Tomase Yora and Mesfin Tumato

Furniture Manufacturing
Business plan

Promoted by– Tomase Yora and Mesfin Tumato

Phone Number- +2510916472137,
+2510913190531
Areka, woliyta Zone

Prepared September, 2023

Areka, Ethiopia

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 Table of contents

Contents
page
Confidentiality Agreement.....................................................................................................................1
1. Introduction.......................................................................................................................................2
1.1 Executive Summary........................................................................................................................3
1.2 overview of project location...........................................................................................................4
1.3 Furniture Manufacturing Ownership..............................................................................................5
2. Our Mission and Vision Statement...................................................................................................6
3. Our Business Structure.....................................................................................................................6
3.1 Purchase of Wood...........................................................................................................................7
3.2 CRITICAL FACTORS...................................................................................................................8
4. SWOT Analysis............................................................................................................................9
4.1 Strength:....................................................................................................................................9
4.2 Weakness:.................................................................................................................................9
4.3 Opportunities:...........................................................................................................................9
4.4 Threat:.......................................................................................................................................9
5. Our Products and Services..............................................................................................................10
5.1 Marketing Analysis of furniture business.....................................................................................11
5.2 Marketing Segmentation...............................................................................................................11
5.3 Business Target.............................................................................................................................12
5.4 Product Pricing.............................................................................................................................12
5.5 Competitive Analysis:...................................................................................................................12
5.6 Sales Strategy................................................................................................................................13
5.7 Sales Forecast...............................................................................................................................13
5.8 Personnel Plan...............................................................................................................................13
6. FINANCIAL PLAN.......................................................................................................................14
6.1 Project Cost:..................................................................................................................................14
6.2 Loan liquidation pattern................................................................................................................15
6.3 Profitability analysis.....................................................................................................................16
6.3.1 Profit or loss statement..............................................................................................................16
6.3.2 Cash flow statement...................................................................................................................17
6.3.3 Cost benefit and sensitivity analysis..........................................................................................18
7. Implementation:..............................................................................................................................19

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 Confidentiality Agreement
The undersigned reader acknowledges that the information provided by Tomase Yora and
Mesfin Tumato in this business plan is confidential; therefore, reader agrees not to disclose
it without the express written permission of Tomase Yora and Mesfin Tumato.

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 1. Introduction
Furniture is a part of our lives, this fact sounds awkward but it is very true! There is nowhere you
will go where you will not need or see the furniture. This is the reason why the furniture-making
industry is lucrative as the importance of furniture cannot be undermined, hence the need for it
makes the industry a lucrative one.

Wooden furniture makes one of the earliest age industries in India and still is considered
profitable. Ethnic and modern, both two types of furniture are in demand. Bed, sofa set,
cupboard, dressing unit, sitting arrangements, reading table, and round table are some of the
popular wooden furniture items. The wooden interior is decorating the interior part of a room
with wood and wood supplementary products. Basically, wooden flooring, wall, ceiling, and
other interior separation made of wood are very popular. In this segment, your woodworking unit
can support both domestic and corporate customers.

Wooden Utility Product Making can initiate a small-scale unit of wooden utility product
making. Some of the most popular wooden utility products are the spoon, cutting board, mug,
tray, bowls, chopsticks, cabinet, etc. Wooden decor item has enormous revenue potential.
Additionally, can establish a small-scale wooden decor item manufacturing unit can with small
startup capital. Some of the most popular wooden decor items are wall hanging, photo frames,
toys, Woodworking Workshop have experience and a creative mind to create different types of
wood items, opening a woodworking workshop manufacturing unit can fetch good returns and
can sell items to direct customers as well as retailers.

