92. PROFILE ON WHITE AND BLACK BOARD

TABLE OF CONTENTS

PAGE

I. SUMMARY 92-3

II. PRODUCT DESCRIPTION & APPLICATION 92-3

III. MARKET STUDY AND PLANT CAPACITY 92-4

A. MARKET STUDY 92-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 92-9

IV. MATERIALS AND INPUTS 92-10

A. RAW AND AUXILIARY MATERIALS 92-10

B. UTILITIES 92-12

V. TECHNOLOGY & ENGINEERING 92-12

A. TECHNOLOGY 92-12

B. ENGINEERING 92-13

VI. MANPOWER & TRAINING REQUIREMENT 92-16

A. MANPOWER REQUIREMENT 92-16

B. TRAINING REQUIREMENT 92-17

VII. FINANCIAL ANALYSIS 92-18

A. TOTAL INITIAL INVESTMENT COST 92-18

B. PRODUCTION COST 92-19

C. FINANCIAL EVALUATION 92-20

D. ECONOMIC BENEFITS 92-21

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I. SUMMARY

This profile envisages the establishment of a plant for the production of white and black

boards with a capacity of 5,000 m2 white and 4,500 m2 black boards per annum.

The present demand for the proposed products is estimated at 6,217 pieces for white

boards and 18,095 pieces for blackboards per annum. The demand is expected to reach at

7,502 pieces for white boards and 42,727 pieces for blackboards by the year 2020.

The total investment requirement is estimated at about Birr 2.45 million, out of which Birr

143.70 thousand is required for plant and machinery. The plant will create employment

opportunities for 18 persons.

The project is financially viable with an internal rate of return (IRR) of 19.63 % and a net

present value (NPV) of Birr 1.32 million, discounted at 8.5%.

II . PRODUCT DESCRIPTION AND APPLICATION

White Boards are writing boards whose surfaces are made of smooth and usually white and

hard surfaced. They are used as a writing surface for water markers of various colors which

can easily be wiped out. They can be rectangular or square in shape to be easily posted on

a wall surface or on a frame with stationary or wheeled pedestals.

White boards are a modern replacement to traditional black boards. They are utilized in

class rooms, seminars or any other public gathering places. Usage of markers instead of

chalks is suitable for avoiding dusting with white lime although it is more costly.

Black boards are traditionally known writing surfaces made of particle board with smooth

surfaces and mostly painted black color. They can be fixed on walls with different sizes for

fixed class rooms or lecture halls. They can also be mounted on pedestals as fixed or

wheeled stand. The writing material is mostly chalk. Black boards are manufactured in

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various sizes. The different sizes and models of white and black board is shown in Table

2.1.

Table 2.1

PRODUCT TYPE

Standard Size Types

White board Size1 - 1.20x2.40 Type1 - Wall mounted

Size2 - 1.20x1.20 Type2 - Pedestal mounted

Black board Size3 - 1.20x1.60 Type3 - " " +with wheels

Size4 - 0.60x0.60 Type4 - " " rotatable

Type5 - " " " + wheels

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

White and black boards are flat, usually rectangular, objects made of veneer wood, and

plywood materials and are fixed to walls in class rooms, or suspended on pedestals during

seminars, to write on, using ink markers or chalk.

The supply of the raw materials used to make black and white boards for writing is made

available to the Ethiopian market through imports with local manufacture doing the finishing

touch.

a. Supply of White Board

Supply of white board is through imports; and being made of veneered board, their import

quantity is lumped together with all veneered boards used for other furniture manufacture.

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According to information gathered from the Ethiopian Customs Authority, the category in

which the material for white board manufacture falls is the plywood, veneered or laminated

and less than 0.6 mm thick. The quantity of veneered /laminated wood imported form 1997 to

2006 is presented in Table 3.1.

Table 3.1

IMPORT OF VENEERED OR LAMINATED SHEETS OF PLYWOOD

Year Import (kg) Value (Birr)

1998 260,309 1,582,543

1999 302,912 1,089,756

2000 841,503 4,089,343

2001 2,462,502 7,817,265

2002 1,447,018 3,409,971

2003 1,690,419 3,940,769

2004 297231 1,797,101

2005 280,338 1,725,686

2006 90,816 728,526

Total 7,673,048 26,180,960

Source: Ethiopian Customs Authority: Annual External Trade Statistics, unpublished.

