ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on the Establishment of Electric

Water Heater Making Plant

Development Studies Associates

(DSA)

July 2016 Revised

Bahir Dar
 Table of Contents

1. Executive Summary..................................................................................1
2. Product Description and Application....................................................1
3. Market Study, Plant Capacity and Production Program...................1
3.1 Market Study.......................................................................................................1
3.1.1 Present Demand and Supply........................................................................1
3.1.2 Projected Demand........................................................................................2
3.1.3 Pricing and Distribution...............................................................................3
3.2 Plant Capacity......................................................................................................3
3.3 Production Program.............................................................................................4
4. Raw Materials and Utilities....................................................................4
4.1 Availability and Source of Raw Materials...........................................................4
4.2 Annual Requirement and Cost of Raw Materials and Utilities...........................4
5. Location and Site.....................................................................................5
6. Technology and Engineering.................................................................5
6.1 Production Process...............................................................................................5
6.2 Machinery and Equipment...................................................................................5
6.3 Civil Engineering Cost........................................................................................7
7. Human Resource and Training Requirement......................................7
7.1 Human Resource..................................................................................................7
7.2 Training Requirement..........................................................................................8
8. Financial Analysis...................................................................................8
8.1 Underlying Assumption.......................................................................................8
8.2 Investment............................................................................................................9
8.3 Production Costs................................................................................................10
8.4 Financial Evaluation..........................................................................................10
9. Economic and Social Benefit and Justification..................................11
ANNEXES....................................................................................................13
 1. Executive Summary
This project envisages production of 6000 pieces of electric water heaters having different size
per annum. The total investment requirement of the project including the working capital is
estimated at about Birr 11.5 million; of which more than Birr 5.21 million is the cost of
machinery and equipments while the working capital is estimated to be 1.6 million. Based on the
cash flow statement, the calculated internal rate of return (IRR) and simple rate of return (SRR)
of the project are 24.5 % and 24.7 %, respectively. The net present value (NPV) at 18 %
discounting rate is about Birr 1,411 thousand. The plant is expected to create employment
opportunities for about 81 persons.

2. Product Description and Application

Electric water heaters provide a ready supply of hot water at not more than 85 oC temperature.
The water heaters have two sections: the internal water tank which stores the water to be heated
electrically, and the external cover. A thermal insulation material is placed in the space between
the two sections. Water is electrically heated and the temperature is thermostatically controlled.
The normal capacity of electrical water heaters is between 25 to 200 litters. Electrical water
heaters are installed in home, hotels, hospitals, restaurants and in other places where there is need
of hot water for washing and cleaning.

3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

With the expansion of urbanization, the urban population of the country increases every year.
This increases the need of washing and cleaning facilities; which, in turn, stimulates the demand
for water heating apparatuses. As electric energy is getting available in almost all urban centers
of the country, the most common water heating apparatus is the electric water heater.

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The market for electric water heater is assessed based on the application listed earlier. The
demand assessment is analyzed using the trend of supplies of the product, which are composed
of only imports.
Table3.1 shows the yearly supplies of electric water heaters during the period 1990 E.C to 1999
E.C.
TABLE 3.1
IMPORT OF ELECTRIC WATER HEATERS

YEAR E.C Imports( In Kg) Imports( I

n Pieces)
1990 167,479 11,165
1991 54,483 3,632
1992 220,222 14,681
1993 172,070 11,471
1994 316,249 21,083
1995 278,433 18,562
1996 353,404 23,560
1997 433,690 28,913
1998 533,470 35,565
1999 482,970 32,198
Total 3,012,470 200,831
Average 301,247 20,083

In the past ten years, a total of 200,831 pieces of electric heaters were imported. This implies, on
average, 20,083 electric heaters were imported per annum. In the past five years, however, the
trend in electric heaters import has been showing a significant increase; during the period,
average import surges to more than 30 thousands per annum.

