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detail mop project proposal

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225 views31 pages

detail mop project proposal

Uploaded by

Tedros Abreham
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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PROJECT PROPOSAL FOR THE ESTABLISHMENT OF MOP,

BROOM AND BROOSH PRODUCTION PLANT


MEKELLE, ETHIOPIA

PROJECT PROMOTER SENAY ZERAU


1
1 MOBILE :251-914308487
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

2 CONTENTS
1......................................................................................................................................................2

3 EXECUTIVE SUMMARY.....................................................................................................3

4 PRODUCT DESCRIPTION AND APPLICATION...............................................................4

5 MARKET STUDY AND PLANT CAPACITY....................................................................10

5.1 MARKET STUDY.......................................................................................................10

5.1.1 Past Supply and Present Demand..............................................................................10

5.1.2 Projected Demand.....................................................................................................12

5.1.3 Pricing and Distribution............................................................................................13

5.2 PLANT CAPACITY AND PRODUCTION PROGRAMME.......................................13

5.2.1 Plant Capacity...........................................................................................................13

5.2.2 Production Programme.............................................................................................13

6 MATERIALS AND INPUT..................................................................................................14

6.1 RAW AND AUXILIARY MATERIALS.....................................................................14

6.1.2 UTILITIES...............................................................................................................16

7 TECHNOLOGY AND ENGINEERING...............................................................................17

7.1 TECHNOLOGY...........................................................................................................17

7.1.1 PRODUCTION PROCESS.......................................................................................17

7.2 Source of Technology...................................................................................................18

7.3 ENGINEERING...........................................................................................................18

7.3.1 Machinery and Equipment........................................................................................18

7.4 2. Land, Building and Civil Works...............................................................................19

8 MANPOWER AND TRAINING REQUIREMENTS...........................................................20

8.1 MANPOWER REQUIREMENTS................................................................................20

8.2 TRAINING REQUIREMENT......................................................................................21

9 FINANCIAL ANALYSIS.....................................................................................................22

9.1 TOTAL INITIAL INVESTMENT COST.....................................................................23

9.2 PRODUCTION COST..................................................................................................23

pg. 2
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

9.3 FINANCIAL EVALUATION......................................................................................24

9.3.1 Key Steps: to calculate and analyze profitability.......................................................24

9.3.2 Key Highlights:..........................................................................................................26

9.3.3 Financial Ratio Analysis Summary.............................................................................26

9.3.4 Key Insights...............................................................................................................26

9.3.5 Narratives for Interpretation....................................................................................27

9.3.6 Expanded Analysis.....................................................................................................27

9.4 ECONOMIC BENEFITS..............................................................................................29

pg. 3
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

3 EXECUTIVE SUMMARY

This proposal envisages the establishment of a plant for the production of mop, broom
and brush with a capacity of 250,000 pieces per annum in Mekelle Tigray by the
envisioned investor. SENAY HULUF who had a profound experience in various Business
activities.

The major raw materials required are bristles, ferrules and wood of which bristles and
ferrules have to be imported while wood is available locally.

The present demand for the proposed product is estimated at 9,006,028 pieces per
annum. The demand is expected to reach 22, 534,384 pieces by the year 2024.

The Total establishment of the project requires two hectares. out of which The factory
building consists mainly of production hall ( 4, 200 sq. meters ) , stores for raw
materials and finished goods ( 3800 sq. meters ) , workers dressing rooms and latrines,
offices for production supervisions and foremen, quality control unit ( 480 sq. meters ) ,
and administration building(240 sq. meters ) which will incorporate offices for
management staff. Other social buildings (280 sq. meters) (canteen, assembly hall, etc)
can also be required. Land will also be secured for future expunction of the plant.
Consequently, it is proposed that 20,000m2 of land is needed for a broom and brush
manufacturing plant. Of the total land requirement, 10,000 sq. meters will be an
expansion built up area. At the rate of Birr 5000 per m2, the building cost will be Birr
50,000,000.00

The project's total investment cost including working capital is estimated at Birr 97.6
million, of which 30% will be financed by equity and 70% will be financed by loan.

