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Investment Office ANRS
Project Profile on the Establishment of Acrylic Yarn Producing Plant
Development Studies Associates (DSA)
July 2016
Bahir Dar
Table of Contents
1. Executive Summary...........................................................................................3
2. Product Description and Application ..............................................................3
3. Market Study, Plant Capacity and Production Program..............................4
3.1 Market Study................................................................................................................... 4
3.1.1 Present Demand and Supply................................................................................... 4
3.1.2 Projected Demand................................................................................................... 6
3.1.3 Pricing and Distribution.......................................................................................... 7
3.2 Plant Capacity................................................................................................................. 8
3.3 Production Program ........................................................................................................ 8
4. Raw Materials and Utilities ..............................................................................8
4.1 Availability and Source of Raw Materials...................................................................... 8
4.2 Annual Requirement and Cost of Raw Materials and Utilities....................................... 8
5. Location and Site ...............................................................................................9
6. Technology and Engineering............................................................................9
6.1 Production Process.......................................................................................................... 9
6.2 Machinery and Equipment............................................................................................ 10
6.3 Civil Engineering Cost.................................................................................................. 11
7. Human Resource and Training Requirement ..............................................11
7.1 Human Resource........................................................................................................... 11
7.2 Training Requirement ................................................................................................... 12
8. Financial Analysis............................................................................................12
8.1 Underlying Assumption................................................................................................ 12
8.2 Investment..................................................................................................................... 13
8.3 Production Costs........................................................................................................... 14
8.4 Financial Evaluation ..................................................................................................... 14
9. Economic and Social Benefit and Justification.............................................16
ANNEXES...................................................................Error! Bookmark not defined.
3
1. Executive Summary
This project envisages production of 170 tons of Acrylic Yarn per annum. The total investment
requirement of the project including the working capital is estimated to be Birr 8.9 million; of
which Birr 5,132,000 is the cost of the working capital and Birr 2,566,000 is the cost of building
and civil works while Birr 1.02 million is for machinery and equipments. Based on the cash flow
statement, the calculated internal rate of return (IRR) and simple rate of retun (SRR) of the
project are 31 % and 24.6 %, respectively. And the net present value (NPV) at 18 % discounting
rate is about Birr 3343 millions. The plant is expected to create employment opportunities for
about 36 persons.
2. Product Description and Application
Acrylic yarn is a type of yarn made from man made fibers. The yarn is used for making fabrics
which are, in turn, used for making clothes. They are used by both men and women, and all
demographic groups. Acrylic has a wide variety of end uses. It can easily be blended with wool
and cotton, and can thus be used for suiting, shirting, dress making and other yarn materials.
Easy lauder ability with dimensional stability and quick drying are the other properties of acrylic
yarn. Therefore, it is frequently used for fabrics making.
Acrylic yarn span from acrylic fibers has the following properties:-
-Good tenacity,
-Excellent stability to sunlight
-Good dye acceptance,
-Soft and pleasing wool-like characteristics, and
-Good abrasion resistance.
Further more, acrylic is very resistant to light, insects and microbiological attack.
4
3. Market Study, Plant Capacity and Production Program
3.1 Market Study
3.1.1 Present Demand and Supply
Probably because of their durability, fabrics made from acrylic yarn are widely used in the rural
Ethiopia. These fabrics are made as dresses, jackets, trousers, skirts, shirts and etc. Even the
garment called “Gojam Azene” is woven from acrylic yarn; and this garment is worn by almost
every male in the rural areas of the ANRS. However, almost all the fabrics made from acrylic yarn
and the yarn itself are imported from abroad. With the fact that everybody wearing clothes made
from acrylic fabrics, one could have expected the existence of large scale acrylic fabrics and acrylic
yarn making plants in the country. But this is not the case.
Acrylic yarn has been imported to the country since a long time, the bulk of which goes to meet the
requirement of sweater producers and the handloom sector. The Dire Dawa Textile Factory also
produces acrylic yarn for the domestic market. The annual production capacity (acrylic yarn) of this
factory is limited. Although Dire Dawa’s acrylic yarn is much in demand its capacity has never been
fully utilized due to various reasons. Table 3.1 shows the annul local production of acrylic yarn for
the period between 1989 E.C and 1999 E.C.
5
TABLE 3.1
DOMESTIC PRODUCTION OF ACRYLIC YARN
Year E.C Production of Acrylic Yarn
(In Tons)
1989 2420
1990 1257
1991 730
1992 354
1993 411
1994 146
1995 1120
1996 5164
1997 2629
1998 3747
1999 NA
Regarding imports, the customs and External Trade Statistics (1990 E.C-1995 E.C) do not show
the import of 100 % acrylic yarn separately rather it shows the aggregated figure of the entire
synthetic or man-made yarn. For the period between 1995 E.C and 1999 E.C, however, there is a
disaggregated figure for acrylic yarn imports. Table 3.2 shows the annual import of different all
types of synthetic yarns including acrylic for the period between 1990 E.C and 1999E.C.
6
TABLE 3.2
IMPORT OF SYNTHETIC/MAN-MADE YARN
Source: Compiled from CSA’s Import Data
As it is seen in the above table, imports of synthetic yarns including acrylic have been increasing
through out of the past decade. The country imported more than 45 thousand tons of the products
during the period. This clearly shows the existing huge demand for man made yarns in the
country.
3.1.1 Projected Demand
As noted earlier, acrylic based fabrics are very popular in rural and urban Ethiopia. Since income
and population size (both have an increasing trend) affect the demand for acrylic based products
positively, it is believed that this favorable market situation will persist in the future. To project
future demand, this project profile conservatively assumes the demand for acrylic yarn to grow 5
% annually. Besides, the year 1998 E.C is taken as base year for the projection. Based on these,
the future demand for acrylic yarn is given as follows (See Table 3.3).
Year E.C
100 % Acrylic
Yarn
( In Tons)
All Synthetic
Yarns
including
Acrylic Yarn
(In Tons)
1990 NA 3781
1991 NA 3932
1992 NA 4089
1993 NA 4253
1994 NA 4423
1995 1038 4600
1996 1079 4784
1997 1122 4975
1998 1167 5174
1999 1214 5381
7
TABLE 3.3
DEMAND PROJECTION FOR ACRYLIC YARN
Year E.C Acrylic Yarn Demand
( In Tons)
At Country Level
Acrylic Yarn Demand
( In Tons)
At ANRS Level
2009 8909 2227
2010 9354 2338
2011 9822 2455
2012 10313 2578
2013 10829 2707
2014 11370 2842
2015 11939 2984
2016 12536 3133
2017 13163 3290
2018 13821 3455
2019 14512 3628
2020 15238 3809
2021 16000 3999
As it is seen from the above table, the demand for acrylic yarn is expected to reach at 12,536
tons and 16,000 tons in 2016 E.C and 2021 E.C, respectively. Similarly, the demand for the
product at ANRS level (computed as a proportion of its population size) is expected to reach at
3,133 tons and 3,999 tons for the comparable period. This clearly justifies the establishment of
acrylic yarn making plants in the country in general and in ANRS in particular.
3.1.2 Pricing and Distribution
The wholesale price of imported acrylic yarn ranges from Birr 108 to Birr 128 per kg while the
locally produced one is sold around Birr 103 per Kg. The envisaged plant is assumed to sell its
product to the wholesalers at Birr 95 per Kg. The product will find its market outlet through the
existing textile and yarn distributors throughout the country.
8
3.2 Plant Capacity
Based on the available minimum economic capacity, it is envisaged to establish a plant with
capacity of 170 ton per annum. The plant will operate 16 hours per day, in two shifts and 275
days per year. The working days are set by deducting Sundays and public holidays, and by
assuming that annual maintenance works and unexpected work interruptions take 25 days.
3.3 Production Program
Considering a little period needed for production skill development and market penetration, the
capacity utilization rate in the first year is assumed to be 90%; and it will be 100 % starting from
the second year of the operation.
4. Raw Materials and Utilities
4.1 Availability and Source of Raw Materials
Synthetic fibers like acrylic yarn are made from different raw materials. Some are made from
petroleum products; and others are made from coal and trees. Still others are made from
chemicals. Production of the substance from which the acrylic yarn is to be made requires huge
investment and complex technology and this is done in industrially advanced countries. Hence
the “raw material or the “artificial cotton” from which the yarn will be made is to be imported.
