupied by two customers; a single occupant could use a double

bedroom. To ease this confusion, an average number of the beds and

the rooms would be applied in the forecast.

As the supply analysis should include additional investment activities in

the sector either in the form of expansion or new projects, the

investment on hotel projects for the past years (1992-2006) is shown in

the table below.

Hotel Investment projects implementation rate

Status of the Projects National Level Addis Ababa Implementation

Rate in %
No of Registere No Registered Addis
Projects d Capital of Capital National Ababa
In billion Projects In billion of Level
of Birr Birr
Pre -implementation 874 4.6 201 2.6 97.3 89.5

Under implementation 24 0.095 21 0.075 2.7 10.5

Source: Ethiopian Investment Agency

As the above table tells us, the implementation rate is very weak. From

the licensed 201 hotel projects with investment capital of Birr 2.6 Billion,

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only 10.5 % were under implementation for Addis Ababa Projects. The

national level is worse, as it is only 2.7% is under implementation from

874 licensed projects.

In order to indicate future growth in supply of the hotel service, the

implementation rate of the licensed projects, which is 10.5% is applied in

the supply projection

Trend based assumptions for supply projection.

 The average number of bed and rooms of all starred,

recommended and unclassified hotels of the year 2008 in Addis

Ababa is taken as the base year data,

 Hotel bedroom supply would grow at the rate of 10 % per annum-

implementation rate

 On average tourists stay only a single week in Addis Ababa,

 Even though tourists have their star preference, and the

comparison shall be made for similar stars, it is assumed that all

starred hotels, unclassified and recommended ones are taken as

equal competent of the hotel project at hand.

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Assuming 10% growth rate per annum in supply side, the forecasted

supply of hotels bedrooms in the coming 10 years (2012-2021) is shown

in table below.

Hotel bedrooms supply projection.

Project Average Number of tourists
period Bed Number A single bed that can be served
Number Night/Tou of Days in serving capacity of with the existing
Year of Beds rist a Year customer /year Beds/Annum

0 A B C D=C/B E =A x D
Actual 2008 5,916 7 365 52 308,477
0 2009 6,508 7 365 52 339,325
0 2010 7,158 7 365 52 373,257
0 2011 7,874 7 365 52 410,583
1 2012 8,662 7 365 52 451,641
2 2013 9,528 7 365 52 496,806
3 2014 10,481 7 365 52 546,486
4 2015 11,529 7 365 52 601,135
5 2016 12,681 7 365 52 661,248
6 2017 13,950 7 365 52 727,373
7 2018 15,345 7 365 52 800,110
8 2019 16,879 7 365 52 880,121
9 2020 18,567 7 365 52 968,133
10 2021 20,424 7 365 52 1,064,947

Based on the employed trend and assumption, available bedrooms in

the city could serve from the minimum 451 thousand tourists (in 2012)

to the maximum 1 million tourists (in 2021), with an annual capacity

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growth rate of 10%. The growth in tourist handling capacity would be

obtained from expansion of existing ones and due to new entrants.

Demand Gap

Demand –Supply- gap of hotel accommodation service for 10 years.

Year Demand No. Of Supply Capacity Excess /Demand
Customers who need No of customers No. of customers
Hotel accommodation that the available who do not get hotel accommodation
service bedrooms could serve service

2008 383,399 308,477 74,922

2009 455,056 339,325 115,731
2010 491,006 373,257 117,748
2011 529,795 410,583 119,212
2012 571,649 451,641 120,008
2013 616,809 496,806 120,004
2014 665,537 546,486 119,051
2015 718,115 601,135 116,980
2016 774,846 661,248 113,598
2017 836,058 727,373 108,686
2018 902,107 800,110 101,997
2019 973,374 880,121 93,252
2020 1,050,270 968,133 82,137
2021 1,133,241 1,064,947 68,295

As shown above, among the expected number of tourist-customers and

local customers (Ethiopians and foreign residents), from the maximum

120 thousand (2012) to the minimum 68 thousand (2021) of them

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wouldn’t get accommodation service in the considered starred and

recommended as well as unclassified hotels.

This would be a good opportunity for investors to enter the market in

the sector

C. Conclusion

The demand and supply gap presented above shows the true reflection

of hotel and accommodation service need in Addis Ababa. If someone

wants to arrange a meeting, or get a standard resting room in Addis

Ababa, he is expected to book two weeks or three weeks earlier than the

event. The demand supply gap also tells us that unless investment in the

sector has been made at a faster rate than the rate used in the growing

trend of world tourism industry. To attract more tourists the number of

investment being made has to be increased. The government is

encouraging investments being made in the sector so as to curb the

shortage.

NB. So far there is no tourist standard hotel in Sebeta. Because of its proximity to
Addis the data considered for the analysis is that of Addis Ababa.

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D. Marketing Strategy

Product or service marketing is a fundamental job in business operation.

The services to be offered should be properly marketed so as to achieve

the desired market share. The marketing techniques to be followed are

using the proper mixing up of the four marketing techniques.

1. Price of the Services

The hotel is being constructed to fulfill the standards of a three star

hotel. Hence, the service price is to be taken in a three star hotel

standard. In order to get the desired market share, however, the prices

for the hotel services shall be set at a lower price than expected.

Depending on the market response to the services and the price,

periodical revision of service price is taken into consideration.

2. The Services to be Offered

The hotel will provide all the hotel services expected in a three star hotel.

It will give foreign exchange service, business centers, sporting facilities,

accommodation, and restaurant and bar services in a pleasant

environment.

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3. Promotion

Promotion is vital for any business. The services of the hotel should be

advertised through the electronic and print Medias. The hotel will also

develop its existing and new marketing links with touring companies,

international organizations, and Airliners. The hotel’s name will be

printed in a specialized news papers such as Selamta, the Ethiopian

Tourism and Culture Ministry publications. Sponsoring of events,

conferences and symposiums will also be the other techniques to

promote the hotel.

