PROFILE ON THE PRODUCTION OF SHEET GLASS

Table of Contents
I. SUMMARY.........................................................................................................................................................1
II. PRODUCT DESCRIPTION AND APPLICATION.............................................................................................1
III. MARKET STUDY AND PLANT CAPACITY................................................................................................3
IV. MATERIALS AND INPUTS............................................................................................................................6
V. TECHNOLOGY AND ENGINEERING..........................................................................................................8
VI. HUMAN RESOURCE AND TRAINING REQUIREMENTS......................................................................14
VII. FINANCIAL ANALYSIS..............................................................................................................................15
FINANCIAL ANALYSES SUPPORTING TABLES.................................................................................................20

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I. SUMMARY
This profile envisages the establishment of a plant for the production of sheet glass with a
capacity of 15,000 tons per annum. The product is widely applicable in building construction for
doors and windows as well as for furniture, show cases, green houses mirrors and the like.

The demand for sheet glass is met through domestic production and import. The present (2012)
unsatisfied demand for sheet glass is estimated at 23,815 tons. The demand for sheet glass is
projected to reach 38,354 tons and 61,770 tons by the year 2017 and 2022, respectively.

The principal raw materials required are sand, soda ash, limestone, dolomite, cullet and
additives. All the materials are available locally except additives which have to be imported.

The total investment cost of the project including working capital is estimated at Birr 286.66
million. From the total investment cost, the highest share (Birr 251.27 million or 87.66%) is
accounted by fixed investment cost followed by pre operation cost (Birr 30.94 million or
10.80%) and initial working capital (Birr 4.43 million or 1.55%). From the total investment cost,
Birr 193.41 million or 67.47% is required in foreign currency.

The project is financially viable with an internal rate of return (IRR) of 29.16% and a net present
value (NPV) of Birr 256.13 million, discounted at 10%.

The project can create employment for 107 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 forward linkage with the construction and furniture sub sectors and also income
for the Government in terms of tax revenue and payroll tax.

II. PRODUCT DESCRIPTION AND APPLICATION

A sheet glass is a rigid, brittle, transparent material which is produced by fusing it mainly with
silica, lime and soda ash. It can be produced in a wide range of sizes with a thickness of 2 to l2 mm.

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The profile envisages production of sheet glass of thickness 3mm - 6mm in different proportion.
The product is widely applicable in construction, particularly in building construction for doors and
windows as well as for furniture, show cases, green houses mirrors and the like.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The country's requirement of sheet glass until recently was entirely met through import.
However, Chinese investors have established a sheet glass manufacturing plant named Ethiopia
Hansom International Glass PLC in year 2007. However, there is no available data on the
production level of the new plant. Therefore, for estimating the demand for the product the
unsatisfied demand i.e. the demand which is met through import is considered.

Ethiopia imports a variety of sheet glass for use in the construction sector and furniture
manufacture. The types of sheet glasses imported include colored throughout the mass (body
tinted), non-wired and wired un-worked sheets of cast/rolled glass and plain clear sheet glass.
The quantity of sheet glass imported during the period 2002-2011 is given in Table 3.1
Table 3.1
IMPORT OF SHEET GLASS ( IN TONS)
Year Import
2002 5,362
2003 8,257
2004 11,217
2005 8,096
2006 12,721
2007 14,869
2008 16,673
2009 17,766
2010 11,897
2011 19,711
Source: - Ethiopian Revenues & Customs Authority.
As could be observed from Table 3.1, import of sheet glass exhibits a substantial growth
especially during the recent six years i.e. 2006 – 2011 where except for the year 2010 import has

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registered a consistent year to year growth reaching an all time high of the period under
consideration (19,711 tons) in 2011. During the period 2002 – 2011 import of the product has
registered an average annual growth rate of 20.82%.
To determine the present unsatisfied demand for sheet glass, it is assumed that the annual
average growth rate registered by import of the product during the period 2002-2011 will
continue at least in the near future. Accordingly, taking the 2011 level of import as a base and
applying a growth rate of 20.82%, the present (2012) unsatisfied demand for sheet glass is
estimated at 23,815 tons.

2. Demand Projection

The demand for sheet glass is directly related with the growth in the construction sector in
general and the housing construction sub sector in particular which in turn depends on the overall
economic development of the country.

The contribution of the construction sector to the GDP during the period 2001 – 2010 have been
growing at annual average growth rate of 13 percent which is above the average annual
growth rate of real GDP during the period under consideration (11.4 %), indicating a rise
in the share of the construction sector within the overall economy.