According to the same source, plywood sheets laminated with veneer more than 1 mm

thick are classified differently. More over, 3 to 4% of annual shipment of this type of

laminated plywood is suitable for white boards, since tint is the determining factor. Supply

of material for white board form 1998 to 2006, based on the information obtained at

Customs, was calculated, therefore, at 3.5% of average import of veneer laminated board

for the same period.

The average import quantity between 1998 and 2006 was 852,561 kilograms. Mean

average of imports for the same period is also calculated at 782,456kg. The variance is

8.2%. Plain white boards are afterwards cut, usually into one sq. meter sheets and framed

by local wood workshops.

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A close look of the above table reveals an upwards trend in import from 1998 to 2001; and

then except for 2002 to 2003, a down ward trend: upwards for the first four years, and then

downwards for the next four.

It can be conjectured from this fact that supply is now on the rise. Assuming a replication

of a similar trend, it can be estimated that current supply of veneer laminated board is

increasing at 16.36% as was recorded between 1998 and 1999; current supply is estimated

to have reached 1,044,721 kilograms.

With white boards constituting 3.5% the supply of veneered/laminated board less than

0.6mm thick, present supply of white board is computed at 29,840 kilograms. At 3.2kg per

square meter, present supply is 9,325 pieces of 1M2 white board.

b. Supply of Black Boards

Supply of black boards shares more or less similar features to white boards. They likewise are

not imported in their finished state. There is no specific data regarding the importation of

black boards in the external trade statistics data base. Direct import supply of black boards

can not be determined as a result. Supply from domestic sources is made available through its

manufacture in several medium–sized and small scale furniture workshops. Despite the highly

considerable volume of manufacture and a very wide distribution of black boards, no separate

public record is maintained for this product.

To estimate present supply, therefore the induction method, as was previously applied in the

case of white boards will be applied here.

Black boards are made from particle board sheets, and single layers of ply sheets. The

imported volume of these two categories of wooden sheets are presented in Table 3.2.

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Table 3.2

IMPORT OF PARTICLE BOARD AND PLY SHEETS, {KG}

Particle Board Ply wheets Total Imports

Year Quantity Value(Birr) Quantity Value (Birr) Quantity Value (Birr)

1997 1,315,168 2,867,255 136,380 898,385 1,451,548 3,765,640

1998 893,204 2,697,476 605,275 2,360,388 1,498,479 5,057,864

1999 555,323 1,274,975 205,591 1,241,958 1,760,914 2,516,933

2000 117,094 266,390 452,109 2,902,082 569,203 3,168,472

2001 90,495 324,831 - - 90,495 324,831

2002 14,674 75,252 7,172,148 32,891,054 7,186,822 32,966,306

2003 183,985 890,027 11,366,641 46,504994 11,550,626 47,395,021

2004 106,542 489,093 - - 106,542 489,093

2005 327,762 1,060,711 10,579,357 60,252,331 10,907,119 61,313,042

2006 907,861 3,995,415 14,503,353 82,782,331 15,411,214 86,777,746

Total 49,532,962 243,774,948

Source: Annual External Trade Statistics, unpublished

It must be noted that the bulk of these imports is for the building construction industry

whereby the sheets are used to erect wall partitions in office buildings. The second biggest

consumer of these two types of woods is the wooden furniture industry. It is estimated that

about 2% of these wooden sheets is used locally to make black boards.

Due to the erratic nature of the import data, the average of the last four years of imported

quantity is assumed to be the average annual supply of particle board and ply wooden sheets.

Accordingly, average annual supply of these materials is estimated at 9,498,875 kilograms.

At 2% share, the supply of particle board and ply sheets to be used for manufacture of

black boards is 189,976 kilograms. At 7.0 kg per 2m2 of black board, present supply

estimate of black boards stands at 27,140 pieces.

