Investment Office ANRS

Project Profile on the Establishment of Solar

Water Heater Making Plant

Development Studies Associates

(DSA)

October 2008
Addis Ababa
 Table of Contents

1. Executive Summary............................................................................................1
2. Product Description and Application..............................................................1
3. Market Study, Plant Capacity and Production Program..............................2
3.1 Market Study...................................................................................................................2
3.1.1 Present Demand and Supply....................................................................................2
3.1.2 Projected Demand....................................................................................................4
3.1.3 Pricing and Distribution...........................................................................................4
3.2 Plant Capacity..................................................................................................................5
3.3 Production Program.........................................................................................................5
4. Raw Materials and Utilities..............................................................................5
4.1 Availability and Source of Raw Materials.......................................................................5
4.2 Annual Requirement and Cost of Raw Materials and Utilities.......................................5
5. Location and Site...............................................................................................6
6. Technology and Engineering............................................................................7
6.1 Production Process...........................................................................................................7
6.2 Machinery and Equipment...............................................................................................8
6.3 Civil Engineering Cost....................................................................................................8
7. Human Resource and Training Requirement................................................9
7.1 Human Resource..............................................................................................................9
7.2 Training Requirement......................................................................................................9
8. Financial Analysis...........................................................................................10
8.1 Underlying Assumption.................................................................................................10
8.2 Investment......................................................................................................................11
8.3 Production Costs............................................................................................................12
8.4 Financial Evaluation......................................................................................................12
9. Economic and Social Benefit and Justification.............................................13
ANNEXES...............................................................................................................15
 1. Executive Summary
This project envisages production of 300 pieces of Solar Water Heaters per annum. The total
investment requirement of the project including the working capital is estimated at about Birr
447 thousand; of which nearly Birr 11o thousand is the cost of the working capital and Birr 100
thousand is for machinery and equipments. Based on the cash flow statement, the calculated
internal rate of return (IRR) and simple rate of return (SRR) of the project are 48.7 % and 50.3
%, respectively. The net present value (NPV) at 18 % discounting rate is about Birr 556
thousand. The plant is expected to create employment opportunities for about 14 persons.

2. Product Description and Application

A solar water heater is a heater which uses solar radiation energy for heating water. It consists
basically of the flat plate collector and an insulated storage tank. The collector is commonly a
blackened metal plate with attached metal tubing and is usually provided with a glass cover and a
layer of insulation beneath the plate. The collector tubing is connected by a pipe to a storage tank
which stores hot water produced in the collector. The storage can be further connected to hot
water system of a building.

Solar heated water is used for domestic purpose like showers, baths, washing and etc. Larger
installations are used for hotels, hospitals, school and other similar institutions. Even though the
initial cost of solar water heater is higher than the conventional heater, its operating cost is
virtually nil or very small.

The envisaged heater in this project profile is a storage tank of 160 liters capacity which can be
used by households, hotels, restaurants and etc.

1
 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

The demand for solar water heater like any other type of water heaters largely depends on the
growth of building construction. As the rate of residence houses, hotels and hospitals
construction increases, the demand for water heater is likely to increase proportionately.
Water heater must be installed in each modern hotel bedroom to provide full fledged service to
customers. Hence, each hotel business must have this facility to meet the required standards.
Likewise, hospitals, clinics, recreation centers and residence house need water heater equipments
for showers and bathes. In other words, the demand for water heater has high correlation with the
growth in building construction.

Since electric water heater and solar water heater are close substitutes to each other, the demand
for solar water heater also depends on its competitiveness in price with electric water heater. The
initial cost of having solar water heater may be much higher than the cost of electric water
heater. However, its operating costs are much smaller than electric water heater. The ever
escalating tariff for electricity on the other hand encourages the shift to solar water heater. This
factor is a major push factor for the demand for solar water heater.

The current demand for solar water heater can be analyzed on the basis of all types of water
heaters. Electric water heater is commonly used by households, hospitals, hotels and similar
institutions where there is enough supply of electricity. Solar water heater is relatively a new
technology not widely used by either households or other institutions for water heating. Hence,
although it renders similar services like electric water heater, to penetrate the market and
increase its share, there is a need to promote the technology using various marketing strategies.
Until now, the demand for water heaters is met through import. The import of water heaters over
the years covering 1990-1999 E.C is shown in Table 3.1.