According to the GTP, during the period 2010/11 – 2014/15 the real GDP of the country (at a
base case scenario) is expected to grow at an average annual growth rate of 11.2%. Moreover,
during the same period the annual average planned targets of growth for the construction sector
is 20%.

Accordingly, by considering the above factors the demand for sheet glass is conservatively
assumed to grow at a rate of 10%. Accordingly, projected unsatisfied demand is presented in
Table 3.2.

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 Table 3.2
PROJECTED UNSATISFIED DEMAND FOR SHEET GLASS (IN TONS)

Projecte
d
Year Demand
2013 26,196
2014 28,816
2015 31,698
2016 34,867
2017 38,354
2018 42,189
2019 46,408
2020 51,049
2021 56,154
2022 61,770

2. Pricing and Distribution

The CIF price of imported sheet glass in 2011 was Birr 7,775 per ton. Adding 30% for duty and
other import related expenses Birr 10,107 per ton is the recommended factory -gate price for the
envisaged project.

The product will find its market outlet through the existing building materials distributing
enterprises throughout the country.

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The recommended plant capacity is 15,000 tons operating twenty-four hours per day, working for
300 working days. The working days have been estimated by subtracting routine maintenance from
calendar days of the year. The process cannot be interrupted once started as stopping and restarting
the operation will be extremely expensive.

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2. Production Program

The production program is set in away that the plant will attain 70% of its capacity in the first
year, 85% in the second year, 90% in the third year and full capacity beginning from the fourth
year.

The gradual increase in production is planned because of the complexity of technology which will
require considerable amount of time for the operators to grasp the skill.

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

Even though there are so many different glass compositions, the average composition for sheet
glasses is as follows:-

- Sand 64%
- Lime stone 7%
- Soda Ash l4%
- Dolomite l4%
- Other refining, colouring and decolorizing chemicals l%.

During processing of this product, cullet (broken glass) of similar composition is added in the range
of 30 to 50% to facilitate the melting process. The annual consumption of raw materials is
summarized in Table 4.l. The major auxiliary materials are packing materials. As the products are
rigid and brittle, appropriate packing materials which are usually wooden pallets are required.

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 Table 4.l
ANNUAL CONSUMPTION OF RAW MATERIALS AND AUXILIARY MATERIALS

Sr. Description Annual Cost in '000 Birr

No. Consumption
F.C L.C T.C

1 Sand 10,800 t - 4,860 4,860

2 Soda Ash 2,400 t - 4,212 4,212
3 Limestone L,200 t - 722 722
4 Dolomite 2,400 t 1,800 360 2,160
5 Cullet 3,300 t - 1,485 1,485
6 Additives l50 t 559.875 112 672
2,359.87
Total 5 11,750 14,110

B. UTILITIES

Utilities required by the project are furnace oil (heavy fuel oil), electricity, compressed air, and
potable and industrial water. The annual requirement of utilities and the corresponding cost are
given in Table 4.2.
Table 4.2
ANNUAL UTILITIES CONSUMPTION AND COST

Sr. Description Annual Cost in '000 Birr

No. Consumption
F.C L.C T.C
1 Furnace oil (tonnes) 825 - 11,550 11,550
2 Electric Energy (kWh) 5,000,000 - 2,900 2,900
3 Water (m3) 15,000 - 150 150
Total - 14,600 14,600

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V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The ordinary sheet glass is produced by the vertical drawing method. The procedure is as follows.

The major ingredients, from their storage bins, are proportioned by the adjustable automatic weigher
and fed to the batch mixer. The small ingredients are dosed on the belt conveyor which feed the
ingredients to the batch mixer. The mixed batch from the storage bin is fed to the furnace via a belt
conveyor with the batch distributor so that it can be distributed uniformly in the furnace. There it
melts and the molten glass is homogenized as it slowly flows through the regaining vessel, and then
its viscosity gradually drops. This molten glass is drawn vertically from the furnace through a so
called "debiteuse" by means of a drawing machine.

The glass is continuously drawn upward in ribbon form and its' surface is chilled by adjacent water
coils. Then it passes through the annealing chamber. After cooling down completely it is cut to
required size and packed in appropriate way.

