1FEASIBILITY STUDYON THEESTABLISHMENTOF COFFEE (COFFEE ARABICA)PLANTATION PROJECT

OWNER:CONTACT PERSON:Mobile: +251911605116,Email: [email protected],

[email protected] CONSULTANT:Girmaye Abebe Consultancy Services EnterpriseMobile:
+251911002790 /0994614040,Email: [email protected]` Ethiopia, 2021

TABLE OF CONTENTSTABLE OF
CONTENTS ...................................................................................................... ii LIST OF TABLES AND
FIGURES ..................................................................................... iv List of
Tables .................................................................................................................... iv 1. EXECUTIVE
SUMMARY ................................................................................................ 5 2. PRODUCT DESCRIPTION
AND APPLICATION ......................................................... 6 2. 1. Vision of the
Project .................................................................................................. 6 2. 2. Mission of the
Project ............................................................................................... 6 2. 3. Objectives of the
Project ........................................................................................... 7 2. 4. Keys to
Success ......................................................................................................... 7 2. 5. SWOT
Analysis ......................................................................................................... 7 2. 5. 1.
Strength ............................................................................................................. 7 2. 5. 2.
Weakness ........................................................................................................... 8 2. 5. 3.
Opportunity ........................................................................................................ 8 2. 5. 4.
Threat ................................................................................................................. 8 3. MARKET STUDY,
FARM CAPACITY AND PRODUCTION PROGRAM ..................... 9 3. 1. Market
Study ............................................................................................................. 9 3. 1. 1. Present Demand and
Supply ............................................................................. 9 3. 1. 2. Projected
Demand ............................................................................................. 9 3. 1. 3. Pricing and
Distribution .................................................................................. 10 3. 2. Farm Capacity, Market And
Production Program................................................... 10 3. 2. 1. Farm
Capacity ................................................................................................. 10 3. 2. 2. Production
Program ......................................................................................... 11 3. 2. 3. Product
Distribution ........................................................................................ 11 4. RAW MATERIALS AND
UTILITIES ............................................................................. 12 4. 1. Availability and Source of Raw
Materials .............................................................. 12 4. 2. Annual Requirement and Cost of Raw Materials
.................................................... 12 4. 3. Annual Requirement and Cost of
Utilities .............................................................. 13 5. TECHNOLOGY AND ENGINEERING DESCRIPTION OF
THE AGROFORESTRY
INVESTMENT ................................................................................................................... 14

iii5. 1. Technology .............................................................................................................. 14 5. 1. 1.

Production Process .......................................................................................... 14 5. 1. 2. Environmental
Impact of The Agroforestry investment ................................. 15 5. 2.
Engineering ............................................................................................................. 15 5. 2. 1. Machinery
and Equipment .............................................................................. 15 5. 3. Land, Building and Civil Work
Engineering Cost .................................................. 15 5. 4. Location and
Site ..................................................................................................... 16 6. HUMAN RESOURCE AND
TRAINING REQUIREMENT ........................................... 17 6. 1. Human
Resource ..................................................................................................... 17 6. 2. Training
Requirement ............................................................................................. 18 7. FINANCIAL
ANALYSIS ................................................................................................ 19 7. 1. Underlying
Assumption .......................................................................................... 19 7. 2.
Investment ............................................................................................................... 20 7. 3. Production
Costs ..................................................................................................... 22 7. 4. Financial
Evaluation ................................................................................................ 23 7. 4. 1.
Profitability ...................................................................................................... 23 7. 4. 2. Breakeven
Analysis ......................................................................................... 23 7. 4. 3. Payback
Period ................................................................................................ 23 7. 4. 4. Internal Rate of Return
(IRR) and Net Present Value (NPV) ......................... 24 7. 5. Economic and Social Benefit and
Justification ....................................................... 24 7. 5. 1. Profit
Generation ............................................................................................. 24 7. 5. 2. Tax
Revenue .................................................................................................... 24 7. 5. 3. Employment and
Income Generation .............................................................. 24 ANNEXES: FINANCIAL ANALYSIS
SUPPORTING DOCUMENTS ............................... 26 Annex 1 : Net Working Capital (In
ETB ) ...................................................................... 26 Annex 2 : Production Cost (In
ETB ) .............................................................................. 28 Annex 3 : Income Statement (In
ETB ) ........................................................................... 30 Annex 4 : Cash Flow for Financial Management
(In ETB ) ........................................... 32 Annex 5 : Discounted Cash Flow (In
ETB ) ................................................................... 34 Annex 6 : NPV and
IRR .................................................................................................. 36