2
 TABLE 3.1
IMPORT OF WATER HEATERS
YEAR E.C Imports( In Kg) Imports( In Pieces)
1990 167,479 11,165
1991 54,483 3,632
1992 220,222 14,681
1993 172,070 11,471
1994 316,249 21,083
1995 278,433 18,562
1996 353,404 23,560
1997 433,690 28,913
1998 533,470 35,565
1999 482,970 32,198
Total 3,012,470 200,831
Average 301,247 20,083

In the past ten years, a total of 200,831 pieces of water heaters were imported. This implies, on
average, 20,083 heaters were imported per annum. In the past five years, however, the trend in
water heaters import has been showing a significant increase; during the period, average import
surges to more than 30 thousands per annum.

Although solar water heaters are new technologies they are being accepted from time to time.
This can be seen from the trend in the imports of solar water heaters (See Table 3.2).

TABLE 3.2
IMPORTS OF SOLAR WATER HEATERS

Year E.C Imports( In Pieces)

1995 102
1996 82
1997 674
1998 253
1999 346
Total
1457
Average Annual Import
291.4

3
 3.1.2 Projected Demand

The basis of demand projection is the trend in growth of past supplies or, when that trend proves
inadequate, the anticipated growth in GDP, particularly growth in the modern residential housing
construction sector. In this regard, the past trend seems inadequate because the growth in the
supply of the product is much higher in the recent years than the preceding years. On the other
hand, according to Ministry of Finance and Economic Development, the average growth rate in
real GDP for the past few years is around 10 % per annum and that of the construction sector is
more than that. Therefore, this project conservatively assumes that the demand for water heaters
will increase at 10 % per annum for the coming ten years.

TABLE 3.3
DEMAND PROJECTION FOR ELECTRIC HEATERS

Year E.C In Pieces

2000 35,418
2001 38,960
2002 42,856
2003 47,141
2004 51,855
2005 57,041
2006 62,745
2007 69,019
2008 75,921
2009 83,513
2010 91,865

As it is seen in the above projection, the demand for electric heater is expected to reach at 57,041
by the year 2005 E.C while demand for the product is projected to be nearly 92 thousand by the
end of the decade.

3.1.3 Pricing and Distribution

The selling price (i.e. installation cost) of solar water heaters depends on its size. Prices generally
vary from Birr 4000 to Birr 10,000 depends on country of origin and capacity. By allowing
sufficient margin to attract customers, in this project the selling price of solar water heater with a
capacity of 160 liter is proposed to be Birr 3,000 per piece. The product must be advertised in
order to have reasonable sale each year.

4
 3.2 Plant Capacity

Unlike conventional electric heaters, solar water heaters are new products to the Ethiopian
market. A lot of promotion is required to make them well known on the market. Consequently,
the production capacity of the envisaged workshop should be quite low. A capacity of 300 pieces
per annum. The plant will operate in two shifts per day and 275 days per annum. This is set by
deducting all Sundays and public holidays in a given year, and by setting aside 25 days for
annual maintenance period and unexpected work interruptions.

3.3 Production Program

The production program follows gradual capacity utilization due to technological and market
reasons. In the beginning, in order to produce the product with the desired degree of accuracy,
operators relatively require longer time than the standard. The market problem refers to the time
required to penetrate the market. Accordingly, the first year of production is estimated to be 50
% of the total capacity. In the second and third years the production will be 75 % and 100 % of
the production capacity, respectively. The third year on wards the plant will operate at full
capacity.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials

All the materials required can be procured from the local market.

4.2 Annual Requirement and Cost of Raw Materials and Utilities

The type and quality of materials required depend upon the design of the solar heater. The
present design employs steel profile and steel sheet for the frame; steel sheet and steel pipes,
single glazing and polyfoam insulation for the collector (absorber). The list of the materials and
their annual requirements are given in Table 4.1.

