FESHA DUCHE CONSTRUCTION INDUSTRY PROJECT PROPOSAL

GRADE FIVE

GENERAL MANAGER; FESHA DUCHE AYSULE

SEPTEMBER 2016
ARBAMINCH ; ETHIOPIA

CONTENTS
1 EXECUTIVE SUMMARY.........................................................................................................................4
2. INTRODUCTION.....................................................................................................................................5
2.1 GENERAL INVESTEMENT CONDITION.....................................................................................5
3. THE NEW PROJECT JUSTIFICATION...........................................................................................6
4. VISION, MISSION, OBJECTIVES AND BENEFITS OF THE PROJECT........................................6
 4.1 VISION................................................................................................................................................6
4.2 MISSION.............................................................................................................................................6
4.3 GOAL...................................................................................................................................................6
4.4 BENEFIT OF THE BUSINESS........................................................................................................7
5. STRENGTH, WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS....................................7
5.1 STRENGTHs.......................................................................................................................................7
5.2 WEAKNESS........................................................................................................................................7
5.2 OPPORTUNITY..................................................................................................................................8
5.2 THREATS...........................................................................................................................................8
6. MARKETING............................................................................................................................................8
6.1 DEMAND ANALYSIS........................................................................................................................8
6.2 COMPETITORS’ OVERVIEW.........................................................................................................8
6.3 MAJOR CUSTOMERS.....................................................................................................................10
6.4 DEMAND MONITORING AND EVALUATION MECHANISMS..............................................10
6.5 MARKET SHARE.............................................................................................................................10
7. SERVICE PROVISION PLAN..............................................................................................................11
7.1 CONSTRUCTION WORKS.............................................................................................................11
8. BUSINESS STRATEGY.........................................................................................................................11
8.1 PROMOTION ACTIVITIES............................................................................................................11
8.2 DIFFERENTIATION STRATEGY.................................................................................................12
9 ORGANIZATION AND ITS MANAGEMENT......................................................................................12
9.1 STAFFING/EMPLOYEES NEED..................................................................................................12
9.2 ORGANIZATIONAL STRUCTURE...............................................................................................13
10 FINANCIAL PLAN...............................................................................................................................14
10.1 DIRECT COST...............................................................................................................................14
10.2 INITIAL WORKING......................................................................................................................15
10.3 DESCRIPTION COSTS.................................................................................................................15
10.3 INVESTMENT COST....................................................................................................................16
10.4 PROJECT COST-BENEFIT ANALYSIS......................................................................................17
10.4.1 Operating cost..........................................................................................................................17
10.4.2 TOTAL REVENUE SUMMARY.............................................................................................18
10.5 PROFIT AND LOSS STATEMENT..............................................................................................19
10.6 PROJECT CASH FLOW STATEMENT.......................................................................................20

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11. EXTERNALITIES................................................................................................................................20
11.1 SOCIAL COST BENEFIT ANALYSIS.........................................................................................20
11.2 ENVIRONMENTAL ASSESSMENT............................................................................................20
12. FINANCIAL APPRAISAL OF THE PROJECT................................................................................21
13. CONCLUSION......................................................................................................................................22

1 EXECUTIVE SUMMARY
The initiative motives of the investment code and the integration activates of government
organization changes the attitudes of the society towards economic development through a great
increase in saving in addition to the accessibility of credit mechanism in the country.

FDRE is the one in the history of Ethiopia sates changes that has brought economic mass
mobilization at anywhere in the country without a selective nationality views. SNNPRG, with
endowment of nature that shows exciting changes in infrastructure, is in continuous economic
development and population density.

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The overall effects of the country movement, moreover, the development of Ethiopia initiates the
promoter Ato Fesha Duche Aysule to invest in the country in general and particularly in his
final destination in SNNPR's Arba Minch town with the advantage of transformation plan (GTP-
2) for privet construction industries. The major objective of the project is to establish grade five
construction sectors with total investment cost of more than 2,000,000 Ethiopian Birr.

Here that, however, the organization of the owner earns some profit in the long run, it has social
concerns that any citizen has to do through which the society benefits in the implementation of
the construction industries that creates job opportunities to the surrounding unemployed.
Moreover; construction services for the development of the country at large.