2. Environmental Impact

The environmental impact associated with glass manufacturing is related to emission and waste
water. Glass manufacturing is a high-temperature, energy-intensive activity, resulting in the
emission of combustion by-products (sulphur dioxide, carbon dioxide, and nitrogen oxides) and the
high-temperature oxidation of atmospheric nitrogen. Furnace emissions also contain particulate
matter (PM) and may contain some levels of metals. The method used to control emission levels
include reducing the amount of fine particles in a batch by humidification with water or with alkali
solutions (for example, sodium hydroxide, [NaOH], sodium carbonate [Na2CO3]) or by
presintering, briquetting or palletizing.

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The most significant water use occurs during cooling and cullet cleaning. Aqueous emissions will
consist of contact cooling water system purges, cleaning waters, and surface water runoff. Closed-
water process systems should be used to minimize losses. Amounts of liquid effluents discharged
from glass manufacturing are marginal in comparison with other industrial sectors and are limited to
particular processes (e.g. hot gob quenching and water-cooled shears). Discharges may be affected
by glass solids, some soluble glass-making materials (e.g. Sodium sulphate), some organic
compounds caused by lubricant oil used in the cutting process, and treatment chemicals (e.g.
dissolved salts and water treatment chemicals) for the cooling-water system.

Techniques for treating industrial process wastewater include oil water separators, flow and load
equalization with pH adjustment; screening and sedimentation for suspended solids reduction using
settling basins or clarifiers, multimedia filtration for reduction in non-settle-able suspended solids,
dewatering and disposal of residuals in landfills or if hazardous in designated hazardous waste
disposal sites.

Accordingly, the cost of waste water treatment system is included in the cost of machinery and
equipment.

B. ENGINEERING

1. Machinery and Equipment

The total cost of machinery and equipment is estimated at Birr 233.88 million of which Birr 193.4
million is required in foreign currency. The required machinery and corresponding costs are
provided in Table 5.1 below.

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 Table 5.1
LIST OF MACHINERY AND EQUIPMENT& COST

Sr. Cost in '000 Birr

No Description F.C L.C T.C
.
1 Sand preparation and 5,480 1087.5 6,567.5
refining unit
2 Storage and mix preparation 16,291.50 3,258 19,549.5
2.l Storage bins
2.2 Automatic batch dozer
2.3 Batch mixer
2.4 Batch feeder
2.5 Batch distributor
3 Melting furnace and utilities 63,354 12,672 76,026.0
4 Cooling system 18,100.50 3,621 21,721.5
5 Finishing line 19,911 3,981 23,892.0
5.l Dibiteuse and draw bar
5.2 Drawing machine
5.3 Automatic Cutler
5.4 Lay down machine
5.5 Annealing chamber
6 Compressor station 3,619.50 724.5 4,344.0
7 Central control panel 27,151 5,430 32,581.0
8 Handling facilities 26224.5 5,245.50 31,470.0
9 Waste treatment unit 450.50 215.00 665.5
10 Transformer station 5,533.50 1107 6,640.5
11 Erection 7,295.50 3,127 10,422.5
Grand Total 193,411.5
0 40,468.50 233,880

2. Land, Building and Civil Works

For the construction of such a plant, an estimated land area of 15,000 square meters is required of
which the building covers a total floor area of 3,000 square meters. Enough open space has been
assumed for bulky raw material storage and ease of material movement during operation and

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possible future expansion. The total cost of building and civil work at the rate of Birr 5,000 per m2 is
estimated at Birr 15 million.

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 City’s 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.

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 City’s Investment Authority. However, if the
land request is above 5,000 m2, the request is evaluated by the City’s Investment Authority and

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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 m 2 (see
Table 5.2).
Table 5.2
NEW LAND LEASE FLOOR PRICE FOR PLOTS IN ADDIS ABABA
Floor
Zone Level Price/M2
1st 1686
2nd 1535
Central Market
3rd 1323
District
4th 1085
5th 894
1st 1035
2nd 935
Transitional zone 3rd 809
4th 685
5th 555
Expansion zone 1st 355
2nd 299

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 3rd 217
4th 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 m 2 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.
Table 5.3
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment Down
Grace Completion Paymen
Scored Point Period Period t
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 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 m 2 is estimated at Birr
3,990,000 of which 10% or Birr 399,000 will be paid in advance. The remaining Birr 3,591,000
will be paid in equal installments within 28 years i.e. Birr 128,250 annually.

NB: The land issue in the above statement narrates or shows only Addis Ababa’s city administration
land lease price, policy and regulations.
Accordingly the project profile prepared based on the land lease price of Addis Ababa region.

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To know land lease price, police and regulation of other regional state of the country updated
information is available at Ethiopian Investment Agency’s website www.eia.gov.et on the factor
cost.