4. Competitor’s Price Analysis

The proposed hotel project is going to operate with a high class hotel

standard, it is, therefore, ready to identify and monitor the price of its

competitors to gain and maintain the loyalty of the market. The best way

for the project to grasp its competition is to take into account the taste

and behavior of the customers.

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Price is the only element in the marketing mix that creates sales revenue.

It is, therefore, important to set reasonable price for all services by

paying keen attention to cost, demand and competition:-

To determine the price of the services we will:

 Assess the operating cost of the service

 Taking into account demand intensity and customers psychology

 Assess the price range and price movement of the hotel through time
to support sales and profit objective and marketing positions in the
target group.
 The current bed room renting price in Addis Ababa is very diverse even
among hotels with similar star. This is mainly due to the non-
standardized nature of the service.

In order to analyze and propose the room price of the envisaged hotel,

five similar three star standard hotels were selected and examined.

Even though, foreigners are charged higher than the nationals, for the

purpose of this analysis the least price is considered. The least room

prices for single bed room are shown below.

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 Minimum Room charge for three star hotels in Addis Ababa
Hotel Currency Room Charge VAT exclusive Ex. Rate Equivalent Birr
Harmony Hotel $ 71 17.5 1,242.50
Dream liner Hotel $ 68 17.5 1,190.00
KZ Hotel $ 98 17.5 1,715.00
Kaleb Hotel $ 63 17.5 1,102.50
Riviera Int. Hotel $ 65 17.5 1,137.50
Average Charge 73 17.5 1,277.50

In light of the above and the facilities availed to the bed rooms, our

opinion is the proposed hotel room price would be able to fetch at least

similar with the least priced hotels in Addis Ababa which have the same

three star standard hotels. Based on this, we suggest that the room price

per night for standard bed rooms, is assumed to be initially at Birr 1250.

VI. TECHNICAL ANALYSIS

1. Land and Location

The project is located in Sebeta town at wolete site- a suburb to south

west of Addis showing fastest growth. The project site is adjacent to

main road stretched between Addis and Sebeta. A leased land area of

927 square meters allocated for the hotel project is adequate to

accommodate the hotel building with its facilities and enough for

parking spaces.

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2. Infrastructures
The project area is designed by professional engineers. The building

designed was taken keen attention for architectural, structural, sanitary

and electrical layouts. The project site is availed with water, electrical

light and power with excellent access road. With regard to electric power

and water however, the project requires additional line for estimated

cost of birr 150,000.

3. Service Capacity
The Hotel is designed to rank a three-star hotel. It is planned to cater all

hotel facilities. The building floors are designed to give different

services as detailed in the table below.

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 No. Floors Use remark

1 Basement Laundry, Kitchen and restaurant The restaurant will at

least hold 120 people at
a time.

2 Ground Supermarket, Café and Supermarket will be

rented out
reception

3 first Shops and offices 4 shops and 4 office will

be rented

4 second 7 Bed rooms Well furnished rooms

with Jacques’ service

5 third 7 Bed rooms Same as above.

6 fourth 7 Bed rooms Same as above

7 fifth Hall (304 sq.metter) 500 persons holding

capacity

Capacity

Assuming pre-marketing period, the hotel is assumed to work in the

capacity of 60%,70%,80% and 90% in the 1st,2nd,3rd and 4th and
thereafter years, respectively.

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 VII. ORGANIZATION AND MANAGERMENT

1. Organization Structure
Structuring is an internal arrangement of an organization to achieve the

optimum arrangement of functions among many possible alternatives.

In order to make the structure efficient and cost effective there are a

number of management principles and logical parameters by which the

process of structuring should be governed.

In the current competitive business environment the hotel business

needs a simple functional structure that can respond and adapt to

rapidly changing market conditions. The structure should fit the

envisaged project’s objectives.

Thus the structure should accommodate the following points:

 Start up operation should follow the phase from simple to complex

based on market growth,

 Organizational growth must be anticipated in the future and this

should be reflected in the structure, and

 The structure must consider the ability to pay for employees.

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There are different types and approaches in structuring an organization.

The following are some of the commonly used approaches:

 Functional Organization,

 Product or market oriented organization structure, and

 Matrix organization structure.

Whatever organizational structure is chosen the essential points in

structuring should consider the organization’s strategy. To achieve the

objective set to it, what is needed for the hotel is a structure that could

enable it to be agile and responsive to environmental changes. Thus,

simple functional structure with low complexity and normalization is

necessary for the hotel to be successful in achieving its objectives and

solving problems.

Departments:-Based on the principles mentioned above, the hotel will

be organized based on a simple functional organization structure

principle. The hotel will have three departments and one service unit

under the hotel manager. The hotel manager will be professional in

Hotel management who will be authorized fully to run the hotel with

standards set for three star hotels.

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The three department managers will also be professional in their

respective area. Under the departments there will be sections. The

functional departments are Administration and Finance, Front Manager

and Market development and promotion managers.

Sections:-Under the Finance and Administration Department Manager

there will be accounts section and chief casher. The Front Operation

Department is responsible for food and beverage section,

accommodation and cleaning sections. Food and beverage section is

responsible for the supply of foodstuffs and beverages. This department

is also responsible for kitchen, beverage and “baresta” operations. The

organizational structure of the hotel is pictorially shown below.

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ORGANZATION STRUCTURE

GENERAL MANAGER

AUDITOR LEGAL
ADVISOR

HOTEL MANAGER

SECRETARY

MARKET DEVELOPMENT & FRONT OPERATION DEPT. FINANCE & ADM, DEPT.
PROMOTION.

Food & Beverage Section

Accounts Chief
Accommodation &
Section Cashier
Cleaning Section

2. Management and Human resource

The Hotel will be run by a hired manager who has experience in

managing well recognized hotels. The department managers will also be

competent and experienced managers.