Finally, the project appraisal treated by BCR and NPV shows positive signals to run the project.
It has no visible environmental negative impact. And also the project is feasible and having
adequate market access.

2. INTRODUCTION
2.1 GENERAL INVESTEMENT CONDITION
Our country Ethiopia as well as the south regional government has understood the fact that
private sector investment has a key role to the development of an individual and the society at
large through employment creation, capital formation tax revenue negation and the likes. With
this understanding, the government has been promoting private investment and has been
creating enabling conditions for private micro, medium and large business to actively play their
role in the economic development of the SNNPR in particular and the nation in general. Some of
these include stable political climate, liberalized free market economy, attractive
macroeconomic policies, establishment of means of finance, attractive incentive packages for
infrastructure development and the like. From the fact of this many service providers have been
entering in many business sectors in the country nevertheless; the construction industry sector
needs huge capital and the shortage has constrained the activities. Entrepreneur like this has a
well come vision and needs to accomplish the vision, running family life and to support the

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country development activities so the financial sector and other stakeholders’ support is very
mandatory.

The owner of this project has intended to enter in to this business after conducting a thorough
preliminary market survey coupled with the practical long year experiences in construction
works. The preliminary market search conducted by has shown that all the demand for the
envisaged construction related industry as of construction works is high and yet the supply is
limited leaving huge market gap for new entrant with location references.

In this light of the above facts, the owner, Ato Fesha Duche planned to establish the
construction works where he has experienced in doing different kinds of business activities in the
city of Arba Minch and firmly believe that prompt supports will be offered and also the financing
of the projects will be positively considered.

3. THE NEW PROJECT JUSTIFICATION

Business is always dynamic in its nature so it needs change. Globalization on the other hands
increase the exchange of technologies in the societies and the demands of development
construction of housing and road networks are the major part in development especially in the
urging areas that enhance other part of development to play in this dynamic world as competent,
there is a must of fitness in the field of the ride the owner runs meanwhile; your organization
could understand the problem of finance and legal ground for that he has been facing to
establish his business to play in the development works in need facing to establish his and at
large to support our country. It is greater than 3, 700, 000 Ethiopian birr to this business as he
needs as the feasibility shows for this he is confident and presenting project proposal.

4. VISION, MISSION, OBJECTIVES AND BENEFITS OF THE PROJECT

4.1 VISION
The owner wants to see himself by establishing sustainably quality output of construction works
with affordable costs to country and SNNPR neighbor where advantageous entrepreneurs could
reach.

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 4.2 MISSION
 The major mission of this business is to prepare sustainably quality output of
construction for country and SNNPR vicinities. That needs reasonable costs and makes
them satisfied.
 To become sample competent in the field of construction.
 To employ well experienced employees and others in the business

4.3 GOAL
Business goal is the direction where the business organization moves at the end of the project
and the goal is as follows.

 Annually, earning 1, 580,000 birr profit

 Creating job opportunities to 12 temporarily and for many other permanently employed
worker. And also there are plenty of highly temporary employments at the time of
construction project handling.
 To become economically free in the coming two years.
 To build sustainably construction outputs with reasonable costs to Ethiopia SNNPR
peripheries.

4.4 BENEFIT OF THE BUSINESS

The movement of this business has direct benefits to its stakeholders accordingly; there
are the following benefits.
 Earnings/ profits to the owner
 It is the means of further investment
 Means of income generation to unemployed
 Means of tax revenue to government
 Developing healthy completion among competitors

5. STRENGTH, WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS

5.1 STRENGTHs
 Strong work experiences in construcction material supply and avalability of Trucker and
backloader in advance for the planned project

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  The presence of experienced work force in the market
 Prides and famousness in the related field
 Selected competent in the customers
 The presence of the necessary and different care and skill

5.2 WEAKNESS
 Financial shortage
 The presence of dependency on capital and contructor

5.2 OPPORTUNITY
 Presence of relative work opportunities, residential area expansion, development and the
increment of the city infrastructure are a good advantage to the envisage business.
 Governmental focus for sustainable development
 The expansion of investment in construction sectors
 The presence of sustainable investment appreciation

5.2 THREATS
 Un alarmingly- continuous rise capital and input price
 The very slow growth of employment
 Mismatch of work and its payment