4.2 Annual Requirement and Cost of Raw Materials and Utilities
The major raw material is acrylic fiber, and its annual requirement is indicated in Table 4.1.The
total cost of raw material and other miscellaneous inputs is estimated to be Birr 11.5 million.
9
TABLE 4.1
ANNUAL RAW MATERIAL REQUIREMENT
(AT FULL CAPACITY)
Electricity and water requirement is about 50 MWH and 1000 m3
. The total annual cost of utility
at full capacity is equal to Birr 30,150.
TABLE 4.2
UTILITIES REQUIREMENT
No. Utility Requirement
(Annual)
Unit Price Cost
(Birr)
1. Electricity 50 MWH Birr0.55 /KWH 27,500
2. Water 1,000 m3
Birr2.65 /m3
2,650
Total 30,150
5. Location and Site
For its convenience for distribution of the acrylic yarn to the entire northern part of the country,
Bahir-Dar is an appropriate choice for the establishment of the yarn producing plant in the
ANRS.
6. Technology and Engineering
6.1 Production Process
Production of acrylic yarn or synthetic fiber follows the pattern of cotton yarn production. The
main processing stages are drawing, combing, roving, spinning, twisting, winding, setting and
packing. Depending on the type of plant to be established, the production process could start
from spinning. Main plant and machinery include roving, spinning, twisting, winding and
No Raw Material Unit Qty.
Cost(In Birr)
F.C L.C Total
1 Acrylic Fiber Tons 200 7,698,000 3,849,000 11,547,000
2 Miscellaneous
Materials
L.S 15,396 10,264 25,660
Total
7,713,396
3,859,264
11,572,660
10
setting machines. With regard alternative technology, the production process could start from
spinning. In this case, the combing and the roving stages of production are not necessary; and
this makes the project less expensive. However, this alternative creates less employment
opportunity, and has less profit.
6.2 Machinery and Equipment
The machinery and equipment required is given in Table 6.1.
TABLE 6.1
LIST OF MACHINERY AND EQUIPMENT
Ring Frame of 400 Spindle
Trankusbims Type with Aluminum Type Separators, Titex Ring and
Grambhir
Twisting Machine Of 200 Spindles
German Type with Bottom and Top Rollers and Aluminum Pulley
Intersection Gill Box 2Hx2 Balls
Japan Type 48 Faller, High Speed
Robbins Machine 10Hx20 Balls
Robbins Machine 15Hx 30 Balls
Cheese Winder 30 Spindles CI Drum
Two Rolling Machine 40 Page Cads
Carding Machine
Hand Bundling Press 5 Kg. Capacity
Electrical Fitting
Temperature And Humidity Control
The total cost of machinery/equipment is estimated at Birr 1,026,400 of which Birr 769,800 is in
foreign currency and Birr 256,600 in local currency.
11
Machinery Suppliers Address:
COMPANY NAME: SUNBORN INTERNATIONAL CO. LTD.
LOCATION: RM 701 KUKJE B/D, 39-1 PIL-DONG 1-GA,
CHUNG-GU, SEOUL, KOREA
6.3 Civil Engineering Cost
It is estimated that a total area of 1000m2
of land will be required for the envisaged project, out
of which 500m2
is built-up area. The total cost of the building, including the civil work, is about
Birr 1,566,000. The total cost of land lease is equal to Birr 153,960; which is based on the land
lease price of Bahir-Dar for industrial purpose. Of the total cost of the lease 5 % is paid in the
beginning while the rest will be paid in 40years.
7. Human Resource and Training Requirement
7.1 Human Resource
Details of the manpower requirement of the plant is shown in Table 7.1
TABLE 7.1
MANPOWER REQUIREMENT
The total annual wages and salary, including 20 % benefits, amount to Birr 1,042,001.
No Position NO
Salary, Birr
Monthly Annual
1 General Manger 1 8981 107772
2 Personnel Officer 1 3849 46188
3 Chemist 1 4619 55426
4 Accountant 1 3079 36950
5 Secretary 1 2053 24634
6 Cashier 1 1540 18475
7 Shift Leader 2 3079 73901
8 Technicians 2 2566 61584
9 Operators 10 2053 246336
10 Unskilled Labors 16 1026 197069
Sub -Total 36 868,334
Benefit (20%) 173,667
Total 36 1,042,001
12
7.2 Training Requirement
One month on job training is required for technical personnel. And this can be managed by
hiring one or more experts in the area from the local textile industry.
8. Financial Analysis
8.1 Underlying Assumption
The financial analysis of Acrylic Yarn producing plant is based on the data provided in the
preceding chapters and the following assumptions.
A. Construction and Finance
Construction Period 2 Years
Source Of Finance 40% Equity and 60% Loan
Tax Holidays 2 Years
Bank Interest Rate 12%
Discount For Cash Flow 18%
Value Of Land Based on Lease Rate of ANRS
Spare Parts, Repair & Maintenance 3% of the Fixed Investment
B. Depreciation
Building 5%
Machinery And Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%
13
C. Working Capital (Minimum Days of Coverage)
Raw Material-Local 30 Days
Raw Material-Foreign 120 Days
Factory Supplies In Stock 30 Days
Spare Parts In Stock And Maintenance 30 Days
Work In Progress 10 Days
Finished Products 15 Days
Accounts Receivable 30 Days
Cash In Hand 30 Days
Accounts Payable 30 Days
8.2 Investment
The total investment cost of the project including working capital is estimated at Birr 8.9 million
as shown in Table 8.1 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60 % is to be financed by bank loan.
TABLE 8.1
TOTAL INITIAL INVESTMENT
Items L.C F.C Total
Land
7698 7698
Building and Civil Works
2566000 2566000
Office Equipment
128300 128300
Vehicles
0 0
Plant Machinery & Equipment
256600 769800 1026400
Total Fixed Investment Cost
2958598 769800 3728398
Pre Production Capital
Expenditure* 147930 38490 186420
Total Initial Investment
3106528 808290 3914818
Working Capital at Full Capacity
1640185 3365845.29 5006030
Total 4746713 4174135.29 8920848
*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.
14
Of the total investment outlay, the working capital and the cost of building share Birr 2 million
(56.1 %) and 1 million (28.8 %), respectively. The foreign component of the project accounts
only Birr 4.1 million or 46.8 % of the total investment cost.
8.3 Production Costs
The total production cost at full capacity operation is estimated at Birr 13.6 million (See Table
8.2). Raw materials and utilities account for 84.9 %.
TABLE 8.2
PRODUCTION COST AT FULL CAPACITY
Raw Material Requirement Cost
1. Local Raw Materials 3859264
2. Foreign Raw Materials 7713396
Total Production Cost at full Capacity
Items Cost
1. Raw materials
11,572,660
2. Utilities
30,150
3. Wages and Salaries
1,042,001
4. Spares and Maintenance
111,852
Factory Costs
12,756,663
5. Depreciation
281,054
6. Financial Costs
642,301
Total Production Cost 13,680,018
8.4 Financial Evaluation
I. Profitability
According to the projected income statement (See Annex 4) the project will generate profit
beginning from the first year of operation and increases on wards. The income statement and
other profitability indicators also show that the project is viable.
15
II. Breakeven Analysis
The breakeven point of the projects is given by the formula:
BEP = Fixed Cost
Sale –Variable Cost at full capacity.
The project will break even at 19.8 % of capacity utilization
III. Payback Period
Investment cost and income statement projection are used in estimating the project payback
period. The project will payback fully the initial investment less working capital in four years.
IV. Simple Rate of Return
The project’s simple rate of return (SRR) is given by the formula:
SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.
The SRR would be 24.6 % at full capacity utilization.
V. Internal Rate of Return and Net Present Value
Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the
project is 31 % and the net present value (NPV) at 18 % discount is Birr 3,043,531
VI. Sensitivity Analysis
The sensitivity test result which undertaken by increasing the cost of production by 10 % still
indicates that the project would be viable.