3.1.2 Projected Demand

The basis of demand projection is the trend in growth of past supplies or, when that trend proves
inadequate, the anticipated growth in GDP, particularly growth in the modern residential housing
construction sector. In this regard, the past trend seems inadequate because the growth in the
supply of the product is much higher in the recent years than the preceding years. On the other
hand, according to Ministry of Finance and Economic Development, the average growth rate in
real GDP for the past few years is around 10 % per annum and that of the construction sector is
more than that. Therefore, this project conservatively assumes that the demand for electric
heaters will increase at 10 % per annum for the coming ten years.

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Based on this, the projected demand for electric heaters for the following ten years is given in
Table 3.2.
TABLE 3.3
DEMAND PROJECTION FOR ELECTRIC HEATERS

Year E.C In Pieces

2000 35,418
2001 38,960
2002 42,856
2003 47,141
2004 51,855
2005 57,041
2006 62,745
2007 69,019
2008 75,921
2009 83,513
2010 91,865

As it is seen in the above projection, the demand for electric heater is expected to reach at 57,041
by the year 2005 E.C while demand for the product is projected to be nearly 92 thousand by the
end of the decade.

3.1.3 Pricing and Distribution

Although selling prices vary from time to time as a result of fluctuations in supplies, currently
the selling prices of electric baking ovens rang from 1000 up to 1800 per piece depending on the
size and origin. The envisage project plans to sell the 25 liter at Birr 800 and the 50 liter at Birr
1200 per piece. There are different possible modalities of sales and distribution. In this particular
case, it is suggested that producer-retailers-consumer be the option.

3.2 Plant Capacity

The envisaged plant will have a production capacity of 6000 units of various sizes (3000 pieces
of 25 liter capacity and 3000 pieces of 50 liter capacity) electric water heaters per annum. The
plant will operate two shifts per day and 275 working days per annum. This is set by deducting

3
all Sundays and public holidays in a given year, and by setting aside 25 days for annual
maintenance period and unexpected work interruptions.

3.3 Production Program

The production program follows gradual capacity utilization due to technological and market
reasons. In the beginning, in order to produce the product with the desired degree of accuracy,
operators relatively require longer time than the standard. The market problem refers to the time
required to penetrate the market. Accordingly, the 1 st year of production is estimated to be 50 %
of the total capacity. In the second and third years the production will be 65 % and 80 % of the
production capacity, respectively. The fourth year on wards the plant will operate at full
capacity.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

Except the materials for the packaging, all raw materials are imported from abroad.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The annual consumption of raw materials and inputs is listed in Table 4.1.

TABLE 4.1
RAW MATERIAL AND INPUT REQUIREMENT

Quantity Value
Zinc Plated Steel Sheet, Steel Rods and Clamps 183 tons
3,303,481
Heating Elements 6000 pcs 405,000
Thermostatic Control 6000 pcs 48,600
Thermometer 6000 pcs 40,500
Indicator Lamps 6000 pcs 16,200
Non-Return Value 6000 pcs 97,200
15mm Pipe (Brass or Copper) 360,000
Glass Wool or Similar Thermal Insulation Material
337,500

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Packaging Material and Others 180,000
Total Annual Cost of Raw Materials and Inputs
4,788,481

TABLE 4.2
UTILITIES REQUIREMENT

No. Utility Requirement Unit Price Cost

(Annual) (Birr)
1. Electricity 162,000 KWH Birr 0.55 /KWH 89,100
2. Water 2400 m3 Birr 2.65 /m3 6,360
Total 95,460

The total cost of utility which includes cost of electric power consumption and that of water
supply is estimated to reach at Birr 95,460.

5. Location and Site

For its convenience for distribution to different parts of the country, Debre-Birhan is an
appropriate choice for the electric water heater making plant in the region.