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VI. HUMAN RESOURCE AND TRAINING REQUIREMENTS

A. HUMAN RESOURCE REQUIREMENT

The total human resource requirement for sheet glass processing plant is 107 persons. Annual cost
of labour is estimated at Birr 2,838,000. The details of human resource by job type and monthly and
annual salary is given in Table 6.l.
Table 6.1
HUMAN RESOURCE REQUIREMENT AND COST(BIRR)
Salary Per Salary Per
Position Reqd.No. Month Year
A. Plant Management
1. Plant Manger 1 8,000 96,000
2. Secretary 1 2,500 30,000
B. Production Staff
1. Production manager 1 6,000 72,000
2. Production clerk 1 1,250 15,000
3. Process engineer 3 4,000 144,000
4. Shift leader 3 2,600 93,600
5. Control room attendant 6 1,650 118,800
6. Operators 9 1,350 145,800
7. Production inspectors 6 1,650 118,800
8. Packers 6 1,050 75,600
9. Labourers 24 750 216,000
C. Maintenance & Laboratory
l. Maintenance & Utility Manager 1 4,500 54,000
2. Quality Manger 1 4,500 54,000
3. Quality Controller 9 2,500 270,000
4. Mechanic 6 2,500 180,000
5. Electrician 6 2,500 180,000
6. Instrument technician 3 1,650 59,400
D. Others
l. Head for finance & admin 1 4,500 54,000
2. Marketing Manager 1 4,500 54,000
2. Personnel Officer 1 2,500 30,000
3. Accountant 1 2,500 30,000
4. Cashier 1 1,650 19,800

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 Salary Per Salary Per
Position Reqd.No. Month Year
5. Purchaser & transistor 1 1,650 19,800
6. Sales man 1 1,650 19,800
7. Stores' clerk 1 850 10,200
8. Time Keeper 3 800 28,800
9. Security guard 6 750 54,000
l0. Messenger/cleaner 3 750 27,000
Benefits ( 25% of Basic Salary) 567,600
Total 107 2,838,000
B. TRAINING REQUIREMENT

All other production personnel shall be trained for processing technique and operation of machinery
and equipment of their respective work areas during the commissioning period of the plant. The cost
of such training is estimated at Birr 500,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the sheet glass 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 5 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 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 286.66
million (see Table 7.1). From the total investment cost, the highest share (Birr 251.27 million or

xvii
87.66%) is accounted by fixed investment cost followed by pre operation cost (Birr 30.94 million
or 10.80%) and initial working capital (Birr 4.43 million or 1.55%). From the total investment
cost, Birr 193.41 million or 67.47% is required in foreign currency.

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Local Foreign Total %

No. Cost Items Cost Cost Cost Share
1 Fixed investment
1.1 Land Lease 399.00 399.00 0.14
1.2 Building and civil work 15,000.00 15,000.00 5.23
1.3 Machinery and equipment 40,468.50 193,411.50 233,880.00 81.59
1.4 Vehicles 1,500.00 1,500.00 0.52
1.5 Office furniture and equipment 500.00 500.00 0.17
Sub -total 57,867.50 193,411.50 251,279.00 87.66
2 Pre operating cost *
2.1 Pre operating cost 12,194.00 12,194.00 4.25
2.2 Interest during construction 18,753.61 18,753.61 6.54
Sub- total 30,947.61 30,947.61 10.80
3 Working capital ** 4,435.75 4,435.75 1.55
Grand Total 93,250.87 193,411.50 286,662.37 100

* 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 6.31 million. However,
only the initial working capital of Birr 4.43 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).

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 110.37 million (see
Table 7.2). The cost of depreciation account for 45.45% of the production cost. The other major

xviii
components of the production cost are financial cost, utility, and raw material cost which account
for 14.02%, 13.23% and 12.78%, respectively. The remaining 14.52% is the share of labor, labor
overhead, repair and maintenance and administration cost. For detail production cost see
Appendix 7.A.2.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR FIVE)

Items Cost
(000 Birr) %
Raw Material and Inputs 14,110.00 12.78
Utilities 14,600.00 13.23
Maintenance and repair 11,694.00 10.59
Labor direct 2,270.40 2.06
Labor overheads 567.60 0.51
Administration Costs 500.00 0.45
Land lease cost - -
Cost of marketing and distribution 1,000.00 0.91
Total Operating Costs 44,742.00 40.54
Depreciation 50,164.80 45.45
Cost of Finance 15,471.73 14.02
Total Production Cost 110,378.5
3 100

C. FINANCIAL EVALUATION

1. Profitability

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 20.71 million to Birr 73.13 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 555.41 million. For profit and loss statement and cash flow projection see
Appendix 7.A.3 and 7.A.4, respectively.