ivLIST OF TABLES AND FIGURESList of TablesTABLE 3. 1 : PRODUCTION

PROGRAM .......................................................................... 11 TABLE 4. 1 : RAW MATERIALS
REQUIREMENT ............................................................ 12 TABLE 4. 2 : UTILITY
REQUIREMENT ............................................................................ 13 TABLE 5. 1 : MACHINERY AND
EQUIPMENT ................................................................ 15 TABLE 6. 1 : HUMAN RESOURCE
REQUIREMENT ....................................................... 17 TABLE 7. 1 : CONSTRUCTION AND FINANCE;
DEPRECIATION AND WORKINGCAPITAL (MINIMUM DAYS OF
COVERAGE) ................................................................. 19 TABLE 7. 2 : TOTAL INITIAL
INVESTMENT ................................................................... 20 TABLE 7. 3 : PRODUCTION
COST ................................................................................... 22

51. EXECUTIVE SUMMARYThis investment envisages the establishment of coffee plantation in Ethiopia
with acapacity of 7,200 tons per annum at 11,000 hectares of land. The following presents themain
findings of the study.Demand projection divulges that domestic as well as export demand for coffee
issubstantial and is increasing with time. The demand for coffee is met through both local plantations.
The present unsatisfied demand for coffee is high at national and internationallevel. The unsatisfied
demand for coffee is projected to increasing at alarming rate.The principal raw materials required are
fertilizer, pesticide and sacks which haveto be imported or purchased from the local market of the
whole sellers.The total investment cost of the project including working capital is estimated atETB 33. 21
million. Out of the total investment, the shareholders contribute only 9. 96million and the remaining will
be from bank loan. From the total investment cost of thehighest share is accounted by initial working
capital ETB 7. 83 million or 23. 57%)followed by Vehicles (ETB 6. 720 million or 20. 23%). The remaining
goes to others.From the total investment cost, ETB 4. 35 million or 13. 10% is required in
foreigncurrency.The financial result indicates that the project will generate profit beginning fromthe
second year of operation. Moreover, the project will break even at 56. 85% of capacityutilization and it
will payback fully the initial investment less working capital in 5 yearsand 5 months. The results further
show that the calculated IRR of the project is 56. 37%and NPV discounted at 10% of ETB 99. 21
million.The project can create employment for 48 persons. The establishment of such farmwill have a
foreign exchange saving effect to the country by substituting the current importand exporting 51% of
the products to many Africa nations. The project will also createforward linkage with the manufacturing,
farming and other sub sectors and also generatesincome for the Government in terms of tax revenue
and payroll tax.

62. PRODUCT DESCRIPTION AND APPLICATIONThe potential of coffee cultivation in Ethiopia is very high
as a result of altitude,ample rainfall, optimum temperature, suitable planting material as well as fertile
soil.Furthermore, the country is of particular value to the world as it is the home or the originof Coffee
Arabica with best inherent quality and production potential. In Ethiopia, coffee isgrown at various
altitudes ranging from 550-2750 meters above sea level.Currently coffee is produced using three very
distinctive methods. These are: theforest system, the small farm or cottage system and the plantation
system. The forestsystem means coffee grows under a forest canopy and needs very little human
interference.The small farm or cottage system is the most popular method for producing coffee
inEthiopia representing about 95% of all coffee production. The cottage system consists ofsmall
backyard gardens with a few coffee trees, which are harvested by hand. The plantation system, which is
becoming increasingly popular, is farming on a larger scaleusing modern processing equipment and
ensures more quality assurance advantages.Basically, coffee plantations grow coffee trees for the
domestic and for foreignmarkets. The plantation is run on the basis of modern farm management
system with the purpose of maximizing production and profitability.2. 1. Vision of the ProjectOur vision
is to establish an innovative farming, service and solution provider inthe coffee plantation.2. 2. Mission
of the ProjectOur mission is to supply high-quality coffee products, providing related servicesand
solutions to a worldwide client base while utilizing innovative technologies within anenvironment of
motivated employees, focused on continuous improvement, highest