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Local furniture factories do not specialize in conversion of these semi processed inputs into

the finished product. Conversion capacity of these furniture factories is estimated at 1/3 of

the semi processed items they import. Output capacity of local wood workshops, is thus,

calculated at:

- 3,108 pieces of 1m2 white boards,

- 9,045 pieces of 2m2 black boards.

Supply gap is 6,217 pieces for white boards and 18,095 pieces for blackboards.

2. Projected Demand

The education sector is probably the only significant end user of black boards. The education

sector is growing at 3.8% rate every year. This is the rate applied to project future demand for

black boards. In addition to this, there is expected to be occurrences of wear and tear of black

boards already in use.

In Ethiopia today, according to information obtained from the Ministry of Education, there are

around 15,486 grades 1-8 schools and 672 grades 9-12 schools, with 113,345 and 10,290

sections respectively. Altogether, there are 123,635 sections; meaning that at least 123,635

black boards are in use. Assuming that it takes 10 years to replace a unit of blackboard,

replacement rate for the coming 10 years is, therefore, 10%; or 12,363 pieces per annum.

Government and private sector offices fix white boards to walls using them as schedule

boards for employees to see. Colleges prefer whiteboards to blackboards, thereby avoiding

having to use chalk. Training workshops and seminars use whiteboards for presentations.

Eqoubs use them to post weekly collection amounts.

Frequency of seminars and usage by Eqoubs is not expected to increase in the coming years.

The use of whiteboard for office program scheduling is, however, expected to increase at 5%

rate every year. Estimates based on information gathered among public and private, NGO, etc.

offices place demand by these institutions comprises only 2,330 pieces of the overall demand

of 9,325 pieces which is about 25% of total demand for whiteboards. Future demand for white

board is, therefore, expected to increase at 1.25% per annum.

Table 3.3 depicts the projected future demand for both white and black boards.

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Table 3.3

PROJECTED DEMAND FOR WHITE & BLACK BOARDS (Pieces)

YearProjected Demand for Black boards White Boards

New Demand

Replacement Demand

Existing Capacity

Supply Gap

Forecast Demand

Existing Capacity

Supply Gap

2009 28,171 12,365 9,045 31,491 9,446 3,108 6,3382010 29,242 12,365 9,045 32,562 9,569 3,108 6,4612011 30,350 12,365 9,045 33,670 9,693 3,108 6,5852012 31,506 12,365 9,045 34,826 9,819 3,108 6,7112013 32,703 12,365 9,045 36,023 9,947 3,108 6,8392014 33,946 12,365 9,045 37,266 10,076 3,108 6,9682015 35,236 12,365 9,045 38,556 10,207 3,108 7,0992016 36,575 12,365 9,045 39,895 10,340 3,108 7,2322017 37,965 12,365 9,045 41,285 10,474 3,108 7,3662018 39,407 12,365 9,045 42,727 10,610 3,108 7,502

3. Pricing and Distribution

Current market price for a sq. meter of white board is between Birr 480 to 600 at retail,

depending on quality, where as the retail price of a standard school type black board ranges

from Birr 85 – 120 a piece.

With a combined profit margin of 25% allowed to wholesalers and retailers, a manufacturer

should sell a white board for Birr 432 and a black board for Birr 82 a piece. White boards can

be distributed through whole sellers of stationery items whereas black boards have to be sold

ex-factory.

B. PLANT CAPACITY & PRODUCTION PROGRAMME

1. Plant Capacity

The annual production capacity of white and black boards of assorted types for the

envisaged plant is 5000 sq.mt.(3600pcs) of white board and 4500 sq. mt (3300pcs) of

black board . The plant will operate single shift of 8 hrs, 300 days per annum.

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2. Production Programme

The envisaged project will start production at 75% of its full capacity in the first year.

Then, it will build up to 85%, 95% and full capacity in the 2nd, 3rd and 4th year and then

after.

