Investment Office ANRS

Project Profile on the Establishment of

Electrical Dividers and Other Accessories
Making Plant

Development Studies Associates (DSA)

October 2016
32

Bahir Dar
 49. Executive Summary
This project profile deals with the establishment of Electrical Dividers and other Accessories making
plant in Amhara National Regional State. The following presents the main findings of the study

Demand projection divulges that the domestic demand for the proposed products is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 400 thousand pieces annually. The
total investment cost of the project including working capital is estimated at Birr 6.33 million and creates
32 job opportunity and Birr 1,040,154 of income

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 18.1% of capacity utilization and it will payback fully
the initial investment less working capital in 1 year and 10 months time. The result further show that the
calculated IRR of the project is 40.1% and the net present value at 18 % discount is Birr 5,073,484.60.

In addition to this, the proposed project possesses wide range of economic and social benefits such as
increasing the level of investment, tax revenue, employment creation and import substitution

Generally’ the project is technically feasible, financially and commercially viable as well as socially and
economically acceptable. Hence the project is worth implementing.

2. INTRODUCTION
The technological and economic development of a society is closely connected with the electric
system such as Electrical Dividers, other Accessories and Assembling transformer plant and its
supplies.. However, there exist very few producers for these products. In addition, the nation is
almost pure importer for those products .Besides, the Electrical Dividers and other Accessories
assembly of transformer is constantly faced with new challenges. In order to meet these
challenges it required machinery, tooling, accessories, ancillary equipment and services that are
as efficient as possible in their utilization of energy and raw materials , and which produce as
little waste as possible during startup and production.

The government of Ethiopia has developed a conducive investment policy packages and other
sect oral reforms at federal and regional level to attract a huge private investment for the well
being of the nation and its citizens as a whole. Moreover, it is also implementing the five years
development plan that gave a space for industrialization.
Because of the market potentials and incentives, the promoter of the envisaged factory planned
to invest in Gurage zone, special zone, cheha wereda to assemble electrical transformer
producing of Electrical Dividers and other Accessories.
Therefore, the promoter is very motivated to establish this factory by believing to get the
required support from regional government by considering the multi-benefits of the project.

50. Product Description and Application

Assembling of Electrical transformer , Electrical dividers and other accessories such as switches and
plugs are essential for the proper and economic utilization of electric energy in the provision of light, heat
and power for homes, factories, offices, hospitals, shops, transport facilities, etc. Basically the products
are made of electric conductive and non-conductive materials. The items serve mainly in building
construction sector and business premises for supply and control of electric power.

2. Market Study, Plant Capacity and Production

Program
3.111 Market Study
3.111.1 Present Demand and Supply

Currently there are no units that produce electrical dividers and other accessories in the country so that the
whole domestic demand is met through import from abroad. Nonetheless, since the import data
documented by the Customs Authority aggregates these electrical parts with other related apparatus, exact
effective demand could not be established. Therefore, to estimate the present demand of these items a
proxy approach is used.

The market for Transformer, electric dividers and other accessories such as switches and plugs primarily
consists of households, offices and other commercial buildings. As the Housing and Population Census
conducted in June 2007 has not yet publicized, there is no exact and recent figure that details the number
and condition of residential houses in the urban part of the country. But, according to CSA, Annual
Abstract (2008), the number of people living in the urban areas has reached 13.2 million. Therefore,
taking average family size of 5 people, we observe that there are 2.64 million families or houses in the
urban part of the country. On the other hand, according to CSA, Report on Census of Economic
Establishments (2005), there are 232,179 manufacturing firms, 291,591 wholesale and retail businesses
and 71,213 hotels and restaurants throughout the country. In general there are 3,234,983 establishments
that potentially demand the electrical dividers and other accessories stated earlier.

If we fairly assume that 20 percent of the establishment purchases two electrical accessories per year due
to replacement and expansion reasons, the annual requirement would reach to about 1,293,993 units. This
conservative figure suggests the presence of ample demand that needs to be met through local production.
 3.111.2 Projected Demand

The future demand for electrical divider and other accessories is expected to rise due to an expansion that
will take place in the construction sector and the business activity in the country. For example a study
conducted by PACO/WASS in 1995 revealed that the yearly requirement of new residential building units
is estimated to be 22,000 for Addis Ababa and 121,000 for other urban towns of the country. In other
words, the study shows that an annual demand for dwelling units in the urban Ethiopia amounts to
144,100 units. If we conservatively assume that one-fourth of this requirement will be realized, the future
annual effective demand for residential buildings alone amounts to 36,025 units. Similarly, the country is
experiencing a construction boom in business complexes, hotels and restaurants that positively and
massively contribute to the demand for various electrical accessories. Therefore, with proper marketing
and customer oriented production, it is possible to attract a sizable amount of the future demand for the
product.