7 business standards, work ethics and corporate citizenship, leading to added value for ourcustomers
and sustained return on investment to our shareholders.2. 3. Objectives of the ProjectThe establishment
of the agroforestry investment is initiated by the unfulfilleddemand gap of highly standardized Coffee in
the current market situation. This has createda good market and investment opportunity.To effectively
utilize the opportunity, we devised many objectives. Some of themare: Providing competitive product
as much as possible at full capacity to create market forthe product and shortly improve the market
share of the business, Committing into the market by providing a unique and quality coffee product
atreasonable price, and Stressing on quality product to ultimately satisfy customers and withhold their
interest.2. 4. Keys to SuccessIn descending order of rank, the critical keys to success for the envisaged
farm are: Ability to meet and exceed the beliefs of its clients and partners with modernagroforestry
investment.2. 5. SWOT Analysis2. 5. 1. Strength The entrepreneur capacities of the investors are very
high. The stockholder has excellent performance on farming agroforestry investment.

82. 5. 2. Weakness Lack of modern agroforestry investment at national level, Lack of expert in Coffee
product at national level.2. 5. 3. Opportunity  Ethiopia is the origin of Coffee Arabica Prioritized
investment by government policies and outlays. Increasing trend in the farming industry at developing
nations, Strong assistances and incentives from the government, Expected increase in the economic
growth of the country related to farming industry, huge investment in road, telecommunications,
potable water and power sectors, Existence of various farming industries in the country and relatively
stable economic and political environment.2. 5. 4. Threat  Low utilities development in the area,
Decline in the purchasing power of the ETB against Dollar.

93. MARKET STUDY, FARM CAPACITY ANDPRODUCTION PROGRAM3. 1. Market Study3. 1. 1. Present
Demand and SupplyAt present coffee is grown in many parts of the region. However, the most
popularand major producers are Yirgachefe, Jimma, Sidamo and Harare. According to theAgricultural
Sample Survey of CSA (2007-Vol I) there are 2,948,665 private peasantholdings throughout the country
holding an area of 295,237. 9 hectares of land. The production level for the same period has been
2,414,823. 85 quintal generating 8. 24quintals per hectare. There is high and growing demand for coffee
both at domestic andinternational market. In other words, any additional production will have
marketopportunity at a given price.Studies show that the Oromia, Amhara, Gambella, BGRS, and SNNP
regions aresuitable for coffee plantation. For instance Amhara region has got a total of
3,825,600hectares of land suitable for coffee production of which about 1. 4 million hectares isclassified
as highly suitable. In contrast to this the area currently covered with coffee plantation is only 10,825
hectares or 0. 77% (DSA / SCI, 2006). This represents the presence of huge gap between the potential
and actual production of the region. At thesame time it indicates the existence of untapped resource
potential that could be translatedinto profit.3. 1. 2. Projected DemandAs stated earlier, coffee is sold
both at the domestic market and also exported toabroad. Therefore, the future demand is highly related
to these two groups of consumers.Some studies estimate that about half of the total production of
coffee is consumed withinthe country. This figure can be fairly accepted when we consider the coffee
ceremony

10 being practiced in many parts of the country across all income groups where by 3 cups ofcoffee is
usually consumed per individual in a given ceremony. This shows just how muchcoffee has become a
part of Ethiopian culture. Therefore, with an increase in populationand income in the future, the
domestic demand for coffee undoubtedly increases in thefuture. The same holds true for coffee export.
Although the price is heavily manipulated bythe huge multinational coffee companies, the demand for
Ethiopian coffee is increasingfrom time to time. Such trend is expected to increase in the future as well.
Therefore, thefuture demand for the envisaged coffee plantation is very promising in view of the
aboveconsiderations.3. 1. 3. Pricing and DistributionThe current retail price of coffee is ETB 5000. 00 /
ton. Considering wholesalersand retailers margin of 10% the recommended farm gate price for the
envisaged farm isETB 4500. 00 / ton.Considering the nature of the products and the characteristics of
the end users acombination both direct distribution to end users (for bulk purchasers) and
indirectdistribution (using agents) is selected as the most appropriate distribution channel.3. 2. Farm
Capacity, Market And Production Program3. 2. 1. Farm CapacityFrom the market study and taking into
consideration the farming practice of coffee plantation process, the harvesting capacity of the farm is
taken as 7,200 tons of coffee perannum. It is possible to harvest 12-15 tons of coffee beans per hectare
of coffee plantationin modern farming.