Table 3.4

ANNUAL PRODUCTION PROGRAMME FOR WHITE AND BLACK BOARDS

Year 1 2 3 4-10

white board(pcs) 2,700 3,060 3,420 3,600

black board (pcs.) 2,475 2,805 3,135 3,300

Capacity utilization % 75 85 95 100

IV. MATERIALS AND INPUTS

A. RAW & AUXILIARY MATERIALS

Most of the raw materials are available from local markets .The main raw materials are

indicated in Table 4.1.

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Table 4.1

RAW & AUXILIARY & MATERIALS REQUIREMENT & COST

Description AnnualInputs

Unit Cost(Birr)

Total Cost( Birr )

1 White Boards1.1 Wood 3,600 30 108,0001.2 White Formica 3,600 35 126,0001.3 Chipwood 3,600 34 122,4001.4 R.H.S 14,400 15 216,0001.5 Castor Wheel 14,400 6 86,4002 Black Boards

2.1 1.Wood 3,600 30 108,0002.2 2. R.H.S 3,600 35 126,0002.3 3. Hard board 3,600 25 90,0002.4 4.Chipwood 14,400 15 216,000

Sub-Total 1,198,800

(Auxiliary materials )3 White Boards

3.1 Self tapping screw 312 Pkt 30 9,3603.2 Nail 5cms 624 Kg 10 6,2403.3 Paint 312 Kg 20 6,2403.4 Electrodes 2.5mm 156 Kg 27 4,2123.5 Coolant liquid 312 lit 10 3,1203.6 Wood glue 312 lit 40 12,4803.7 Plastic glue 312 lit 45 14,0403.8 Aluminum sht metal/0.8 312 pcs 200 62,4004 Black Boards

4.1 Self tapping screw 312 Pkt 30 9,3604.2 Nail 5cms 624 Kg 10 6,2404.3 Paint 312 Kg 20 6,2404.4 Electrodes 2.5mm 156 Kg 27 4,2124.5 Coolant liquid 312 lit 10 3,1204.6 Wood glue 312 lit 40 12,4804.7 Plastic glue 312 lit 45 14,0404.8 Aluminum sht metal/0.8 312 pcs 200 62,400

Sub-Total 236,184Grand Total 1,434,984

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B. UTILITIES

The major utilities required by the envisaged factory are electricity and water. The required

quantities of these utilities are indicated below in Table 4.2.

Table 4.2

UTILITIES REQUIREMENT AND COST

Sr.No

Utility Unit Qty. Cost ( Birr )

1 Electricity kWh 748.8 35,642

2 Water m3 7,488 24,336

Total 59,978

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

- White Board Manufacturing Process

Wood cutting on circular saw, cutting to Size, Sanding.

Chip wood cutting to necessary size on circular saw.

Formica Cutting to Size.

Nailing, Screw fastening, Gluing, Pressing, Assembling.

Metal frame preparing, Welding, Assembly of all parts.

Painting, Drying, Packing & storing.

- Black Board Manufacturing Process Flow Chart

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Wood cutting on circular saw, cutting to Size, Sanding.

Cheep wood cutting to necessary size on circular saw.

Nailing, Screw fastening, Gluing, Pressing, Assembling.

Metal frame preparing, Welding, Assembly of all parts.

Painting, Drying, Packing & storing.

By- Products:-The process has a dusty and noisy working atmosphere in- doors. Although

it is non toxic personal protective equipment such as nose mask, goggle and ear plug are

essential for protection from the dust and high noise. The main by product in the process is

saw dust and wooden shavings this by product is mostly sold for fuel.

The process does not have adverse effect on the environment.

2. Source of Technology

All of the required machinery for the plant are locally available.

B. ENGINEERING

1. Machinery and Equipment

The production process requires careful manual work on the machinery. Hence, manual

skill in control of the machinery is very essential for having quality products. The list of

machines is shown in Table 5.1.

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Table 5.1

MACHINERY & EQUIPMENT REQUIREMENT AND COST

Sr.No.