6. MARKETING
6.1 DEMAND ANALYSIS
The SNNPR also Embraces many governmental and non- governmental organization.
Moreover; there are hospitals, higher clinics, and many educational institutions. This situation
by its self, favors for the sake of the envisaged business and many firms haven’t simply been
engaged. Such situation by itself brings about the creation of sustainably and quality oriented
enterprise in the business of construction. Moreover; the mismatch of demand and supply, there
is zoning of villages to commercial centers. In general, there is an opportunity of competition in
that there are changes of quality and. Finally, since there are open entry and exit, the nature of
high demand in the field, there is no as such simplicity to establish the business.
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 6.2 COMPETITORS’ OVERVIEW
In the field of construction business at higher grade in a case of SNNPR is insignificant, many
road and other huge building constructors have been not yet getting in the case of dwellers. Most
huge construction industries will come from other vicinities especially from Addis Ababa. But it
is clearly seen that there are a lot of small and medium enterprises engaged in the construction
business due to the fact that our region becomes the area of investment, visiting and employment.
These and other factors indicate that there is a need of quality building constructors with
reasonable costs. All these conditions were observed when he privately studied the demand
situation from his previous experiences in this related business, region as a whole. There is a
great gap between the demand from customer and the suppliers of the services along with the
development and transformation set by government for five years, the gap between demand and
supply become so wide due to the creation of employment and industrialization. But there is a
risk of inflation and the speed of employment which may affect. More or less, the situation
continues so there is no threat that comes through time because; it is understood from the
situation Moreover; his long experiences in the related business, respect to his customers and his
pried given from customers will help him to succeed the competition smoothly since there is open
entrances to investors. In addition, there is preparation of comment box which support him to
assess the need of his customers. These and other conditions generally support him to pass the
competition created. More above all entrepreneurs have systems to pass a hard problems as
trend has showed him so with the help of your organization families and relative, he is sure that
he passes with a special rank in the field of construction worls. This business has been one of
those businesses which are still insignificant in a case of SNNPR in one way direction and wide
competitions in the construction which are the additional supply to the shortage of finance and
the service is based on customers’ needs. If we get further finance to expand this business he still
continues with good performance in the business.

In general the service given compared with rivals

 He is with a good exposure and even adequate experiance to run the business
 He respects the promise
 Quality is our indicative
 Strong members support the business

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  Transparent and reasonable costs to win the business game are his bases in the
completion.

6.3 MAJOR CUSTOMERS

Customers’ differentiation and identification are the basis of business to give the service as the
need of them and to survive in the business game sustainably so there were efforts exerted to
differentiate customers, accordantly the customers of this business are as follows SNNPR
dwelling builders, government and non-government organization those do infrastructures,
investors, city periphery dwellers, construction constructor etc.

6.4 DEMAND MONITORING AND EVALUATION MECHANISMS

One of the methods to monitor and evaluate the business is as follows

 An assessment of national and regional condition

 Gathering customers satisfaction feedback information
 Identify the last users descriptions

Based on the present situation and the above evaluation criteria, the rising of population and the
expansion of industrialization and more the agriculture is hold by small farmers in the future, the
society go to stick with industrialization so it is believable that the need of construction becomes
increased.

6.5 MARKET SHARE

There are factors which need to be clearly determined by the firm who run the business like us
construction industries embrace.

 The capacity of rivals or competants

 The number of rivals
 The nature of construction outputs (Building)
 Presentation system
 Facilities to customers in service delivery and costs are mentioned

As the preliminary study shows, 90% of the demands of higher level construction industries are
still none covered by business entrant even we only cover 10% from the remaining market share.
Through time will increase our share up to 30% by expanding our business.

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7. SERVICE PROVISION PLAN
7.1 CONSTRUCTION WORKS
In SNNPR region there are many governmental and non-governmental organizations. In
addition; the development of infrastructure and the attraction of the SNNPR increase the
numbers of investors who need to build houses and apartments and contractors who are
employed for. In general, the rises of migrants to the city to search job opportunities are the
sources of indirect customers of our business. For all the organization customers, the firm
supplies construction out puts like dwelling houses, factories, offices, bridges, roads etc.