The project is financially viable with an internal rate of return (IRR) of 37.63 % and a
net present value (NPV) of Birr 30.82 million, discounted at 12.5%.

pg. 4
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

The following Ratio analysis also indicated that the health y stream of financial projection of
the proposed project.

Year Net Profit ROA ROE Current Debt-to- Interest


Margin (%) (%) (%) Ratio Equity Ratio Coverage Ratio
1 35.95 26.16 43.41 5.16 1.08 4.76
2 37.86 29.71 31.37 5.16 0.56 5.95
3 39.78 33.85 24.79 5.16 0.29 7.93
4 41.69 38.77 20.62 5.16 0.12 11.89
5 43.60 44.68 17.74 5.16 0.01 23.78

The project can create employment for 107 persons. In addition to supply of the domestic
needs, the project will generate Birr 236 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 has a backward linkage effect with the wood
processing industry

The project has a backward linkage effect with the wood processing industry. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.

4 PRODUCT DESCRIPTION AND APPLICATION

Brushes are hand-operated tools designed or adapted for such uses as sweeping,
Scrubbing, painting and smoothing of surfaces. Mops and Brooms are bundles of firm
natural or artificial fibres bound tightly together, usually on the long handle, and used for

pg. 5
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

sweeping and brushing. Brash for painting, shoes, hair and cloth as well as brooms are all
manufactured from bristles – short stiff filaments.

Characteristics of the Product

◦ High cleaning capability.

◦ Reduce work fatigue and increase productivity.

◦ Save the time of hotel housekeeping staff.

◦ High maneuverability. They can reach any corner or height of the room, which is

otherwise difficult to reach.

◦ Eco-friendly, widely available, and easy to operate.

◦ They give protection from injuries occurring while cleaning when they are handled by

using proper instructions

Types of the product

Equipment’s which help in the cleaning process by directly using manual energy of the
employees.

The common manual equipment’s are: -

1) Brooms 2) Brushes 3)Mops 4)Cloths 5)Containers 6) Box Sweepers

1)BROOMS:-

Brooms consist of long bristles gathered together and inserted into a handle. Bristles may
be made of

grass, corn, coconut fibers etc.

Types of brooms:-

-Soft Bristled brooms- Brooms made of corn fibre, grass brooms, and used on smooth
floors.

pg. 6
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

-Hard bristled Brooms- Coconut fibre brooms or yard brooms are used on rough surfaces
especially

outdoors.

-Wall brooms/ Tall Turks- These are used to remove cobwebs from ceilings. They have a
soft head

and a long handle.

2)BRUSHES:-

These are designed to remove dust and dirt from surfaces.

Parts of brush:-

a. Stock in which bristles are inserted made of wood, metal or plastic.

b. Bristles made of horse hair, nylon, jute or coir have chisel like action which dislodges
the soil

c. Handle may also be made of wood or plastic and can be detachable or non detachable.

Types of Brushes:-

-Hard Brush- Stiff bristles and well spaced out. Removes heavy soil from rough surfaces.

-Soft brush- Softer bristles and set close together. Removes loose soil from smooth
surfaces like

carpets, furniture etc.

-Scrubbing Brushes- These have short, hard bristles designed for cleaning stains and
heavy soil. Also known as T brushes. Other brushes are Toilet Brushes/Johnny Mops,
Bottle Brushes, Cloth scrubbing Brush, Carpet brushes, Feather Brush etc.

3)MOPS:-

Types of mops are dry mops and wet mops.

#Dry mops:- Also called dust control mops. These are used to remove dust from floors,
wall, ceiling. Mops have handle, to which a metal frame is attached. The mop head made

pg. 7
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

of dense cotton fringes are inserted into the frame and stretched over it.#Wet/damp
mops:-

These mops are used along with buckets to remove dirt from the floor surfaces. The mop
consistsof a handle and cotton fringes or sponge which are capable of absorbing water.