6. Technology and Engineering

6.1 Production Process

The inner and outer casings are rolled to from the cylindrical shape of the required size. The tank
is welded and drilled to allow the insertion of pipes and heating element. The inlet and outlet
pipes are welded. The heating element is fitted in position. Painting and assembly of various
parts is carried out. After electrical connections are made, the tank is tested and packed for
dispatch.
Currently, there is no alternative technology in fabricating electric water heater of the above
time.

6.2 Machinery and Equipment

The required machinery and equipment and the costs involved are shown in Table 6.1

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 TABLE 6.1
MACHINERY AND EQUIPMENT REQUIREMNTS

No. Item Quantity

1 Bench Lathe Diameter 500 mm 1
2 Guillotine Shearing Machine 1
1200mm Wide and Up To 1.5mm
Thickness Cutting Capacity
3 30 Tons Power Press 1
4 Bending with Flanging mcn 1
5 Bench Drilling mcn 1
6 Bench Grinder 1
7 Power Hack Saw 1
8 Hand Shear 1
9 Arc Welding Set 1
10 Compressor with Spray Painting 1
Equipment
Gas Welding Set 1
F.O.B 4,510,099
Testing Equipment 1
1 High Voltage Tester 2.5 Kg 1
2 500 V Mugger 1
3 Volt Meter 1
4 Watt Hour Meter 1
5 Thermometer Ammeters Etc. 1set
F.O.B Price 76,980
Total FOB of Machinery and Equipment 4,587,105
Insurance and Freight 5% FOB 229,354
Bank Charge 15 CIF 48,164
Port Handling = 2% CIF 96,328
Erection Cost 256,600
Total Machinery and Equipment 630,446

The total cost of machinery/equipment is estimated at Birr 2 million of which nearly Birr 1.8
million is in foreign currency.
Machinery Supplier’s Address:

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Weldor Engineering Private Limited
Dhebarbhai Road (South),
Rajkot – 360002, Gujarat,
India

6.3 Civil Engineering Cost

The building area required by the plant is estimated to be 600 m 2, and it costs Birr 1,200,000.
This would include cost of land preparation and associated civil works. The total land area of the
plant, including the open space, is1000 m 2 , and its lease cost equals Birr 54,500. The cost of the
land lease is as per ANRS land lease rate for Debre-Birhan which is equal to Birr 54.50 per
square meter for industrial purpose. Of the total cost of the lease, 5 % is paid in the beginning
while the rest will be paid in 40years.

7. Human Resource and Training Requirement

7.1 Human Resource
Details of the manpower requirement of the plant is shown in Table 7.1
TABLE 7.1
MANPOWER REQUIREMENT

Description No Monthly Annual

Salary Salary
(Birr) (Birr)
A. Administration
1. Manager 1 7,698 92,376
2. Engineer 1 5,132 61,584
2. Supervisors 2 2,566 61,584
3. Technicians 6 2,566 184,752
5. Personnel Officer 1 2,566 30,792
6. Accountant 1 2,566 30,792
7.Seretary 1 2,053 24,634
8.Slaesman 2 2,053 49,267
9. Cashier 1 1,540 18,475
10. Storekeeper 1 1,540 18,475
11.Guards 4 770 36,950
Sub-Total 21 - 609,682
B. Production

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1. Skilled workers (Welders and 30 2,053
Machine Operators)
739,008
2. Unskilled Workers (Assistants) 30 770
277,128
Benefits (20%) - 325,164
Total 81 - 1,950,981

The total annual wages and salary, including 20 % benefits, amount to Birr 760,320.

7.2 Training Requirement

One month on job training is required for the technical personnel. And this can be managed by
hiring one expert in the area from the technology suppliers.

8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of Electric Water Heater making plant is based on the data provided in
the preceding chapters and the following assumptions.