5
 Table 4.1
ANNUAL REQUREMENT OF DIRECT AND AUXILIARY MATERIALS

No Item Quantity Birr/Year

Per unit Total
A. Collector & Frame
1 Angle Iron 40 X40 X3mm 6m 1800 33750
2 Hollow Tube 40 X40 X3mm 1.2m 460 6480
3 Galv Steel Sheet (0.20mm) 3.36m2 1008 30240
4 Plain Steel Sheet (0.8mm) 2.40m2 720 39960
5 Polyfoam Insulation 40mm 2m2 600 36000
6 Galvanized. Steel Pipe 0 ¾ 2.2m 660 9900
7 Galvanized. Steel Pipe 0 3/8 20m 6000 4500
8 Pipe Fittings 10pcs 3000 18000
9 Paint 0.5kg 150 7875
10 Consumable (Wire, Fasteners, etc.) 9000
11 Miscellaneous 23550
B. Storage Tank & Piping
1 Galvanized. Steel Sheet (0.8mm) 3.53m2 1059 58775
2 Polyfoam Insulation 40mm 2.23m2 669 40140
3 Galvanized. Steel Sheet Cladding (0.75mm) 2.39m2 717 26888
4 Connecting Pipes 0 ¾” 3m 900 13500
5 Polyfoam Pipe Insulation. 0 ¾” 3m 900 13500
Total 372,057

As shown in Table 4.1, the total annual cost of materials is estimated at Birr 372,057.

Electric power, acetylene gas and oxygen gas are the major utilities required for the plant. Water
is required only for human consumption. The total annual cost of utility is estimated to be some
15 % of the total annual cost of raw materials, and this is equal to Birr 37,206.

5. Location and Site

For its access for the local raw material from Addis and for its convenience for distribution to
different parts of the country and ANRS’ urban centers, Dessie is an appropriate choice for the
Solar Water Heater making plant in the region.

6
 6. Technology and Engineering
6.1 Production Process
There are two aspects of choice of technology in solar water heaters production. Water is
circulated between the collector and the storage tank in two different ways: by forced circulation
(i.e. by means of pump) and by natural convection from collector towards the tank. Forced
circulation has advantages of higher energy gains and the possibility of positioning the storage
tank to any place in the building. However, it has the disadvantages of higher installation cost,
frequent maintenance and the necessity to be linked to an electricity supply. Thus, considering
the disadvantages, especially that of high installation cost, circulation by natural convection-
often referred to as the thermosyphon principle-, is chosen for the present project.

There is a wide variety of collector designs. Collector plates can be made of aluminum after the
roll-bond principle as a tube. Another type consists of a copper plate with a copper pipe soldered
on it. These are highly effective, because of the good thermal conductivity of materials involved.
Due to the high cost of these materials, steel sheets with steel pipes welded on it are preferred
nowadays. Although selective surface are necessary in places with low average insulation, dull
black pint will serve sufficiently in locations with high solar radiation. Therefore, designs with
steel sheets and pipes painted with dull back paint are selected for the present project.

The manufacturing process employed here mainly uses hand operated workshop equipments
which are available in ordinary metal workshops consequently. The manufacturing techniques
are also ordinary ones.

The process can be divided into sub-processes; manufacturing of frame, absorber plate, tubing
grid, storage tank and assembly. The frame is manufactured by cutting angle iron, hollow square
pipe and galvanized steel sheet and welding/ fastening them as per the set design. Cutting steel,
polishing, cleaning, priming and spray painting operations are involved in the absorber plate
manufacturing. The tubing gird is manufactured by cutting pipes, drilling holes, and brazing. The
storage tank is manufactured by cutting galvanized steel, rolling to form a cylinder and
brazing/welding the joining seam and the two ends.
The final step in the manufacturing process is assembling the various parts the manufacturing
process of which is described above.

7
 6.2 Machinery and Equipment

The machinery and equipment required for the plant (workshop) are the type required for
ordinary workshop. The list is given in Table 6.1.
TABLE 5.1
LIST OF MACHINERY AND EQUIPMENT

Year Item Quantity

1 Work Bench With Vices 2pcs
2 Power Saw(Small) 1pc
3 Electric Hand Drill 1pc
4 Electric Polisher 1pc
5 Electric Paint Sprayer 1pc
6 Electric Pipe Cutter 1pc
7 Pedestal Drilling Machine 1pc
8 Small Electric Welding Machine 1pc
9 Oxy-Acetylene Welding Equipment with 1set
Cylinders
10 Manual Rolling Machine 1pc
11 Hand Tools (Shears, Screw Drivers, Drill Bits, etc) 1set

The total cost of machinery and equipment is estimated at Birr 100,000; all of which are in local
currency.
Machinery Supplier’s Address:
Machinery Suppliers located at Piassa in Addis Ababa.

