36.

PROFILE ON THE PRODUCTION OF

36-1
TABLE OF CONTENTS

PAGE

I.

SUMMARY

36-2

II.

PRODUCT DESCRIPTION & APPLICATION

36-3

III.

MARKET STUDY AND PLANT CAPACITY

36-3

A. MARKET STUDY

36-3

B. PLANT CAPACITY & PRODUCTION PROGRAM

36-6

MATERIALS AND INPUTS

36-6

A. RAW & AUXILIARY MATERIALS

36-6

B. UTILITIES

36-7

TECHNOLOGY & ENGINEERING

36-8

A. TECHNOLOGY

36-8

B. ENGINEERING

36-9

MANPOWER & TRAINING REQUIREMENT

36-13

A. MANPOWER REQUIREMENT

36-13

B. TRAINING REQUIREMENT

36-15

FINANCIAL ANLYSIS

36-15

A. TOTAL INITIAL INVESTMENT COST

36-16

B. PRODUCTION COST

36-17

C. FINANCIAL EVALUATION

36-17

D. ECONOMIC & SOCIAL BENEFITS

36-19

IV.

V.

VI.

VII.

36-2
I.

SUMMARY

This profile envisages the establishment of a plant for the production of cellulose acetate with a
capacity of 260 tons of per annum. Cellulose acetate is spun into textile fibers. It is used also as a
component in some adhesives, as a frame material for eyeglasses, in the manufacture of playing
cards, tool handles, film for photography or food wrapping, wound dressings, personal hygiene
products, absorbent cloths and wipes, specialty papers, and filter media, including cigarette
filters.
Since there are no local producers of cellulose acetate, the demand for the product is entirely met
through import. The present (2012) demand for the products is estimated at 182 tons per annum.
The demand is projected to reach 258 tons and 345 tons by the year 2018 and year 2023,
respectively.

The major raw materials required by the project are cotton lint, sulfuric acid and glacial acetic
acid. Cotton lint and sulfuric acid are locally available while glacial acetic acid has to be
imported.
The total investment cost of the project is estimated at Birr 16.31 million. From the total
investment cost the highest share (Birr 10.68 million or 65.54%) is accounted by fixed
investment cost followed by initial working capital (Birr 4.05 million or 24.85%) and pre
operation cost (Birr 1.56 million or 9.61%). From the total investment cost Birr 4.20 million or
25.75% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 19.04% and a net present
value (NPV) of Birr 8.04 million, discounted at 10%.

The project can create employment for 54 persons. The establishment of such factory will have a
foreign exchange saving effect to the country by substituting the current imports. The project
will also create backward linkage with chemicals manufacturing sub sector and the agricultural
sector and forward linkage with the manufacturing sector also generates income for the
Government in terms of tax revenue and payroll tax.

36-3

II

PRODUCT DESCRIPTION AND APPLICATION

Cellulose acetate is a semi-synthetic polymer obtained through the esterification of acetic acid
with cellulose that is a natural polymer. Cellulose acetates with different properties are obtained
depending on the esterification degree (degree of substitution). Cellulose acetate widely used for
industrial applications is broadly classified into two types, i.e., cellulose diacetate and cellulose
triacetate with acetyl values of about 55% (degree of substitution: 2.4) and 61% (degree of
substitution: 2.9), respectively.

Cellulose acetate is excellent in chemical resistance, heat resistance, and burning resistance, and
in recent years, has attracted attention as a resin that is derived from the natural polymer,
cellulose, as a raw material and is friendly to the human body and the environment.

Cellulose acetate is spun into textile fibers known variously as acetate rayon, acetate, or
triacetate. It is used also as a component in some adhesives, as a frame material for eyeglasses, in
the manufacture of playing cards, tool handles, film for photography or food wrapping, wound
dressings, personal hygiene products, absorbent cloths and wipes, specialty papers, and filter
media, including cigarette filters. Such materials are often referred to as tow.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The consumption of cellulose acetate in the Ethiopian market has been very low till the year
2005. According to the import statistics of the Ethiopian Revenues and Customs Authority the
total quantity of cellulose acetate imported during the period 2000--2005 was only 4.1 tons,
which is on the average less than one tone per annum. Although it is an industrial raw material or
intermediate input, the user industries in Ethiopia were at low stage of development during this

36-4
period. However, due to the conducive conditions created for investment in recent years a
significant number of end- users have been established after 2005 and a number of projects in
the manufacturing sector are coming up recently in various parts of the country. As a result, the
demand for cellulose acetate has picked up in the past six years i.e. 2006 2011. On the other
hand, since there are no plants that produce cellulose acetate in the country, the amount that is
required by the existing users is totally met through import (see Table 3.1).