8. BUSINESS STRATEGY
Quality services and efficiency care will be a vital role in promoting the image and all the
services of the organization to this end therefore, various promotion tools will be employed to
communicate with the potential clients so as to maximize the services and the profits obtained
thereof. In order to achieve the envisaged service and rent plan per annum, it would be
necessary to employ various techniques and the business would be utilizing the following
marketing strategies. The unique renting proposition for the firm is that it will be known as a
caring trustworthy firm.

8.1 PROMOTION ACTIVITIES

Advertising as one of its marketing strategy and the firm will advertise its services through mass
media, posters, personal selling’s, brochures, publicity, community support services, south FM
radio, flying paper and letters to be written to various organizations and a total of birr 20,000
will be allocated to accomplish this task.

8.2 DIFFERENTIATION STRATEGY

To stay sustainable in the market, the business will pursue a differentiation strategy, it is by
servicing customers with sustainable supply and setting reasonable costs, customers demand
focus supply of construction out puts, which satisfies customers, in addition to the above
strategy, the firm will integrate by dealing with organization that is found in construction
industries as contractors by doing so we will win-win games. The firm is not the first time to get
in this business and no representative is assigned so it helps him to see the need and satisfaction

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of customers and by which he will continue to reach to the tip of customers serving in this
business.

9 ORGANIZATION AND ITS MANAGEMENT

9.1 STAFFING/EMPLOYEES NEED/

Nothing in business is accomplished without the right numbers, qualifications, and attitude of
personnel staffing. In this context this it refers to the personnel that will be hired in the
organization during its operation period. The firm therefore, has decided to hire necessary labor
forces that could carry out the entire business operation smoothly and successfully. The total
number of workers shall be 12 out of which one is permanent and the rest are contractual bases.
Their salaries and number and professions are given below in the table.

s/n Title No Monthly salary Annual salary

1 Manager 1 5,000.00 60,000.00
2 Professional engineer 1 5,000.00 60,000.00
3 Clerk 1 2,000.00 24,000.00
4 Construction foremen 2 3,000.00 72,000.00
5 Drivers 2 2,500.00 60,000.00
6 Cashier 1 800.0 9,600.00
7 Janitor 2 800.00 19,200.00
8 Guard 2 800.00 19,200.00
Total 12 324,000.00

9.2 ORGANIZATIONAL STRUCTURE

This business is not as such a complicated business entity and hence it requires a very simplified
structure on the top and other workers under her/his. Nevertheless there shall be amendments
where and when the objective situation requires so, because flexibility has now become the norm
of this day to serve customers in a customized way.

Professional manager

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 Operators

OWNER Drivers

Clerk

Cashier

Salesmen

Janitor

Guards

10 FINANCIAL PLAN

10.1 FIXED INVESTEMENT COST

Construction sector without adequate machinery has no use for the country and also to the
owner due to its bulkiness of operation along with pre determined period to finalize the total
work the intended period of time .So due to these facts, the company currently owns one back
loader and one trucker but to be competent in the sector will procure additional 1 tucker, one
pick up car and other construction equipments which have the capacity to assist the firm in its
construction works. Additionally; other necessary farm implements (accessories) and auxiliary
machineries will be purchased at the period assigned for the operation. So the total fixed

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investment cost of the firm is Birr 1,815,900 and the details of each item and allowed fund are
stated in the tables below.

s/n Description Remark

Fixed cost No of Unit cost Amount
equipments
Damp truck 1 1,200,000 1,200,000
1 Pick up 1 550,000 550,000
Compactor 1 16,000 16,000
Vibrator 1 14,300 14,300
Mixer 1 35,000 35,000
Sub total 1,815,300
Other expenses
2 License 1 600 600
Sub total 600
Grand total 1,815,900

Cost Of Office Furniture

s/n Description Unit Amount Unit cost Total cost

1 Table No 1 1,200 1,200
2 Shelf No 1 1,500 1,500
3 Chairs No 5 200 1000
4 Calculating machine No 1 1,500 1,500
5 File cabinet No 1 1,500 1,500
6 Cash box No 1 5,000 5,000
Total 11,700

10.2 INITIAL WORKING

Most the time entrepreneurs could not convert their assets to cash when they ate facing shortage
of operating costs in their business. These conditions bring about the failure of many micro and
small enterprises. But entrepreneurs, who have adequate knowledge of their working capital
management in the previous businesses, trusting the respectable organization shall provide
adequate financial support has already assigned amount in order to meet obligation when they
fall due so that the business can survive adverse period and day to day operation of renting
individuals and organizations continue undisturbed.