16
9. Economic and Social Benefit and Justification
Based on the foregoing presentation and analysis, we can learn that the proposed project
possesses wide range of benefits that complement the financial feasibility obtained earlier. In
general the envisaged project promotes the socio-economic goals and objectives stated in the
strategic plan of the Amhara National Regional State. These benefits are listed as follows
A. Profit Generation
The project is found to be financially viable and earns on average a profit of Birr 759 thousand
per year and Birr 19.5 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.
[
B. Tax Revenue
In the project life under consideration, the region will collect over Birr 6.6 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
C. Import Substitution and Foreign Exchange Saving
As there is few local production of Acrylic Yarn in the country, the commencement of this
project relieves a portion of the import burden. That is, based on the projected figure we learn
that in the project life an estimated amount of US Dollar 15.9 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
D. Employment and Income Generation
The proposed project is expected to create employment opportunity to several citizens of the
country. That is, it will provide permanent employment to 36 professionals as well as support
stuffs. Consequently the project creates income of birr 1.4 million per year. This would be one of
the commendable accomplishments of the project.
E. Pro Environment Project
[[
The proposed production process is environment friendly.
17
Annex 1: Total Net Working Capital Requirements (in Birr)
CONSTRUCTIO
N PRODUCTION
Year 1 Year 2 1 2 3 4
Capacity Utilization (%) 0 0 90% 100% 100% 100%
1. Total Inventory 0.00 0.00 7803696.722 8670774 8670774.14 8670774
Raw Materials in Stock- Total 0.00 0.00 3408170.54 3786856 3786856.15 3786856
Raw Material-Local 0.00 0.00 378909.5447 421010.6 421010.625 421010.6
Raw Material-Foreign 0.00 0.00 3029260.97 3365846 3365845.52 3365846
Factory Supplies in Stock 0.00 0.00 12847.01258 14274.48 14274.4784 14274.48
Spare Parts in Stock and Maintenance 0.00 0.00 10981.8385 12202.02 12202.0228 12202.02
Work in Progress 0.00 0.00 321175.5968 356861.8 356861.78 356861.8
Finished Products 0.00 0.00 642351.2192 713723.6 713723.56 713723.6
2. Accounts Receivable 0.00 0.00 1584668.3 1760743 1760742.55 1760743
3. Cash in Hand 0.00 0.00 109901.3951 122112.7 122112.681 122112.7
CURRENT ASSETS 0.00 0.00 6090095.903 6766773 6766773.22 6766773
4. Current Liabilities 0.00 0.00 1584668.3 1760743 1760742.55 1760743
Accounts Payable 0.00 0.00 1584668.3 1760743 1760742.55 1760743
TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 4505427.602 5006031 5006030.67 5006031
INCREASE IN NET WORKING CAPITAL 0.00 0.00 4505427.602 500603.1 0 0
18
Annex 1: Total Net Working Capital Requirements (in Birr) (continued)
PRODUCTION
5 6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100% 100%
1. Total Inventory 8670774.141 8670774 8670774.14 8670774 8670774.1 8670774
Raw Materials in Stock-Total 3786856.15 3786856 3786856.15 3786856 3786856.2 3786856
Raw Material-Local 421010.6252 421010.6 421010.625 421010.6 421010.63 421010.6
Raw Material-Foreign 3365845.525 3365846 3365845.52 3365846 3365845.5 3365846
Factory Supplies in Stock 14274.47838 14274.48 14274.4784 14274.48 14274.478 14274.48
Spare Parts in Stock and Maintenance 12202.02282 12202.02 12202.0228 12202.02 12202.023 12202.02
Work in Progress 356861.7799 356861.8 356861.78 356861.8 356861.78 356861.8
Finished Products 713723.5598 713723.6 713723.56 713723.6 713723.56 713723.6
2. Accounts Receivable 1760742.55 1760743 1760742.55 1760743 1760742.6 1760743
3. Cash in Hand 122112.6812 122112.7 122112.681 122112.7 122112.68 122112.7
CURRENT ASSETS 6766773.222 6766773 6766773.22 6766773 6766773.2 6766773
4. Current Liabilities 1760742.55 1760743 1760742.55 1760743 1760742.6 1760743
Accounts Payable 1760742.55 1760743 1760742.55 1760743 1760742.6 1760743
TOTAL NET WORKING CAPITAL REQUIRMENTS 5006030.672 5006031 5006030.67 5006031 5006030.7 5006031
INCREASE IN NET WORKING CAPITAL 0 0 0 0 0 0
19
Annex 2: Cash Flow Statement (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 1957409 6963440 16110794.3 16316214 16140140 16140140
1. Inflow Funds 1957409 6963440 1584668.3 176074.2 0 0
Total Equity 782963.58 2785376 0 0 0 0
Total Long Term Loan 1174445.4 4178064 0 0 0 0
Total Short Term Finances 0 0 1584668.3 176074.2 0 0
2. Inflow Operation 0 0 14526126 16140140 16140140 16140140
Sales Revenue 0 0 14526126 16140140 16140140 16140140
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 1957409 1957409 18988289.3 15074879 15029158 14954222
4. Increase In Fixed Assets 1957409 1957409 0 0 0 0
Fixed Investments 1864199 1864199 0 0 0 0
Pre-production Expenditures 93209.95 93209.95 0 0 0 0
5. Increase in Current Assets 0 0 6090095.9 676677.3 0 0
6. Operating Costs 0 0 11581528.5 12863816 12863816 12863816
7. Corporate Tax Paid 0 0 0 0 738005.72 770120.8
8. Interest Paid 0 0 1316664.92 642301.1 535250.92 428200.7
9. Loan Repayments 0 0 0 892084.9 892084.86 892084.9
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 0 5006031 -2877495 1241335 1110982.5 1185918
Cumulative Cash Balance 0 5006031 2128535.67 3369871 4480853.1 5666771
20
Annex 2: Cash Flow Statement (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 16140140 16140140 16140140 16140140 16140140 16140140
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 16140140 16140140 16140140 16140140 16140140 16140140
Sales Revenue 16140140 16140140 16140140 16140140 16140140 16140140
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 14879287 14815537 14740602.2 13773582 13773582 13773582
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 12863816 12863816 12863816 12863816 12863816 12863816
7. Corporate Tax Paid 802235.83 845536.1 877651.135 909766.2 909766.19 909766.2
8. Interest Paid 321150.55 214100.4 107050.184 0 0 0
9. Loan Repayments 892084.86 892084.9 892084.86 0 0 0
10. Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 1260852.7 1324603 1399537.79 2366558 2366557.8 2366558
Cumulative Cash Balance 6927623.4 8252226 9651763.87 12018322 14384879 16751437
21
Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 0 0 14526126 16140140 16140140 16140140
1. Inflow Operation 0 0 14526126 16140140 16140140 16140140
Sales Revenue 0 0 14526126 16140140 16140140 16140140
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 1957409 1957409 16086956.1 13364419 13601822 13633937
3. Increase in Fixed Assets 1957409 1957409 0 0 0 0
Fixed Investments 1864199 1864199 0 0 0 0
Pre-production Expenditures 93209.95 93209.95 0 0 0 0
4. Increase in Net Working Capital 0 0 4505427.6 500603.1 0 0
5. Operating Costs 0 0 11581528.5 12863816 12863816 12863816
6. Corporate Tax Paid 0 0 0 0 738005.72 770120.8
NET CASH FLOW -1957409 -1957409 -1560830.1 2775721 2538318.2 2506203
CUMMULATIVE NET CASH FLOW -1957409 -3914818 -5475648 -2699927 -161608.8 2344594
Net Present Value (at 18%) -1957409 -1658821 -1120963.9 1689389 1309236.3 1095485
Cumulative Net present Value -1957409 -3616230 -4737194 -3047805 -1738568 -643084
22
Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)
PRODUCTION
5 6 7 8 9 10
TOTAL CASH INFLOW 16140140 16140140 16140140 16140140 16140140 16140140
1. Inflow Operation 16140140 16140140 16140140 16140140 16140140 16140140
Sales Revenue 16140140 16140140 16140140 16140140 16140140 16140140
Interest on Securities 0 0 0 0 0 0
2. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 13666052 13709352 13741467.2 13773582 13773582 13773582
3. Increase in Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
4. Increase in Net Working Capital 0 0 0 0 0 0
5. Operating Costs 12863816 12863816 12863816 12863816 12863816 12863816
6. Corporate Tax Paid 802235.83 845536.1 877651.135 909766.2 909766.19 909766.2
NET CASH FLOW 2474088.1 2430788 2398672.83 2366558 2366557.8 2366558
CUMMULATIVE NET CASH FLOW 4818682.5 7249470 9648143.22 12014701 14381259 16747817
Net Present Value (at 18%) 916480.28 763085.2 638138.514 533554.8 452165.1 383190.8
Cumulative Net present Value 273396.57 1036482 1674620.25 2208175 2660340.2 3043531
Net Present Value (at 18%) 3,043,531
Internal Rate of Return 31.0%
23
Annex 4: NET INCOME STATEMENT ( in Birr)
PRODUCTION
1 2 3 4 5
Capacity Utilization (%) 90% 100% 100% 100% 100%
1. Total Income 14526126 16140140 16140140 16140140 16140140
Sales Revenue 14526126 16140140 16140140 16140140 16140140
Other Income 0 0 0 0 0
2. Less Variable Cost 11165467.5 12406075 12406075 12406075 12406075
VARIABLE MARGIN 3360658.51 3734065 3734065 3734065.01 3734065
(In % of Total Income) 23.14 23.14 23.14 23.14 23.14
3. Less Fixed Costs 697114.971 738795.02 738795 738795.022 738795
OPERATIONAL MARGIN 2663543.54 2995270 2995270 2995269.99 2995270