Table 3.1
IMPORT OF CELLULOSE ACETATE

Year

Volume

Value

(Tons)

(000 Birr)

2006

150.5

1,683.4

2007

74.9

915.1

2008

128.5

5,569.7

2009

316.6

19,855.1

2010

364.8

26,008.0

2011

1.44

606.1

Source: - Ethiopian Revenues and Customs Authority.

As could be seen from Table 3.1, the imported quantity during the past six years ranges from
74.9 tons to 364.8 tons, except an exceptional figure for the year 2011 which is 1.44 tons. The
annual average over the last six years (including the exceptional figure of year 2011) is about
173 tons. Assuming this to be the effective demand for the year 2011 and applying a 5% growth
rate the present (year 2012) demand is estimated at 182 tons.

2.

Projected Demand

Due to the development of the cellulose acetate user industries in Ethiopia, the demand is
expected to grow moderately. Therefore, the demand is expected to grow at a minimum of 6%

36-5
per annum, which is much below the forecasted manufacturing sector growth in the Growth and
Transformation Plan (GTP). The demand projection made based on this assumption is presented
in Table 3.2.

Table 3.2
DEMAND FORECAST FOR CELLULOSE ACETATE (TONS)

3.

Year

Quantity

2013

193

2014

204

2015

217

2016

230

2017

243

2018

258

2019

273

2020

290

2021

307

2022

326

2023

345

Pricing and Distribution

By considering the imported price of cellulose acetate and adding costs of duty and other import
related expenses, a factory -gate price of Birr 88,551 per ton is recommended.

The factory can get its market outlet through directly selling to bulk end users and through
selecting experienced distributors in the product.

36-6

B.

1.

PLANT CAPACITY & PRODUCTION PROGRAM

Plant Capacity

Based on the demand projection indicated, time required for implementation of the project and
full capacity attainment after the start of the project, the proposed plant will have a capacity to
produce 260 tons of cellulose acetate per annum. The plant is envisaged to operate in one shift of
8 hours per day and for 300 days per year. However, it is also possible to work in two or three
shifts based on actual market conditions.

2.

Production Program

It is expected that the envisaged project will start operation at relatively lower capacity to get
enough time to penetrate market and develop skill. The production build-up program is, hence,
made to start at relatively lower (75%) and then gradually rise to full capacity in the 3rd year of
operation. The detailed production program is given in Table 3.3 below.

Table 3.3
PRODUCTION PROGRAM
1st Year

2nd Year

3rd Year

Production in %

75%

85%

100%

Cellulose

195

221

260

Year of Production

acetate

(tons)

IV.

MATERIALS AND INPUTS

A.

MATERIALS

The raw materials required to prepare cellulose acetate is mainly cotton lint, sulfuric acid and
glacial acetic acid. The total annual cost of raw materials is estimated at Birr 15.68 million of

36-7
which Birr 1.76 million or 11.2% is required in foreign currency. The detailed breakdown of
material requirement at full operation capacity of the plant is given in Table 4.1.

Table 4.1
LIST OF RAW MATERIALS AND COST

Sr.

Costs in Birr (000)

Unit of

No.

Description

Measure Qty.

Glacial Acetic Acid

tons

130.0

585

1,755

Sulfuric acid

tons

10.2

204

204

Cotton or cotton lint

tons

360.0

13,140

13,140

13,929

1,755

15,684

Total

B.

LC

FC

Total
2,340

UTILITIES

The plant will use electrical energy, water and fuel as main utilities. The total annual cost of
utilities is estimated at Birr 1,038,800. The annual utility consumption along with corresponding
cost is indicated in Table 4.2.