Businesses in this industry mainly manufacture or make a household, outdoor, and o ffice
furniture. Therefore Tomase Yora and Mesfin Tumato Furniture Manufacturing is a profitable
industry and it is open to any aspiring entrepreneur or investor to come in and will be establish in
Areka

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 1.1 Executive Summary
Tomase Yora and Mesfin Tumato wood Furniture Manufacturing is a standard and registered
furniture manufacturing that will be located in Areka sefer selam kebele dola mender, an ideal
location highly suitable for the kind of business we want to establish. We have been able to own
land 3,000 square meter a space that is big enough to fit the kind of standard furniture
manufacturing that we intend to start.
Tomase Yora and Mesfin Tumato Furniture Manufacturing will manufacture a wide range of
household furniture, outdoor and office furniture. We are aware that there are several large and
small furniture manufacturing companies all around Areka, which is why we conducted a
thorough feasibility study and market survey so as to be well poised to compete with all our
competitors
We will cultivate a working environment that provides a human, sustainable approach to earning a
living, and living in our world, for our partners, employees, and for our customers.

Project Type Wood Furniture Manufacturing

Promoter name Tomase Yora and Mesfin Tumato
Nationality Ethiopian
Project location Southern Nation Woliata, Areka City
Type of Business Jointly proprietor ship

Required land 3000 m2

Total initial investment capital 48,000,000.00 birr from this investment 30%
( 14,400,000.00) from owner equity and 70%
( 33,600,000.00) from bank loan
Employment opportunity 40
Benefits of the project for the permanent employs, Generate revenue to
city government in the form of taxes, Facilitate and give
quality a good

1.2 overview of project location

Areka is one of the cities located in Wolaita Zone of SNNPR State of Ethiopia. Areka City
was established in 1957 E.C. In 1970E.C, has obtained legal status from Sidamo province

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work and urban development minister branch office. By 1996 E.C it was transformed to a
reform City. Due to absence of enlightened municipal leadership and financial constraints,
insignificant development was experienced until 1983 E.C. The increased migration of
people from the surrounding rural kebeles and other areas aggravated the problems of
inaccessibility of infrastructure services. In 1976 E.C, the city had its master plan, which
contributed significantly to the planned growth of the city. The city is along Addis Ababa-
Hosanna Wolaita Soddo road at a distance of 299 Km from Addis Ababa and 197 Km
South from the regional Capital Hawassa and 29 Km south west from Wolaita Soddo, the
capital city of Wolaita.

Areka city was founded in 1964 and it has City Administration Status in 2003.
Geographically, the city is situated at 7.04°-7.1° latitude north and 37.68°-37.72min°’
longitude east. The total area of the city covered by Master Plan is 32 km2, while the total
Built-up area/’Municipal area’/ of the city 15 km2. The altitude of the city ranges from
1500 to 2000 meters above sea level. On the bases of SNNP Regional State City grading
process and proclamation of 65/2003, Areka is categorized as the 2nd grade city.

Important and unique feature of the city includes that its suitability for establishment of
agro industries, like spices processing as the city is surrounded by ginger belt areas,
existence of proximity to tourist attraction sites like Ajora falls ,and prevalence of
institutions like Areka Agricultural Research center which could be considered as to
acquire agro related services.

Spatial form of the city: Areka city is the political, economic, social and administrative
center of Boloso Sorie Woerda, in Wolaita zone, South Nations, Nationalities and People’s
Region. Areka city is one of the 44 reform cites in the SNNP region and it has Three
administrative kebeles. It is located in the southern part of the country, 299km from the
Federal capital Addis Ababa and 185km from the regional capital Hawassa and the total
area of the city is 3484 hectare (Areka City ATPLUP, 2014/15) is mainly the result of its
altitude. The city is located at an altitude of 1750m above sea level with astronomical
location of 7.170- 7.980 latitude and 37.620- 37.830 longitudes in the east direction. From
this altitudinal point of view, the city's weather condition can be categorized under “Dega”
or medium land climate with warm air condition. The mean annual temperature of the city
ranges from 17.60c- 22.50c. However, the hottest months of the city are January and

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 February. The average annual rain fall is about 1600-1701 mm on during summer season
(Areka City FEDO, 2013).

Population of the city is about 64316 (49.7% are female) as per report of, whereas the
estimation of the city administration and ZoFED of Wolaita Zone shows that the
population of Areka city is estimated to be about 64316 in the year 2009E.C . This
implies that the population of the city has been growing at the rate of about 6.3% per year,
revealing the alarming rate population growth. Of the total populations in the city, about
31514 (49%) are Working age population (15-60 years), 41% are children under the age of
15; and the remaining 10 % are elderly population (60 & above years). This leads to
dependency ratio of 143. The livelihood of most of the city population was earned from
small trading, farming, and employment in government and non-government organization
(Areka City FEDO, 2017).
Tomase Yora and Mesfin Tumato wood Furniture Manufacturing will located in Areka –
sodo main asphalt road sefer selam Kebele dolla mender Areka town water office located at
around 2 meter distance form Town Administration office Areka, Woliyta Zone.