6.3 Civil Engineering Cost

The building area required by the plant is estimated to be 100m2, and it costs Birr 200,000. This
would include cost of land preparation and associated civil works. The total land area of the
plant, including the open space, is 500 m2 , and its lease cost equals Birr 30,000. The cost of the
land lease is as per ANRS land lease rate for Dessie which is equal to Birr 60 per square meter
for industrial purpose. Of the total cost of the lease, 5 % is paid in the beginning while the rest
will be paid in 40years.

8
 7. Human Resource and Training Requirement

7.1 Human Resource

Details of the manpower requirement of the plant is shown in Table 7.1

TABLE 7.1
MANPOWER REQUIREMENT

Description No Monthly Salary Annual

(Birr) Salary (Birr)
A. Administration
1. Manager 1 1800
( Technique and Administration) 21600
2.Slaesman 1 800 9600
3.Clerk Typist and Cashier 1 600 7200
4.Storekeeper 1 600 7200
5.Guards 2 300 7200
Sub-total 6 52800
B. Production
1. Skilled Workers (Welders and 6 800
Operators) 57600
2. Unskilled Workers (Assistants) 2 300
7200
Benefits (20%) 23520

14 141,120

The total annual wages and salary, including 20 % benefits, amount to Birr 141,120.

7.2 Training Requirement

One month on job training is required for the technical personnel. And this can be managed by
hiring one expert in the area.

9
 8. Financial Analysis
8.1 Underlying Assumption

The financial analysis of Solar Water Heater producing plant is based on the data provided in
the preceding chapters and the following assumptions.

A. Construction and Finance

Construction Period 2 Years

Source Of Finance 40% Equity and 60% Loan
Tax Holidays 2 Years
Bank Interest Rate 12%
Discount For Cash Flow 18%
Value Of Land Based on Lease Rate of ANRS
Spare Parts, Repair & Maintenance 3% of the Fixed Investment

B. Depreciation

Building 5%
Machinery And Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%

10
 C. Working Capital (Minimum Days of Coverage)
Raw Material-Local 30 Days
Raw Material-Foreign 120 Days
Factory Supplies In Stock 30 Days
Spare Parts In Stock And Maintenance 30 Days
Work In Progress 10 Days
Finished Products 15 Days
Accounts Receivable 30 Days
Cash In Hand 30 Days
Accounts Payable 30 Days

8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 447
thousand as shown in Table 8.1 below. The Owner shall contribute 40 % of the finance in the
form of equity while the remaining 60 % is to be financed by bank loan.
TABLE 8.1
TOTAL INITIAL INVESTMENT

Items L.C F.C Total

Land
1,500   1,500
Building and Civil Works
200,000   200,000
Office Equipment
20,000   20,000
Vehicles
0   0
Plant Machinery & Equipment
100,000 0 100,000
Total Fixed Investment Cost
321,500 0 321,500
Pre Production Capital
Expenditure* 16,075   16,075
Total Initial Investment
337,575 0 337,575
Working Capital at Full Capacity
109,616 0 109,616
Total 447,191 0 447,191
*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission expenses,
preproduction marketing and interest expenses during construction.
The foreign component of the project accounts zero.

11
 8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 612 thousand (See Table
8.2). Raw materials and utilities account for 66.9 %.
TABLE 8.2
PRODUCTION COST AT FULL CAPACITY

Raw Material Requirement Cost

1. Local Raw Materials 372,057
2. Foreign Raw Materials 0

Total Production Cost at full Capacity

Items Cost
1.      Raw materials 372,057
2.      Utilities 37,206
3.      Wages and Salaries 141,120
4.      Spares and Maintenance 9,645
Factory Costs 560,028
5.      Depreciation 25,215
6.      Financial Costs
26,831
  Total Production Cost 612,074

8.4 Financial Evaluation

I. Profitability
According to the projected income statement (See Annex 4) the project will generate profit
beginning from the first year of operation and increases on wards. The income statement and
other profitability indicators also show that the project is viable.
II. Breakeven Analysis
The breakeven point of the projects is given by the formula:

BEP = Fixed Cost

Sale –Variable Cost at full capacity.

The project will break even at 21.4 % of capacity utilization

12
 III. Payback Period
Investment cost and income statement projection are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in two years.

IV. Simple Rate of Return

The project’s simple rate of return (SRR) is given by the formula:

SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.

The SRR would be 50.3 % at full capacity utilization.

V. Internal Rate of Return and Net Present Value

Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the
project is 48.7 % and the net present value (NPV) at 18 % discount is Birr 556 thousands.

VI. Sensitivity Analysis

The sensitivity test result which undertaken by increasing the cost of production by 10 % still
indicates that the project would be viable.