2.3. Location, Infrastructure and land

A. Location

The proposed plant location will be in Gurage zonal State,

Gurage Zone Surrounding the Centeral Ethiopia ' Region

Gurage is a zone in the Centeral Ethiopia ' Region of Ethiopia. The region is home to the Gurage
people. Gurage is bordered on the southeast by Hadiya and Yem special woreda, on the west, north and
east by the Oromia Region, and on the southeast by Silt'e. Its highest point is Mount Gurage. Welkite is
the administrative centre of the Region; Butajira is the largest city in this zone and the former
administrative centre.

AREA LOCATION; Gurage zone

Excellent weather conditions that demand neither cooling in summer nor heating in
winter; Absence of vector-born tropical diseases;

Highest level of safety

 Low rate of inflation and low cost of
living; World class hotels and conference
canters;

The availability of air connections to any part of the world from Bole International
Airport; International solidarity-oriented and friendly inhabitants.

Availability of health and educational services i.e. public and private clinics, health centers
and hospitals; and private kindergartens, primary and secondary schools; and colleges and
universities of adequate standard.

The main justifications behind the selection of this location are;

Strategically located to the central and largest market of the nation (Addis Ababa)
Relatively advanced development in infrastructure (Power, Water and Electric,
Telephone internet, road etc.
All asphalt road to the nearest market outlets
Availability of huge skilled labour force
Conducive investment policy and
governance Environmentally fit to
manufacturing industry
Environmentally fit to High-density polyethylene Water and Electric and sewer pipe
manufacturing
Gurage zone Administration has adequate infrastructure such as, Electric power to run the
plant, telephone, schools, hospitals, etc
Skilled employee’s availability

Proximity to market access to all Addis Ababa City and other regions of the country
2.4. LAND PREMISES

The project holds two distinct lands the first one is the land where the Electric wire and
producing of Electrical Dividers and other Accessories . is available and watching machine
manufacturing Part of the project. On the other hand the project also acquired 2 hectare of land
which is suitable for building and civil works, traffic movement, sales outlet, green area, guest
houses etc
 . The following table shows the land use plan of the project.
a. Land allocation table
No. Description Unit Total Area
2
1 Electronic Home Appliance Assemble plant hall M 17,550
2
2 Raw material store M 4,500

3 Quality control and standardization area M2 1,200

2
4 Finished Product storage hall M 1,500
2
5 Offices and sales outlet M 1,500
2
6 Cafeteria Service M 1,500
2
7 Waste disposal accumulation and Recycling M 600
2
8 Parking and green area and Fence M 1,500

9 Guard’s Post at two point M2 150

2 2
Total M 30,000 M

3.111.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price is set to be

I. Birr 5 for a three side divider (wireless)

J. Birr 31 for a three side divider (with 3 meters wire and plug)

K. Birr 10 for normal switches

In distributing the product the envisaged plant shall make use of the available retail and wholesale
network.

3.112 Plant Capacity

In consideration of the expected demand for the electrical accessories as presented earlier, and the
planned technology, the envisaged plant is set to produce 400,000 pieces annually. Of this the production
of wireless divider will be 50,000 while it is 100,000 for switches. The rest 250,000 will be allocated for
the three side divider (with 3 meters wire and plug). All items shall have a capacity of 10A and 250V.

3.113 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days in a
year in 1 shift, where the remaining days will be holidays and for maintenance. During the first year of
operation the plant will operate at 60 percent capacity and then it grows to 75 percent in the 2 nd year and
90 percent in the 3rd year. The capacity will grow to 100 percent starting from the 4 rd year. This
consideration is developed based on the assumption that there is ample demand for the product and
market as well as logistics barriers would be eliminated gradually within the first three years of operation.

52. Raw Materials and Utilities

64.1 Availability and Source of Raw Materials
Basically the manufacturing of electrical divider and other accessories requires plastic (Bakelite),
metal/brass parts, screws and nuts. All these raw materials are imported from abroad. The following is a
brief description of these raw materials.