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The hotel manager will be fully responsible for the day to day operation

of the hotel. The responsibility of the owner/General Manager will be

limited to the hiring and firing of the hotel manager, and determination

of the hotel manager’s remuneration. They will also review and

approve the budget and performance of the hotel. This mode of

management system enables the hotel to attain a three star hotel

standard which is one criterion for grading.

The manpower needs of the hotel project and the related salary &

benefits payments for professional as well as support staff is presented

in the following table.

The salary scale will be made based on a three-star hotel standard.

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 Manpower requirement and salary of the Hotel project

No Position No. of Employees salary /month Annual pay

1 General Manager 1 8,000 96,000

2 Department Managers 3 5,000 180,000
3 Secretary 1 2,000 24,000
4 Head Accounts 1 3,500 42,000
5 Accounts Clerks 2 1,500 36,000
6 Cashiers 3 1,200 43,200
7 Receptionist 6 1,000 72,000
8 Auditor 1 2,000 24,000
9 Purchaser 1 2,000 24,000
10 Store keeper 1 1,500 18,000
11 Laundry man 6 1,000 72,000
12 Bar man 9 800 86,400
13 Head-waiters 3 1,000 36,000
14 Waiters 18 600 129,600
15 Chief cook 3 3,500 126,000
16 Cookers 12 2,500 360,000
17 Bill boy 3 800 28,800
18 Electrician 1 1,500 18,000
19 Plumber 1 2,000 24,000
20 Sales promotion expert 2 1,500 36,000

21 Telephone operator 3 1,200 43,200

22 Property Administrator 3 1,200 43,200
23 Cleaners 12 500 72,000
24 Guards 9 500 4,500

Total 105 1,638,900

20% staff benefit * 327,780

Total 1,966,680
*includes 7% pension.

As shown above the project will have a total of 105 employees working

at different level. Including 20% staff benefit, the annual salary to be

paid is about 2 million. This will grow by 5% per annum.

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 VIII. FINANCIAL ANALYSIS

1. Investment cost and financing structure

The total investment cost of the hotel project is estimated to be Birr

26,197,524. The cost breakdown and financing structure is shown below.

Initial Investment Cost & financing structure

Equity Finance Bank Finance
%
Description Total cost age Value % age Value

Land Lease Payment 101,149 100% 101,149 0% -

Hotel building 7,000,000 30% 2,100,000 70% 4,900,000

Equipment &
Furniture, machinery,
utensils 13,232,109 25% 3,308,027 75% 9,924,081
Soft furnishings-
Mattress, pillow, etc 1,188,324 30% 356,497 70% 831,827

Vehicles 2,809,999 30% 843,000 70% 1,966,999

Pre-operating
Expenditure 200,000 100% 200,000 0% -

Total fixed investment 24,531,581 28% 6,908,673 72% 17,622,907

Pre-operating Interest 1,079,656 100% 1,079,656 0% -

Initial Working Capital 586,287 30% 175,886 70% 410,401

Total Equity & Bank
Finance 26,197,524 31% 8,164,215 69% 18,033,308

As indicated on the table above 30% or Birr 8,164,215 of the hotel

project will be financed by the project promoter and the remaining 70%

or Birr 18,033,308 is expected to be covered by long term bank loan

repayable quarterly within eight years after one year grace period.
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2. Revenue Projection at full capacity

The revenue sources are bedroom charge, food and beverages and

rental income from hall, offices and shops. The total income from each

service and related assumptions are presented below.

 The room charges are computed based on the competitive charges

of three star hotels in Addis Ababa.

 In determining the charges an exchange rate of birr 17.50 for a unit

of USD is used.

 The restaurant is estimated to accommodate a maximum of 120

customers at a time.

 All of the customers will be served meal at least one and 80

customers will be served beer, 15 Alcohols, and the remaining 25

customers will use soft drinks.

 Average price per meal is assumed to be birr 200.

 Another source of income the hotel can collect is from rent. The

hall can occupy 200 people at a time assuming it will be rented at

least once in a month at a charge of Birr 10 per person the annual

income from hall rent will be birr 24,000.

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  There will be 8 rooms designed for Shops and offices each of the

rooms will have an area of 45 square meters. The monthly rent

income per meter square is birr 150. Thus, the annual rent is Birr

648,000.

The revenue breakdown is shown in the following successive

tables.

Bedroom Service Revenue

No. of
Bedroom type rooms Charge/bed/night Days Total

Standard bed rooms 21 1,250 365 9,581,250

Breakdown of beverage-revenue

Beverage type customers quantity in take price days total revenue

Beer 80 4 25 365 2,920,000

Alcohols 15 2 20 365 219,000

soft drinking
/water 25 2 10 365 182,500

Total 120 3,321,500

Breakdown food-revenue

No. of customers Average price /meal days in year total revenue

120 200 365 8,760,000

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 Rent Revenue
Area of Each Rent per m.sq
Type room No. of rooms /month Total Rent

Office & shops 45 8 150 648,000

200 people @Birr 10 once in a month
Hall rent 24,000
Total 672,000

Revenue summary

Total Revenue at full capacity

Description/Year 0

Occupancy Rate 100%

Room charge 9,581,250

Foods and Beverage 12,081,500

Rents 672,000

Total Revenue before VAT 22,334,750

The annual total revenue from all service at full capacity is Birr 22.33

million. Out of which birr 9.5 million is from bedroom service, Birr 12

million from food and beverage and the remaining birr 0.67 million is

from rent.

3. Operating Costs
The annual expenditure on service cost is computed based on the

following assumptions.

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 Food ingredients costs 30% of food sales revenue,

 Salary expense is assumed to increase by 5% per annum.

 Beverage cost is also assumed to be 30% of revenue from the source

 Repair and maintenance is 0.05 % of fixed investment

 Utility expenses are estimated to be 1% of total sales

 Property insurance is 0.1% of fixed investment.