A. Construction and Finance

Construction Period 2 Years

Source Of Finance 40 % Equity and 60% Loan
Tax Holidays 2Years
Bank Interest Rate 12%
Discount For Cash Flow 18%
Value Of Land Based on Lease Rate of ANRS
Spare Parts, Repair & Maintenance 3% of the Fixed Investment

B. Depreciation

Building 5%
Machinery And Equipment 10%

8
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%

9
 C. Working Capital (Minimum Days of Coverage)
Raw Material-Local 30 Days
Raw Material-Foreign 120 Days
Factory Supplies In Stock 30 Days
Spare Parts In Stock And Maintenance 30 Days
Work In Progress 10 Days
Finished Products 15 Days
Accounts Receivable 30 Days
Cash In Hand 30 Days
Accounts Payable 30 Days

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 5.6 million
as shown in Table 8.1 below. The Owner shall contribute 30 % of the finance in the form of
equity while the remaining 70 % is to be financed by bank loan.
TABLE 8.1
TOTAL INITIAL INVESTMENT

Items L.C F.C Total

Land 6,992 0 6,992
Building And Civil Works 3,079,200 0 3,079,200
Office Equipment 128,300 0 128,300
Vehicles 1,283,000 0 1,283,000
Plant Machinery & Equipment 598,725 4,618,800 5,217,525
Total Fixed Investment Cost 5,096,217 4,618,800 9,715,017
Pre Production Capital Expenditure* 99,303 189,303
Total Initial Investment 5,195,520 4,618,800 9,904,320
Working Capital at Full Capacity 469,289 1,131,231 1,600,520
Total 5,664,809 5,750,031 11,504,840

*Pre-production capital expenditure includes - all expenses for pre-investment studies,

consultancy fee during construction and expenses for company‘s establishment, project

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administration expenses, commission expenses, preproduction marketing and interest expenses
during construction.
The foreign component of the project accounts for Birr 2 million or 36.5 % of the total
investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 5 million (See Table 8.2).
Raw materials and utilities account for 64.9 %
TABLE 8.2
PRODUCTION COST AT FULL CAPACITY

Raw Material
Requirement Cost
1. Local Raw Materials 461,880
2. Foreign Raw Materials 6,652,111

Total Production Cost at full

Capacity
Items Cost
1. Raw materials 7,113,991
2. Utilities 244,950
3. Wages and Salaries 1,950,981
4. Spares and 291,451
Maintenance
Factory Costs 9,601,374
5. Depreciation 406,194
6. Financial Costs 267,642
Total Production
Cost 10,275,210

8.4 Financial Evaluation

I. Profitability

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According to the projected income statement (See Anne 4) the project will generate profit
beginning from the second year of operation and increases on wards. The income statement and
other profitability indicators also show that the project is viable.

II. Breakeven Analysis

The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 28.4 % of capacity utilization

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in three years.

IV. Simple Rate of Return

The project’s simple rate of return (SRR) is given by the formula:

SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.

The SRR would be 24.7 % at full capacity utilization.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the
project is 25.4 % and the net present value (NPV) at 18 % discount is Birr 1,411 thousands.

VI. Sensitivity Analysis

The sensitivity test result which undertaken by increasing the cost of production by 10 % still
indicates that the project would be viable.

9. Economic and Social Benefit and Justification

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Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general, the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State. These benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 2.47 million per
year and Birr 24.74 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.

B. Tax Revenue

In the project life under consideration, the region will collect about Birr 6.35 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region

C. Import Substitution and Foreign Exchange Saving

As there is electric water heater making plant in the country, the commencement of this project
relieves a portion of the import burden. That is, based on the projected figure we learn that in the
project life an estimated amount of US Dollar 5.4 million will be saved as a result of the
proposed project. This will create room for the saved hard currency to be allocated on other vital
and strategic sectors

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to 81 professionals as well as support
stuffs. Consequently the project creates income of Birr 1.95 million per year. This would be one
of the commendable accomplishments of the project.

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 E. Pro Environment Project

The proposed production process is environment friendly.