1.3 Furniture Manufacturing Ownership

Tomase Yora and Mesfin Tumato wood Furniture Manufacturing is a limited liability Furniture
Manufacturing. Mr. Tomase Yora and Mr. Mesfin Tumato are the shareholders, owning 50% and
50% of the share capital, respectively.

2. Our Mission and Vision Statement

Our vision is to become the go-to option whenever the need for furniture arises and also to
become one of the leading brands in the furniture manufacturing industry in Areka.

Our mission is to establish a nationwide class furniture manufacturing business whose products
will not only be retailed in Areka but in Ethiopia at large.

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 3. Our Business Structure
Tomase Yora and Mesfin Tumato wood Furniture Manufacturing does not intend to start a
furniture manufacturing business as the usual carpenter shops around the street corner; our
intention of starting a furniture manufacturing Furniture is to build a standard and one-stop
furniture manufacturing Furniture in Areka.

We will make sure we make arrangements that will be in accord with the kind of growth that we
have in mind while setting up the business. Our staff will comprise of creative artisans and
qualified, honest, customer-centric, and are ready to work to help us mold our business to the
heights we aspire which will in turn benefit all the stakeholders. We have decided to hire
qualified and competent hands to occupy the following positions;

 Chief Executive Officer (Owners)

 Workshop Manager
 Human Resources and Admin Manager
 Merchandise Manager
 Sales and Marketing Manager
 Carpenters and Furniture Markers
 Accountants / Cashiers
 Customer Services
 Executive Cleaners

3.1 Purchase of Wood

Wood is purchased after Quality inspection. Following points are to be considered while
inspecting quality:
 Age of wood
 Dryness of wood
 Its surface, which should be plain without holes etc.
Cutting of Wood
Wood of natural form, after purchase is cut into different sizes of blocks and slabs

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Seasoning / Drying of Wood
Season wood is higher in price than the fresh wood, so if the wood purchased is not
properly dried than these blocks / slices are seasoned through different processes,
namely:
 Condensation
 Boiler System
 Vacuum System
 Seasoning the wood by putting the wood slices under normal environmental
temperature for considerable duration.
Selection of Design
Before manufacturing any furniture product the desired design is selected. Selection of
elegant design is important to ensure attractive finished product.
Cutting into Slices
The seasoned wood blocks are cut into desired shape and slices according to the
requirement of design.
Molding
The slices of wood are molded into the desired shape according to the design.
Carving
Carving means the different elegant patterns carved in the wood. Quality of carving
depends on the skills of the labor.
Assembly / Fitting
Once the different pieces are carved & molded than these parts / pieces are assembled or
fixed together to give the shape to the final product.
Finishing (Paint / Polish)
Assembled product is grinded to make the surface smooth. Once the surface is smooth,
finishing material is applied to make the surface ready for paint or polish. After the base
is prepared final finishing is applied depending on requirement in terms of paint / polish.
Upholstery of fabric is carried out according to the requirement of the design.
3.2 CRITICAL FACTORS
Following are the factors critical for the success of this business venture;
 Ensuring availability of seasoned (dry) wood for high quality furniture
manufacturing. Seasoned wood minimizes deforming that may occur due to
dampness in wood.

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  Selection of skilled labor is an important factor, as it can improve quality of
finished products by better craftsmanship & lower wastage. It is recommended that
specialized labor is hired for this business.
 New designs and styles can build brand equity for the business. Creation of new
designs and styles is vital for setting new trends as the market is quite competitive.
 Aggressive virtual marketing needs to be undertaken in the absence of a physical
showroom.
 Though skilled labor is available in the market, additional manufacturing
workload can be sub-contracted to save time and resources.
 The manufacturing will require selling directly to showrooms and direct clients,
for which the owner would need to develop extensive knowledge of the market.
 Higher return on investment and a steady growth of business is expected with the
entrepreneur having some prior experience / education in the related field of
business.
 Easy access to raw material should be ensured.