Table 4.2
UTILITY CONSUMPTION OF THE PLANT AT FULL CAPACITY AND COST

Unit of
Utility

Measure

Consumption

Unit Cost

Total

kWh

240,000

0.58

139,200

Water

m3

20,000

10.00

200,000

Fuel

Lt

45,000

14.88

699,600

Electricity

Grand Total

1,038,800

36-8
V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Cellulose acetate is produced through two-step reactions involving the esterification of acetic
acid with cellulose and the partial hydrolysis of the resultant ester groups. Cotton linter is used as
the raw material cellulose. Cellulose is activated in a pre-treatment step. In the subsequent
acetylation step, to the cellulose are added acetic anhydride, acetic acid, and sulphuric acid as a
catalyst to carry out the esterification reaction. In the acetylation step, cellulose triacetate in
which almost all hydroxyl groups have been esterified is generated. In the subsequent ripening
step, the addition of water to the cellulose triacetate partially hydrolyzes ester groups to result in
cellulose acetate with a desired acetyl value.

Water is added to the solution after the completion of the ripening step to precipitate and separate
the cellulose acetate. In the subsequent washing step, the remaining solvent, impurities, and the
like are removed. In addition, through a drying step, a cellulose acetate product is obtained.
Diluted acetic acid as a by-product generated in the precipitation and purification steps is
concentrated for recycle, or for the raw material for acetic anhydride production.

2.

Environmental Impact

The production of cellulose acetate is a closed system and does not have an adverse
environmental impact. The diluted acetic acid to be produced as a by product during the
production of cellulose acetate shall be concentrated and recycled.

36-9

B.

ENGINEERING

1.

Machinery and Equipment

The total cost of plant machinery and equipment is estimated at Birr 5.6 million, of which Birr
4.2 million is required in foreign currency. The list of machinery and equipment required by the
envisaged plant is given in Table 5.1.

Table 5.1
LIST OF MACHINERY AND EQUIPMENT
Sr.

Machine / Equipment

No.

Description

Qty.

Dryer

Pretreater

Acetylizor

Ripener

Hydrolysor

Retention tank

Precipitor

Hardner

Shaker screen

10

washer

11

Squeeze rolls

12

Dryers

36-10
2.

Land, Building and Civil Works

The required area for both building and open space for the plant is estimated to be 1,500 m2, out
of which 800 m2 will be a built-up area. The building will be constructed with EGA sheet roof,
HCB wall and cement screed floor finish. The total cost of building and civil works at the rate of
Birr 5,000 per m2 is estimated at Birr 4,000,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.
In Addis Ababa, the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
City Administration for the promotion of the sector and all manufacturing projects are assumed
to be located in the developed industrial zones.

36-11

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

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

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

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

The last and the third zone, Expansion Zone, is classified into four levels and covers areas that
are considered to be in the outskirts of the city, where the city is expected to expand in the future.
The floor land lease price in the Expansion Zone ranges from Birr 355 to Birr 191 per m2 (see
Table 5.2).

36-12
Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA
Zone
Central Market
District

Transitional zone

Expansion zone

Level
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th
5th
1st
2nd
3rd
4th

Floor
Price/m2
1686
1535
1323
1085
894
1035
935
809
685
555
355
299
217
191

Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all
new manufacturing projects will be located in industrial zones located in expansion zones.
Therefore, for the profile a land lease rate of Birr 266 per m2 which is equivalent to the average
floor price of plots located in expansion zone is adopted.

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

36-13
Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored Point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
Period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Payment
10%
10%
10%

For the purpose of this project profile, the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The land lease period for industry is 60
years.
Accordingly, the total land lease cost at a rate of Birr 266 per m2 is estimated at Birr 399,000 of
which 10% or Birr 39,900 will be paid in advance. The remaining Birr 359,100 will be paid in
equal installments with in 28 years i.e. Birr 12,825 annually.

VI.

HUMAN RESOURCE AND TRAINING REQUIREMENTS

A.

HUMAN RESOURCE REQUIREMENT

The total human resource requirement for this plant will be 54 persons. The total annual cost of
human resource is estimated at Birr 1,380,000. Details of human resource requirement and salaries
are presented in Table 6.1.