Types of damp mop-

a)Do-all-mops- Consists strands of twisted cotton fixed to a circular metal plate which is
fixed to a stock. b)Kentucky mop-Cotton strands fixed to a length of cotton fabrics which
is inserted into a metal stock

c)Foss Mop-Dense cotton fringes inserted into a metal stock

d)Squeeze- Consists of a rubber blade attached to a metal handle to remove excess water
from the floor.

e) Sponge mops- Consists of sponge fixed to a replaceable lever-controlled head, hinged


for

removing the water and attached to a long handle.

4)CLOTHS: -

Various cloths are used in dry and wet cleaning. For efficient usage, cloth can be color-
coded and

used by staff for different usages.

Types of cloths-

a) Dusters/ cloths- soft absorbent plain or checked cotton material or yellow flannelette
used for

dusting and buffing.

b) Swabs and Wipes- These are made of loosely woven cotton cloths which are soft,
absorbent

pg. 8
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

material used for wet cleaning of surfaces above floor level. Mainly used for cleaning
bathtubs

and washbasins.

c)Floor cloths – These are coarse knitted cotton cloths which are bigger, thicker and used
to clean

floors.

d) Glass Cloths/ Scrim- These are lint-free loosely woven linen material and is used for
cleaning

glass and mirrors.

e) Cotton Rags or cloths- Disposable cotton or cloths used for applying polishes and
cleaning agents.

f) Chamois leather- Obtained from Chamois goat and used for cleaning windows and
mirrors,

polishing silver.

g) Dust sheets- Made of thin cotton material which are discarded from linen room like
bedsheets or

curtains used to cover floor , furniture during renovation work.

h) Drug gets- Linen, canvas or plastic material placed on the floor in doorways to absorb
excessive

dirt caused during bad weather or renovation work.

i)Bucket cloths/Splash mats-Thick fabric placed under buckets to prevent water marks
formation on

surfaces.

5)CONTAINERS:-

pg. 9
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

The staff require containers to carry, transport, and store items of use and collect waste
products.

Types of containers-

a)Buckets- Made of plastic or galvanized iron. Used to collect water and used with mops
for

cleaning.

b)Dustpans- Used along with brushes to collect dust and made of plastic or metal. The
edge in

contact with floor must be thin and sharp.

c)Dustbins- Made of plastics, wood, metals, leather , jute and placed in rooms, public
areas and all

back areas and lined with plastic bags.

d) Sani-bins-Metal or plastic bins with lids.

e) Spray bottles- Lightweight containers which deliver a fine mist of water or cleaning
solution on

the surface to be cleaned.

f) Hand caddies- Made of metal, wood or plastic consists of a tray with slots for storing
chemical

bottles and a handle to carry it.

g) Carts and trolleys-

i)Chambermaids trolley/Room Attendants cart/ Maids Trolley- Used to carry linen,


cleaning

agents, supplies, and cleaning equipment required for guestroom cleaning and stored in
the guest

corridors and should be movable and strong.

pg. 10
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

ii)Janitorial trolley- Used for cleaning and storing cleaning supplies for public area
cleaning.

iii)Mop wringer trolley- This piece of equipment consists of mop and buckets to carry
cleaning

solution and clean water mainly used for public areas.

iv) Linen trolley- Used for transfer of linen from guestrooms to laundry for washing and
is made

of cloth or metal with castor wheels.

6) BOXSWEEPER: -

These are manually operated carpet sweepers used for removing crumbs from the
surfaces. It

consists of a brush that revolves when equipment is pushed over the carpet and crumbs
get

collected in the dust-collector pan which is emptied when filled.

5 MARKET STUDY AND PLANT CAPACITY

5.1 MARKET STUDY

5.1.1 Past Supply and Present Demand

Brooms and brushes are used as sweeping, brushing, scrubbing and painting. Import is
the main source of supply of Mops, brooms and brushes to the domestic market . Import
of brooms and brushed for the past eight years is given in Table 3.1.

pg. 11
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

Table 3.1

IMPORT OF BROOMS AND BRUSHES ( NUMBER)

Year Import

2013 546,465

2014 666,641

2015 527,818

2016 770,274

2017 1,190,737

2018 2,936,567

2019 2,893,367

2020 2,276,516

Source:- Customs Authority.