113. 2. 2. Production ProgramThe program is scheduled based on the consideration that the farm will
workthroughout the year in 1 shift except for Sundays and public holydays. During the first yearof
operation the farm will operate at 35% capacity and then it grows to 70% in the 2nd year.The farm starts
to operate at 100% capacity beginning from the 3rd year of operation. Thisconsideration is developed
based on the consideration that coffee by nature gives its fullharvest within 2 to 4 years. At the same
time it is assumed that logistics barriers would beeliminated within these years of operation.TABLE 3. 1 :
PRODUCTION PROGRAM No. Description / Type of product Production Year1 2 31 Capacity Utilization
Rate (%) 35 70 1002 Coffee Beans (Ton ) 24,700 49,400 72003. 2. 3. Product DistributionThe agroforestry
investment will provide Coffee to both local (49%) and export(51%) market with best quality and fair
prices, ensuring, in the meantime, a sufficientfinancial return on the investment.

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124. RAW MATERIALS AND UTILITIES4. 1. Availability and Source of Raw MaterialsThe principal raw
materials for coffee production required are fertilizer, pesticideand sacks. The appropriate land will be
leased from the region. Moreover, the mostdemanded type of coffee seed shall be acquired from
relevant sources. While fertilizer andchemicals can be purchased from domestic suppliers operating in
the region, the firm shallmake use of water pump equipments to pump water from the nearby river or
other source.According to the below Table 4. 1 and 4. 2, the annual raw materials and utilitiescost at full
capacity of operation is estimated to be ETB 20. 07 million.4. 2. Annual Requirement and Cost of Raw
MaterialsThe annual raw materials requirement and the associated cost for theenvisaged farm are listed
in Table 4. 1 here under. Annual cost is estimated at ETB 12. 40million.TABLE 4. 1 : RAW MATERIALS
REQUIREMENTMaterialAnd InputUnitQuantityCostperUnitLocal Cost Total CostFertilizer Kg 96,000 28.
8811,434,500. 00 11,434,500. 00PesticidesAsrequired120,000 7. 00840,000. 00 840,000. 00Sack Number
7,200 17. 50126,000. 00 126,000. 00Total Cost12,400,500. 00 12,400,500. 00

134. 3. Annual Requirement and Cost of UtilitiesThe annual utilities requirement and the associated
cost for the envisaged farm (i. e.7,200 ton per annum) are listed in Table 4. 2 here under. The major
utilities requirementsof the farm are electricity and water. Annual cost is estimated at ETB 7. 67 million
asindicated in Table 4. 2.TABLE 4. 2 : UTILITY
REQUIREMENTUtilityUnitQuantityCostperUnitLocalCostTotalCostElectricity KWH 900,000 2. 72,430,000.
00 2,430,000. 00FurnaceOilTon 180,000 254,500,000. 00 4,500,000. 00Lubricant Li / kg 4,800 29139,200.
00 139,200. 00WaterCubicmeter60,000 10600,000. 00 600,000. 00TotalCost7,669,200. 00 7,669,200. 00

145. TECHNOLOGY AND ENGINEERINGDESCRIPTION OF THE AGROFORESTRYINVESTMENT5. 1.

Technology5. 1. 1. Production ProcessThe basic production process of coffee includes preparing the
land, planting thecoffee seedlings, nurturing the trees, harvesting and marketing the coffee beans. While
planting the coffee seedling it should be planted in rows with 3 meters distance. In this waywe can plant
about 1000 coffee trees per hectare. The seedlings should be sheltered againstsun and rain. Moreover,
the issues that need proper attention in the course of action are thefollowing. Replacing seedlings that
have not grown, keeping the soil covered and remove weeds, pruning the coffee trees correctly,
applying fertilizers, and protecting the coffee trees from insects and diseasesThe farm has to
implement agroforestry practices within the coffee plantation foreconomic benefit. Agroforestry
increase coffee production and earn huge dollars fromharvesting of other economic products within
coffee production.