(In % of Total Income) 18.56 18.56 18.56 18.56 18.56
4. Less Cost of Finance 1316664.92 642301.11 535250.9 428200.737 321150.6
5. GROSS PROFIT 1346878.62 2352968.9 2460019 2567069.25 2674119
6. Income (Corporate) Tax 0 0 738005.7 770120.776 802235.8
7. NET PROFIT 1346878.62 2352968.9 1722013 1796948.48 1871884
RATIOS (%)
Gross Profit/Sales 9.27% 14.58% 15.24% 15.90% 16.57%
Net Profit After Tax/Sales 9.27% 14.58% 10.67% 11.13% 11.60%
Return on Investment 31.63% 33.58% 25.30% 24.94% 24.58%
Return on Equity 37.75% 65.94% 48.26% 50.36% 52.46%
24
Annex 4: NET INCOME STATEMENT (in Birr):Continued
PRODUCTION
6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100%
1. Total Income 16140140 16140140 16140140 16140140 16140140
Sales Revenue 16140140 16140140 16140140 16140140 16140140
Other Income 0 0 0 0 0
2. Less Variable Cost 12406075 12406075 12406075 12406075 12406075
VARIABLE MARGIN 3734065 3734065 3734065 3734065 3734065
(In % of Total Income) 23.14 23.14 23.14 23.14 23.14
3. Less Fixed Costs 701511 701511 701511 701511 701511
OPERATIONAL MARGIN 3032554 3032554 3032554 3032554 3032554
(In % of Total Income) 18.79 18.79 18.79 18.79 18.79
4. Less Cost of Finance 107050.2 0 0 0 107050.2
5. GROSS PROFIT 2925504 3032554 3032554 3032554 2925504
6. Income (Corporate) Tax 877651.1 909766.2 909766.2 909766.2 877651.1
7. NET PROFIT 2047853 2122788 2122788 2122788 2047853
RATIOS (%)
Gross Profit/Sales 17.46% 18.13% 18.79% 18.79% 18.79%
Net Profit After Tax/Sales 12.22% 12.69% 13.15% 13.15% 13.15%
Return on Investment 24.52% 24.16% 23.80% 23.80% 23.80%
Return on Equity 55.29% 57.39% 59.49% 59.49% 59.49%
25
Annex 5: Projected Balance Sheet (in Birr)
CONSTRUCTION PRODUCTION
Year 1 Year 2 1 2 3 4
TOTAL ASSETS 1957409 8920848.57 11852395 13489354 14319282 15224146
1. Total Current Assets 0 5006030.67 8218632 10136644 11247626 12433544
Inventory on Materials and Supplies 0 0 3431999 3813333 3813333 3813333
Work in Progress 0 0 321175.6 356861.8 356861.8 356861.8
Finished Products in Stock 0 0 642351.2 713723.6 713723.6 713723.6
Accounts Receivable 0 0 1584668 1760743 1760743 1760743
Cash in Hand 0 0 109901.4 122112.7 122112.7 122112.7
Cash Surplus, Finance Available 0 5006030.67 2128536 3369871 4480853 5666771
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 1957409 3914817.9 3633764 3352710 3071656 2790602
Fixed Investment 0 1864199 3728398 3728398 3728398 3728398
Construction in Progress 1864199 1864199 0 0 0 0
Pre-Production Expenditure 93209.95 186419.9 186419.9 186419.9 186419.9 186419.9
Less Accumulated Depreciation 0 0 281054 562108 843161.9 1124216
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 1957409 8920848.57 11852395 13489354 14319282 15224146
5. Total Current Liabilities 0 0 1584668 1760743 1760743 1760743
Accounts Payable 0 0 1584668 1760743 1760743 1760743
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1174445.4 5352509.13 5352509 4460424 3568339 2676255
Loan A 1174445.4 5352509.13 5352509 4460424 3568339 2676255
Loan B 0 0 0 0 0 0
7. Total Equity Capital 782963.58 3568339.44 3568339 3568339 3568339 3568339
Ordinary Capital 782963.58 3568339.44 3568339 3568339 3568339 3568339
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 0 0 0 1346879 3699848 5421861
9. Net Profit After Tax 0 0 1346879 2352969 1722013 1796948
Dividends Payable 0 0 0 0 0 0
Retained Profits 0 0 1346879 2352969 1722013 1796948
26
Annex 5: Projected Balance Sheet (in Birr): Continued
PRODUCTION
5 6 7 8 9 10
TOTAL ASSETS 16203944.6 17284777 18440545 20563333 22686121 24808908
1. Total Current Assets 13694396.6 15018999 16418537 18785095 21151653 23518210
Inventory on Materials and Supplies 3813332.65 3813333 3813333 3813333 3813333 3813333
Work in Progress 356861.78 356861.8 356861.8 356861.8 356861.8 356861.8
Finished Products in Stock 713723.56 713723.6 713723.6 713723.6 713723.6 713723.6
Accounts Receivable 1760742.55 1760743 1760743 1760743 1760743 1760743
Cash in Hand 122112.681 122112.7 122112.7 122112.7 122112.7 122112.7
Cash Surplus, Finance Available 6927623.42 8252226 9651764 12018322 14384879 16751437
Securities 0 0 0 0 0 0
2. Total Fixed Assets, Net of Depreciation 2509548 2265778 2022008 1778238 1534468 1290698
Fixed Investment 3728398 3728398 3728398 3728398 3728398 3728398
Construction in Progress 0 0 0 0 0 0
Pre-Production Expenditure 186419.9 186419.9 186419.9 186419.9 186419.9 186419.9
Less Accumulated Depreciation 1405269.9 1649040 1892810 2136580 2380350 2624120
3. Accumulated Losses Brought Forward 0 0 0 0 0 0
4. Loss in Current Year 0 0 0 0 0 0
TOTAL LIABILITIES 16203944.6 17284777 18440545 20563333 22686121 24808908
5. Total Current Liabilities 1760742.55 1760743 1760743 1760743 1760743 1760743
Accounts Payable 1760742.55 1760743 1760743 1760743 1760743 1760743
Bank Overdraft 0 0 0 0 0 0
6. Total Long-term Debt 1784169.72 892084.9 0 0 0 0
Loan A 1784169.72 892084.9 0 0 0 0
Loan B 0 0 0 0 0 0
7. Total Equity Capital 3568339.44 3568339 3568339 3568339 3568339 3568339
Ordinary Capital 3568339.44 3568339 3568339 3568339 3568339 3568339
Preference Capital 0 0 0 0 0 0
Subsidies 0 0 0 0 0 0
8. Reserves, Retained Profits Brought Forward 7218809.35 9090693 11063610 13111463 15234251 17357039
9. Net Profit After Tax 1871883.61 1972918 2047853 2122788 2122788 2122788
Dividends Payable 0 0 0 0 0 0
Retained Profits 1871883.61 1972918 2047853 2122788 2122788 2122788
27

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acleric.docx

  • 1. Investment Office ANRS Project Profile on the Establishment of Acrylic Yarn Producing Plant Development Studies Associates (DSA) July 2016 Bahir Dar
  • 2. Table of Contents 1. Executive Summary...........................................................................................3 2. Product Description and Application ..............................................................3 3. Market Study, Plant Capacity and Production Program..............................4 3.1 Market Study................................................................................................................... 4 3.1.1 Present Demand and Supply................................................................................... 4 3.1.2 Projected Demand................................................................................................... 6 3.1.3 Pricing and Distribution.......................................................................................... 7 3.2 Plant Capacity................................................................................................................. 8 3.3 Production Program ........................................................................................................ 8 4. Raw Materials and Utilities ..............................................................................8 4.1 Availability and Source of Raw Materials...................................................................... 8 4.2 Annual Requirement and Cost of Raw Materials and Utilities....................................... 8 5. Location and Site ...............................................................................................9 6. Technology and Engineering............................................................................9 6.1 Production Process.......................................................................................................... 9 6.2 Machinery and Equipment............................................................................................ 10 6.3 Civil Engineering Cost.................................................................................................. 11 7. Human Resource and Training Requirement ..............................................11 7.1 Human Resource........................................................................................................... 11 7.2 Training Requirement ................................................................................................... 12 8. Financial Analysis............................................................................................12 8.1 Underlying Assumption................................................................................................ 12 8.2 Investment..................................................................................................................... 13 8.3 Production Costs........................................................................................................... 14 8.4 Financial Evaluation ..................................................................................................... 14 9. Economic and Social Benefit and Justification.............................................16 ANNEXES...................................................................Error! Bookmark not defined.