From Table 3.1. it can be observed that import of the products during the past eight years
has been fluctuating although the general trend is increasing. Imported quantity during
the reference period ranged from the lowest 527,818 during year 2015 to about 2.27
million during year 2020.

If we divide the eight years data in to two periods the following major points are
observed. During the period 1999-2002 the annual average level of import has been at
about 37,800. During the period 2013-2016 the annual average is very high which is
about 1.62 million. This is because of the exceptionally high figure registered during
year 2014 which is 5,936,567. This is expected to be due to data encoding error and has
to be excluded in estimating the demand to be safe from misleading.

pg. 12
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

In order to determine the present demand the recent three years average i.e. 2013-2016
(by excluding year 2004) is fairly assumed to reflect the affective demand for the year
2016. This is found to be 186,873. To arrive at the current (2018) demand urban
population growth and income rise has been considered. Consequently, a 5% yearly
growth rate is applied on the base year. Accordingly, current demand is estimated at
2.206,028 pieces.

5.1.2 Projected Demand


There are various factors that influence for the growth of demand for brooms and
brushes. Among the main ones are income of the population, urbanization, the
development paintings as well as the construction sector. The combined effect of these
factors is assumed to result in a 10% annual average growth rate. Based on this the
forecasted demand is presented in Table 3.2.

Table 3.2

PROJECTED DEMAND FOR BROOMS AND BRUSHES ( NUMBER)

Year Projected Demand

2023 4.226,631

2024 5,249,294

2025 6,274,223

2026 7,301,645

2027 8.331,810

2028 9,364,992

pg. 13
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

Demand for brooms and brushes will grow from 2,226,631 pieces in 2019 to 4,226,631
pieces and 9,364,992 pieces by the year 2013 and 2018, respectively.

5.1.3 Pricing and Distribution

Based on the CIF price of the external trade statistics for 2020 ( the latest data available )
and allowing 30% for import duty and other clearing expenses, the average factory gate
price for paint brushes, shoes, hair and cloth brushes and sweeping brooms & brushes is
estimated at Birr 250 per unit.

The product can get its market outlets through wholesale and retail networks.

5.2 PLANT CAPACITY AND PRODUCTION PROGRAMME

5.2.1 Plant Capacity

According to the market study indicated above, the projected demand for Mop, brooms
and brushers (paint brushes, shoes, hair and cloth brushes) in the year 2019 will be
226,361 pieces. This demand will grow to 401,490 pieces and 534,384 pieces in 2015 and
2018, respectively. In 2020, the projected demand for assorted products will be 249,294
pieces. It is, therefore, suggested that the envisaged plant will have an annual production
capacity of 250,000 pieces. The percentage share of each product can be decided based
on prevailing market demand. The plant will operate a single shift 8 hours a day and 300
days a year.

5.2.2 Production Programme

pg. 14
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

The production programee is scheduled in such a way that the plant will assume
production at 75 % of full capacity during the first year then production will rise to 85 %
and 100 % in the 2nd and 3rd years, respectively. Table 3.3 below shows the production
program

Table 3.3

PRODUCTION PROGRAMME

Year 1 2 3 and above

Capacity utilization 75 85 100


(%)

Production (pcs) 187,500 212,500 250,000

(Assorted products )

For this study, the product mix and corresponding quantity that would be produced
annually is given below.

a) Paint brush - 100,000 pieces.

b) Shoes, hair and cloth brushes - 100,000 pieces.

c) Sweeping brooms & brushes - 50,000 pieces

6 MATERIALS AND INPUT

6.1 RAW AND AUXILIARY MATERIALS

pg. 15
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

The major raw materials required for the production of bushes and brooms are bristles,
ferrules and handle. Auxiliary material includes paint and varnish. Annual requirements
at full capacity production and corresponding costs are given in Table 4.1 below.