Bakelite: This is a type of plastic that can easily be heated and molded into different products and offers
wide range of color options.

Brass/Metal Parts: All electric goods use metal parts. Metal parts are normally made of brass because of
its elasticity and electric conductivity.

Pins and Pipes: Metallic pins and pipes are also used for external electricity connection

Screws & Nuts: Majority of the electric fittings are composed of more than one individual part. Screws
and nuts are used for assembling and joining different parts of a product.

Springs: Springs are other important materials used in the assembly of electric switches

64.2 Annual Requirement and Cost of Raw Materials and

Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is listed in
table 1 here under

Table 1: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Bakelite 20 ton - 769,800

Brass 15 ton - 461,880

Round Pins 600,000 pcs - 153,960

Pipes 1,800,000 pcs - 1,154,700

 Screw, Nuts and Springs 3.5 ton - 192,450

Electric wire 750,000 mt 1,026,400 -

Total Material Cost 1,026,400 2,732,790

Utility
Electricity 125,000 kwh 68750

Water 3000 m3 7950

Total Utility Cost 76700

Thus, the full capacity of material and utility requirement is estimated to be Birr 3,912,590 per annum.

65 Location and Site

The appropriate locations for the envisaged project in view of the availability of input, infrastructure as
well as market for the output are major industrial towns of the region mainly Bahir Dar and Combolcha.

66 Technology and Engineering

66.1 Production Process
The manufacturing process is made up of the plastic molting stage, machining stage, the galvanizing and
assembly stage. In the first stage manually operated hydraulic presses are used to mold heated plastic
material into different components of electric fittings. The press has arrangements of two burners, one
placed below the mould and other on top. Once the plastic is poured into the mould, burners are switched
on and the press is locked manually. Each product takes specific amount of time to take the desired shape
and strength. Once the plastic product takes its final shape, the press is lifted and the finished product is
taken out. In the machining stage, the metal parts are prepared by punching, lathing, and spring machines
for further processing in the galvanizing stage, from where the semi-finished products pass to the
assembly stage. In the assembly stage, the semi-finished products are put together to become finished
electric dividers and other accessories.

The alternative production process requires the use of injection molding in the manufacturing process
where molten plastic is injected into the mold which later is opened after cooling process. Nonetheless,
pressure molding is widely used now-a-days owing to the simple operation of the system and relatively
lower cost

Assembly processes
 Solder paste printing
 Component insertion
 SM component placement
 Intrusive reflow
 Wave soldering
 Selective machine soldering
 Repair and rework
 ICT fixtures
Solder paste printing Printer operation
The printing cycle
As well as the stencil printing process described above, a printer must be able to carry out
several other operations to complete the print cycle, which comprises:
 Transport and mounting.
 Alignment (stencil to board).
 The printing process.
 Inspection of solder paste deposits (optional).
 Cleaning of the underside of the stencil (after some cycles).
 The complete operation 'cycle time' is important in determining the throughput and
capacity of a surface mount line. To avoid inspection adding to the cycle time, it is often
carried out as an off-line operation, or using a separate work-station.
The description given below is of a printer integrated into a production line, but the comments
made about board mounting, alignment and cleaning requirements apply generally. Note that
there are many variations in the way mounting, alignment and cleaning are implemented, and
that stand-alone printers will also handle boards manually rather than automatically.

Manual adjustment has now largely been replaced by vision systems using a CCD camera to
image fiducial marks on the board. A number of different shapes of fiducial have been used in
the past, although the industry tends now to use a solid filled circle between lmm and 3mm in
diameter.
Temperature control
If possible, temperature should be kept constant within close limits: 2l°C ±2°C is a typical
specification. This is primarily in order to avoid any effect on the process resulting from
changes with temperature in the viscosity of the solder paste, but also helps keep alignment
consistent by maintaining constant stencil dimensions.

Stencil cleaning
Stencil cleaning is a low-technology part of the printing process but is nevertheless vital.
Cleaning is required both at the end of a run when the stencil is removed from the printer, and it
is necessary to remove all accumulations of solder paste from the apertures and the stencil
surfaces before the deposits harden, and also in-process.