ANNEXES

14
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
Capacity Utilization (%) 0 0 50% 65% 80% 100%
1. Total Inventory 0 0 3410252 4433328 5456403 6820504
Raw Materials in Stock- Total 0 0 1476563 1919532 2362501 2953126
Raw Material-Local 0 0 25193.45 32751.5 40309.52 50386.9
Raw Material-Foreign 0 0 1451370 1886781 2322192 2902739
Factory Supplies in Stock 0 0 5805.626 7547.324 9289.023 11611.28
Spare Parts in Stock and Maintenance 0 0 15897.29 20666.49 25435.68 31794.61
Work in Progress 0 0 145140.9 188683.2 232225.4 290281.8
Finished Products 0 0 290281.8 377366.3 464450.9 580563.6
2. Accounts Receivable 0 0 839781.8 1091716 1343651 1679564
3. Cash in Hand 0 0 119778.1 155711.5 191644.9 239556.2
CURRENT ASSETS 0 0 2893249 3761223 4629198 5786497
4. Current Liabilities 0 0 839781.8 1091716 1343651 1679564
Accounts Payable 0 0 839781.8 1091716 1343651 1679564
TOTAL NET WORKING CAPITAL REQUIRMENTS 0 0 2053467 2669507 3285547 4106934
INCREASE IN NET WORKING CAPITAL 0 0 2053467 616040.1 616040.1 821386.8

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
5 6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100% 100%
1. Total Inventory 6820504 6820504 6820504 6820504 6820504 6820504
Raw Materials in Stock-Total 2953126 2953126 2953126 2953126 2953126 2953126
Raw Material-Local 50386.9 50386.9 50386.9 50386.9 50386.9 50386.9
Raw Material-Foreign 2902739 2902739 2902739 2902739 2902739 2902739
Factory Supplies in Stock 11611.28 11611.28 11611.28 11611.28 11611.28 11611.28
Spare Parts in Stock and Maintenance 31794.61 31794.61 31794.61 31794.61 31794.61 31794.61
Work in Progress 290281.8 290281.8 290281.8 290281.8 290281.8 290281.8
Finished Products 580563.6 580563.6 580563.6 580563.6 580563.6 580563.6
2. Accounts Receivable 1679564 1679564 1679564 1679564 1679564 1679564
3. Cash in Hand 239556.2 239556.2 239556.2 239556.2 239556.2 239556.2
CURRENT ASSETS 5786497 5786497 5786497 5786497 5786497 5786497
4. Current Liabilities 1679564 1679564 1679564 1679564 1679564 1679564
Accounts Payable 1679564 1679564 1679564 1679564 1679564 1679564
TOTAL NET WORKING CAPITAL REQUIRMENTS 4106934 4106934 4106934 4106934 4106934 4106934
INCREASE IN NET WORKING CAPITAL 0 0 0 0 0 0

Annex 2: Cash Flow Statement (in Birr)

2
 CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 5100384 9207318 8537782 10259335 12568735 15731913
1. Inflow Funds 5100384 9207318 839781.8 251934.6 251934.6 335912.7
Total Equity 2040154 3682927 0 0 0 0
Total Long Term Loan 3060230 5524391 0 0 0 0
Total Short Term Finances 0 0 839781.8 251934.6 251934.6 335912.7
2. Inflow Operation 0 0 7698000 10007400 12316800 15396000
Sales Revenue 0 0 7698000 10007400 12316800 15396000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 5100384 5100384 9922972 9550004 11625512 14036702
4. Increase In Fixed Assets 5100384 5100384 0 0 0 0
Fixed Investments 4857509 4857509 0 0 0 0
Pre-production Expenditures 242875.4 242875.4 0 0 0 0
5. Increase in Current Assets 0 0 2893249 867974.6 867974.6 1157299
6. Operating Costs 0 0 4808651 6221105 7633559 9516831
7. Corporate Tax Paid 0 0 0 0 834745.9 1245032
8. Interest Paid 0 0 2221072 1030155 858462.1 686769.7
9.Loan Repayments 0 0 0 1430770 1430770 1430770
10.Dividends Paid 0 0 0 0 0 0
-
Surplus(Deficit) 0 4106934 1385190 709330.1 943222.8 1695210
Cumulative Cash Balance 0 4106934 2721744 3431074 4374297 6069507