  • 3. 3 1. Executive Summary This project envisages production of 170 tons of Acrylic Yarn per annum. The total investment requirement of the project including the working capital is estimated to be Birr 8.9 million; of which Birr 5,132,000 is the cost of the working capital and Birr 2,566,000 is the cost of building and civil works while Birr 1.02 million is for machinery and equipments. Based on the cash flow statement, the calculated internal rate of return (IRR) and simple rate of retun (SRR) of the project are 31 % and 24.6 %, respectively. And the net present value (NPV) at 18 % discounting rate is about Birr 3343 millions. The plant is expected to create employment opportunities for about 36 persons. 2. Product Description and Application Acrylic yarn is a type of yarn made from man made fibers. The yarn is used for making fabrics which are, in turn, used for making clothes. They are used by both men and women, and all demographic groups. Acrylic has a wide variety of end uses. It can easily be blended with wool and cotton, and can thus be used for suiting, shirting, dress making and other yarn materials. Easy lauder ability with dimensional stability and quick drying are the other properties of acrylic yarn. Therefore, it is frequently used for fabrics making. Acrylic yarn span from acrylic fibers has the following properties:- -Good tenacity, -Excellent stability to sunlight -Good dye acceptance, -Soft and pleasing wool-like characteristics, and -Good abrasion resistance. Further more, acrylic is very resistant to light, insects and microbiological attack.
  • 4. 4 3. Market Study, Plant Capacity and Production Program 3.1 Market Study 3.1.1 Present Demand and Supply Probably because of their durability, fabrics made from acrylic yarn are widely used in the rural Ethiopia. These fabrics are made as dresses, jackets, trousers, skirts, shirts and etc. Even the garment called “Gojam Azene” is woven from acrylic yarn; and this garment is worn by almost every male in the rural areas of the ANRS. However, almost all the fabrics made from acrylic yarn and the yarn itself are imported from abroad. With the fact that everybody wearing clothes made from acrylic fabrics, one could have expected the existence of large scale acrylic fabrics and acrylic yarn making plants in the country. But this is not the case. Acrylic yarn has been imported to the country since a long time, the bulk of which goes to meet the requirement of sweater producers and the handloom sector. The Dire Dawa Textile Factory also produces acrylic yarn for the domestic market. The annual production capacity (acrylic yarn) of this factory is limited. Although Dire Dawa’s acrylic yarn is much in demand its capacity has never been fully utilized due to various reasons. Table 3.1 shows the annul local production of acrylic yarn for the period between 1989 E.C and 1999 E.C.
  • 5. 5 TABLE 3.1 DOMESTIC PRODUCTION OF ACRYLIC YARN Year E.C Production of Acrylic Yarn (In Tons) 1989 2420 1990 1257 1991 730 1992 354 1993 411 1994 146 1995 1120 1996 5164 1997 2629 1998 3747 1999 NA Regarding imports, the customs and External Trade Statistics (1990 E.C-1995 E.C) do not show the import of 100 % acrylic yarn separately rather it shows the aggregated figure of the entire synthetic or man-made yarn. For the period between 1995 E.C and 1999 E.C, however, there is a disaggregated figure for acrylic yarn imports. Table 3.2 shows the annual import of different all types of synthetic yarns including acrylic for the period between 1990 E.C and 1999E.C.
  • 6. 6 TABLE 3.2 IMPORT OF SYNTHETIC/MAN-MADE YARN Source: Compiled from CSA’s Import Data As it is seen in the above table, imports of synthetic yarns including acrylic have been increasing through out of the past decade. The country imported more than 45 thousand tons of the products during the period. This clearly shows the existing huge demand for man made yarns in the country. 3.1.1 Projected Demand As noted earlier, acrylic based fabrics are very popular in rural and urban Ethiopia. Since income and population size (both have an increasing trend) affect the demand for acrylic based products positively, it is believed that this favorable market situation will persist in the future. To project future demand, this project profile conservatively assumes the demand for acrylic yarn to grow 5 % annually. Besides, the year 1998 E.C is taken as base year for the projection. Based on these, the future demand for acrylic yarn is given as follows (See Table 3.3). Year E.C 100 % Acrylic Yarn ( In Tons) All Synthetic Yarns including Acrylic Yarn (In Tons) 1990 NA 3781 1991 NA 3932 1992 NA 4089 1993 NA 4253 1994 NA 4423 1995 1038 4600 1996 1079 4784 1997 1122 4975 1998 1167 5174 1999 1214 5381
  • 7. 7 TABLE 3.3 DEMAND PROJECTION FOR ACRYLIC YARN Year E.C Acrylic Yarn Demand ( In Tons) At Country Level Acrylic Yarn Demand ( In Tons) At ANRS Level 2009 8909 2227 2010 9354 2338 2011 9822 2455 2012 10313 2578 2013 10829 2707 2014 11370 2842 2015 11939 2984 2016 12536 3133 2017 13163 3290 2018 13821 3455 2019 14512 3628 2020 15238 3809 2021 16000 3999 As it is seen from the above table, the demand for acrylic yarn is expected to reach at 12,536 tons and 16,000 tons in 2016 E.C and 2021 E.C, respectively. Similarly, the demand for the product at ANRS level (computed as a proportion of its population size) is expected to reach at 3,133 tons and 3,999 tons for the comparable period. This clearly justifies the establishment of acrylic yarn making plants in the country in general and in ANRS in particular. 3.1.2 Pricing and Distribution The wholesale price of imported acrylic yarn ranges from Birr 108 to Birr 128 per kg while the locally produced one is sold around Birr 103 per Kg. The envisaged plant is assumed to sell its product to the wholesalers at Birr 95 per Kg. The product will find its market outlet through the existing textile and yarn distributors throughout the country.
  • 8. 8 3.2 Plant Capacity Based on the available minimum economic capacity, it is envisaged to establish a plant with capacity of 170 ton per annum. The plant will operate 16 hours per day, in two shifts and 275 days per year. The working days are set by deducting Sundays and public holidays, and by assuming that annual maintenance works and unexpected work interruptions take 25 days. 3.3 Production Program Considering a little period needed for production skill development and market penetration, the capacity utilization rate in the first year is assumed to be 90%; and it will be 100 % starting from the second year of the operation. 4. Raw Materials and Utilities 4.1 Availability and Source of Raw Materials Synthetic fibers like acrylic yarn are made from different raw materials. Some are made from petroleum products; and others are made from coal and trees. Still others are made from chemicals. Production of the substance from which the acrylic yarn is to be made requires huge investment and complex technology and this is done in industrially advanced countries. Hence the “raw material or the “artificial cotton” from which the yarn will be made is to be imported. 4.2 Annual Requirement and Cost of Raw Materials and Utilities The major raw material is acrylic fiber, and its annual requirement is indicated in Table 4.1.The total cost of raw material and other miscellaneous inputs is estimated to be Birr 11.5 million.