36-14
Table 6.1
HUMAN RESOURCE REQUIREMENT AND COST

Sr.

Position

Number

No.

Monthly Salary

Annual Cost

(Birr)

(Birr)

General Manager

8,000

96,000

Secretary

2,000

24,000

Production Manager

5,000

60,000

Administration and Finance

5,000

60,000

Manager
5

Technical Manager

5,000

60,000

Accountants

6,000

72,000

Purchaser

6,000

72,000

Sales Person

3,000

36,000

Store Keeper

3,000

36,000

10

Cashier

1,000

12,000

11

Operators

12

18,000

216,000

12

Assistant Operators

12

9,600

115,200

13

Chemists

6,000

72,000

14

Mechanic

6,000

72,000

15

Electrician

6,000

72,000

16

Messenger and Cleaner

800

9,600

17

Guards

1,600

19,200

Sub-total

54

92,000

1,104,000

23,000

276,000

115,000

1,380,000

Employees benefit(25% of
basic salary)
Total

36-15
B.

TRAINING REQUIREMENT

Training on the production process, quality control and operation and maintenance of machinery
should be given by respective experts of machinery and equipment supplier for two months during
erection and commissioning of the plant. The cost of training is included in the cost of machinery
and equipment. Miscellaneous costs in relation to the training such as stationery; reception etc is
estimated at Birr 20,000.
VII.

FINANCIAL ANALYSIS

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

Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

10%

Discount cash flow

10%

Accounts receivable

30 days

Raw material local

30 days

Raw material imported

120 days

Work in progress

3 day

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5% of machinery cost

36-16
A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 16.31
million (see Table 7.1). From the total investment cost the highest share (Birr 10.68 million or
65.54%) is accounted by fixed investment cost followed by initial working capital (Birr 4.05
million or 24.85%) and pre operation cost (Birr 1.56 million or 9.61%). From the total
investment cost Birr 4.20 or 25.75% is required in foreign currency.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.
1
1.1
1.2
1.3
1.4
1.5
2
2.1
2.2
3

Cost Items
Fixed investment
Land Lease
Building and civil work
Machinery and equipment
Vehicles
Office furniture and equipment
Sub -total
Pre operating cost *
Pre operating cost
Interest during construction
Sub -total
Working capital
Grand Total

Local
Cost

Foreign
Cost

Total
Cost

%
Share

39.90
39.90
4,000.00
4,000.00
1,400.00 4,200.00 5,600.00
900.00
900.00
150.00
150.00
6,489.90 4,200.00 10,689.90

0.24
24.52
34.33
5.52
0.92
65.54

500.00
500.00
1,067.03
1,067.03
1,567.03
1,567.03
4,053.32
4,053.32
12,110.25 4,200.00 16,310.25

3.07
6.54
9.61
24.85
100

* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest during
construction.
** The total working capital required at full capacity operation is Birr 5.39 million. However,
only the initial working capital of Birr 4.05 million during the first year of production is
assumed to be funded through external sources. During the remaining years the working
capital requirement will be financed by funds to be generated internally (for detail working
capital requirement see Appendix 7.A.1).

36-17
B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 21.39 million (see Table
7.2).

The cost of raw material account for 73.29% of the production cost. The other major

components of the production cost are depreciation, direct labor and utilities which account for
7.36%, 5.16% and 4.85%, respectively. The remaining 9.34 % is the share of utility, repair and
maintenance, labor overhead and administration cost. For detail production cost see Appendix
7.A.2.

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE)

Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labor direct
Labor overheads
Administration Costs
Land lease cost
Cost of marketing and distribution
Total Operating Costs
Depreciation
Cost of Finance
Total Production Cost
C.

FINANCIAL EVALUATION

1.

Profitability

Cost
(in 000 Birr)
15,684.00
1,038.80
280.00
1,104.00
276.00
164.88
250.00
18,797.68
1,575.00
1,027.01
21,399.69

%
73.29
4.85
1.31
5.16
1.29
0.77
1.17
87.84
7.36
4.80
100.00

Based on the projected profit and loss statement, the project will generate a profit through out its
operation life. Annual net profit after tax will grow from Birr 1.53 million to Birr 2.82 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash

36-18
flow amounts to Birr 24.21 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.