9. Economic and Social Benefit and Justification

Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general, the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State. These benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 199 thousand
per year and Birr 2 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.

13
 B. Tax Revenue

In the project life under consideration, the region will collect about Birr 736 thousand from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region.

C. Import Substitution and Foreign Exchange Saving

As there is no Solar Water Heater Making Plant in the country, the commencement of this
project relieves a portion of the import burden. That is, based on the projected figure we learn
that in the project life an estimated amount of US Dollar 833 thousand will be saved as a result
of the proposed project. This will create room for the saved hard currency to be allocated on
other vital and strategic sectors.

D. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to 14 professionals as well as support
stuffs. Consequently the project creates income of Birr141 thousands per year. This would be
one of the commendable accomplishments of the project.

E. Pro Environment Project

The proposed production process is environment friendly.

14
ANNEXES

15
 Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4

Capacity Utilization (%) 0 0 50% 75% 100% 100%

1. Total Inventory 0.00 0.00 65375.11 98062.66 130750.22 130750.22

Raw Materials in Stock- Total 0.00 0.00 20294.02 30441.03 40588.04 40588.04

Raw Material-Local 0.00 0.00 20294.02 30441.03 40588.04 40588.04

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 0.00 0.00 319.22 478.84 638.45 638.45

Spare Parts in Stock and Maintenance 0.00 0.00 526.09 789.14 1052.18 1052.18

Work in Progress 0.00 0.00 7980.59 11970.88 15961.17 15961.17

Finished Products 0.00 0.00 15961.17 23941.76 31922.35 31922.35

2. Accounts Receivable 0.00 0.00 49090.91 73636.36 98181.82 98181.82

3. Cash in Hand 0.00 0.00 9726.87 14590.31 19453.75 19453.75

CURRENT ASSETS 0.00 0.00 103898.87 155848.31 207797.75 207797.75

4. Current Liabilities 0.00 0.00 49090.91 73636.36 98181.82 98181.82

Accounts Payable 0.00 0.00 49090.91 73636.36 98181.82 98181.82

TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 54807.96 82211.95 109615.93 109615.93

INCREASE IN NET WORKING CAPITAL 0.00 0.00 54807.96 27403.98 27403.98 0.00

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
  5 6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100% 100%

1. Total Inventory 130750.22 130750.22 130750.22 130750.22 130750.22 130750.22

Raw Materials in Stock-Total 40588.04 40588.04 40588.04 40588.04 40588.04 40588.04

Raw Material-Local 40588.04 40588.04 40588.04 40588.04 40588.04 40588.04

Raw Material-Foreign 0.00 0.00 0.00 0.00 0.00 0.00

Factory Supplies in Stock 638.45 638.45 638.45 638.45 638.45 638.45

Spare Parts in Stock and Maintenance 1052.18 1052.18 1052.18 1052.18 1052.18 1052.18