Annex 2: Cash Flow Statement (in Birr): Continued

PRODUCTION

3
 5 6 7 8 9 10
TOTAL CASH INFLOW 15396000 15396000 15396000 15396000 15396000 15396000
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 15396000 15396000 15396000 15396000 15396000 15396000
Sales Revenue 15396000 15396000 15396000 15396000 15396000 15396000
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 12759218 12745158 12624974 11074019 11074019 11074019
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 9516831 9516831 9516831 9516831 9516831 9516831
7. Corporate Tax Paid 1296540 1454173 1505680 1557188 1557188 1557188
8. Interest Paid 515077.3 343384.8 171692.4 0 0 0
9. Loan Repayments 1430770 1430770 1430770 0 0 0
10.Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 2636782 2650842 2771026 4321981 4321981 4321981
Cumulative Cash Balance 8706289 11357131 14128157 18450138 22772119 27094100

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4

4
TOTAL CASH INFLOW 0 0 7698000 10007400 12316800 15396000
1. Inflow Operation 0 0 7698000 10007400 12316800 15396000
Sales Revenue 0 0 7698000 10007400 12316800 15396000
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 5100384 5100384 6862118 6837145 8249599 11583250
3. Increase in Fixed Assets 5100384 5100384 0 0 0 0
Fixed Investments 4857509 4857509 0 0 0 0
Pre-production Expenditures 242875.4 242875.4 0 0 0 0
4. Increase in Net Working Capital 0 0 2053467 616040.1 616040.1 821386.8
5. Operating Costs 0 0 4808651 6221105 7633559 9516831
6. Corporate Tax Paid 0 0 0 0 0 1245032
- -
NET CASH FLOW 5100384 5100384 835881.9 3170255 4067201 3812750
- -
CUMMULATIVE NET CASH FLOW 5100384 -1E+07 9364886 -6194631 -2127430 1685320
- -
Net Present Value (at 18%) 5100384 4322359 600317.4 1929515 2097817 1666588
- - -
Cumulative Net present Value 5100384 9422743 8822426 -6892911 -4795094 -3128506

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)

PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 15396000 15396000 15396000 15396000 15396000 15396000

5
1. Inflow Operation 15396000 15396000 15396000 15396000 15396000 15396000
Sales Revenue 15396000 15396000 15396000 15396000 15396000 15396000
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 10813371 10971003 11022511 11074019 11074019 11074018.89
3. Increase in Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
4. Increase in Net Working Capital 0 0 0 0 0 0
5. Operating Costs 9516831 9516831 9516831 9516831 9516831 9516830.914
6. Corporate Tax Paid 1296540 1454173 1505680 1557188 1557188 1557187.98
NET CASH FLOW 4582629 4424997 4373489 4321981 4321981 4321981.106
CUMMULATIVE NET CASH FLOW 6267949 10692946 15066435 19388416 23710397 28032377.98
Net Present Value (at 18%) 1697550 1389117 1163515 974416.9 825777 699811.0413
Cumulative Net present Value -1430955 -41838.1 1121677 2096094 2921871 3621681.781
Net Present Value (at 18%) 3621681.781
Internal Rate of Return 25.40%

Annex 4: NET INCOME STATEMENT ( in Birr)

PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 50% 65% 80% 100% 100%
1. Total Income 7698000 10007400 12316800 15396000 15396000