Generally, it is advisable to keep three to six months, salary of workers operating expenses and
certain amount of cash on hand a meet current liabilities when they fall due. Hence, the initial
working capital estimate project cost is given below.

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10.3 DEPRCIATION COSTS
The straight method has been applied to compute the depreciation cost of project which amount
to be birr 182,700 per annual as it described below.

The life span is expected as of ten years in which are going to be salvaged age

S/A Description Cost Description costs

% Amount
1 Machineries, car and trucks 1,815,300 10% 181,530
2 Office Furniture 11,700 10% 1,170
Total 182,700

Annual Repaired and Maintenance, and insurance costs of the firm

S/N Description Costs Maintenance Insurance

%
Amount % Amount
1 Offices furniture 11,700 2.00
234 2.00 234
2 Machineries 1,815,300 2.00
36,306 2.00 36,306
Total 62,780 36,540
So annual repair and mentainance cost of the firm is 62,780 and for that of insurance is
also Birr 36,540.

Other Operating Costs

S/N Cost Description 1st year 2nd year 3rd year

1 Water 1, 800.00 1,980,00 2,178,00
2 Electric power 1,200,00 1,320,00 1,452,00
3 Telephone and postal 10,000,00 11,100,00 12,100,00
4 Uniform 5,000,00 5,500,00 6,050,00
5 Promotion 20,000,00 22,000,00 24,200,00
6 Housing Rent 2,400,00 2,640,00 2,904,00
7 Fuel and Lubricant 500,000,00 550,000,00 605,000,00
Total 540,400,00 594,440,00 653,884.00
NB:- Construction machineries and furniture insurance is estimated by 2% Total annual costs progress is estimated by 2%

Initial Working Capital Requirements of the firm

S/ Kind of cost Project Yare (000)

N 1 2 3 4 5 6 7 8 9 10
1 Salary 324 330 337 344 351 358 365 372 380 387
2 Depreciation 273 278 284 290 296 301 307 314 320 326
3 Repair and 55 56 57 58 59 60 61 63 64 65
Maintenance

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 4 Insurance 55 56 57 58 59 60 61 63 64 65
5 Other operating 540 551 562 573 585 596 608 620 633 645
cost
Total 1086 1271 1297 1322 1349 1376 1403 1431 1460 1489

The total initial working cost needed to run the business smoothly is about birr 1.086 million birr
but we don’t need the entire amount at once. We need only half of this so that it can be circulated
two or more times per year depending up on the market situation and we trust your organization
to allow us obtain the estimated amount and help us achieve our vision.

10.3 INVESTMENT COST

The Investment cost is as follows

S/no Description Costs

1 Direct cost for construction machineries ,Vehicle and trucks 1,815,900
2 Offices furniture cost 11,700,00
3 Project running cost (initial working capital) 20% 217,200,00
Total 2,044,800

Sources of finances

The project planned to be financed by the inverters’ own capital and loans from local banks.
Although the final allocation of equity and loan will depend on the outcome of negotiation with
the band, reasonable apportionment will be an equity capital of 37.7% and remain 62.3% to
financing plan is indicated in the table below.

S/no Total amount Owners’ equity Bank loan

1 2,044,800 613,440 1,431,360
2 100% 30.% 70.%

Bank loan installment

The loan repayment schedule calculated is indicated in the table below

Year Principals Interest Balance

0 1,431,360,00
1 143,136.14 143,136.14 1,228,225.26
2 143,136.14 128,822.53 1,145,889.12
3 143,136.14 114,508.91 1,001,952.98
4 143,136.14 100,195.30 858,816.84

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 5 143,136.14 85,881.68 715,680.70
6 143,136.14 71,568.07 572,544.56
7 143,136.14 57,254.46 429,408.42
8 143,136.14 42,940.84 286,272.14
9 143,136.14 28,627.23 143,136.14
10 143,136.14 14,313.61 -