 Transportation expense is assumed to be birr 50,000 per annum.

 Land lease is birr 7,771 per annum.

 communication expenses like telephone, telex, fax, internet, etc are

assumed to be birr 100,000 per annum

 Miscellaneous expense of un usual nature birr 25,000

 Cleaning costs are estimated to be birr 25,000 per annum

 Marketing expense of birr 50,000 per annum is assumed

 Auditing fee of birr 7,000 is considered.

 Corporate tax of 30% on taxable profit.

 Discount rate of 9.5 %

 Interest rate of 9.5% on bank loan.

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 Cost recovery rate at the end of the project life is 50%, 10%, 5% and

100% for buildings, and hotel items (equipment machinery, furniture,

and utensils kitchen), for soft furnishing and initial working capital,

respectively. Operating cost summary prepared based on the above

assumptions is presented below.

Year, 1-5

Capacity Utilization 100% 60% 70% 80% 90% 90%

Description/Year 0 Year-1 Year-2 Year-3 Year-4 Year-5

Foods and Beverage 3,624,450 2,174,670 2,537,115 2,899,560 3,262,005 3,262,005
Salary Expense 1,966,680 1,966,680 2,065,014 2,168,265 2,276,678 2,390,512
Repair & Maintenance 12,115 12,115 13,327 14,659 16,125 17,738
Utility Expenses 22,335 134,009 156,343 178,678 201,013 201,013
Property Insurance 48,461 48,461 50,884 53,428 56,100 58,904
Transportation 50,000 30,000 35,000 40,000 45,000 45,000
Land Lease(2) 7,771 7,771 7,771 7,771 7,771 7,771
tele, fax, & stationery 100,000 60,000 70,000 80,000 90,000 90,000
miscellaneous expense 25,000 15,000 17,500 20,000 22,500 22,500
cleaning cost 25,000 15,000 17,500 20,000 22,500 22,500
Marketing Expenses 50,000 50,000 55,000 60,500 66,550 73,205
auditing fee 7,000 7,000 7,700 8,470 9,317 10,249
Operating Cost Before Dep. 5,938,812 4,520,706 5,033,154 5,551,331 6,075,559 6,201,397

Depreciation 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798

Total Operating Cost 9,093,504 9,605,952 10,124,129 10,648,356 10,774,195

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Year6-10

Capacity Utilization 90% 90% 90% 90% 90%

Description/Year Year-6 Year-7 Year-8 Year-9 Year-10

Foods and Beverage 3,262,005 181,440 181,440 3,262,005 3,262,005

Salary Expense 2,510,037 2,635,539 2,767,316 2,905,682 3,050,966

Repair & Maintenance 19,512 21,463 23,609 25,970 28,567

Utility Expenses 201,013 - - 201,013 201,013

Property Insurance 61,850 64,942 68,189 71,599 75,179

Transportation 45,000 45,000 45,000 45,000 45,000

Land Lease(2) 7,771 7,771 7,771 7,771 7,771

tele, fax, & stationery 90,000 90,000 90,000 90,000 90,000

miscellaneous expense 22,500 22,500 22,500 22,500 22,500

cleaning cost 22,500 22,500 22,500 22,500 22,500

Marketing Expenses 80,526 88,578 97,436 107,179 117,897

auditing fee 11,274 12,401 13,641 15,005 16,506

Operating Cost Before Dep. 6,333,987 3,192,134 3,339,403 6,776,224 6,939,904

Depreciation 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798

[
Total Operating Cost 10,906,785 7,764,932 7,912,200 11,349,022 11,512,702

4. Depreciation and amortization

Depreciation and amortization expenses are computed as below.

Depreciation and Amortization Schedule

Cost Item Original Cost Rates App. dep/ annum
Building 7,000,000 5% 350,000
Equipment & Furniture, machinery, utensils 13,232,109 20% 2,646,422
Soft furnishing 1,188,324 33% 392,147
Land leased 101,149 20% 20,230
Vehicles 2,809,999 20% 562,000
Pre-operating Expenses 200,000 20% 40,000
Generator 2,809,999 20% 562,000
Total Depreciation Value 27,341,579 4,572,798

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5. Initial Working capital
The working capital has been determined as given in the following table.

Accordingly, the initial working capital requirement is estimated to be

Birr 586,287 and the subsequent working capital need will be generated

from the service itself.

Initial Working Capital Determination

Cost Items/Year coverage Amount
Food & Beverage 60 days 357,480
Salary & Benefit 30 Days 163,890
Utility Expenses 30 days 11,167
Transportation 30 days 2,500
cleaning cost 30 days 1,250
Marketing Expenses annual 50,000
Total 586,287

6. Financial Results
Based on the assumptions made on expected revenue and associated

operating expenses, the following financial projects were prepared:

 Profit and loss statement,

 Cash flow statement,

 Discounted cash flow statement,

 Loan repayment schedules

 Sensitivity Analysis

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Based on the above financial projections, the following results have been

deduced to help investors for their investment decision,

Profitability

Assuming the capacity will increase by 10% per annum starting from

60% in the first year until it reaches maximum of 90% in year four and

hence forth, the project is profitable staring from the first year of

operation. Profitability increases from the first year to tenth years

constantly. Operating expense is assumed to be increased yearly with

the assumptions provided above except depreciation and interest on

bank loan which are fixed by nature.

The profit and loss statement is shown in two subsequent tables.