Name of Machine Qty. Type Total Price

(Birr )1 Circular saw 1 6"Dia. saw,3hp 30,0002 Jointer 1 6"wide cutters 2hp 27,0003 Facer 1 6"wide cutters 2hp 25,0004 Shaper 1 10" 2.5hp 12,0005 Sander 1 2.5 hp 10,0006 Hot Press 1 5kW 5,0007 Pillar Drill Machine 1 13mm chuck 1hp 5,0008 Hand tools set Assorted 10,0009 Cross cutting saw 1 16"Dia saw 2hp 7,00010 Welding machine 1 2-4Dia,10kW 2,00011 Hand grinder 2 6000rpm, 0.5hp 2,40012 Hand Drilling Machine 2 12mmdia,700w 120013 Pillar Drilling Machine 1 13mm chuck 1hp 1,20014 Trolleys and handling equipment 3 900

15 Hand Tools set 5,000 Grand Total 143,700

2. Land, Building and Civil Works

The total area requirement of the project is estimated at 450 m2, of which the built up area

is 250 m2. Out of this, 150m2 is covered by production hall, 60m2 for store and 40m2 for

office purpose. The total cost of building at a cost of Birr 2,300 m. sq. is Birr 575,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation

No. 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,

however, the time and condition of applying the proclamation shall be determined by the

concerned regional or city government depending on the level of development.

The legislation has also set the maximum on lease period and the payment of lease prices.

The lease period ranges from 99 years for education, cultural research health, sport, NGO,

religious and residential area to 80 years for industry and 70 years for trade while the

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lease payment period ranges from 10 years to 60 years based on the towns grade and type

of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to

10%.The lease price is payable after the grace period annually. For those that pay the entire

amount of the lease will receive 0.5% discount from the total lease value and those that pay

in installments will be charged interest based on the prevailing interest rate of banks.

Moreover, based on the type of investment, two to seven years grace period shall also be

provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting

the maximum has conferred on regional and city governments the power to issue

regulations on the exact terms based on the development level of each region.

In Addis Ababa the City’s Land Administration and Development Authority is directly

responsible in dealing with matters concerning land. However, regarding the

manufacturing sector, industrial zone preparation is one of the strategic intervention

measures adopted by the City Administration for the promotion of the sector and all

manufacturing projects are assumed to be located in the developed industrial zones.

Regarding land allocation of industrial zones if the land requirement of the project is blow

5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone

Development and Coordination Committee of the City’s Investment Authority. However,

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

Authority and passed with recommendation to the Land Development and Administration

Authority for decision, while the lease price is the same for both cases.

The land lease price in the industrial zones varies from one place to the other. For example,

a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr 341/ m2 in

Lebu and recently the city’s Investment Agency has proposed a lease price of Birr 346 per

m2 for all industrial zones.

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Accordingly, in order to estimate the land lease cost of the project profiles it is assumed

that all manufacturing projects will be located in the industrial zones. Therefore, for this

profile, which is a manufacturing project a land lease rate of Birr 346 per m2 is adopted.

On the other hand, some of the investment incentives arranged by the Addis Ababa City

Administration on lease payment for industrial projects are granting longer grace period

and extending the lease payment period. The criterions are creation of job opportunity,

foreign exchange saving, investment capital and land utilization tendency etc. Accordingly,

Table 5.2 shows incentives for lease payment.

Table 5.2

INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored PointGrace Period

Payment Completion

PeriodDown

PaymentAbove 75% 5 Years 30 Years 10%From 50 - 75% 5 Years 28 Years 10%From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile the average, i.e., five years grace period, 28 years

payment completion period and 10% down payment is used. The period of lease for

industry is 60 years.

Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m2, is

estimated at Birr 9.34 million of which 10% or Birr 934,200 will be paid in advance. The

remaining Birr 8.41 million will be paid in equal installments with in 28 years, i.e., Birr

300,279 annually.

V. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The man power and the skill required is available in the country .the production

technology course is offered in many technical schools. There are also highly skilled

technical workers available but with out any formal academic training. The workers can

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also serve in this project after a few orientation. The essential workers required and the

related cost is shown in Table 6.1.

B. TRAINING REQUIREMENT

No training is required to run the plant. Skilled operators to be recruited will be TVET

graduates.

Table 6.1

MANPOWER REQUIREMENT AND ANNUAL LABOUR COST (BIRR)

VII. FINANCIAL ANALYSIS

The financial analysis of the white and black board project is based on the data presented

in the previous chapters and the following assumptions:-

Sr.