155. 1. 2. Environmental Impact of The Agroforestry investmentThe plantation of coffee does not have
any negative impact on the environmentsince the process does not use hazardous chemicals.5. 2.
Engineering5. 2. 1. Machinery and EquipmentThe envisaged farm shall use hired tractor whenever
required on a rent basis. Themachineries and equipment required for coffee plantation detailed in Table
5. 1 below. Thetotal cost of machinery and equipment including freight insurance and bank cost
isestimated to be about ETB 4. 35 million (13. 10%). All the machineries can be acquiredfrom local
suppliers.TABLE 5. 1 : MACHINERY AND EQUIPMENTNO. DESCRIPTION UNIT OF MEASURE QUANTITY 1
Water Pump andEquipment’s No.2102 Various Hand Tools AndFarming Machines As required5. 3. Land,
Building and Civil Work Engineering CostThe total site area for the envisaged farm is estimated to be
11,000 hectares. As theland and seedling of coffee price is around 100 per hectare, the total cost related
to the landand seedlings are around 1. 10 million. The major buildings and civil works include buildings
for production, offices, workshops and warehouses. The farm also requires 300 m2 area for office, store
and other related facilities. Total cost of building and other civil worksis estimated at ETB 4. 60 million.

165. 4. Location and SiteThe appropriate locations for the envisaged project in view of the availability
of input andinfrastructure are localities of the Country suitable for coffee plantation. This mainlyincludes
Jimma, Sidama, Yirga Chefe, Arba Minch, Gambella, Bonga, Mizan Teferi,Wellega, North Gonder, South
Gonder, North Wollo, South Wollo, West Gojam, Awi andEast Gojam.

176. HUMAN RESOURCE AND TRAININGREQUIREMENT6. 1. Human ResourceThe list of required

manpower for the envisaged farm is stated in Table 5. 2 below.The envisaged farm therefore, creates 48
jobs and about ETB 3. 55 million of income. The professionals and support staffs for the envisaged farm
shall be recruited from thesurrounding areas of the site.TABLE 6. 1 : HUMAN RESOURCE
REQUIREMENTS.No. DescriptionNumberMonthlySalaryAnnualSalary1 ADMINISTRATIONSTAFF1.
1Manager/ Agronomist116,000. 00 192,000. 001. 2Secretary33,500. 00 84,000. 001.
3Accountant34,200. 00 151,200. 001. 4Cashier33,100. 00 74,400. 001. 5Sales And
PurchasingOfficer73,500. 00 168,000. 001. 6Clerks33,300. 00 79,200. 002 PRODUCTIONSTAFF2.
1Agronomist1 126,000. 00 10,500. 002. 2Junior Agronomist 3 216,000. 00 6,000. 002. 3Water Harvesting
Expert 1 84,000. 00 7,000. 00

182. 4Coffee Farming SkilledOperator 94,300. 00 464,400. 002. 5Coffee Farming Semi-Skilled Operator
83,700. 00 355,200. 002. 6Coffee Farming UnskilledWorkers 73,400. 00 285,600. 002. 7 Guard 5 3,400.
00 204,000. 00Sub -Total 48126,900. 00 2,956,800. 00Employees Benefit(20% Of Total Salary)
20%591,360. 00 591,360. 00Total718,260. 00 3,548,160. 006. 2. Training RequirementTraining of key
personnel is very essential and shall be conducted in collaborationwith the Ministry of Agriculture. The
training should primarily focus on the harvestingtechnology and machinery maintenance and trouble
shooting. It is suggested, to train production and technical manager, production and technical head, and
quality control head,and operators on-the-job training at the actual site on the actual working condition
bycompetent expert of the machinery and technology supplier for about one month duringseedling
plantation.