6
 Sales Revenue 7698000 10007400 12316800 15396000 15396000
Other Income 0 0 0 0 0
2. Less Variable Cost 4317983 5613378 6908774 8635967 8635967
VARIABLE MARGIN 3380017 4394022 5408026 6760033 6760033
(In % of Total Income) 112.6731 112.6731 112.6731 112.6731 112.6731
3. Less Fixed Costs 1532960 1650019 1767078 1923157 1923157
OPERATIONAL MARGIN 1847056 2744002 3640948 4836876 4836876
(In % of Total Income) 61.55834 70.35972 75.85096 80.62372 80.62372
4. Less Cost of Finance 2221072 1030155 858462.1 686769.7 515077.3
5. GROSS PROFIT -374015 1713848 2782486 4150107 4321799
6. Income (Corporate) Tax 0 0 834745.9 1245032 1296540
7. NET PROFIT -374015 1713848 1947740 2905075 3025259
RATIOS (%)
Gross Profit/Sales -4.86% 17.13% 22.59% 26.96% 28.07%
Net Profit After Tax/Sales -4.86% 17.13% 15.81% 18.87% 19.65%
Return on Investment 15.07% 21.32% 20.81% 25.10% 24.74%
Return on Equity -6.54% 29.95% 34.03% 50.76% 52.86%

Annex 4: NET INCOME STATEMENT (in Birr):Continued

PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%
1. Total Income 6000000 6000000 6000000 6000000 6000000
Sales Revenue 6000000 6000000 6000000 6000000 6000000

7
 Other Income 0 0 0 0 0
2. Less Variable Cost 3365537 3365537 3365537 3365537 3365537
VARIABLE MARGIN 2634463 2634463 2634463 2634463 2634463
(In % of Total Income) 43.91 43.91 43.91 43.91 43.91
3. Less Fixed Costs 611615.9 611615.9 611615.9 611615.9 611615.9
OPERATIONAL MARGIN 2022847 2022847 2022847 2022847 2022847
(In % of Total Income) 33.71 33.71 33.71 33.71 33.71
4. Less Cost of Finance 133821.1 66910.53 0 0 0
5. GROSS PROFIT 1889026 1955937 2022847 2022847 2022847
6. Income (Corporate) Tax 566707.9 586781.1 606854.2 606854.2 606854.2
7. NET PROFIT 1322318 1369156 1415993 1415993 1415993
RATIOS (%)
Gross Profit/Sales 31.48% 32.60% 33.71% 33.71% 33.71%
Net Profit After Tax/Sales 22.04% 22.82% 23.60% 23.60% 23.60%
Return on Investment 26.11% 25.75% 25.39% 25.39% 25.39%
Return on Equity 59.29% 61.39% 63.49% 63.49% 63.49%

Annex 4: NET INCOME STATEMENT (in Birr):Continued

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 PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%
1. Total Income 15396000 15396000 15396000 15396000 15396000
Sales Revenue 15396000 15396000 15396000 15396000 15396000
Other Income 0 0 0 0 0
2. Less Variable Cost 8635967 8635967 8635967 8635967 8635967
VARIABLE MARGIN 6760033 6760033 6760033 6760033 6760033
(In % of Total Income) 112.6731 112.6731 112.6731 112.6731 112.6731
3. Less Fixed Costs 1569406 1569406 1569406 1569406 1569406
OPERATIONAL MARGIN 5190627 5190627 5190627 5190627 5190627
(In % of Total Income) 86.49986 86.49986 86.49986 86.49986 86.49986
4. Less Cost of Finance 343384.8 171692.4 0 0 0
5. GROSS PROFIT 4847242 5018934 5190627 5190627 5190627
6. Income (Corporate) Tax 1454173 1505680 1557188 1557188 1557188
7. NET PROFIT 3393069 3513254 3633439 3633439 3633439
RATIOS (%)
Gross Profit/Sales 31.48% 32.60% 33.71% 33.71% 33.71%
Net Profit After Tax/Sales 22.04% 22.82% 23.60% 23.60% 23.60%
Return on Investment 26.11% 25.75% 25.39% 25.39% 25.39%
Return on Equity 59.29% 61.39% 63.49% 63.49% 63.49%