  • 9. 9 TABLE 4.1 ANNUAL RAW MATERIAL REQUIREMENT (AT FULL CAPACITY) Electricity and water requirement is about 50 MWH and 1000 m3 . The total annual cost of utility at full capacity is equal to Birr 30,150. TABLE 4.2 UTILITIES REQUIREMENT No. Utility Requirement (Annual) Unit Price Cost (Birr) 1. Electricity 50 MWH Birr0.55 /KWH 27,500 2. Water 1,000 m3 Birr2.65 /m3 2,650 Total 30,150 5. Location and Site For its convenience for distribution of the acrylic yarn to the entire northern part of the country, Bahir-Dar is an appropriate choice for the establishment of the yarn producing plant in the ANRS. 6. Technology and Engineering 6.1 Production Process Production of acrylic yarn or synthetic fiber follows the pattern of cotton yarn production. The main processing stages are drawing, combing, roving, spinning, twisting, winding, setting and packing. Depending on the type of plant to be established, the production process could start from spinning. Main plant and machinery include roving, spinning, twisting, winding and No Raw Material Unit Qty. Cost(In Birr) F.C L.C Total 1 Acrylic Fiber Tons 200 7,698,000 3,849,000 11,547,000 2 Miscellaneous Materials L.S 15,396 10,264 25,660 Total 7,713,396 3,859,264 11,572,660
  • 10. 10 setting machines. With regard alternative technology, the production process could start from spinning. In this case, the combing and the roving stages of production are not necessary; and this makes the project less expensive. However, this alternative creates less employment opportunity, and has less profit. 6.2 Machinery and Equipment The machinery and equipment required is given in Table 6.1. TABLE 6.1 LIST OF MACHINERY AND EQUIPMENT Ring Frame of 400 Spindle Trankusbims Type with Aluminum Type Separators, Titex Ring and Grambhir Twisting Machine Of 200 Spindles German Type with Bottom and Top Rollers and Aluminum Pulley Intersection Gill Box 2Hx2 Balls Japan Type 48 Faller, High Speed Robbins Machine 10Hx20 Balls Robbins Machine 15Hx 30 Balls Cheese Winder 30 Spindles CI Drum Two Rolling Machine 40 Page Cads Carding Machine Hand Bundling Press 5 Kg. Capacity Electrical Fitting Temperature And Humidity Control The total cost of machinery/equipment is estimated at Birr 1,026,400 of which Birr 769,800 is in foreign currency and Birr 256,600 in local currency.
  • 11. 11 Machinery Suppliers Address: COMPANY NAME: SUNBORN INTERNATIONAL CO. LTD. LOCATION: RM 701 KUKJE B/D, 39-1 PIL-DONG 1-GA, CHUNG-GU, SEOUL, KOREA 6.3 Civil Engineering Cost It is estimated that a total area of 1000m2 of land will be required for the envisaged project, out of which 500m2 is built-up area. The total cost of the building, including the civil work, is about Birr 1,566,000. The total cost of land lease is equal to Birr 153,960; which is based on the land lease price of Bahir-Dar for industrial purpose. Of the total cost of the lease 5 % is paid in the beginning while the rest will be paid in 40years. 7. Human Resource and Training Requirement 7.1 Human Resource Details of the manpower requirement of the plant is shown in Table 7.1 TABLE 7.1 MANPOWER REQUIREMENT The total annual wages and salary, including 20 % benefits, amount to Birr 1,042,001. No Position NO Salary, Birr Monthly Annual 1 General Manger 1 8981 107772 2 Personnel Officer 1 3849 46188 3 Chemist 1 4619 55426 4 Accountant 1 3079 36950 5 Secretary 1 2053 24634 6 Cashier 1 1540 18475 7 Shift Leader 2 3079 73901 8 Technicians 2 2566 61584 9 Operators 10 2053 246336 10 Unskilled Labors 16 1026 197069 Sub -Total 36 868,334 Benefit (20%) 173,667 Total 36 1,042,001
  • 12. 12 7.2 Training Requirement One month on job training is required for technical personnel. And this can be managed by hiring one or more experts in the area from the local textile industry. 8. Financial Analysis 8.1 Underlying Assumption The financial analysis of Acrylic Yarn producing plant is based on the data provided in the preceding chapters and the following assumptions. A. Construction and Finance Construction Period 2 Years Source Of Finance 40% Equity and 60% Loan Tax Holidays 2 Years Bank Interest Rate 12% Discount For Cash Flow 18% Value Of Land Based on Lease Rate of ANRS Spare Parts, Repair & Maintenance 3% of the Fixed Investment B. Depreciation Building 5% Machinery And Equipment 10% Office Furniture 10% Vehicles 20% Pre-Production (Amortization) 20%
  • 13. 13 C. Working Capital (Minimum Days of Coverage) Raw Material-Local 30 Days Raw Material-Foreign 120 Days Factory Supplies In Stock 30 Days Spare Parts In Stock And Maintenance 30 Days Work In Progress 10 Days Finished Products 15 Days Accounts Receivable 30 Days Cash In Hand 30 Days Accounts Payable 30 Days 8.2 Investment The total investment cost of the project including working capital is estimated at Birr 8.9 million as shown in Table 8.1 below. The Owner shall contribute 40% of the finance in the form of equity while the remaining 60 % is to be financed by bank loan. TABLE 8.1 TOTAL INITIAL INVESTMENT Items L.C F.C Total Land 7698 7698 Building and Civil Works 2566000 2566000 Office Equipment 128300 128300 Vehicles 0 0 Plant Machinery & Equipment 256600 769800 1026400 Total Fixed Investment Cost 2958598 769800 3728398 Pre Production Capital Expenditure* 147930 38490 186420 Total Initial Investment 3106528 808290 3914818 Working Capital at Full Capacity 1640185 3365845.29 5006030 Total 4746713 4174135.29 8920848 *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.
  • 14. 14 Of the total investment outlay, the working capital and the cost of building share Birr 2 million (56.1 %) and 1 million (28.8 %), respectively. The foreign component of the project accounts only Birr 4.1 million or 46.8 % of the total investment cost. 8.3 Production Costs The total production cost at full capacity operation is estimated at Birr 13.6 million (See Table 8.2). Raw materials and utilities account for 84.9 %. TABLE 8.2 PRODUCTION COST AT FULL CAPACITY Raw Material Requirement Cost 1. Local Raw Materials 3859264 2. Foreign Raw Materials 7713396 Total Production Cost at full Capacity Items Cost 1. Raw materials 11,572,660 2. Utilities 30,150 3. Wages and Salaries 1,042,001 4. Spares and Maintenance 111,852 Factory Costs 12,756,663 5. Depreciation 281,054 6. Financial Costs 642,301 Total Production Cost 13,680,018 8.4 Financial Evaluation I. Profitability According to the projected income statement (See Annex 4) the project will generate profit beginning from the first year of operation and increases on wards. The income statement and other profitability indicators also show that the project is viable.
  • 15. 15 II. Breakeven Analysis The breakeven point of the projects is given by the formula: BEP = Fixed Cost Sale –Variable Cost at full capacity. The project will break even at 19.8 % of capacity utilization III. Payback Period Investment cost and income statement projection are used in estimating the project payback period. The project will payback fully the initial investment less working capital in four years. IV. Simple Rate of Return The project’s simple rate of return (SRR) is given by the formula: SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization. The SRR would be 24.6 % at full capacity utilization. V. Internal Rate of Return and Net Present Value Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the project is 31 % and the net present value (NPV) at 18 % discount is Birr 3,043,531 VI. Sensitivity Analysis The sensitivity test result which undertaken by increasing the cost of production by 10 % still indicates that the project would be viable.