4. SWOT Analysis
Tomase Yora and Mesfin Tumato wood Furniture Manufacturing are in business to become one
of the leading furniture manufacturing companies in the whole of Areka and we are fully aware
that it will take the right business concept, management and organization – structure to achieve
our goal.

The presence of other several companies that are in the same industry as us and can also boast of
impeccable and unique craft are located in the same area we are intending to kick off operations
which is why we are following the due process of establishing a business. This is the summary of
the SWOT analysis that was conducted for Tomase Yora and Mesfin Tumato Furniture
Manufacturing;

4.1 Strength:

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 Our core strength lies in the quality of our furniture, the dedication and attitude to the work of
our team, and the equipment of the furniture-making factory that we own.
We are well-positioned geographically and demographically and we know we will attract loads
of clients from the first day we open our furniture manufacturing for business.
4.2 Weakness:
The fact that we are a new furniture manufacturing Furniture and we don’t have the financial
capacity to compete with renowned furniture manufacturing companies. So also, we may not
have enough cash reserve to promote our services and Furniture Manufacturing the way we
intend.
4.3 Opportunities:
Operating in Areka provides us with unlimited opportunities to sell our furniture to a large
number of individuals and corporate organizations; we are well-positioned to take on the
opportunities that will come our way.
4.4 Threat:
Just like any other business, one of the major threats that we are likely going to be faced with is
an economic downturn. It is a fact that an economic downturn affects purchasing or spending
power. Another threat that may likely confront us is the arrival of a new furniture manufacturing
Furniture Manufacturing in the same location where ours is located.

We are in business to manufacture a wide range of furniture for the following groups of people
and corporate organizations;

 Households
 Bachelors and Spinsters
 Corporate Executives
 Business People
 About to wed couples
 Corporate Organizations / Offices
 Government Offices
 Schools and Students (Library inclusive)
 Churches and other religious centers

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 5. Our Products and Services
Tomase Yora and Mesfin Tumato wood Furniture Manufacturing is in the furniture
manufacturing industry to manufacture both home and o ffice furniture; to provide value (our
service) to a wide range of clients and to definitely make profits, which is why we will ensure we
go all the way to give our clients and potential clients options. We will do all that is permitted by
the law of the Ethiopia to achieve our business goal, aim, and ambition of starting the business.
Our product offerings are listed below;

 Manufacturing of household furniture

 Manufacturing stationary sofas/sofa-sleepers
 Manufacturing metal household and office furniture
 Manufacturing custom architectural woodwork and other fixtures
 Manufacturing showcases, partitions, shelving, and lockers

5.1 Marketing Analysis of furniture business

The most important part in developing an effective furniture business plan sample is its
marketing analysis that’s why Tomase Yora and Mesfin Tumato hired the services of
marketing experts to help them develop a good furniture business plan. He also went through
various plans before making his own plan of starting furniture business.
The success of a startup totally depends upon how it markets itself to target its specific
customer groups. A successful marketing strategy can only be developed after knowing the
target audience and potential customers. Our marketing experts carried out at extensive
research to identify our target customers and develop a unique marketing strategy to attract
them.

5.2 Marketing Segmentation

Tomase Yora and Mesfin Tumato wood Furniture Manufacturing target customers vary from

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 individual buyers to multinational retail stores. We have identified following type of target
audience which can become the future customers of our products.
5.2.1 Individual Buyers:
Tomase Yora and Mesfin Tumato wood Furniture Manufacturing will open initially, in the
first year of its startup in Areka. The purpose of these showrooms is to attract individual
buyers residing in these areas. All of city well established and comprise of well-off people
that’s why they can easily buy our products. We have specifically design luxurious products
to target this wealthy community. These individual buyers are expected to buy the biggest
portion of our projects.
5.2.2 Institutions:
We will directly supply our furniture products mainly chair, cabinets, and desks to various
educational institutions along with courts, churches, hospitals, municipal authorities and
other institutions located in Areka.