3.9. Marketing Strategy and promotion

The company will use the following promotional mix:

A. Website Development
The use of the internet is essential in providing information and access to the company’s electric
home appliance products. A fully functioning site will be developed that will enable perspective
clients to see the company products and samples online.

B. Advertising
Advertising is used primarily to attract new clients to build awareness and recognition to the
company products. There will be different advertisement packages to this company like
Provide brochures and fliers,
Periodic advertising in target market area through
newspapers/Magazines Yellow pages example telephone directory
Media advertisement
C. Public Relations
Develop frequent contact to prospective target client is essential to promote, update and remind
the company products.
D. Branding
All documents and information placed into the public hands are to have a consistent look and
feel that highlights the best product quality and fair price of the company. The branding should
leave the impression of quality products.
The main marketing strategy of the company is to produce most wanted electric divider and
switch
66.2 Machinery and Equipment
The machineries and equipment required for producing electrical divider and other accessories is
detailed in table 2 below

Table 2: Machinery and Equipment

Machinery and Equipment Quantity

Molding Presses 6
 Automatic Eccentric Press 1

Bending Presses 5

Drill Machine 2

Molding, Cutting & Bending Dies 60

Lathe Machine 2

Trimming Machine 2

Drill Machine 1

Milling Machine 1

Grinder 1

The, total cost of machinery and equipment including freight insurance and bank cost is estimated to be
about Birr 1,283,000.

6.4 Building and civil work

The proposed plant requires a total land area of 30000m 2. The building includes production hall,
warehouses both for raw material and finished products, design and pattern making room, product
display room, canteen both for workers and staffs, toilet and shower/wash room, security room,
offices and other facilities. The total floor space of the buildings will cover total area of17250m 2 The
total estimated cost of building is Birr 13,400,000.00.

The lease period for the land is 45years on average, and the payment of lease prices is s. The land
lease rate of Birr 2300 /hec/year is adopted, which is the minimum lease rate in region 1 st grade .
Accordingly, the total lease cost of Birr 6,900, annually.

A. Building & Construction

SN Description Land Unit cost in br. Total cost in

2 br.
Requirement(M )
1 Production workshop 3,000.00 2,000.0 6,000,000.00
2 Raw Materials & Input 2,000.00 1,800.0 0
3,6000,000.0
3 Finished Goods 2,500.00 1,900.0 4,750,000.00
Warehouse 0
4 Office Building (G+1) 500.00 2,200.0 2,200,000.00
5 Waste Accumulation area 400.00 500.0 600,000.00
6 Green Area, Parking, 3,100.00 300.0 210,000.00
Road and Buffer Zone 0
7 Fence and others - 350,000.00
8 Site Development 150,000.00
9 Design and Supervision 700,000.00
 10 Land lease initial 10%&1yr payt 1,584,843.75
by
18.75 birr /M2
Total 20,144,843.7

1.1. Office furniture and Equipment

These are the items used both at the factory office for the proper handling and documentation of
company’s property and appropriately serve the stake holders of the business such as staffs,
customers, suppliers and overall business activity of the plant to have a better cost and quality
advantage over competitors. With this in mind the following office materials are planned to be
acquired at the early establishment age of the business.
D. Office Equipment
SN Description Qty Unit cost in br. Total cost in br.
1 Managerial Tables with chair 6 10,500.00 63,000
2 Secretarial chairs 3 5,500.00 16,500
3 Office tables 18 2,500.00 45,000
4 Office Chairs 30 2,000.00 60,000
5 Computer with its printer 14 15,000.00 210000
6 Shelf 7 6,500.00 45,500
7 Telephone and Fax machine 2 2,000.00 4,000
8 Filing Cabinets 2 3,000.00 6,000
9 Decoration (Curtain, Sofa & 15 110,000
Carpet)
10 Assembly set 1 50,000
11 Other miscellaneous products 100,000
Total 700,000

1.1. Vehicles
To attain smooth and efficient operation the project will purchase different types of vehicles at
the cost of Birr 4,800,000.00. The following table depicts the situation.

SN Description Qty Unit Price in br. Total Price in br. Remark

1 Bus for service 2 1,500,000.00 2,300,000.00 Duty free

2 FSR Isuze Truck 1 1,200,000.00 1,200,000.00 Duty free

3 Minibus 1 600,000.00 600,000.00 Duty free

4 Pick up 1 700,000.00 700,000.00 Duty free

Total 5 4,800,000.00
 66.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 550m 2 where 250m2 is allocated to the
production place and the remaining space is left for stores (200m2), office buildings and facilities
(100m2).