Work in Progress 15961.17 15961.17 15961.17 15961.17 15961.17 15961.17

Finished Products 31922.35 31922.35 31922.35 31922.35 31922.35 31922.35

2. Accounts Receivable 98181.82 98181.82 98181.82 98181.82 98181.82 98181.82

3. Cash in Hand 19453.75 19453.75 19453.75 19453.75 19453.75 19453.75

CURRENT ASSETS 207797.75 207797.75 207797.75 207797.75 207797.75 207797.75

4. Current Liabilities 98181.82 98181.82 98181.82 98181.82 98181.82 98181.82

Accounts Payable 98181.82 98181.82 98181.82 98181.82 98181.82 98181.82

TOTAL NET WORKING CAPITAL REQUIRMENTS 109615.93 109615.93 109615.93 109615.93 109615.93 109615.93

INCREASE IN NET WORKING CAPITAL 0.00 0.00 0.00 0.00 0.00 0.00

2
 Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 168787.50 278403.43 499090.91 699545.45 924545.45 900000.00
1. Inflow Funds 168787.50 278403.43 49090.91 24545.45 24545.45 0.00
Total Equity 67515.00 111361.37 0.00 0.00 0.00 0.00
Total Long Term Loan 101272.50 167042.06 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 49090.91 24545.45 24545.45 0.00
2. Inflow Operation 0.00 0.00 450000.00 675000.00 900000.00 900000.00
Sales Revenue 0.00 0.00 450000.00 675000.00 900000.00 900000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 168787.50 168787.50 455886.90 549970.35 770000.10 714294.26
4. Increase In Fixed Assets 168787.50 168787.50 0.00 0.00 0.00 0.00
Fixed Investments 160750.00 160750.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 8037.50 8037.50 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 103898.87 51949.44 51949.44 0.00
6. Operating Costs 0.00 0.00 282045.22 421104.07 560162.93 560162.93
7. Corporate Tax Paid 0.00 0.00 0.00 0.00 86337.18 87947.07
8. Interest Paid 0.00 0.00 69942.81 32197.75 26831.46 21465.16
9.Loan Repayments 0.00 0.00 0.00 44719.09 44719.09 44719.09
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 0.00 109615.93 43204.01 149575.11 154545.35 185705.74
Cumulative Cash Balance 0.00 109615.93 152819.93 302395.04 456940.39 642646.14

3
 Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 900000.00 900000.00 900000.00 900000.00 900000.00 900000.00
1. Inflow Funds 0.00 0.00 0.00 0.00 0.00 0.00
Total Equity 0.00 0.00 0.00 0.00 0.00 0.00
Total Long Term Loan 0.00 0.00 0.00 0.00 0.00 0.00
Total Short Term Finances 0.00 0.00 0.00 0.00 0.00 0.00
2. Inflow Operation 900000.00 900000.00 900000.00 900000.00 900000.00 900000.00
Sales Revenue 900000.00 900000.00 900000.00 900000.00 900000.00 900000.00
Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00
3. Other Income 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL CASH OUTFLOW 710537.86 707745.95 703989.55 655514.05 655514.05 655514.05
4. Increase In Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00
Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00
Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00
5. Increase in Current Assets 0.00 0.00 0.00 0.00 0.00 0.00
6. Operating Costs 560162.93 560162.93 560162.93 560162.93 560162.93 560162.93
7. Corporate Tax Paid 89556.96 92131.35 93741.23 95351.12 95351.12 95351.12
8. Interest Paid 16098.87 10732.58 5366.29 0.00 0.00 0.00
9. Loan Repayments 44719.09 44719.09 44719.09 0.00 0.00 0.00
10.Dividends Paid 0.00 0.00 0.00 0.00 0.00 0.00
Surplus(Deficit) 189462.14 192254.05 196010.45 244485.95 244485.95 244485.95
Cumulative Cash Balance 832108.28 1024362.33 1220372.78 1464858.73 1709344.68 1953830.63

4
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0.00 0.00 450000.00 675000.00 900000.00 900000.00

1. Inflow Operation 0.00 0.00 450000.00 675000.00 900000.00 900000.00

Sales Revenue 0.00 0.00 450000.00 675000.00 900000.00 900000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 168787.50 168787.50 336853.18 448508.05 587566.91 648110.00

3. Increase in Fixed Assets 168787.50 168787.50 0.00 0.00 0.00 0.00

Fixed Investments 160750.00 160750.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 8037.50 8037.50 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 54807.96 27403.98 27403.98 0.00

5. Operating Costs 0.00 0.00 282045.22 421104.07 560162.93 560162.93

6. Corporate Tax Paid 0.00 0.00 0.00 0.00 0.00 87947.07

NET CASH FLOW -168787.50 -168787.50 113146.82 226491.95 312433.09 251890.00

CUMMULATIVE NET CASH FLOW -168787.50 -337575.00 -224428.18 2063.77 314496.85 566386.85

Net Present Value (at 18%) -168787.50 -143040.25 81260.28 137849.99 161149.51 110103.44

Cumulative Net present Value -168787.50 -311827.75 -230567.47 -92717.48 68432.03 178535.47

5
 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
  5 6 7 8 9 10
TOTAL CASH INFLOW 900000.00 900000.00 900000.00 900000.00 900000.00 900000.00

1. Inflow Operation 900000.00 900000.00 900000.00 900000.00 900000.00 900000.00

Sales Revenue 900000.00 900000.00 900000.00 900000.00 900000.00 900000.00

Interest on Securities 0.00 0.00 0.00 0.00 0.00 0.00

2. Other Income 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL CASH OUTFLOW 649719.89 652294.28 653904.16 655514.05 655514.05 655514.05