Year 1-5

Projected profit/Loss Statement

Description/Year Year-1 Year-2 Year-3 Year-4 Year-5

Revenue 13,400,851 15,634,326 17,867,801 20,101,276 20,101,276
Total Cost Before Dep & Int 4,520,706 5,033,154 5,551,331 6,075,559 6,201,397
Gross profit 8,880,145 10,601,172 12,316,470 14,025,717 13,899,879
Depreciation Expense 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
Interest expense 1,646,454 1,458,443 1,251,926 1,025,079
Total Depreciation and int 4,572,798 6,219,252 6,031,241 5,824,724 5,597,877
Net Income 4,307,347 4,381,920 6,285,228 8,200,994 8,302,003
Less Profit Tax 1,292,204 1,314,576 1,885,568 2,460,298 2,490,601
Net Income After Tax 3,015,143 3,067,344 4,399,660 5,740,696 5,811,402

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Year 6-10, continued

Projected profit/Loss Statement

Description/Year Year-6 Year-7 Year-8 Year-9 Year-10
Revenue 20,101,276 20,101,276 20,101,276 20,101,276 20,101,276
Total Cost Before
Dep & Int 6,333,987 3,192,134 3,339,403 6,776,224 6,939,904
Gross profit 13,767,289 16,909,142 16,761,873 13,325,052 13,161,372
Depreciation
Expense 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798
Interest expense 775,901 502,195 201,546
Total
Depreciation and
int 5,348,699 5,074,993 4,774,344 4,572,798 4,572,798
Net Income 8,418,590 11,834,148 11,987,529 8,752,254 8,588,574
Less Profit Tax 2,525,577 3,550,245 3,596,259 2,625,676 2,576,572
Net Income After
Tax 5,893,013 8,283,904 8,391,271 6,126,578 6,012,002

As shown from the tables above the profit ranges from birr 3 million in

the first year to birr 6.0 million in the tenth year.

Net present Value and internal Rate of Return

Cash Flow statement for Discounting

Description/Year Year -0 Year -1 Year -2 Year -3 Year -4
Net Income 0 3,015,143 3,067,344 4,399,660 5,740,696
Depreciation and
Amortization 4,572,798 4,572,798 4,572,798 4,572,798
Working Capital Recovery - - - -
Salvage Value - - 59,416 -
Interest expense 1,646,454 1,458,443 1,251,926
Total Cash Inflow 0 7587940.89 9286595.749 10,490,317 11,565,419
Initial Investment Cost 26,197,524
Replacements - - 1,307,156 -
Loan repayments - 1,909,931 2,097,941 2,304,459
Total cash outflow 26,197,524 - 1,909,931 3,405,098 2,304,459
Net cash flow (26,197,524) 7,587,941 7,376,665 7,085,219 9,260,960
[email protected]% 26,689,482
IRR 29%

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 Cash Flow statement for Discounting
Description/Year Year -5 Year -6 Year -7 Year -8 Year -9 Year -10

Net Income 5,811,402 5,893,013 8,283,904 8,391,271 6,126,578 6,012,002

Depreciation and
Amortization 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798

Working Capital Recovery - - - - - 586,287

Salvage Value - 65,358 - - 71,894 4,898,528

Interest expense 1,025,079 775,901 502,195 201,546 - -

Total Cash Inflow 11,409,278 11,307,070 13,358,897 13,165,615 10,771,269 16,069,615

Initial Investment Cost

Replacements - 1,437,872 - - 1,581,659 -

Loan repayments 2,531,306 2,780,484 3,054,190 3,354,913 - -

Total cash outflow 2,531,306 4,218,356 3,054,190 3,354,913 1,581,659 -

Net cash flow 8,877,972 7,088,714 10,304,707 9,810,702 9,189,610 16,069,615

The discounted cash flow statement shows that the project will accrue a

net present value of Birr 26.6 million and its internal rate of return will be

29% where the decision criterion is invest whenever the NPV is above

zero and the IRR is above rate, which is 9.5% percent.

Liquidity

The project will generate positive cash flows staring form the first year.

Covering all of the costs and expenses, the hotel will be benefited from

excess cash. The accumulated excess cash flow will also cover the cash

needs for further investment. The following subsequent tables show the

figure.

Cash flow projection for planning purpose.

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Year 0-5

Cash Flow Statement For Financial Planning purpose

Description/Year Year-0 Year-1 Year-2 Year-3 Year-4 Year-5
Net Income 3,015,143 3,067,344 4,399,660 5,740,696 5,811,402
plus Dep % Amor 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798

Equity 8,164,215

Bank Loan 18,033,308

Working Capital Recovery

Salvage Value
building
equip, mach. furn
soft furnishing 59,416

Total cash Inflow 26,197,524 7,587,941 7,640,142 9,031,874 10,313,494 10,384,200

Initial Investment Cost 26,197,524

Principal loan repayment 1,909,931 2,097,941 2,304,459 2,531,306
Replacement
soft furnishing 1,307,156

Total cash outflow 26,197,524 - 1,909,931 3,405,098 2,304,459 2,531,306

Net cash inflows - 7,587,941 5,730,211 5,626,776 8,009,034 7,852,894
Cumulative cash inflow 7,587,941 13,318,152 18,944,928 26,953,962 34,806,856

Year 6-10

Cash Flow Statement For Financial Planning purpose

Description/Year Year-6 Year-7 Year-8 Year-9 Year-10

Net Income 5,893,013 8,283,904 8,391,271 6,126,578 6,012,002

plus Dep % Amor 4,572,798 4,572,798 4,572,798 4,572,798 4,572,798

Equity
Bank Loan
Working Capital Recovery 586,287
Salvage Value

building 3,500,000

equip, mach. furn 1,323,211

soft furnishing 65,358 71,894 75,317

Total cash Inflow 10,531,169 12,856,702 12,964,069 10,771,269 16,069,615

Initial Investment Cost

Principal loan repayment 2,780,484 3,054,190 3,354,913

Replacement

soft furnishing 1,437,872 1,581,659

Total cash outflow 4,218,356 3,054,190 3,354,913 1,581,659 -

Net cash inflows 6,312,813 9,802,512 9,609,156 9,189,610 16,069,615

Cumulative cash inflow 41,119,669 50,922,181 60,531,337 69,720,947 85,790,562

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The cumulative cash balance will reach birr 85.79 million at the end of

the project life.