  • 16. 16 9. Economic and Social Benefit and Justification Based on the foregoing presentation and analysis, we can learn that the proposed project possesses wide range of benefits that complement the financial feasibility obtained earlier. In general the envisaged project promotes the socio-economic goals and objectives stated in the strategic plan of the Amhara National Regional State. These benefits are listed as follows A. Profit Generation The project is found to be financially viable and earns on average a profit of Birr 759 thousand per year and Birr 19.5 million within the project life. Such result induces the project promoters to reinvest the profit which, therefore, increases the investment magnitude in the region. [ B. Tax Revenue In the project life under consideration, the region will collect over Birr 6.6 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 C. Import Substitution and Foreign Exchange Saving As there is few local production of Acrylic Yarn in the country, the commencement of this project relieves a portion of the import burden. That is, based on the projected figure we learn that in the project life an estimated amount of US Dollar 15.9 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 D. Employment and Income Generation The proposed project is expected to create employment opportunity to several citizens of the country. That is, it will provide permanent employment to 36 professionals as well as support stuffs. Consequently the project creates income of birr 1.4 million per year. This would be one of the commendable accomplishments of the project. E. Pro Environment Project [[ The proposed production process is environment friendly.
  • 17. 17 Annex 1: Total Net Working Capital Requirements (in Birr) CONSTRUCTIO N PRODUCTION Year 1 Year 2 1 2 3 4 Capacity Utilization (%) 0 0 90% 100% 100% 100% 1. Total Inventory 0.00 0.00 7803696.722 8670774 8670774.14 8670774 Raw Materials in Stock- Total 0.00 0.00 3408170.54 3786856 3786856.15 3786856 Raw Material-Local 0.00 0.00 378909.5447 421010.6 421010.625 421010.6 Raw Material-Foreign 0.00 0.00 3029260.97 3365846 3365845.52 3365846 Factory Supplies in Stock 0.00 0.00 12847.01258 14274.48 14274.4784 14274.48 Spare Parts in Stock and Maintenance 0.00 0.00 10981.8385 12202.02 12202.0228 12202.02 Work in Progress 0.00 0.00 321175.5968 356861.8 356861.78 356861.8 Finished Products 0.00 0.00 642351.2192 713723.6 713723.56 713723.6 2. Accounts Receivable 0.00 0.00 1584668.3 1760743 1760742.55 1760743 3. Cash in Hand 0.00 0.00 109901.3951 122112.7 122112.681 122112.7 CURRENT ASSETS 0.00 0.00 6090095.903 6766773 6766773.22 6766773 4. Current Liabilities 0.00 0.00 1584668.3 1760743 1760742.55 1760743 Accounts Payable 0.00 0.00 1584668.3 1760743 1760742.55 1760743 TOTAL NET WORKING CAPITAL REQUIRMENTS 0.00 0.00 4505427.602 5006031 5006030.67 5006031 INCREASE IN NET WORKING CAPITAL 0.00 0.00 4505427.602 500603.1 0 0
  • 18. 18 Annex 1: Total Net Working Capital Requirements (in Birr) (continued) PRODUCTION 5 6 7 8 9 10 Capacity Utilization (%) 100% 100% 100% 100% 100% 100% 1. Total Inventory 8670774.141 8670774 8670774.14 8670774 8670774.1 8670774 Raw Materials in Stock-Total 3786856.15 3786856 3786856.15 3786856 3786856.2 3786856 Raw Material-Local 421010.6252 421010.6 421010.625 421010.6 421010.63 421010.6 Raw Material-Foreign 3365845.525 3365846 3365845.52 3365846 3365845.5 3365846 Factory Supplies in Stock 14274.47838 14274.48 14274.4784 14274.48 14274.478 14274.48 Spare Parts in Stock and Maintenance 12202.02282 12202.02 12202.0228 12202.02 12202.023 12202.02 Work in Progress 356861.7799 356861.8 356861.78 356861.8 356861.78 356861.8 Finished Products 713723.5598 713723.6 713723.56 713723.6 713723.56 713723.6 2. Accounts Receivable 1760742.55 1760743 1760742.55 1760743 1760742.6 1760743 3. Cash in Hand 122112.6812 122112.7 122112.681 122112.7 122112.68 122112.7 CURRENT ASSETS 6766773.222 6766773 6766773.22 6766773 6766773.2 6766773 4. Current Liabilities 1760742.55 1760743 1760742.55 1760743 1760742.6 1760743 Accounts Payable 1760742.55 1760743 1760742.55 1760743 1760742.6 1760743 TOTAL NET WORKING CAPITAL REQUIRMENTS 5006030.672 5006031 5006030.67 5006031 5006030.7 5006031 INCREASE IN NET WORKING CAPITAL 0 0 0 0 0 0
  • 19. 19 Annex 2: Cash Flow Statement (in Birr) CONSTRUCTION PRODUCTION Year 1 Year 2 1 2 3 4 TOTAL CASH INFLOW 1957409 6963440 16110794.3 16316214 16140140 16140140 1. Inflow Funds 1957409 6963440 1584668.3 176074.2 0 0 Total Equity 782963.58 2785376 0 0 0 0 Total Long Term Loan 1174445.4 4178064 0 0 0 0 Total Short Term Finances 0 0 1584668.3 176074.2 0 0 2. Inflow Operation 0 0 14526126 16140140 16140140 16140140 Sales Revenue 0 0 14526126 16140140 16140140 16140140 Interest on Securities 0 0 0 0 0 0 3. Other Income 0 0 0 0 0 0 TOTAL CASH OUTFLOW 1957409 1957409 18988289.3 15074879 15029158 14954222 4. Increase In Fixed Assets 1957409 1957409 0 0 0 0 Fixed Investments 1864199 1864199 0 0 0 0 Pre-production Expenditures 93209.95 93209.95 0 0 0 0 5. Increase in Current Assets 0 0 6090095.9 676677.3 0 0 6. Operating Costs 0 0 11581528.5 12863816 12863816 12863816 7. Corporate Tax Paid 0 0 0 0 738005.72 770120.8 8. Interest Paid 0 0 1316664.92 642301.1 535250.92 428200.7 9. Loan Repayments 0 0 0 892084.9 892084.86 892084.9 10. Dividends Paid 0 0 0 0 0 0 Surplus(Deficit) 0 5006031 -2877495 1241335 1110982.5 1185918 Cumulative Cash Balance 0 5006031 2128535.67 3369871 4480853.1 5666771
  • 20. 20 Annex 2: Cash Flow Statement (in Birr): Continued PRODUCTION 5 6 7 8 9 10 TOTAL CASH INFLOW 16140140 16140140 16140140 16140140 16140140 16140140 1. Inflow Funds 0 0 0 0 0 0 Total Equity 0 0 0 0 0 0 Total Long Term Loan 0 0 0 0 0 0 Total Short Term Finances 0 0 0 0 0 0 2. Inflow Operation 16140140 16140140 16140140 16140140 16140140 16140140 Sales Revenue 16140140 16140140 16140140 16140140 16140140 16140140 Interest on Securities 0 0 0 0 0 0 3. Other Income 0 0 0 0 0 0 TOTAL CASH OUTFLOW 14879287 14815537 14740602.2 13773582 13773582 13773582 4. Increase In Fixed Assets 0 0 0 0 0 0 Fixed Investments 0 0 0 0 0 0 Pre-production Expenditures 0 0 0 0 0 0 5. Increase in Current Assets 0 0 0 0 0 0 6. Operating Costs 12863816 12863816 12863816 12863816 12863816 12863816 7. Corporate Tax Paid 802235.83 845536.1 877651.135 909766.2 909766.19 909766.2 8. Interest Paid 321150.55 214100.4 107050.184 0 0 0 9. Loan Repayments 892084.86 892084.9 892084.86 0 0 0 10. Dividends Paid 0 0 0 0 0 0 Surplus(Deficit) 1260852.7 1324603 1399537.79 2366558 2366557.8 2366558 Cumulative Cash Balance 6927623.4 8252226 9651763.87 12018322 14384879 16751437