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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 72,227,221
Variable Margin ratio (%)
Break- Even Capacity utilization = Break -even Sales Value X 100 = 48%
Sales revenue
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 project’s initial investment
will be fully recovered within 3 years.

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

xx
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 29.16% 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 256.13
million which is acceptable. For detail discounted cash flow see Appendix 7.A.5.

D. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 107 persons. The project will generate Birr 173.49
million in terms of tax revenue. 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
forward linkage with the construction and furniture sub sectors and also generates other income
for the Government.

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 Appendix 7.A

FINANCIAL ANALYSES SUPPORTING TABLES

xxii
 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 2,469.25 2,822.00 3,174.75 3,527.50 3,527.50 3,527.50 3,527.50 3,527.50 3,527.50 3,527.50

Accounts receivable 2,634.95 2,999.47 3,363.98 3,728.50 3,739.19 3,739.19 3,739.19 3,739.19 3,739.19 3,739.19

Cash-in-hand 146.14 167.02 187.90 208.78 210.56 210.56 210.56 210.56 210.56 210.56

CURRENT ASSETS 5,250.34 5,988.49 6,726.63 7,464.78 7,477.25 7,477.25 7,477.25 7,477.25 7,477.25 7,477.25

Accounts payable 814.59 930.96 1,047.33 1,163.70 1,163.70 1,163.70 1,163.70 1,163.70 1,163.70 1,163.70
CURRENT
LIABILITIES 814.59 930.96 1,047.33 1,163.70 1,163.70 1,163.70 1,163.70 1,163.70 1,163.70 1,163.70
TOTAL WORKING
CAPITAL 4,435.75 5,057.53 5,679.30 6,301.08 6,313.55 6,313.55 6,313.55 6,313.55 6,313.55 6,313.55

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

Year Year
Item 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 10 Year 11

Raw Material and Inputs 9,877 11,288 12,699 14,110 14,110 14,110 14,110 14,110 14,110 14,110

Utilities 10,220 11,680 13,140 14,600 14,600 14,600 14,600 14,600 14,600 14,600

Maintenance and repair 8,186 9,355 10,525 11,694 11,694 11,694 11,694 11,694 11,694 11,694

Labour direct 1,589 1,816 2,043 2,270 2,270 2,270 2,270 2,270 2,270 2,270

Labour overheads 397 454 511 568 568 568 568 568 568 568

Administration Costs 350 400 450 500 500 500 500 500 500 500

Land lease cost 0 0 0 0 128 128 128 128 128 128

Cost of marketing
and distribution 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

Total Operating Costs 31,619 35,994 40,368 44,742 44,870 44,870 44,870 44,870 44,870 44,870

Depreciation 50,165 50,165 50,165 50,165 50,165 650 650 650 650 650

Cost of Finance 0 20,629 18,050 15,472 12,893 10,314 7,736 5,157 2,579 0

Total Production Cost 81,784 106,787 108,583 110,379 107,928 55,835 53,256 50,677 48,099 45,520

22
 Appendix 7.A.3
INCOME STATEMENT ( in 000 Birr)

Year Year
Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 10 11
127,50 150,00
Sales revenue 105,000 0 135,000 150,000 150,000 0 150,000 150,000 150,000 150,000
Less variable costs 30,619 34,994 39,368 43,742 43,742 43,742 43,742 43,742 43,742 43,742
106,25
VARIABLE MARGIN 74,381 92,506 95,632 106,258 106,258 8 106,258 106,258 106,258 106,258
in % of sales revenue 70.84 72.55 70.84 70.84 70.84 70.84 70.84 70.84 70.84 70.84
Less fixed costs 51,165 51,165 51,165 51,165 51,293 1,778 1,778 1,778 1,778 1,778
104,48
OPERATIONAL MARGIN 23,216 41,342 44,467 55,093 54,965 0 104,480 104,480 104,480 104,480
in % of sales revenue 22.11 32.42 32.94 36.73 36.64 69.65 69.65 69.65 69.65 69.65
Financial costs 20,629 18,050 15,472 12,893 10,314 7,736 5,157 2,579 0
GROSS PROFIT 23,216 20,713 26,417 39,621 42,072 94,165 96,744 99,323 101,901 104,480
in % of sales revenue 22.11 16.25 19.57 26.41 28.05 62.78 64.50 66.22 67.93 69.65
Income (corporate) tax 0 0 0 11,886 12,622 28,250 29,023 29,797 30,570 31,344
NET PROFIT 23,216 20,713 26,417 27,735 29,450 65,916 67,721 69,526 71,331 73,136
in % of sales revenue 22.11 16.25 19.57 18.49 19.63 43.94 45.15 46.35 47.55 48.76