2.

Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.

3.

Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point for capacity utilization and sales value estimated by using income statement projection are
computed as followed.
Break -Even Sales Value =

Fixed Cost + Financial Cost

= Birr 9,388,090

Variable Margin ratio (%)

= Break- even Sales Value X 100 = 40%

4.

Pay-back Period

The pay- back period, also called pay off period is defined as the period required for recovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the projects initial investment
will be fully recovered within 6 years.

36-19
5.

Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 19.04 % indicating the viability of the
project.
6. Net Present Value
Net present value (NPV) is defined as the total present (discounted) value of a time series of cash
flows. NPV aggregates cash flows that occur during different periods of time during the life of a
project in to a common measuring unit i.e. present value. It is a standard method for using the
time value of money to appraise long-term projects. NPV is an indicator of how much value an
investment or project adds to the capital invested. In principle, a project is accepted if the NPV is
non-negative.
Accordingly, the net present value of the project at 10% discount rate is found to be Birr 8.04
million which is acceptable.

D.

ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 54 persons. The project will generate Birr 6.71 million in
terms of tax revenue and also generates revenue to the Government in the form of payroll tax.
The establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports. The project will also create backward linkage with chemicals
manufacturing sub sector and the agricultural sector and forward linkage with the manufacturing
sector.

36-20

Appendix 7.A
FINANCIAL ANALYSES SUPPORTING TABLES

36-21

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

Items

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Total inventory

2,940.75 3,332.85 3,921.00 3,921.00 3,921.00 3,921.00 3,921.00 3,921.00 3,921.00 3,921.00

Accounts receivable

1,180.06 1,334.63 1,566.47 1,566.47 1,567.54 1,567.54 1,567.54 1,567.54 1,567.54 1,567.54

Cash-in-hand
CURRENT ASSETS

19.01

21.54

25.35

25.35

25.52

25.52

25.52

25.52

25.52

25.52

4,139.82 4,689.02 5,512.82 5,512.82 5,514.07 5,514.07 5,514.07 5,514.07 5,514.07 5,514.07

Accounts payable

86.50

98.03

115.33

115.33

115.33

115.33

115.33

115.33

115.33

115.33

CURRENT LIABILITIES

86.50

98.03

115.33

115.33

115.33

115.33

115.33

115.33

115.33

115.33

TOTAL WORKING
CAPITAL

4,053.32 4,590.99 5,397.49 5,397.49 5,398.73 5,398.73 5,398.73 5,398.73 5,398.73 5,398.73