5.2.3 Businesses:
We will supply office furniture to various companies, offices, and businesses based in Areka.

5.2.4 Maintenance Services:

We will offer repair and maintenance services like polishing and glazing of old furniture to
our various customers. For this purpose we will allocate a special staff in our display centers
located in Areka.

5.3 Business Target

We aim to revolutionize the traditional designs of furniture products by introducing foldable
compact furniture concept. Our target is to become one of the leading furniture producing
companies of Areka within next 10 years by providing highest-quality wooden products within
affordable prices.
At our company, we will provide a top-notch customer service. Our every employee and
salesperson will treat our customers with utmost respect so as to build a long-lasting
relationship with them.

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 5.4 Product Pricing
Setting the prices of products is the most challenging part of any startup because it is very
difficult to achieve the MARR (minimum attractive rate of return) while also attracting the
customers towards it.
Considering all restraints and aspects, we have priced our products in the similar ranges as of
our competitors except the compact furniture which include foldable desks, tables, and chairs.
These products are slightly expensive because they cost more to produce.
Strategy Rick carried out an extensive research and also hired financial experts to help him
develop an effective sales strategy for the company. Although he knew how to start a furniture
business yet he took help of experts from various fields so as to make this venture successful.

5.5 Competitive Analysis:

We have a really tough competition ahead of us because there are hundreds of other established
furniture companies in the Areka. That’s why Tomase Yora and Mesfin Tumato wood Furniture
Manufacturing has thought through everything to make his company stand out among others.
Although we will produce supreme-quality furniture with latest design but our main competitive
edge is our concept of space-efficient foldable furniture, designed to fit in the limited space
available in compact Areka.

5.6 Sales Strategy

We will introduce our startup to our target customers and stake holders by sending brochures
and introductory letters about us. We will carry out a large-scale social media campaign for our
advertisement. We will offer discounts and gifts on our products present in several retail stores
to encourage sales.

5.7 Sales Forecast

We believe that people will use our products for the rest of their lives, if they try them even for
one. Considering the market demand and the quality of our products, our sales pattern is
expected to increase with years. By analyzing our market segmentation strategy, our experts
have forecasted.

5.8 Personnel Plan

Tomase Yora and Mesfin Tumato wood Furniture Manufacturing hired a Human Resource
Manager for helping him develop a personnel plan for starting a furniture making business. We

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 will develop the following personnel plan for the staff needed for the company along with their
average salaries with the help of experts.

Tomase Yora and Mesfin Tumato wood Furniture Manufacturing will act as the Chief
Operating Officer of the company. The company will initially hire following people:
 1 General Manager to manage the operations in the production unit.
 2 Administrators / Accountants to maintain financial records.
 2 Sales and Marketing Executives responsible for delivering products to retailers
and discover new ventures.
 3 Mangers to operate display centers.
 30 Field Employees for operating the production unit and display centers.
 2 Drivers to transport furniture to display centers, departmental stores,
institutions and companies..
To ensure the best quality service, all employees will be selected through vigorous testing and
will be trained for a month before starting their jobs.

6. FINANCIAL PLAN
Tomase Yora and Mesfin Tumato Furniture Manufacturing a detailed financial model
has been developed to analyse the commercial viability of the Wooden Furniture
Manufacturing. Various costs and revenue related assumptions along with results of the
analysis are outlined in this section.

6.1 Project Cost:

The project requires an investment capital of ETB 48,000,000.00. From the amount of
investment capital required Birr 14,400,000.00 which is of 30% of the total investment
and 33,600,000.00 (70%) will be covered will be pooled from financing partners in the
form of cash loan in midterms at capital cost rate 11% per Year.

Accordingly, the capital outlay description with distribution of the funding sources is
discussed in the following table.