197. FINANCIAL ANALYSIS7. 1. Underlying AssumptionThe financial analysis of Coffee farm is based on
the data provided in the precedingsections and the following assumptions as seen in Table 7. 1.TABLE 7.
1 : CONSTRUCTION AND FINANCE; DEPRECIATION ANDWORKING CAPITAL (MINIMUM DAYS OF
COVERAGE)CONSTRUCTION ANDFINANCEUNITY VALUEConstruction Period year 1Tax Holidays year
5Source Of Finance (Equity) % 30%Source Of Finance (Loan) % 70%Value Of Land ETB 25, 000. 00Bank
Interest Rate % 13%Discount For Cash Flow % 10%Spare Parts, Repair and Maintenance %
5%DEPRECIATION UNITY VALUEBuilding % 5%Machinery And Equipment % 15%Office Furniture %
10%Vehicles % 15%Pre-Production / Amortization / % 10%WORKING CAPITAL UNITY VALUERaw
Material Foreign day 130Raw Material Local day 40

20Farm Supplies In Stock day 150Spare Parts In Stock AndMaintenanceday 150Cash In Hand day
20Accounts Payable day 40Work In Progress day 15Finished Products day 30Accounts Receivable day
307. 2. InvestmentThe total investment cost of the project including working capital is estimated at ETB
33.21 million as shown in Table 7. 2 below. The Owner shall contribute 30% of the finance inthe form of
equity while the remaining 70% is to be financed by bank loan. The foreigncomponent of the project
accounts for 13. 10% of the total investment cost. Most of thetotal investment goes working capital (ETB
7. 83 million or 23. 57%), Vehicles (ETB 6.720 million or 20. 23%), machineries and warehouse
construction (ETB 8. 95 million or26. 95%). The remaining goes to others.TABLE 7. 2 : TOTAL INITIAL
INVESTMENTNo. Cost ItemsLocalCostForeignCostTotalCost%1. 0 Fixed Investment1. 1Land and
CoffeeSeedlings1,100,000.001,100,000.003. 311. 2Building And CivilWork4,600,000.004,600,000.0013.
851. 3 Machinery And - 4,350,004,350,000. 13. 10

21Equipment 0. 00 001. 4Office Furniture AndEquipment1,590,000.001,590,000.004. 791. 5

Vehicle6,719,000.006,719,000.0020. 23Sub -Total14,009,000. 004,350,000. 0018,359,000. 00 55. 282. 0
Pre Operating Cost-2. 1 Pre-Expenditure*4,439,366.254,439,366.2513. 372. 2Interest During FirstYear /
Construction2,583,000.00-2,583,000.007. 78Sub -Total7,022,366.25 -7,022,366.25 21. 15Total
Investment21,031,366. 254,350,000. 0025,381,366. 25 76. 433. 0 Working
Capital**7,828,633.757,828,633.7523. 57Grand Total28,860,000. 004,350,000. 0033,210,000. 00100.
00Foreign Currency,% 17. 11*Pre-production capital expenditure includes - all expenses for pre-
investmentstudies,consultancy fee during construction and expenses for company‘s establishment,
project administration expenses, commission expenses, preproduction marketing andinterest expenses
during construction.** The total working capital required at full capacity operation is ETB 15. 66million.
However, only the initial working capital of ETB 7. 83 million during the firstyear of production is
assumed to be funded through external sources. During the remainingyears production is assumed to be
funded through external sources. During the remaining

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22years the working capital requirement will be financed by funds to be generated internally(for detail
working capital requirement see Annex).7. 3. Production CostsThe total production cost at full capacity
operation is estimated at ETB 30. 18million as detailed in Table 7. 3 below.TABLE 7. 3 : PRODUCTION
COSTITEMS COST %Raw Material And Inputs12,400,500. 00 41. 09Utilities7,669,200. 00 25.
41Maintenance And Repair527,000. 00 1. 75Labor Direct2,208,000. 00 7. 32Labor Overheads591,360. 00
1. 96Administration Costs748,800. 00 2. 48Land Lease Cost25,000. 00 0. 0828Cost Of Marketing And
Distribution1,500,000. 00 4. 97Total Operating Costs25,669,860. 0085. 06Depreciation1,485,436. 63 4.
92Cost Of Finance3,022,110. 00 10. 01TOTAL PRODUCTION COST30,177,406. 63100. 00