Bristles and ferrule will be procured from foreign markets. Other materials such as wood
and paint and varnish can be purchased from local markets.

pg. 16
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

Table 4.1

RAW AND AUXILIARY MATERIALS REQUIREMENTS & COSTS

Cost
(,000
Sr. Description Qty Birr )
No. LC FC TC
A. Raw Materials
1 Bristles ………….(tonnes) 12 2304 2304
2 Ferrule ………….(tonnes) 6 280 280
3 Wood …………. (tonnes) 15 160 160

Sub-Total - 160 2584 2744


B. Auxiliary Material
1 Paint and varnish (tonnes) 500 240 - 240
Sub-Total 240 - 240
Freight, insurance, Bank, customer 360 - 360
Grand Total 600 2584 4184

6.1.1 UTILITIES

Electricity and water are utilities required for the broom and brash manufacturing plant.
Electricity is used to operate production equipment and for the power sockets and
lighting. Water is used for sanitation and general purpose. Annual consumption of
electricity is estimated 25,000 kWh and water consumption is estimated to be 250 m 3.
The annual consumption of utilities and their costs is shown in Table 4.2

Table 4.2

pg. 17
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

ANNUAL UTILITIES REQUIREMENT & COST (AT FULL CAPACITY)

Unit of Cost (‘000


Sr. No. Utility Measure Qty Birr)
1 Electricity kWh 25,000 71,100
2 Water m3 250 4062.5
Total 75,162.50

7 TECHNOLOGY AND ENGINEERING

7.1 TECHNOLOGY

7.1.1 PRODUCTION PROCESS

Production of wooden and plastic materials for the production of Mop, Broom and
brushes come to first. then Tufts of filling materials of fibers are first picked up and
automatically inserted in the ferrules knot picking machine. Mixing, metering and
dispersion as well as assembly is carried out in the respective machines.

The bristles are then secured to the wooden handles by ferrules in the stapling machines.
Trimming and sizing are performed in their respective machine. Finally, it is varnished
or painted and then inspected. Production of Mop, brooms and brushes does not have a
negative impact on the environment.

7.2 SOURCE OF TECHNOLOGY

pg. 18
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

Broom and brush manufacturing involves the application of simple technology. The
machinery and equipment have been in use for several years in the past by different
countries in Europe, Asia, and even in Africa. There are thus well-experienced machinery
suppliers. The address of one such supplier is given below.

7.3 ENGINEERING

7.3.1 Machinery and Equipment

As indicated about the technology of broom and brush manufacturing involves simple
machinery like picking machine, trimming m/c, stapling and sanding machines, circular
saw, etc. Details of machinery and equipment required by the envisaged plant and related
investment in local and foreign component are given in Table 5.1 below.

Table 5.1

MACHINERY AND EQUIPMENT REQUIREMENT & COST

Sr Qt Cost (,000
. Description y. Birr )
N (N
o. o.) LC FC TC
1 Circular saw 1 - 336 336
2 Planning & thickening 1 - 640 640
3 Two – sided shaper 1 - 520 520
4 Sounding machine 1 - 560 560
5 Flirting machine 1 - 920 920
380 380
6 Stapling machine 1 - 0 0
172 172
7 Trimming machine 1 - 0 0

pg. 19
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

8 Mixing, metering, and dispersion machine 1 - 820 820


360 360
9 Assembly machine 1 - 0 0
1 416 416
0 Knot picking machine 1 - 0 0
1 112 112
1 CNC Roatery wood machine 1 - 0 0
1 124 124
2 plastic injection molding machine 1 50 50
30,6 306
FOB Price - - 46 46
Freight, Insurance, Customers, Bank, Material 306
Handling Cost - 3064.6 - 4.6

30,6 33,7
CIF Landed Cost - 3064.6 46 11

7.4 2. LAND, BUILDING AND CIVIL WORKS

Land is required for the factory and administrative buildings. The factory building
consists mainly of a production hall ( 4, 200 sq. meters ) , stores for raw materials and
finished goods ( 3800 sq. meters ) , workers' dressing rooms and latrines, offices for
production supervisions and foremen, quality control unit ( 480 sq. meters ) , and
administration building(240 sq. meters ) which will incorporate offices for management
staff. Other social buildings (280 sq. meters) (canteen, assembly hall, etc) can also be
required. Land will also be secured for future expunction of the plant. Consequently, it is

pg. 20
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

proposed that 20,000m2 of land is needed for a broom and brush manufacturing plant. Of
the total land requirement, 10,000 sq. meters will be an expansion built-up area. At the
rate of Birr 5000 per m2, the building cost will be Birr 50,000,000.00