3. Increase in Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00

Fixed Investments 0.00 0.00 0.00 0.00 0.00 0.00

Pre-production Expenditures 0.00 0.00 0.00 0.00 0.00 0.00

4. Increase in Net Working Capital 0.00 0.00 0.00 0.00 0.00 0.00

5. Operating Costs 560162.93 560162.93 560162.93 560162.93 560162.93 560162.93

6. Corporate Tax Paid 89556.96 92131.35 93741.23 95351.12 95351.12 95351.12

NET CASH FLOW 250280.11 247705.72 246095.84 244485.95 244485.95 244485.95

CUMMULATIVE NET CASH FLOW 816666.96 1064372.69 1310468.52 1554954.47 1799440.42 2043926.37

Net Present Value (at 18%) 92711.65 77761.03 65470.88 55120.84 46712.58 39586.93

Cumulative Net present Value 271247.12 349008.15 414479.03 469599.87 516312.45 555899.38

Net Present Value (at 18%) 555,899.38

Internal Rate of Return 48.7%

6
 Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
  1 2 3 4 5
Capacity Utilization (%) 50% 75% 100% 100% 100%

1. Total Income 450000.00 675000.00 900000.00 900000.00 900000.00

Sales Revenue 450000.00 675000.00 900000.00 900000.00 900000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 249893.72 374840.57 499787.43 499787.43 499787.43
VARIABLE MARGIN 200106.29 300159.43 400212.57 400212.57 400212.57
(In % of Total Income) 44.47 44.47 44.47 44.47 44.47
3. Less Fixed Costs 57366.50 71478.50 85590.50 85590.50 85590.50
OPERATIONAL MARGIN 142739.79 228680.93 314622.07 314622.07 314622.07
(In % of Total Income) 31.72 33.88 34.96 34.96 34.96
4. Less Cost of Finance 69942.81 32197.75 26831.46 21465.16 16098.87
5. GROSS PROFIT 72796.97 196483.18 287790.61 293156.91 298523.20
6. Income (Corporate) Tax 0.00 0.00 86337.18 87947.07 89556.96
7. NET PROFIT 72796.97 196483.18 201453.43 205209.83 208966.24
RATIOS (%)  
Gross Profit/Sales 16.18% 29.11% 31.98% 32.57% 33.17%
Net Profit After Tax/Sales 16.18% 29.11% 22.38% 22.80% 23.22%
Return on Investment 36.38% 54.48% 51.05% 50.69% 50.33%
Return on Equity 40.70% 109.84% 112.62% 114.72% 116.82%

7
 Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
  6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 900000.00 900000.00 900000.00 900000.00 900000.00

Sales Revenue 900000.00 900000.00 900000.00 900000.00 900000.00
Other Income 0.00 0.00 0.00 0.00 0.00
2. Less Variable Cost 499787.43 499787.43 499787.43 499787.43 499787.43
VARIABLE MARGIN 400212.57 400212.57 400212.57 400212.57 400212.57
(In % of Total Income) 44.47 44.47 44.47 44.47 44.47
3. Less Fixed Costs 82375.50 82375.50 82375.50 82375.50 82375.50
OPERATIONAL MARGIN 317837.07 317837.07 317837.07 317837.07 317837.07
(In % of Total Income) 35.32 35.32 35.32 35.32 35.32
4. Less Cost of Finance 10732.58 5366.29 0.00 0.00 0.00
5. GROSS PROFIT 307104.49 312470.78 317837.07 317837.07 317837.07
6. Income (Corporate) Tax 92131.35 93741.23 95351.12 95351.12 95351.12
7. NET PROFIT 214973.14 218729.55 222485.95 222485.95 222485.95
RATIOS (%)  
Gross Profit/Sales 34.12% 34.72% 35.32% 35.32% 35.32%
Net Profit After Tax/Sales 23.89% 24.30% 24.72% 24.72% 24.72%
Return on Investment 50.47% 50.11% 49.75% 49.75% 49.75%
Return on Equity 120.18% 122.28% 124.38% 124.38% 124.38%