10.4 PROJECT COST-BENEFIT ANALYSIS

10.4.1 Operating cost
N Kind of Project year and Birr in (000)
o cost
1 2 3 4 5 6 7 8 9 10

1 Initial 1086 1271 1297 1322 1349 1376 1403 1431 1460 1489
working
capital
2 Bank 143 228.86 183.09 160.20 137.31 114.43 91,54 68.66 45.77 22.89
interest

Total 1,246.16 1,499.94 1,479.59 1,482.64 1,486.20 1,490.29 1,449.92 1,505.10 1,506.85 1,51216

However; the bank interest is not changed as the installment cases, the initial working capital
will change by 2% annually on the basis of the last year.

10.4.2 TOTAL REVENUE SUMMARY

The total annual revenue from construction profit are expected as 20%of the cost for the project spent
rents of different machineries are supplied for different costumer mentioned in the marketing section.

A. Construction profit estimation

This construction industry will expect to enjoy with projects of construction:-

 For government office in lately developing areas in the region

 For private housing building in urban areas especially in SNNPR
 Road construction of development packages of networking for socio-economic development in the
region.
 Industrial site buildings
Assumptions
 This firm will get on government project for different construction for a cost of 1.1 million
 There is bargaining for industrial sit building project with a cost of 1.5 million birr
 Housing building bargaining project for 1 million birr cost

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  12 kilo meter dry weather road construction with a cost 4 million birr According to the assumption
above, the firm will get 7;60 million birr project so as a profit estimation of 20% the firm will get
1.52 million birr profit in the first year.
B. Construction machineries rent collection Estimation

S/no Items Unit Qty Unit Work Work 1st year 2nd year 3rd year
prices hr/day load/year
birr/day
1 Dam truck No 2 1000 8 50 days 100,000 105,000 110,250

2 Compactor No 2 500 8 50 days 50,000 52,5000 55,125

3 Mixer No 3 300 8 50 days 45,000 47,250 49,612,50

4 Vibrator No 3 200 8 50 days 20,000 21,000 22,050,00

Total 215,000 225,750 237,038

10.5 PROFIT AND LOSS STATEMENT

Since for the first three years are tax, the net annual profit in the fourth year is 1;23 million birr
showing that the business operating is lucrative meeting like renting and administrative financial
expenses.

The firm will get a gross profit from percentage profit from the percentage profit from
construction undertaken and rents from machineries at time of the project.

N.B. annual revenue is expected to grow 5% on the basis of the last year reeve

Annual revenue estimation as net profit

Description Years description in million birr

Year 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Construction 1.52 1.60 1.68 1.76 1.85 1.94 2.04 2.14 2.25 2.36
profit
Machineries rent 0.1 0.11 0.12 0.13 0.13 0.14 0.15 0.15 0.16 0.17
Total revenues 1.62 1.706 1.797 1.887 1.981 2.08 2.184 2.293 2.408 2.45

The whole description of income statement is as follows in the table below

S/no Expense description Year (000000)birr

st
1 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

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 1 Work to execute 3.12 3.25 3.34 3.43 3.53 3.62 3.73 3.84 3.96 4.00

2 Minus

3 Operating costs 1.50 1.55 1.55 1.54 1.54 1.54 1.54 1.55 1.55 1.55

4 Profit before tax 1.62 1.71 1.80 1.89 1.90. 2.08 2.18 2.29 2.41 2.45

5 Tax 35% 0.66 0.69 0.73 0.76 0.80 0.84 0.86

Net annual profit 1.62 1.71 1.80 1.23 1.29 1.35 1.42 1.49 1.57 1.59

 The project is tax exempted for the first three according to the investment promotion
code.