237. 4. Financial Evaluation7. 4. 1. ProfitabilityAccording to the projected income statement attached in

the annex part (see Annex)the project will generate profit beginning from the second year of operation.
Ratios such asthe percentage of net profit to total sales, return on equity and return on total
investmentare rises in the subsequent years. Furthermore, the income statement and other
profitabilityindicators show that the project is viable.7. 4. 2. Breakeven AnalysisThe breakeven point of
the project is estimated by using income statement projection. Accordingly, the project will break even
at 56. 85% of capacity utilization. The break-even analysis establishes a relationship between operation
costs and revenues. Itindicates 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. BESV = Brake- Even Sales Value = ( (Fixed Cost + Financial Cost) / Variable
Marginratio) (%) = ETB 18,418,121. 64 BECU = Brake -Even Capacity utilization = ( (Brake -even Sales
Value) / Salesrevenue) X 100 = 56. 85%7. 4. 3. Payback PeriodInvestment cost and income statement
projection are used in estimating the project payback period. The projects will payback fully the initial
investment less working capitalin 5 years and 5 months.

247. 4. 4. Internal Rate of Return (IRR) and Net Present Value (NPV)Based on cash flow statement
described in the annex part, the calculated IRR of the project is 56. 37% and the NPV at 10% discount is
ETB 99. 21 million.7. 5. Economic and Social Benefit and JustificationThe envisaged project possesses
wide range of benefits that help promote the socio-economic goals and objectives stated in the strategic
plan of the Ethiopia. It boosts intersectorial linkage between the farming and industrial sector. At the
same time, therefore, ithelps diversify the economic activity of the region. The other major benefits are
listed asfollows:7. 5. 1. Profit GenerationThe project is found to be financially viable and earns on
average a profit of ETBfrom 1. 00 million to 9. 00 million per year and ETB 66. 93 million within the
project life.Such result induces the project promoters to reinvest the profit which, therefore,
increasesthe investment magnitude in the region.7. 5. 2. Tax RevenueIn the project life under
consideration, the region will collect about ETB 11. 06million from corporate tax payment alone (i. e.
excluding income tax, sales tax and VAT).Such result creates additional fund for the regional government
that will be used inexpanding social and other basic services in the region.7. 5. 3. Employment and
Income GenerationThe proposed project is expected to create employment opportunity to
severalcitizens of the region. That is, it will provide permanent employment to 48 professionals as

25well as support staff. Consequently the project creates income to the workers around 3. 55million
per year and supply to the domestic needs. The establishment of such agroforestryinvestment will have
a foreign exchange saving effect to the country by exporting the product and substituting the current
imports. Moreover, the envisaged farm benefits urbanincome from the sale of coffee, and the like. This
would be one of the commendableaccomplishments of the project.

26ANNEXES: FINANCIAL ANALYSIS SUPPORTINGDOCUMENTSAnnex 1 : Net Working Capital (In

ETB )ItemsConstructionProductionProductionProductionProductionYear1 Year 2 Year 3 Year 4 Year
5Total Inventory 07,450,633.7514,901,267.5021,287,525. 0021,287,525.
00AccountsReceivable01,134,000.002,268,000.003,240,000.003,240,000.00Cash-In-Hand
0756,000.001,512,000.002,160,000.002,160,000.00Total
CurrentAsset09,340,633.7518,681,267.5026,687,525. 0026,687,525. 00Accounts Payable
01,512,000.003,024,000.004,320,000.004,320,000.00Total
CurrentLIABILITIES01,512,000.003,024,000.004,320,000.004,320,000.00Net
WorkingCapital07,828,633.7515,657,267.5022,367,525. 0022,367,525. 00

27Production ProductionProductionProductionProductionProductionYear 6 Year 7 Year 8 Year 9 Year

10 Year 1121,287,525.0021,287,525.0021,287,525. 0021,287,525.0021,287,525.
0021,287,525.003,240,000.003,240,000.003,240,000.003,240,000.003,240,000.003,240,000.002,160,00
0.002,160,000.002,160,000.002,160,000.002,160,000.002,160,000.0026,687,525.0026,687,525.0026,68
7,525. 0026,687,525.0026,687,525.
0026,687,525.004,320,000.004,320,000.004,320,000.004,320,000.004,320,000.004,320,000.004,320,00
0.004,320,000.004,320,000.004,320,000.004,320,000.004,320,000.0022,367,525.0022,367,525.0022,36
7,525. 0022,367,525.0022,367,525. 0022,367,525.00

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