67 Human Resource and Training Requirement

67.1 Human Resource
The list of required manpower for the envisaged plant is stated in table 3 below

Table 3: Human Resource Requirement

Table 7.1 Man power Requirement and annual salary

S/N Description No Monthly salary Annual salary
1 Factory Manager 1 10,000.00 120,000.00
2 Executive Secretary 1 3,000.00 36,000.00
3 Departmental Secretaries 4 10,000.00 120,000.00
4 Departmental Clerks 5 5,000.00 60,000.00
5 Production and Tech Manager 1 7,500.00 90,000.00
6 Production Head 1 5,000.00 60,000.00
7 Technical Head 1 5000.00 60,000.00
8 Quality Head 1 5,000.00 60,000.00
9 Production supervisor 9 31,500.00 378,000.00
11 Quality Control supervisor 4 14,000.00 168,000.00
12 Mechanical maintenance supervisor 1 3,500.00 42,000.00
13 Electrical maintenance Supervisor 1 3,500.00 42,000.00
14 Quality Inspectors 11 11,000.00 132,000.00
15 Mechanic 4 5,200.00 62,400.00
16 Electrician 3 3,900.00 46,800.00
17 Marketing Manager 1 7,500.00 90,000.00
18 Sales person 2 5,000.00 60,000.00
19 Administration manager 1 7,500.00 90,000.00
20 General service personnel 1 2,500.00 30,000.00
21 HR Personnel 1 2,500.00 30,000.00
22 Nurse 2 4,000.00 48,000.00
23 Guard 8 6,400.00 76,800.00
24 Messengers 3 1,800.00 21,600.00
25 Driver 3 3,000.00 36,000.00
26 Cleaner 5 3,000.00 36,000.00
27 Financial manager 1 7,500.00 90,000.00
28 Accountant 2 7,000.00 84,000.00
29 Cashier 1 1,500.00 18,000.00
30 Purchasers 2 3,000.00 36,000.00
 31 Store Keepers 2 3,000.00 36,000.00
2,194,086.00
Sub Total 83

The envisaged plant creates 83 job opportunity and about Birr 2.194 million of income. The professionals
and support staffs for the envisaged plant shall be recruited from region

67.2 Training Requirement

Training of key personnel shall be conducted in collaboration with the suppliers of the plant machineries.
The training should primarily focuses on the production technology and machinery maintenance and
trouble shooting. Birr 64,150 will be allocated as training expense.

Hence the following section deals with the duties and responsibilities of some departments.

A. Manager Duties and responsibilities

 She/he will plan, organize, direct and control the overall activities of the plant
 She/he will devise policies and strategies that will enable the plant to be profitable.
 She/he will incorporate modern technological innovation that will facilitate the service
delivery of the project center and increase customer’s satisfaction.
 She/he will plan, organize, direct and control the human and non-human resources of the
plant so as to achieve the short and long run objectives of the organization.
B. The Manufacturing Department Duties and Responsibilities:
It is the core department of the project center it has two main sections (Assembly and
Inspection) and has the following responsibilities.
 Designs and prepared prototypes of TV, Radio, Refrigerator, Oven and Stove based on
the plant standard and customer preferences.
 Use modern Repairs and processing technologies that will enhance the quality of
refrigerator, oven and stove.
 Produce quality product that will enable the center competent both in the domestic and
international market.
 U s e appropriate technology to manage maintenance of its products.
 Control on the quality of raw materials, inputs, quality of the product and also the
overall production process.
 Produce products in least cost so that the profitability of the center is guaranteed.
 Moreover control over the quality of the final products.
C. Administration and Finance Department
It has two main sections, I.e Administration and HRM section and Finance section
D. Administration and HRM Duties and responsibilities:
  Will control the human and non human resources of the plant, which include: effective
handling of the different inventories of the machineries, equipments, raw materials,
finished products, and devise strategies of controlling against fraud and damage.
 Administer and control the company logistic resource
 Provide and manage general supportive service to the plant.
E. Finance section Duties and responsibilities:

 Will develop sound financial control system by developing modern financial control
systems.
 Will prepare the annual financial statements and prepare condensed reports for the
general manager, owner and other concerned government body.
 Manage and execute the company national and international procurement procedure

F. Marketing and Sales Department

It has two main sections, i.e Marketing and Sales section and Finance section with the
following duties and responsibilities
 Will handle the overall marketing activities of the organization which include planning,
organizing, directing, and controlling.
 Provide cost estimates in preparation for securing the profitability of the factory.
 Gather information on new product design, type and profile
 Approval of new products profile & brand plan analyzes market research
 Plan and execute sales.
 Will develop effective customer handling strategies
 Will develop the marketing strategies for future project center’s development.
 Conduct both foreign and domestic market research for expanding the sales of the
company.