36-22

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

Item

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Raw Material and Inputs

11,763

13,331

15,684

15,684

15,684

15,684

15,684

15,684

15,684

15,684

Utilities

779

883

1,039

1,039

1,039

1,039

1,039

1,039

1,039

1,039

Maintenance and repair

210

238

280

280

280

280

280

280

280

280

Labour direct

828

938

1,104

1,104

1,104

1,104

1,104

1,104

1,104

1,104

Labour overheads

207

235

276

276

276

276

276

276

276

276

Administration Costs

124

140

165

165

165

165

165

165

165

165

13

13

13

13

13

13

250

250

250

250

250

250

250

250

250

250

Total Operating Costs

14,161

16,016

18,798

18,798

18,811

18,811

18,811

18,811

18,811

18,811

Depreciation

1,575

1,575

1,575

1,575

1,575

175

175

175

175

175

1,174

1,027

880

734

587

440

293

147

15,736

18,764

21,400

21,253

21,119

19,572

19,426

19,279

19,132

18,986

Land lease cost

Cost of Finance
Total Production Cost

36-23

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

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Sales revenue

17,267

19,570

23,023

23,023

23,023

23,023

23,023

23,023

23,023

23,023

Less variable costs

13,911

15,766

18,548

18,548

18,548

18,548

18,548

18,548

18,548

18,548

VARIABLE MARGIN
in % of sales revenue
Less fixed costs
OPERATIONAL
MARGIN

3,357
19.44
1,825

3,804
19.44
1,825

4,476
19.44
1,825

4,476
19.44
1,825

4,476
19.44
1,838

4,476
19.44
438

4,476
19.44
438

4,476
19.44
438

4,476
19.44
438

4,476
19.44
438

1,532

1,979

2,651

2,651

2,638

4,038

4,038

4,038

4,038

4,038

in % of sales revenue
Financial costs

8.87

10.11
1,174

11.51
1,027

11.51
880

11.46
734

17.54
587

17.54
440

17.54
293

17.54
147

17.54
0

GROSS PROFIT

1,532

806

1,624

1,770

1,904

3,451

3,598

3,744

3,891

4,038

in % of sales revenue
Income tax

8.87
0

4.12
0

7.05
0

7.69
531

8.27
571

14.99
1,035

15.63
1,079

16.26
1,123

16.90
1,167

17.54
1,211

NET PROFIT
in % of sales revenue

1,532
8.87

806
4.12

1,624
7.05

1,239
5.38

1,333
5.79

2,416
10.49

2,518
10.94

2,621
11.38

2,724
11.83

2,826
12.28

36-24

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

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

Year 9

Year 10

Year 11

Scrap

TOTAL CASH
INFLOW

11,190

22,474

19,581

23,041

23,023

23,023

23,023

23,023

23,023

23,023

23,023

8,906

Inflow funds

11,190

5,207

12

17

Inflow operation

17,267

19,570

23,023

23,023

23,023

23,023

23,023

23,023

23,023

23,023

Other income

8,906

11,190

19,368

19,206

22,116

21,676

21,584

21,900

21,797

21,694

21,592

20,022

11,190

4,140

549

824

Operating costs

13,911

15,766

18,548

18,548

18,561

18,561

18,561

18,561

18,561

18,561

Marketing cost

250

250

250

250

250

250

250

250

250

250

Income tax

531

571

1,035

1,079

1,123

1,167

1,211

Financial costs

1,067

1,174

1,027

880

734

587

440

293

147

Loan repayment

1,467

1,467

1,467

1,467

1,467

1,467

1,467

1,467

SURPLUS
(DEFICIT)

3,107

376

925

1,347

1,440

1,123

1,226

1,329

1,432

3,001

8,906

CUMULATIVE
CASH BALANCE

3,107

3,482

4,407

5,754

7,194

8,317

9,544

10,873

12,304

15,306

24,211

TOTAL CASH
OUTFLOW
Increase in fixed
assets
Increase in current
assets

36-25

Appendix 7.A.5
DISCOUNTED CASH FLOW ( in 000 Birr)
Year
1

Year
2

Year
3

Year
4

Year
5

Year
6

Year
7

Year
8

Year
9

Year
10

Year
11

Scrap

TOTAL CASH INFLOW

17,267

19,570

23,023

23,023

23,023

23,023

23,023

23,023

23,023

23,023

8,906

Inflow operation

17,267

19,570

23,023

23,023

23,023

23,023

23,023

23,023

23,023

23,023

Other income

8,906

TOTAL CASH OUTFLOW

15,243

14,698

16,822

18,798

19,330

19,382

19,846

19,890

19,934

19,978

20,022

Increase in fixed assets

11,190

Increase in net working

4,053

538

806

Operating costs

13,911

15,766

18,548

18,548

18,561

18,561

18,561

18,561

18,561

18,561

Marketing cost

250

250

250

250

250

250

250

250

250

250

531

571

1,035

1,079

1,123

1,167

1,211

Item

Income tax
NET CASH FLOW

-15,243

2,569

2,748

4,226

3,693

3,642

3,178

3,134

3,089

3,045

3,001

8,906

CUMULATIVE NET CASH

-15,243

-12,674

-9,926

-5,701

-2,008

1,634

4,811

7,945

11,034

14,080

17,081

25,987

Net present value

-15,243

2,335

2,271

3,175

2,523

2,261

1,794

1,608

1,441

1,292

1,157

3,434

Cumulative net present value

-15,243

-12,908

-10,637

-7,462

-4,940

-2,678

-885

723

2,164

3,456

4,613

8,047

NET PRESENT VALUE

8,047
19.04%
6 years

36-26