8
 Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
  Year 1 Year 2 1 2 3 4
TOTAL ASSETS 168787.50 447190.93 569078.81 745388.35 926668.14 1087158.88
1. Total Current Assets 0.00 109615.93 256718.81 458243.35 664738.14 850443.88
Inventory on Materials and Supplies 0.00 0.00 21139.33 31709.00 42278.67 42278.67
Work in Progress 0.00 0.00 7980.59 11970.88 15961.17 15961.17
Finished Products in Stock 0.00 0.00 15961.17 23941.76 31922.35 31922.35
Accounts Receivable 0.00 0.00 49090.91 73636.36 98181.82 98181.82
Cash in Hand 0.00 0.00 9726.87 14590.31 19453.75 19453.75
Cash Surplus, Finance Available 0.00 109615.93 152819.93 302395.04 456940.39 642646.14
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 168787.50 337575.00 312360.00 287145.00 261930.00 236715.00
Fixed Investment 0.00 160750.00 321500.00 321500.00 321500.00 321500.00
Construction in Progress 160750.00 160750.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 8037.50 16075.00 16075.00 16075.00 16075.00 16075.00
Less Accumulated Depreciation 0.00 0.00 25215.00 50430.00 75645.00 100860.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 168787.50 447190.93 569078.81 745388.35 926668.14 1087158.88
5. Total Current Liabilities 0.00 0.00 49090.91 73636.36 98181.82 98181.82
Accounts Payable 0.00 0.00 49090.91 73636.36 98181.82 98181.82
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 101272.50 268314.56 268314.56 223595.46 178876.37 134157.28
Loan A 101272.50 268314.56 268314.56 223595.46 178876.37 134157.28
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 67515.00 178876.37 178876.37 178876.37 178876.37 178876.37
Ordinary Capital 67515.00 178876.37 178876.37 178876.37 178876.37 178876.37
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought Forward 0.00 0.00 0.00 72796.97 269280.15 470733.58
9.Net Profit After Tax 0.00 0.00 72796.97 196483.18 201453.43 205209.83
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 0.00 0.00 72796.97 196483.18 201453.43 205209.83

9
 Annex 5: Projected Balance Sheet (in Birr): Continued
  PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 1251406.03 1421660.08 1595670.53 1818156.48 2040642.43 2263128.38
1. Total Current Assets 1039906.03 1232160.08 1428170.53 1672656.48 1917142.43 2161628.38
Inventory on Materials and Supplies 42278.67 42278.67 42278.67 42278.67 42278.67 42278.67
Work in Progress 15961.17 15961.17 15961.17 15961.17 15961.17 15961.17
Finished Products in Stock 31922.35 31922.35 31922.35 31922.35 31922.35 31922.35
Accounts Receivable 98181.82 98181.82 98181.82 98181.82 98181.82 98181.82
Cash in Hand 19453.75 19453.75 19453.75 19453.75 19453.75 19453.75
Cash Surplus, Finance Available 832108.28 1024362.33 1220372.78 1464858.73 1709344.68 1953830.63
Securities 0.00 0.00 0.00 0.00 0.00 0.00
2. Total Fixed Assets, Net of Depreciation 211500.00 189500.00 167500.00 145500.00 123500.00 101500.00
Fixed Investment 321500.00 321500.00 321500.00 321500.00 321500.00 321500.00
Construction in Progress 0.00 0.00 0.00 0.00 0.00 0.00
Pre-Production Expenditure 16075.00 16075.00 16075.00 16075.00 16075.00 16075.00
Less Accumulated Depreciation 126075.00 148075.00 170075.00 192075.00 214075.00 236075.00
3. Accumulated Losses Brought Forward 0.00 0.00 0.00 0.00 0.00 0.00
4. Loss in Current Year 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL LIABILITIES 1251406.03 1421660.08 1595670.53 1818156.48 2040642.43 2263128.38
5. Total Current Liabilities 98181.82 98181.82 98181.82 98181.82 98181.82 98181.82
Accounts Payable 98181.82 98181.82 98181.82 98181.82 98181.82 98181.82
Bank Overdraft 0.00 0.00 0.00 0.00 0.00 0.00
6. Total Long-term Debt 89438.19 44719.09 0.00 0.00 0.00 0.00
Loan A 89438.19 44719.09 0.00 0.00 0.00 0.00
Loan B 0.00 0.00 0.00 0.00 0.00 0.00
7. Total Equity Capital 178876.37 178876.37 178876.37 178876.37 178876.37 178876.37
Ordinary Capital 178876.37 178876.37 178876.37 178876.37 178876.37 178876.37
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Subsidies 0.00 0.00 0.00 0.00 0.00 0.00
8. Reserves, Retained Profits Brought
Forward 675943.41 884909.65 1099882.79 1318612.34 1541098.29 1763584.24
9. Net Profit After Tax 208966.24 214973.14 218729.55 222485.95 222485.95 222485.95
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Retained Profits 208966.24 214973.14 218729.55 222485.95 222485.95 222485.95

10