Appendix 7.A.4

23
 CASH FLOW FOR FINANCIAL MANAGEMENT ( in 000 Birr)

Year Year Year Year Year Year Year Year Year Year Year
Item 1 2 3 4 5 6 8 9 10 11 Scrap
TOTAL CASH 263,47 129,00 127,61 135,11 150,00 150,00 150,00 150,00 150,00 150,00 150,00
INFLOW 3 4 6 6 0 0 0 0 0 0 0 34,466
263,47
Inflow funds 3 24,004 116 116 0 0 0 0 0 0 0 0
105,00 127,50 135,00 150,00 150,00 150,00 150,00 150,00 150,00 150,00
Inflow operation 0 0 0 0 0 0 0 0 0 0 0 0
Other income 0 0 0 0 0 0 0 0 0 0 0 34,466
TOTAL CASH 263,47 109,22 107,41 105,61 103,80
OUTFLOW 3 55,623 83,147 84,943 98,625 96,184 1 5 0 5 76,214 0
263,47
Increase in fixed assets 3 0 0 0 0 0 0 0 0 0 0 0
Increase in current assets 0 5,250 738 738 738 12 0 0 0 0 0 0
Operating costs 0 30,619 34,994 39,368 43,742 43,870 43,870 43,870 43,870 43,870 43,870 0
Marketing and
Distribution cost 0 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 0
Income tax 0 0 0 0 11,886 12,622 28,250 29,023 29,797 30,570 31,344 0
Financial costs 0 18,754 20,629 18,050 15,472 12,893 10,314 7,736 5,157 2,579 0 0
Loan repayment 0 0 25,786 25,786 25,786 25,786 25,786 25,786 25,786 25,786 0 0
SURPLUS (DEFICIT) 0 73,381 44,469 50,174 51,375 53,816 40,779 42,585 44,390 46,195 73,786 34,466
CUMULATIVE CASH 117,85 168,02 219,39 273,21 313,99 356,58 400,96 447,16 520,95 555,41
BALANCE 0 73,381 0 4 9 6 5 0 9 4 0 6

24
 Appendix 7.A.5
DISCOUNTED CASH FLOW ( in 000 Birr)

Year Year Year Year Year Year Year Year Year Year Year
Item 1 2 3 4 5 6 7 8 9 10 11 Scrap
105,00
TOTAL CASH INFLOW 0 0 127,500 135,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 34,466
105,00
Inflow operation 0 0 127,500 135,000 150,000 150,000 150,000 150,000 150,000 150,000 150,000 0
Other income 0 0 0 0 0 0 0 0 0 0 0 34,466
TOTAL CASH OUTFLOW 267,909 32,241 36,615 40,990 56,641 57,492 73,120 73,893 74,667 75,441 76,214 0
Increase in fixed assets 263,473 0 0 0 0 0 0 0 0 0 0 0
Increase in net working capital 4,436 622 622 622 12 0 0 0 0 0 0 0
Operating costs 0 30,619 34,994 39,368 43,742 43,870 43,870 43,870 43,870 43,870 43,870 0
Marketing and Distribution cost 0 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 0
Income (corporate) tax 0 0 0 11,886 12,622 28,250 29,023 29,797 30,570 31,344 0
NET CASH FLOW -267,909 72,759 90,885 94,010 93,359 92,508 76,880 76,107 75,333 74,559 73,786 34,466
-
CUMULATIVE NET 195,15 -
CASH FLOW -267,909 0 104,265 -10,255 83,104 175,612 252,493 328,599 403,932 478,492 552,277 586,744
Net present value -267,909 66,144 75,111 70,631 63,765 57,440 43,397 39,055 35,143 31,620 28,448 13,288
-
201,76 -
Cumulative net present value -267,909 4 126,653 -56,022 7,744 65,184 108,581 147,636 182,779 214,400 242,847 256,135

NET PRESENT VALUE 256,135

INTERNAL RATE OF
RETURN 29.16%

25
NORMAL PAYBACK 3 years

26