No.

Description Req.

No.

Monthly

Salary

Annual

Salary

1 General Manager 1 2,200 26,4002 Administrator & General

Service.

1 1,800

21,600

3 Cashier 1 600 7,200

4 Accountant 1 1,200 14,400

5 Store Keeper 1 600 7,200

6 Secretary 1 700 8,400

7 W Shop Head 1 1,200 14,400

8 Foreman 1 900 10,800

9 Welder 3 2,100 25,200

10 Helper 3 1,500 18,000

11 Labour 2 700 8,400

Guard 2 700 8,400

Sub-Total 170,400

Employees benefit(25% of

basic salary) 42,600

Total 18 213,000

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Construction period 1 year

Source of finance 30 % equity

70 % loan

Tax holidays 2 years

Bank interest 8.5%

Discount cash flow 8.5%

Accounts receivable 30 days

Raw material local 30 days

Work in progress 1 days

Finished products 30 days

Cash in hand 5 days

Accounts payable 30 days

Repair and maintenance 3% of machinery cost

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 2.45

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

Table 7.1

INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Cost Items Local Cost

ForeignCost

Total Cost

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No.1 Land lease value 934.20 - 934.20

2 Building and Civil Work 575.00 - 575.00

3 Plant Machinery and Equipment 143.70 - 143.70

4 Office Furniture and Equipment 75.00 - 75.00

5 Vehicle 250.00 - 250.00

6 Pre-production Expenditure* 191.21 - 191.21

7 Working Capital 286.65 - 286.65

  Total Investment cost 2,455.76 - 2,455.76

* N.B Pre-production expenditure includes interest during construction ( Birr 116.21

thousand) and Birr 75 thousand costs of registration, licensing and formation of the

company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 1.97

million (see Table 7.2). The raw material cost accounts for 72.59 per cent of the

production cost. The other major components of the production cost are direct labour,

depreciation and financial cost which account for 6.47%, 5.85% and 4.69 % respectively.

The remaining 10.40 % is the share of repair and maintenance, utility, labour overhead and

other administration cost.

Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

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Raw Material and Inputs 1,434.98 72.59Utilities 59.98 3.03Maintenance and repair 7.19 0.36Labour direct 127.80 6.47Labour overheads 53.25 2.69Administration Costs 85.20 4.31Land lease cost - -Total Operating Costs 1,768.40 89.46Depreciation 115.62 5.85Cost of Finance 92.71 4.69

Total Production Cost1,976.73 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through

out its operation life. Annual net profit after tax will grow from Birr 312.92 thousand to

Birr 425.82 thousand during the life of the project. Moreover, at the end of the project life

the accumulated cash flow amounts to Birr 3.39 million.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick

for evaluating the financial position of a firm. It is also an indicator for the strength and

weakness of the firm or a project. Using the year-end balance sheet figures and other

relevant data, the most important ratios such as return on sales which is computed by

dividing net income by revenue, return on assets ( operating income divided by assets),

return on equity ( net profit divided by equity) and return on total investment ( net profit

plus interest divided by total investment) has been carried out over the period of the

project life and all the results are found to be satisfactory.

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3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.

It indicates the level at which costs and revenue are in equilibrium. To this end, the break-

even point of the project including cost of finance when it starts to operate at full capacity

( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 28 %

Sales – Variable Cost

4. 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 5 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that

can be earned on the invested capital, i.e., the yield on the investment. Put another way, the

internal rate of return for an investment is the discount rate that makes the net present value

of the investment's income stream total to zero. It is an indicator of the efficiency or quality

of an investment. A project is a good investment proposition if its IRR is greater than the

rate of return that could be earned by alternate investments or putting the money in a bank

account. Accordingly, the IRR of this porject is computed to be 19.63 % 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

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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 8.5% discount rate is found to be Birr 1.32 million which is

acceptable.

D. ECONOMIC BENEFITS

The project can create employment for 18 persons. In addition to supply of the domestic

needs, the project will generate Birr 671 thousand 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.

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