10.6 PROJECT CASH FLOW STATEMENT

Description Year (birr millions)

0 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Initial owner equity 0.613
Bank loan 1.431
Net income 1.62 1.71 1.80 1.23 1.29 1.35 1.42 1.49 1.57 1.59
Rent income 0.10 0.11 0.12 0.13 0.13 0.14 0.15 0.15 0.16 0.17
Total in flow 2.48 1.72 1.82 1.92 1.35 1.42 1.49 1.57 1.65 1.73 1.76
Outflow of repayment 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23
Outflow of bank interest 0.23 0.18 0.16 0.14 0.11 0.09 0.07 0.05 0.02
Investment 2.48
Total out flow 0.23 0.46 0.41 0.39 0.37 0.34 0.32 0.30 0.27 025
Net flow 1.49 1.36 1.51 1.96 1.05 1.15 1.25 1.35 1.45 1.51
Cumulative cash 1.49 2.85 4.36 5.32 6.37 7.52 8.77 10.12 11.57 13.08

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11. EXTERNALITIES
11.1 SOCIAL COST BENEFIT ANALYSIS
The project of construction industry doesn’t make the society to cost, in fact invisible cost as any
particles creates. But when the real activities become operational, there will be a social benefits
depending up on the size of project.

The project may benefit the surrounding society with work/job opportunities. Once the activities
are operational, the owner employees a minimum of 12 person in an permanent and temporary
manner.

11.2 ENVIRONMENTAL ASSESSMENT

The project construction industry is one commenced; its environmental impact is very minimal
null since there is a septic take for sewages for if there are discharges released from destination.

12. FINANCIAL APPRAISAL OF THE PROJECT

The project construction industry must be appraised by the financial results. It is to determine
the viability of the project, likewise, the approval of this project is calculated by the methods of
benefit cost ratio (BCR) and NPV, when BCR>1and NPV>0, the project is accepted.

Net present value of the project at 10 and 15 percent (000)

Year Benefit Cost (million Net benefit Df factors at NPV at NPV at 15% NPV at
(million ) birr) (million birr 10% 10% 15%

0 - -2.29 -2.29 1 -2.29 1 -2.29

1 312 1.50 1.62 0.90909091 1.47 0.869565217 1.41

2 3.25 1.55 1.71 0.826446228 1.41 0.657894737 1.29

3 3.34 1.54 1.80 0.75187970 1.35 0.657894737 1.18

4 3.43 1.54 1.89 0.68493151 1.29 0.571428571 1.08

5 3.53 1.54 1.98 0.62111801 1.23 0.4975124338 0.99

6 3.62 1.54 2.08 0.56497175 1.18 0.432900433 0.90

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 7 3.73 1.54 2.18 0.51282051 1.12 0.375939850 0.82

8 3.84 1.55 2.29 0.46728972 1.07 0.326797386 0.75

9 396 1.55 2.41 0.42372881 1.02 0.284090909 0.68

10 4.00 1.55 2.45 0.38610039 0.95 0.246913580 0.60

12 10

IRR= 15+10 (0.24691358)

IRR= 15+2.4691358

= 17.4691358

IRR=17.47%

At the opportunity cost of capital that is at 15% interest rate, the NPV is above zero i.e 10
million birr and hence the project proposal is accepted according to the criteria that all projects
should be accepted for NPV values grater then zero. NPV is the turns reduce above 15.47%
opportunity cost of capital showing that up to the range the project work is acceptable.

This is a discount rate which equates the present value of future cash flow with the initial
investment. As the gape shows above IRR for this project that makes NPV zero is 15.47% and
this amount are by far greater than the current interest rate (the opportunity cost of capital) and
hence the project is accepted.

BCR=NPV/I= 12/2.29=5.24

IPV at 15% = 10-2.29 = 7.71

Where, B= BENEFIT, C=COST, R=RATIO, N=NET, P=PRESENT, V+VALUE, I=INITIAL

13. CONCLUSION
Generally, as per the Growth and Transformation Plan -2 of the land, Ethiopia has plan to
maximize the construction of different kinds of infrastructure facilities and also there is great
concern to intensify urbanization and development of new urban settlements that have an ample
of demand for advancement of construction industry. So it is possible to say this plan is very
critical and even decisive and it is in line with this national objective. So, I hope that the Gamo

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Gofa zonal administration and SNNPR'S Investment commission will seriously consider my
interest and deliver the permit I requested to bring my dream to true very soon.

“THE SECOND GROWTH AND TRANSFORMATION PLAN WILL

BE ACHIVED WITH STRONG PARTICIPATON AND
UNRESERVED EFFORT OF PRIVATE INVESTMENT”

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