According to the Federal Legislation on the Lease Holding expansion of Urban Land
(Proclamation No 272/2002) in principle, urban land permit by the lease is on an auction
or negotiation basis, however, the time and condition of applying the proclamation shall
be determined by the concerned regional or Mekelle city government depending on the
level of development.

The legislation has also set the maximum on the lease period and the payment of lease
prices. The lease period ranges from 50 years. Moreover, advance payment of lease
based on the type of investment ranges from 20% to 30%.The lease price is payable after
the grace period annually. Those who pay the entire amount of the lease will receive
0.5% discount from the total lease value and those who pay in installments will be
charged interest based on the prevailing interest rate of banks

Accordingly, the total lease cost, for 50 years with the cost of Birr 2000 per m 2, is
estimated at Birr 40 million of which 20% or Birr 8 million will be paid in advance. The
remaining Birr 39.2 million will be paid in equal instalments within 50 years, i.e., Birr
784,000 annually.

8 MANPOWER AND TRAINING REQUIREMENTS

8.1 MANPOWER REQUIREMENTS

pg. 21
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

The envisaged plant requires both skilled production workers and administrative staff.
The details of manpower and monthly and annual salaries are given in the T

Table 6.1

MANPOWER REQUIREMENTS AND RELATED SALARIES

Monthly
Sr. Description Req. Salary (Birr) Annual Salary (Birr)

No. No.

A. ADIMINISTRATION

1 Plant manager 1 18,000.00 216,000.00

2 Secretary 1 7,200.00 86,400.00

3 Salesman 1 9,000.00 108,000.00

4 Accountant 1 9,000.00 108,000.00

5 Store keeper 1 4,800.00 57,600.00

6 Casher 1 5,200.00 62,400.00

7 Guard 2 4,200.00 100,800.00

B. PRODUCTION -

1 Production head 1 10,000.00 120,000.00

2 Skilled worker 14 7,200.00 1,209,600.00

3 Unskilled Labor 80 3,600.00 3,456,000.00

4 Technician 4 4,800.00 230,400.00

Sub-Total 107 83,000.00 5,755,200.00

Workers’ Benefit(25% BS) - - 1,438,800.00

Total 107 7,194,000.00

8.2 TRAINING REQUIREMENT

pg. 22
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

The production of brushes and booms is not a complicated process. It requires operational
know-how related to woodworking industries. Thus, training operators and technicians
could be handled by making arrangements in one of the local woodworking industries.
The cost of such training is estimated at Birr4 20,000.

9 FINANCIAL ANALYSIS

The financial analysis of the broom and brush 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

Loan period 5 years

Bank interest 12.5%

Discount cash flow 12.5%

Accounts receivable 30 days

Raw material local 30 days

Raw Material import 90 days

Finished products 30 days

Work in progress 1 day

pg. 23
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

Cash in hand 5 days

Accounts payable 30 days

Depreciation building 5% , machinery 10% and furniture 20%

Tax rate 30%

9.1 TOTAL INITIAL INVESTMENT COST


The project's total investment cost including working capital is estimated at Birr 97.6
million, of which 30% will be financed by equity and 70% will be finance by loan.

The major breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1

INITIAL INVESTMENT COST ( ‘ 000 Birr)

S Cost Items Local Foreign Total


r.