Table 1 capital sources and distribution

S.N Project Item Total Distribution of Project Cost by Source of Fund in Remark
Investment ETB

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 Equity
% Loan %
Capital
Capital Cost: Land, Building
&Infrastructure, Machinery &
1 Equipment, Furniture & Fixture,
Office Equipment 30,455,409.00 9,136,622.70 30.00 21,318,786.30 70.00

Working Capital Requirements:

2 Raw Material Inventory and 4,070,857.80 30.00 9,498,668.20 70.00
Cash 13,569,526
Developmental Start-Up
3 2,400,000.00 720,000.00 30.00 1,680,000.00 70.00
Expense:
operational Cost for the first
4 year including salaries of 1,575,065.00 472,519.50 30.00 1,102,545.50 70.00
employees
Total 48,000,000.00 14,400,000.00 30.00 33,600,000.00 70.00

6.2 Loan liquidation pattern

As it is noted above, Tomase Yora and Mesfin Tumato wood Furniture

Manufacturing will require about 33,600,000.00 in the form of long term loan. Loan with
its attached interest expense is one of significant factors which affect liquidity aspect, the
overall viability and profitability of the business. Due to this effect proper plan has been set
to settle the loan amount with the interest payment by developing a loan amortization
schedule as indicated below

Table 2 – loan amount and amortization schedule

outstanding principal interest at 11%

Year balance installment discount rate Total payment
0 33,600,000.00

1 30,240,000.00 3,360,000.00 3,696,000.00 7,056,000.00

2 26,880,000.00 3,360,000.00 3,326,400.00 6,686,400.00

3 23,520,000.00 3,360,000.00 2,956,800.00 6,316,800.00

4 20,160,000.00 3,360,000.00 2,587,200.00 5,947,200.00

5 16,800,000.00 3,360,000.00 2,217,600.00 5,577,600.00

6 13,440,000.00 3,360,000.00 1,848,000.00 5,208,000.00

7 10,080,000.00 3,360,000.00 1,478,400.00 4,838,400.00

8

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 6,720,000.00 3,360,000.00 1,108,800.00 4,468,800.00

9 3,360,000.00 3,360,000.00 739,200.00 4,099,200.00

10 - 3,360,000.00 369,600.00 3,729,600.00

Total 33,600,000.00 20,328,000.00 53,928,000.00

6.3 Profitability analysis

Profitability assessment of the project is made based on the prevailing situation of the area,
south region and the socio economic develop trend of the country in general. Due attention
has been given for pay capacity of the users and affordability of the service and quality of
services to be delivered by setting price.

Cognizant with the demand analysis prices for the product is set price in the sector and
quality is one of key competition factors in the business yield quick revenue to discharge
responsibility of loan repayment and a return on investment for the promoter.

6.3.1 Profit or loss statement

The project will have positive cash flow and profit even from start of first year of
operation. As profit loss statement of the project details below, the project 4,465,900 net
profits in the first year of production and rent the preceding year also show incremental
profit. A detail of profit and/ or loss analysis of the project is presented below.

Tomase Yora and Mesfin Tumato wood Furniture Manufacturing

A projected profit or loss statement

Table 3 for the period of five years from commencement of the operation

FINANCIAL FORECAST FOR FIVE YEARS

ITEMS Year 1 Year 2 Year 3 Year 4 Year 5
Bed Set 2,500,000 2,750,000 3,025,000.00 3,327,500.00 3,660,250.00
Dinning Set 1,400,000 1,540,000 1,694,000.00 1,863,400.00 2,049,740.00

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 sofa Set 2,900,000 3,190,000 3,509,000.00 3,859,900.00 4,245,890.00
Misc. Furniture 2,200,000 2,420,000 2,662,000.00 2,928,200.00 3,221,020.00
Office Furniture 2,350,000 2,585,000 2,843,500.00 3,127,850.00 3,440,635.00
Total Revenue 11,350,000 12,485,000 13,733,500 15,106,850 16,617,535
Payroll 1,575,065 1,890,000 1,984,500 2,083,725 2,187,911
Sales, Marketing and other
224,935 525,000 551,250 578,813 607,753
expense
Utilities 400,000 840,000 882,000 926,100 972,405
Insurance 200,000 200,000 300,000.00 325,000.00 451,250.00
Total Operating Expenses 2,400,000 3,455,000 3,717,750 3,913,638 4,219,319
Interest Expenses 3,696,000 3,326,400
2,956,800.00 2,587,200.00 2,217,600.00
profit before tax 5,254,000 5,703,600 7,058,950 8,606,012 10,180,616
tax 15% of profit after interest 788,100 855,540 1,058,843 1,290,902 1,527,092
Net profit for the periods 4,465,900 4,848,060 6,000,108 7,315,110 8,653,524