Pay Bank period

The pay bank period of the project is between year 3 and 4 which is very

short.

7. Sensitivity analysis
Under different sensitive analysis the project is profitable. For example,

the price of each service decreases by ten percent, the NPV will reduce

to 19 million and its IRR will be 24%. When investment costs are

increased by ten percent, the NPV will reduce to Birr 24 millions and its

IRR will be 26%.

To conclude the project will be affected by fluctuations in service price,

investment cost and operating costs. However, the response in

profitability level is insignificant and able to absorb the possible shocks.

Sensitivity Analysis
NPV.'000' IRR
Base result 26 29%
Investment cost increase by 10% 24 26%
operational cost increase by 10% 25 28%
Revenue decreased by 10% 19 24%

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Loan Amortization -Table

Loan amount 18,033,308 quarterly repayment 889,096 after one year grace period

Loan amortization For five years with quarter payment after 1 year grace period

Quarters loan interest principal T. payment O/s balance. Int/year

1 18,033,308 428,291 428,291 18,033,308
2 18,033,308 428,291 428,291 18,033,308
3 18,033,308 428,291 428,291 18,033,308
4 18,033,308 428,291 428,291 18,033,308 1,713,164
5 18,033,308 428,291 460,805 889,096 17,572,503
6 17,572,503 417,347 471,749 889,096 17,100,754
7 17,100,754 406,143 482,953 889,096 16,617,801
8 16,617,801 394,673 494,423 889,096 16,123,377 1,646,454
9 16,123,377 382,930 506,166 889,096 15,617,211
10 15,617,211 370,909 518,187 889,096 15,099,024
11 15,099,024 358,602 530,494 889,096 14,568,529
12 14,568,529 346,003 543,094 889,096 14,025,436 1,458,443
13 14,025,436 333,104 555,992 889,096 13,469,444
14 13,469,444 319,899 569,197 889,096 12,900,247
15 12,900,247 306,381 582,715 889,096 12,317,531
16 12,317,531 292,541 596,555 889,096 11,720,977 1,251,926
17 11,720,977 278,373 610,723 889,096 11,110,254
18 11,110,254 263,869 625,228 889,096 10,485,026
19 10,485,026 249,019 640,077 889,096 9,844,949
20 9,844,949 233,818 655,279 889,096 9,189,670 1,025,079
21 9,189,670 218,255 670,842 889,096 8,518,829
22 8,518,829 202,322 686,774 889,096 7,832,055
23 7,832,055 186,011 703,085 889,096 7,128,970
24 7,128,970 169,313 719,783 889,096 6,409,187 775,901
25 6,409,187 152,218 736,878 889,096 5,672,309
26 5,672,309 134,717 754,379 889,096 4,917,930
27 4,917,930 116,801 772,295 889,096 4,145,635
28 4,145,635 98,459 790,637 889,096 3,354,997 502,195
29 3,354,997 79,681 809,415 889,096 2,545,582
30 2,545,582 60,458 828,639 889,096 1,716,944
31 1,716,944 40,777 848,319 889,096 868,625
32 868,625 20,630 868,624 889,254 0 201,546

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Annexes:

Description Unit Price Total

No Quantity
Kitchen Utilities Birr Birr
1 IGNIS Deep freez 578 litmade in italy 2 13,285.00 26,570.00
2 MARENO Heavy duity 4Gas burne with Gas oven made in Italy 1 74,290.00 74,290.00
3 MARENO Heavy duity 4Electric Plate with base unit made in Italy 1 79,355.00 79,355.00
4 La CIMBALI Coffee Machine Model M21 mede in Italy Gas + Electric 2 75,985.00 151,970.00
5 MARENO Grill made in Italy Heavyduit Electric plate 1 41,420.00 41,420.00
6 IGNIS Refrigerator 490 Lit 2 12,599.00 25,198.00
7 Flask 400 386.96 154,782.61
8 chopper mate 400 198.26 79,304.35
9 Deep Frying electric 10 1,408.70 14,086.96
10 Cutting Board 5 421.74 2,108.70
11 Digital scale 2 410.43 820.87
12 Electric Juicer 2 326.09 652.17
13 Electric Blender 2 913.04 1,826.09
14 S/s Chaffing dish partition 8 Lit 3 6,267.13 18,801.39
15 Dinner Plate 20 98.57 1,971.30
16 Alu Cooking pot 60 Lit 5 1,755.22 8,776.09
17 Alu Cooking pot 30 Lit 5 1,248.26 6,241.30
18 Alu Cooking pot 13 Lit 5 350.00 1,750.00
19 Frying Pan 24cm 10 285.22 2,852.17
20 Non stick Frying Pan 28cm 10 222.04 2,220.43
21 Lader round 50 40.87 2,043.48
22 Egg Bitter 18 inch 20 56.00 1,120.00
23 s/s knife 8" 400 95.65 38,260.87
24 Bbq skewer 400 45.30 18,121.74
25 Salad Bowl Glass 200 313.04 62,608.70
26 Foek 400 24.35 9,739.13
27 Food Tong 300 58.70 17,608.70
28 Bread Basket 3pcs 100 187.83 18,782.61
29 Strainer 28cm 30 125.22 3,756.52
30 s/s Sauce pan 200 68.87 13,773.91
Sub-Total 880,813.09
VAT 15% 132121.963
Total 1,012,935.05