N Cost Cost Cost


o.
1 Land lease value 8,000,000.00 - 8,000,000.00
2 Building and Civil 50,000,000.00 - 50,000,000.00
Work
3 Plant Machinery and 33,711,00 33,711,000.00
Equipment 0.00
4 Office Furniture and 1,750,000 - 1,750,000
Equipment
7 Working Capital -
4,185,550.00 4,185,550.00

pg. 24
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

Total Investment cost 63,935,550.00 33,711,00 97,646,550.00


0.00

9.2 PRODUCTION COST

The working capital requirement at full operation capacity is estimated at Birr 15.6
million (see Table 7.2). The raw material cost accounts for 26.75 per cent of the total.
The other major components of the working capital requirements are salary, maintenance
and service and others

Table 7.2

ANNUAL WORKING CAPITAL AT FULL CAPACITY ('000 BIRR)

raw material 4,184,000.00 26.75

salary 7,194,000.00 46.00

utility 75,162.00 0.48

maintenance and service 4,185,550.00 26.76


Total 100.00

pg. 25
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

15,638,712.00

9.3 FINANCIAL EVALUATION

9.3.1 Key Steps: to calculate and analyze profitability


1. Revenue: Based on a sales price of $250 per unit and annual production of
250,000 units.
2. Costs:
o Production costs from the data.
o Depreciation:
 Building: 5% annually.
 Machinery: 10% annually.
 Furniture: 20% annually.
o Tax: 30% on profit before tax.
3. Loan Interest: Calculated on 70% of the total investment ($97,646,550 x 70%) at
12.5% interest over 5 year

Here is the Table 5-Year Income Statement summary:

Year Revenue Operating Depreciation Interest Profit Tax Net Profit


Costs Expense Before
Tax
1 62,500,000 21,859,812 6,221,100 8,544,073 32,096,115 9,628,834 22,467,281
2 62,500,000 21,859,812 6,221,100 6,835,258 33,804,930 10,141,479 23,663,451
3 62,500,000 21,859,812 6,221,100 5,126,444 35,513,744 10,654,123 24,859,622
4 62,500,000 21,859,812 6,221,100 3,417,629 37,222,559 11,166,768 26,055,790
5 62,500,000 21,859,812 6,221,100 1,708,815 38,931,373 11,679,412 27,251,961

Key Observations:

pg. 26
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

1. Net Profit Growth: Net profit rises steadily due to declining interest expenses as
the loan is repaid.
2. Tax Impact: A 30% corporate tax reduces the profits significantly.
3. Operating Efficiency: Stable operating costs suggest efficient cost control.

Here is the Table 5-Year Balance Sheet summary:

Year Fixed Current Total Equity Current Loan Total


Assets Assets Assets Liabilities Liabilities Liabilities
1 79,239,900 6,636,589 85,876,489 51,761,250 1,285,374 54,682,068 55,967,442
2 73,018,800 6,636,589 79,655,389 75,424,701 1,285,374 41,011,551 42,296,925
3 66,797,700 6,636,589 73,434,289 100,284,323 1,285,374 27,341,034 28,626,408
4 60,576,600 6,636,589 67,213,189 126,340,113 1,285,374 13,670,517 14,955,891
5 54,355,500 6,636,589 60,992,089 153,592,074 1,285,374 0 1,285,374

9.3.2 Key Highlights:


1. Asset Decline: Fixed assets decline yearly due to depreciation, balanced by equity
growth.
2. Liability Reduction: Loan liabilities decrease yearly as repayments are made,
fully paid by Year 5.
3. Equity Growth: Retained profits cause a steady rise in equity.

9.3.3 Financial Ratio Analysis Summary


Year Net Profit ROA ROE Current Debt-to- Interest
Margin (%) (%) (%) Ratio Equity Coverage
Ratio Ratio
1 35.95 26.16 43.41 5.16 1.08 4.76
2 37.86 29.71 31.37 5.16 0.56 5.95
3 39.78 33.85 24.79 5.16 0.29 7.93
4 41.69 38.77 20.62 5.16 0.12 11.89
5 43.60 44.68 17.74 5.16 0.01 23.78