68 Financial Analysis
68.1 Underlying Assumption
The financial analysis of electrical divider and other accessories manufacturing plant is based on the data
provided in the preceding chapters and the following assumptions.

KKKKK. Construction and Finance

Construction period 2 year

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 fixed investment

LLLLL. Depreciation

Building 5%

Machinery and equipment 10%

Office furniture 10%

Vehicles 20%

Pre-production (amortization) 20%

II. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30

Raw Material-Foreign 120

Factory Supplies in Stock 30

Spare Parts in Stock and Maintenance 30

Work in Progress 10

Finished Products 15

Accounts Receivable 30

Cash in Hand 30

Accounts Payable 30

68.2 Investment

The total investment cost of the project including working capital is estimated at Birr 6.35 million as
shown in table 4 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 4: Total initial investment

Items L.C F.C Total

Land 1,650 1,650

Building and civil works 2,822,600 - 2,822,600

Office equipment 128,300 - 128,300

 Vehicles

Plant machinery & equipment 1,283,000 1,283,000

Total fixed investment cost 2,952,550 1,283,000 4,233,900

Pre production capital expenditure* 211,908 - 211,908

Total initial investment 3,164,458 1,283,000 4,445,808

Working capital at full capacity 712,468 1,192,489 1,904,957

Total 3,876,926 2,475,489 6,350,765

*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 for 39% of the total investment cost.

68.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 5.71 million as detailed in table 5
below.

Table 5: Production Cost

Items Cost
91. Raw materials 3,759,190

92. Utilities 76,700

93. Wages and Salaries 1,040,154

94. Spares and Maintenance 127,145

Factory costs 5,003,189

95. Depreciation 324,643

96. Financial costs 381,300

Total Production Cost 5,709,132

68.4 Financial evaluation

CCXXIX. Profitability

According to the projected income statement attached in the annex part (see annex 4) the project will
generate profit beginning from the first year of operation. Ratios such as the percentage of net profit to
total sales, return on equity and return on total investment are 19%, 40% and 36% in the first year and are
gradually rising. Furthermore, the income statement and other profitability indicators show that the
project is viable.

CCXXX. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.

Accordingly, the project will break even at 18.1% of capacity utilization.

CCXXXI. Payback Period

Investment cost and income statement projection are used in estimating the project payback period. The
projects will payback fully the initial investment less working capital in 1 year and 10 months of
operation.

CCXXXII. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 40.3%

CCXXXIII. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is 40.1% and
the net present value at 18 % discount is Birr 5,073,484.60.

CCXXXIV. Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant maintains to be
profitable starting from the first year when 10 % cost increment takes place in the sector. This result is
accompanied with payback period of 2 years.

69 Economic and Social Benefit and Justification

The envisaged project possesses wide range of other benefits which it promotes the socio-economic goals
and objectives stated in the strategic plan of the Amhara National Regional State. It also plays positive
role in diversifying the economic activity by enhancing the industrial sector of the region. The other
major benefits are listed as follows:

IIIIIIII. Profit Generation

The project is found to be financially viable and earns on average a profit of Birr 22.14 million within the
project life. Such result induces the project promoters to reinvest the profit which, therefore, increases the
investment magnitude in the region.

III. Tax Revenue

In the project life under consideration, the region will collect about Birr 8.13 million 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
 V. Import Substitution and Foreign Exchange Saving
Based on the projected figure we learn that in the project life an estimated amount of US Dollar 8.2
Million 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

 Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the region. That
is, it will provide permanent employment to 32 professionals as well as support stuffs. Consequently the
project creates income of Birr 10.4 million per year. This would be one of the commendable
accomplishments of the project.

6) Pro Environment Project

The proposed production process is environment friendly.