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 Description Unit Price Total
No Quantity
Kitchen Utilities Birr Birr
31 Can opener 20 189.13 3,782.61
32 s/s Greater 4 side 23cm 10 78.26 782.61
33 s/s Sauce pan 50 94.13 4,706.52
34 s/s Pasta colander 100 177.39 17,739.13
35 s/s Bowl 27cm 50 187.83 9,391.30
36 Winw opener 10 189.13 1,891.30
37 Tumber 50 38.04 1,902.17
38 Beer Glass 200 36.74 7,347.83
39 Wine glass white 200 36.52 7,304.35
40 Shampagn glass 100 42.61 4,260.87
41 Shoot Glass 100 22.83 2,282.61
42 Honey Pot Dispenser 500 26.09 13,043.48
43 s/s Service trolly 3 tiers 20 7,575.65 151,513.04
44 s/s Pasta colander 50 550.96 27,547.83
45 Tea Spoon 100 20.00 2,000.00
46 95 pcs Dinner Set 50 3,600.00 180,000.00
47 Water Glass 300 41.30 12,391.30
48 3" Knife 200 12.17 2,434.78
49 s/s Ice Bucket big 100 220.43 22,043.48
50 s/s ash Tray 250 95.65 23,913.04
51 luminarc tumbler 150 27.83 4,173.91
52 Margarita Glass 100 78.26 7,826.09
53 Microwave Oven 10 6,513.04 65,130.43
54 Washing Machine 27KG 1 239,130.43 239,130.43
55 Drayer 35KG 1 165,217.39 165,217.39
56 Oven with 6 Trays 380V 1 41,739.13 41,739.13
57 Dough Divider 1 47,826.09 47,826.09
58 Spiral Mixer 50Lit 1 36,521.74 36,521.74
59 Cake Display 2Mt 1 59,130.43 59,130.43
60 Popcorn Machine with Cart 1 10,434.78 10,434.78
61 Vacuum Cleaner 2 8,695.65 17,391.30
62 Laundery Washing Machine 45KG 1 250,000.00 250,000.00

63 Aluminum PBC 500 120.00 60,000.00

Total 1,500,799.99
VAT 15% 225119.9978
1,725,919.98
Total Kitchen and uten
2,738,855.03

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 Unit
Discription Price
Total
No Quantity
Furniture, Fixture and Office Equipment Birr Birr
1 Panasonic Air conditioner outdoor unit CU-PC 24 MKF 3 9,356.52 28,069.57
2 Panasonic Air conditioner in door unit CU-PC 24 MKF 3 6,082.61 18,247.83
3 CANON IR-2420 Digital photo copier 1 22,500.00 22,500.00
4 CANON C-EXV14 Toner (pack of 2) 1 2,000.00 2,000.00
5 CANON LBP-6750DN laser Printer 5 20,000.00 100,000.00
6 CANON L-380 Fax with tel handset 1 13,800.00 13,800.00
7 EPSON S11 LCD Projector 2600 lumens 1 16,000.00 16,000.00
9 NOBO Mobile White Board 1200 x 1500mm with stand 1 4,500.00 4,500.00
10 NOBO Matt Wall screen(2.4 x 1.8mts) 1 2,700.00 2,700.00
11 LG TV 32" LK310 30 10,869.57 326,086.96
12 LG TV 42" LK430 3 20,869.57 62,608.70
13 LG TV 42" LED LV 3500 2 26,956.52 53,913.04
King size Bed (A-619)
14 King size Bed with side tables 30 39,956.52 1,198,695.60
Dressing Table and mattress size 1.80m
15 Chase Table (206/618) Imported High quality Coffee Table with 2 Chairs 30 19,086.96 572,608.80
16 TV-Stand (2801) Glass TV Stand 30 6,043.48 181,304.40
Restaurant Chair (LF-522)
17 200 1,695.65 339,130.00
Restaurant chair Aluminium
Restaurant/Cafe Table (LF-640)
18 50 3,043.48 152,174.00
Restaurant Table- square wooden made
19 Floor Lamp (ML-68544)Floor Lamp 7 2,565.22 17,956.54
20 Table Lamp (MT-68544)Table Lamp 30 1,695.65 50,869.50
SOFA (1+1+2+3)-LEATHER(616) SOFA (1+1+2+3)-
21 2 78,217.39 156,434.78
LEATHER(616)
22 Coffee Table (0012)Wooden coffee table - imported 2 3,652.17 7,304.34
23 Coffee Table (0006B) Coffee Table 4 2,565.22 10,260.88
Rception Desk (3388C)Reception Table with drawers and lots of
24 1 26,043.48 26,043.48
storage spaces-wooden made-with glass top size: 3.80m
Computer Table (T-10012)
25 Computer Desk with open compartement for computer system, under 15 2,173.91 32,608.65
shelf for printer and caster wheels.size 0.80x0.60x0.75
Secretary Chair without arm (Z-5F532)
26 Secreatarial chair without arm-with five caster wheels padded and 3 1,608.70 4,826.10
covered with quality fabric hydraulic lift system,swivel
Standard Table (T-F7143)
Single Pedestal Office Table with three lockbale drawers, open
27 3 5,173.91 15,521.73
compartemenr for computer system sliding keyboard tray and one
small drawer size 1.40x0.70x0.75
High Back Chair (286010)
28 High Back Chair with arm- with five castor wheels padded and 15 1,695.65 25,434.75
covered with quality fabrics hydraulic lift system, swivel
Bar Stool(280260)
29 10 2,173.91 21,739.10
Bar Stool with lifting system and foot rest and back rest
Bar Table (wooden) (AJ-02)
30 1 78,217.39 78,217.39
imported Bar for home use with shelf at the back made of wooden
Conference Table (H-F7500)
Excutive Conference Table (suitable for board Meetings)
31 Accomodates up to 22 people, has pockets for agenda for each 1 45,173.91 45,173.91
participant. Ready for conferencing sound system installation
size:5.00m
Total 3,586,730.04
VAT 15% 538,009.51
Sub-total 4,124,739.54