pg. 27
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

9.3.4 Key Insights


1. Profitability:
o Net Profit Margin improves yearly, reaching 43.6% in Year 5 due to
declining interest expenses.
o Return on Assets (ROA) and Return on Equity (ROE) consistently rise,
indicating improved efficiency in asset and equity usage.
2. Liquidity:
o Current Ratio remains strong at 5.16, indicating ample current assets to
cover liabilities.
3. Solvency:
o Debt-to-Equity Ratio drops significantly (from 1.08 to 0.01), showcasing
reduced leverage as loans are repaid.
o Interest Coverage Ratio improves from 4.76 to 23.78, indicating a
growing ability to cover interest obligations.
9.3.5 Narratives for Interpretation
 Financial Health: The business is highly profitable and financially stable by Year
5, supported by efficient asset management and low leverage.
 Profit Growth: Rising net margins reflect both operational efficiency and
reduced financial burden.
 Risk Profile: Reduced debt significantly lowers financial risk, making the
business attractive to investors.
9.3.6 Expanded Analysis

1. Profitability Analysis

Profitability metrics, including Net Profit Margin (NPM), Return on Assets (ROA),
and Return on Equity (ROE), show consistent growth over the 5 years:

 Net Profit Margin rises from 35.95% in Year 1 to 43.6% in Year 5. This is
largely due to:
o Declining interest expenses as loans are repaid.

o Stable operating costs and growing revenues, indicating improved


operational efficiency.
o No significant increase in depreciation costs.
 ROA and ROE improve significantly:

pg. 28
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

o ROA (44.68% by Year 5) reflects increasing profitability relative to total


assets, signaling efficient use of resources.
o ROE decreases slightly (from 43.41% in Year 1 to 17.74% in Year 5), as
retained earnings significantly grow equity. While this indicates lower
leverage, it also highlights the need to reinvest excess capital into
expansion or diversification.

2. Liquidity and Working Capital

The Current Ratio of 5.16 throughout the 5 years suggests robust liquidity:

 The business has more than 5 times its current liabilities covered by current
assets.
 Sufficient working capital reduces the risk of short-term financial distress.
 Accounts receivable, inventory turnover, and cash-in-hand assumptions (5–30
days) provide strong liquidity management, allowing smooth operations.

However, maintaining such high liquidity could lead to underutilized capital. The
business may consider reinvesting excess liquidity into growth opportunities, such as
production capacity expansion or vertical integration.

3. Solvency and Risk

The Debt-to-Equity Ratio declines sharply over 5 years (from 1.08 in Year 1 to 0.01 in
Year 5), highlighting significant de-leveraging:

 By Year 5, all loans are fully repaid, reducing financial risk and interest expenses.
 A low leverage ratio makes the company attractive to investors due to the reduced
financial burden.
 Interest Coverage Ratio improves drastically, from 4.76 in Year 1 to 23.78 in
Year 5, showing the ability to cover interest costs more than adequately. This
allows the business to reinvest earnings into value-added activities.

While the reduced debt profile minimizes risk, it also reduces the tax shield that debt
provides. Future decisions should balance equity and debt to optimize financial leverage.

4. Forecasts and Strategic Recommendations

 Expansion Opportunities: With increasing profitability and strong cash flows,


the business can explore new revenue streams, such as expanding into related
products (e.g., advanced cleaning equipment) or new markets.

pg. 29
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

 Leverage Optimization: The business could reintroduce moderate debt to


finance long-term growth, benefiting from tax advantages while retaining
flexibility.
 Investor Attraction: Strong profitability and a low-risk profile position the
company as a prime candidate for equity investors, especially for scaling
operations.
 Operational Investments: Reinvesting in technology, process automation, or
R&D could enhance efficiency and reduce costs further.

Payback Period

The pay back period, also called pay – off period is defined as the period required to
recover 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 6 years.

Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater

pg. 30
PROPOSAL FOR MOP, BROOM AND BRUSH MANFACTURING

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 porject is computed to be 37.63 %
indicating the vaiability 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
principal a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 12.5% discount rate is found to be
Birr 3.82 million which is acceptable.

9.4 ECONOMIC BENEFITS

The project can create employment for 107 persons. In addition to supply of the
domestic needs, the project will generate Birr 236 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 has a backward linkage effect with the wood
processing industry.

pg. 31

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