6.3.2 Cash flow statement

Cash flow analysis is made so as to identify whether the financial statement have
positive balances and oversight the liquidity status of the project. Accordingly the project
has shown positive cash flow balance right starting from the first year of service. There
recorded incremental positive net cash inflow for each consecutive year too. The first year
of the operation has net cash flow of ETB 8,217,526.67 and cumulative total net inflow
throughout the project period including book value of fixed asset is ETB 31,625,409.60

Table 4 a project cash flow statement for the project period

descrption Year_0 Year_1 Year_2 Year_3 Year_4 Year_5

Cash inflow - - - - - -
Sales revenue 11,350,000.00 12,485,000.00 13,733,500.00 15,106,850.00 16,617,535.00
Owner's equity 14,400,000.00 3,500,000.00 4,100,000.00 2,500,000.00 1,500,000.00 800,000.00
Bank loan 33,600,000.00 8,166,666.67 9,566,666.67 5,833,333.33 3,500,000.00 1,866,666.67
Book value of building machines
and other fixed assets

Total cash inflow 48,000,000.00 23,016,666.67 26,151,666.67 22,066,833.33 20,106,850.00 19,284,201.67

Cash outflow

Intial investment 48,000,000.00

cost of direct materials 8,562,075.00 9,418,282.50 10,360,110.75 11,396,121.83 12,535,734.01
Operating costs less despection 1,575,065.00 1,011,385.65 674,392.65 1,021,030.00 1,824,611.35
Intrest payment on loan 3,696,000.00 3,326,400.00 2,956,800.00 2,587,200.00 2,217,600.00
loan repayment 336,000.00 33,600.00 403,200.00 772,800.00 1,142,400.00
Tax payment on operating
630,000 630,000 630,000 630,000 630,000
income

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Total out flow 48,000,000.00 14,799,140.00 14,419,668.15 15,024,503.40 16,407,151.83 18,350,345.36
Net cash flow 8,217,526.67 11,731,998.52 7,042,329.93 3,699,698.18 933,856.31
Cumulative cash flow 8,217,526.67 11,731,998.52 7,042,329.93 3,699,698.18 933,856.31

6.3.3 Cost benefit and sensitivity analysis

The project’s costs and benefit are discounted to the present value (PV) and the discounted
benefit over the discounted cost would indicate the net benefit of the project. Accordingly,
the project benefit has shown a positive net present value (NPV) of Birr 129,071,839.76
discounted at 15% , that is the cost capital, and the internal rate of return (IRR) is also
63%, which is greater than the cost of capital (9%), confirming of the project as it is
depicted on the following table.

Table 5 computation of NPV and IRR

Year 1.00 2.00 3.00 4.00 5.00

Net cash inflow 8,217,526.67 11,731,998.52 7,042,329.93 3,699,698.18 933,856.31

Total inflow 8,217,526.67 19,949,525.18 26,991,855.12 30,691,553.29 31,625,409.60

Discunting factor at 10% 0.897 0.804 0.721 0.647 0.580

Present value of cash flows 7,371,121.42 16,039,418.25 19,461,127.54 19,857,434.98 18,342,737.57

Total PV cash inflow 81,071,839.76

Less intial investment 48,000,000.00

Net present value 129,071,839.76

IRR 63%

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 7. Implementation:
We anticipate that the project approval would take 30 days, following which time they
would have finished organizing financing. They plan to begin construction by January of
2016 E.C and complete the project on June 2016 E.C (6 month).

Construction will commence with establishment of a site store/office after which a

temporary fence will be erected, and after this, the demolition of the existing houses will
immediately take place. Once the site is thus secured the building levels shall be
established, the excavation for the construction of the basement floor will be done and the
retaining walls done to secure the basement & the ground floor. Then construction of
structures will begin from the foundation through the shell to the roof, and then followed
by finishes, while site works commence. This will be the boundary wall, parking, storm-
water collection and water and sewage disposal. On completion the project will be
commissioned and a management unit will then handle the operations of the development.

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