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 Discription Unit Price Total
No Quantity
Furniture, Fixture and Office Equipement Birr Birr
Conference Table (H-F7700)
Excutive Conference Table (suitable for board Meetings)
32 1 64,304.35 64,304.35
Accomodates up to 22 people, has pockets for agenda for each participant.
Ready for conferencing sound system installation size:7.00m
Guest/Conference Chair (Y-E6241)
33 500 4,782.61 2,391,305.00
Guest Chair with Wooden U-Legged
34 Café Chair(JL-55)Aluminium Chir with wooden seat and wooden back rest 200 1,173.91 234,782.00
Guest/Conference Chair (283760)
35 4 2,173.91 8,695.64
Managerial Guest Chair - Wooden Arm and Wooden Leg
36 Executive-L-shape Table (F-9C222)Exeutive Table size: 2.20x1.10x0.76 3 19,956.52 59,869.56
High Back Chair (Z-1K113)
37 Presidential Chair -High Back-Covered with Leather with Wooden Arm and 3 10,869.57 32,608.71
Wooden Legs
Three Door Shelf (W-Y3131)
38 Shelf with three lockable glass doors on top with adjustable partitions inside & 1 10,391.30 10,391.30
two wooden doors and lockable drawers at the boottom size:1.30x0.40x1.90
Coffee Table (C-C4121)
39 Coffee Table, Wooden made, rectangular with under shel for news paper and 5 3,434.78 17,173.90
etc.and drawers on each side size:1.20x0.60x0.45
Guest/Conference Chair (Y-E3341(040))
40 5 4,304.35 21,521.75
Managerial Guest Chair-wooden arm and wooden legs
Executive-L-shape Table (T-Y2202)
Exeutive Table with lockable mobile pedestal, leather padding, cable passage,
41 1 19,086.96 19,086.96
small middele drawer and mobile side table with keyboard tray, open
compartement for computer system size:2.00x1.00x0.75
High Back Chair(966)
42 1 8,652.17 8,652.17
High Back Chair-with wooden arm and wooden legs,with hyd
Coffee Table (C-C5061)
43 Cofee Table -wooden square with under shelf for news paper and etc. 5 2,565.22 12,826.10
size:60x60x45
44 Meeting Chair(LV-D04)Meeting Chair(LV-D04) 5 3,652.17 18,260.85
Two Door Shelf(W-Y7090)
45 Shelf with two lockable glass on top and two wooden doors at the bottom with 1 6,043.48 6,043.48
internal adjustable partitions inside size:0.90x0.40x2.00
Managerial Table(T-F7166)
Executive/ Managerial L-Shape Table with 3 lockable fixed drawers, side table
46 2 10,391.30 20,782.60
with keyboard tray, open compartement for computer system and lots of
storage spaces size:1.60x0.80and0.9
47 Medium back Chair(Z-1M113)Presidential Chair-High Back with crom legs 2 8,652.17 17,304.34
L-Shape Table(T-Y6144)
48 L-Shape Table with side table with sliding keyboard drawer, open 3 6,043.48 18,130.44
compartement for computer and storage shelf size:1.40m
High back Chair(E-249)
49 Managerial Chair with arm High back-with five castor wheels padded and 1 2,391.30 2,391.30
covered with quality fabric, hydraulic lift system, Swivel.
Secretary Chair with arm (Z-49532)
50 1 2,173.92 2,173.92
Secreatarial chair with arm-fabric hydraulic lift system
Safe Box(DC3070EH)
51 1 17,347.83 17,347.83
Imported High quality Safe Box with Electronic Digital Lock 100KG
52 Wine Rack(T-05)Wine Rack 5 52,130.43 260,652.15
53 Dell Optiplex 380 Dual Core 3.0GHz computer 15 8,521.74 127,826.09
54 Dell Optiplex 790 Premier Desktop 1 9,782.61 9,782.61
55 HP LaserJet 2035N Printer 5 5,652.17 28,260.87
56 Montarbo Power Mixer 459 with four speaker and stand 1 120,869.57 120,869.57
57 Shure Wireless Microphone 2 6,521.74 13,043.48
58 Shure Wireless Microphone SM 58 2 2,956.52 5,913.04
59 Microphone Stand 2 678.26 1,356.52
60 Yamaha Key board PSR 910 with stand 1 43,478.26 43,478.26
61 Option two Amplifier SSA 160 160 watt 1 5,899.13 5,899.13
62 Shure Wireless Microphone 4 6,521.74 26,086.96
63 Bos speaker 90 watt 4 3,133.91 12,535.65
64 Microphone Floor Stand 2 678.26 1,356.52
65 Microphone with Table Stand 2 1,086.96 2,173.91
66 WT-2000 Walk Through Metal Detector 1 180,000.00 180,000.00
67 G220QX Diesel Generator 1 840,869.57 840,869.57
68 Electrical Passanger Lift with instalation cost 1 874,081.77 874,081.77
Total 5,537,838.29
VAT 15% 830675.7441
6,368,514.04
Total 10,493,253.58

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 Description Unit Price Total
No Quantity
Soft Furnishing Birr Birr

Bed cover (BC-01)

Bed cover - includes Mattress cover, bed skirt,
1 60 4,130.43
two standard size pillowcases one big pillowcase 247,825.80
and a small pillow. King size.

Bed Sheet (BS-180m)

2 90 2,173.91
1.8m Bed sheet with 2 Pillow cases 195,651.90

3 Table Cloth in meters 150 295.65

44,347.50

4 No one Quality curtains 500 200.00

100,000.00

curtains (Sis Yemegareja Cherk

5 500 110.00
(Geber)) 55,000.00

6 Yesefate waga bemeter 1000 25.00

25,000.00

7 Golden huke 1000 1.50

1,500.00

8 Yewelel mintaf (250 s.m*7 floor) 1750 208.00

364,000.00
Total 1,033,325.20
VAT 15% 154998.78
1,188,323.98

Description Unit Price Total

No Quantity
Vehicles Birr Birr

1 Toyota Hilux Double Cabin 4x4 Full Option 1 1,313,043.00

1,313,043.00

2 Toyota Coaster Bus 1 1,130,434.00

1,130,434.00
Total
2,443,477.00
VAT 15% 366521.55
Total
2,809,998.55

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