Annex 5: Projected Balance Sheet (in Birr)

CONSTRUCTION PRODUCTION

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 Year 1 Year 2 1 2 3 4
TOTAL ASSETS 5100384 14307702 15147484 15308480 16077385 17887602
1. Total Current Assets 0 4106934 5614993 7192297 9003495 11856005
Inventory on Materials and Supplies 0 0 1498266 1947746 2397226 2996532
Work in Progress 0 0 145140.9 188683.2 232225.4 290281.8
Finished Products in Stock 0 0 290281.8 377366.3 464450.9 580563.6
Accounts Receivable 0 0 839781.8 1091716 1343651 1679564
Cash in Hand 0 0 119778.1 155711.5 191644.9 239556.2
Cash Surplus, Finance Available 0 4106934 2721744 3431074 4374297 6069507
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 5100384 10200768 9158475 8116183 7073890 6031597
Fixed Investment 0 4857509 9715017 9715017 9715017 9715017
Construction in Progress 4857509 4857509 0 0 0 0
Pre-Production Expenditure 242875.4 485750.9 485750.9 485750.9 485750.9 485750.9
Less Accumulated Depreciation 0 0 1042293 2084585 3126878 4169171
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 374015.5 0 0 0
TOTAL LIABILITIES 5100384 14307702 15147484 15308480 16077385 17887602
5. Total Current Liabilities 0 0 839781.8 1091716 1343651 1679564
Accounts Payable 0 0 839781.8 1091716 1343651 1679564
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 3060230 8584621 8584621 7153851 5723081 4292311
Loan A 3060230 8584621 8584621 7153851 5723081 4292311
Loan B 0 0 0 0 0 0
7. Total Equity Capital 2040154 5723081 5723081 5723081 5723081 5723081
Ordinary Capital 2040154 5723081 5723081 5723081 5723081 5723081
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 -374015 1339832 3287573

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9.Net Profit After Tax 0 0 0 1713848 1947740 2905075
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 0 1713848 1947740 2905075

Annex 5: Projected Balance Sheet (in Birr): Continued

PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 19482091 21444390 23526874 27160313 30793752 34427190
1. Total Current Assets 14492787 17143628 19914654 24236636 28558617 32880598
Inventory on Materials and Supplies 2996532 2996532 2996532 2996532 2996532 2996532
Work in Progress 290281.8 290281.8 290281.8 290281.8 290281.8 290281.8
Finished Products in Stock 580563.6 580563.6 580563.6 580563.6 580563.6 580563.6
Accounts Receivable 1679564 1679564 1679564 1679564 1679564 1679564
Cash in Hand 239556.2 239556.2 239556.2 239556.2 239556.2 239556.2
Cash Surplus, Finance Available 8706289 11357131 14128157 18450138 22772119 27094100
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 4989305 4300762 3612220 2923677 2235135 1546592
Fixed Investment 9715017 9715017 9715017 9715017 9715017 9715017
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 485750.9 485750.9 485750.9 485750.9 485750.9 485750.9
Less Accumulated Depreciation 5211463 5900006 6588548 7277091 7965633 8654176
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 19482091 21444390 23526874 27160313 30793752 34427190
5. Total Current Liabilities 1679564 1679564 1679564 1679564 1679564 1679564
Accounts Payable 1679564 1679564 1679564 1679564 1679564 1679564

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 Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 2861540 1430770 0 0 0 0
Loan A 2861540 1430770 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 5723081 5723081 5723081 5723081 5723081 5723081
Ordinary Capital 5723081 5723081 5723081 5723081 5723081 5723081
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought
Forward 6192647 9217907 12610976 16124230 19757669 23391107
9. Net Profit After Tax 3025259 3393069 3513254 3633439 3633439 3633439
Dividends Payable 0 0 0 0 0 0
Retained Profits 3025259 3393069 3513254 3633439 3633439 3633439

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