  • 21. 21 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED CONSTRUCTION PRODUCTION Year 1 Year 2 1 2 3 4 TOTAL CASH INFLOW 0 0 14526126 16140140 16140140 16140140 1. Inflow Operation 0 0 14526126 16140140 16140140 16140140 Sales Revenue 0 0 14526126 16140140 16140140 16140140 Interest on Securities 0 0 0 0 0 0 2. Other Income 0 0 0 0 0 0 TOTAL CASH OUTFLOW 1957409 1957409 16086956.1 13364419 13601822 13633937 3. Increase in Fixed Assets 1957409 1957409 0 0 0 0 Fixed Investments 1864199 1864199 0 0 0 0 Pre-production Expenditures 93209.95 93209.95 0 0 0 0 4. Increase in Net Working Capital 0 0 4505427.6 500603.1 0 0 5. Operating Costs 0 0 11581528.5 12863816 12863816 12863816 6. Corporate Tax Paid 0 0 0 0 738005.72 770120.8 NET CASH FLOW -1957409 -1957409 -1560830.1 2775721 2538318.2 2506203 CUMMULATIVE NET CASH FLOW -1957409 -3914818 -5475648 -2699927 -161608.8 2344594 Net Present Value (at 18%) -1957409 -1658821 -1120963.9 1689389 1309236.3 1095485 Cumulative Net present Value -1957409 -3616230 -4737194 -3047805 -1738568 -643084
  • 22. 22 Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued) PRODUCTION 5 6 7 8 9 10 TOTAL CASH INFLOW 16140140 16140140 16140140 16140140 16140140 16140140 1. Inflow Operation 16140140 16140140 16140140 16140140 16140140 16140140 Sales Revenue 16140140 16140140 16140140 16140140 16140140 16140140 Interest on Securities 0 0 0 0 0 0 2. Other Income 0 0 0 0 0 0 TOTAL CASH OUTFLOW 13666052 13709352 13741467.2 13773582 13773582 13773582 3. Increase in Fixed Assets 0 0 0 0 0 0 Fixed Investments 0 0 0 0 0 0 Pre-production Expenditures 0 0 0 0 0 0 4. Increase in Net Working Capital 0 0 0 0 0 0 5. Operating Costs 12863816 12863816 12863816 12863816 12863816 12863816 6. Corporate Tax Paid 802235.83 845536.1 877651.135 909766.2 909766.19 909766.2 NET CASH FLOW 2474088.1 2430788 2398672.83 2366558 2366557.8 2366558 CUMMULATIVE NET CASH FLOW 4818682.5 7249470 9648143.22 12014701 14381259 16747817 Net Present Value (at 18%) 916480.28 763085.2 638138.514 533554.8 452165.1 383190.8 Cumulative Net present Value 273396.57 1036482 1674620.25 2208175 2660340.2 3043531 Net Present Value (at 18%) 3,043,531 Internal Rate of Return 31.0%
  • 23. 23 Annex 4: NET INCOME STATEMENT ( in Birr) PRODUCTION 1 2 3 4 5 Capacity Utilization (%) 90% 100% 100% 100% 100% 1. Total Income 14526126 16140140 16140140 16140140 16140140 Sales Revenue 14526126 16140140 16140140 16140140 16140140 Other Income 0 0 0 0 0 2. Less Variable Cost 11165467.5 12406075 12406075 12406075 12406075 VARIABLE MARGIN 3360658.51 3734065 3734065 3734065.01 3734065 (In % of Total Income) 23.14 23.14 23.14 23.14 23.14 3. Less Fixed Costs 697114.971 738795.02 738795 738795.022 738795 OPERATIONAL MARGIN 2663543.54 2995270 2995270 2995269.99 2995270 (In % of Total Income) 18.56 18.56 18.56 18.56 18.56 4. Less Cost of Finance 1316664.92 642301.11 535250.9 428200.737 321150.6 5. GROSS PROFIT 1346878.62 2352968.9 2460019 2567069.25 2674119 6. Income (Corporate) Tax 0 0 738005.7 770120.776 802235.8 7. NET PROFIT 1346878.62 2352968.9 1722013 1796948.48 1871884 RATIOS (%) Gross Profit/Sales 9.27% 14.58% 15.24% 15.90% 16.57% Net Profit After Tax/Sales 9.27% 14.58% 10.67% 11.13% 11.60% Return on Investment 31.63% 33.58% 25.30% 24.94% 24.58% Return on Equity 37.75% 65.94% 48.26% 50.36% 52.46%
  • 24. 24 Annex 4: NET INCOME STATEMENT (in Birr):Continued PRODUCTION 6 7 8 9 10 Capacity Utilization (%) 100% 100% 100% 100% 100% 1. Total Income 16140140 16140140 16140140 16140140 16140140 Sales Revenue 16140140 16140140 16140140 16140140 16140140 Other Income 0 0 0 0 0 2. Less Variable Cost 12406075 12406075 12406075 12406075 12406075 VARIABLE MARGIN 3734065 3734065 3734065 3734065 3734065 (In % of Total Income) 23.14 23.14 23.14 23.14 23.14 3. Less Fixed Costs 701511 701511 701511 701511 701511 OPERATIONAL MARGIN 3032554 3032554 3032554 3032554 3032554 (In % of Total Income) 18.79 18.79 18.79 18.79 18.79 4. Less Cost of Finance 107050.2 0 0 0 107050.2 5. GROSS PROFIT 2925504 3032554 3032554 3032554 2925504 6. Income (Corporate) Tax 877651.1 909766.2 909766.2 909766.2 877651.1 7. NET PROFIT 2047853 2122788 2122788 2122788 2047853 RATIOS (%) Gross Profit/Sales 17.46% 18.13% 18.79% 18.79% 18.79% Net Profit After Tax/Sales 12.22% 12.69% 13.15% 13.15% 13.15% Return on Investment 24.52% 24.16% 23.80% 23.80% 23.80% Return on Equity 55.29% 57.39% 59.49% 59.49% 59.49%
  • 25. 25 Annex 5: Projected Balance Sheet (in Birr) CONSTRUCTION PRODUCTION Year 1 Year 2 1 2 3 4 TOTAL ASSETS 1957409 8920848.57 11852395 13489354 14319282 15224146 1. Total Current Assets 0 5006030.67 8218632 10136644 11247626 12433544 Inventory on Materials and Supplies 0 0 3431999 3813333 3813333 3813333 Work in Progress 0 0 321175.6 356861.8 356861.8 356861.8 Finished Products in Stock 0 0 642351.2 713723.6 713723.6 713723.6 Accounts Receivable 0 0 1584668 1760743 1760743 1760743 Cash in Hand 0 0 109901.4 122112.7 122112.7 122112.7 Cash Surplus, Finance Available 0 5006030.67 2128536 3369871 4480853 5666771 Securities 0 0 0 0 0 0 2. Total Fixed Assets, Net of Depreciation 1957409 3914817.9 3633764 3352710 3071656 2790602 Fixed Investment 0 1864199 3728398 3728398 3728398 3728398 Construction in Progress 1864199 1864199 0 0 0 0 Pre-Production Expenditure 93209.95 186419.9 186419.9 186419.9 186419.9 186419.9 Less Accumulated Depreciation 0 0 281054 562108 843161.9 1124216 3. Accumulated Losses Brought Forward 0 0 0 0 0 0 4. Loss in Current Year 0 0 0 0 0 0 TOTAL LIABILITIES 1957409 8920848.57 11852395 13489354 14319282 15224146 5. Total Current Liabilities 0 0 1584668 1760743 1760743 1760743 Accounts Payable 0 0 1584668 1760743 1760743 1760743 Bank Overdraft 0 0 0 0 0 0 6. Total Long-term Debt 1174445.4 5352509.13 5352509 4460424 3568339 2676255 Loan A 1174445.4 5352509.13 5352509 4460424 3568339 2676255 Loan B 0 0 0 0 0 0 7. Total Equity Capital 782963.58 3568339.44 3568339 3568339 3568339 3568339 Ordinary Capital 782963.58 3568339.44 3568339 3568339 3568339 3568339 Preference Capital 0 0 0 0 0 0 Subsidies 0 0 0 0 0 0 8. Reserves, Retained Profits Brought Forward 0 0 0 1346879 3699848 5421861 9. Net Profit After Tax 0 0 1346879 2352969 1722013 1796948 Dividends Payable 0 0 0 0 0 0 Retained Profits 0 0 1346879 2352969 1722013 1796948
  • 26. 26 Annex 5: Projected Balance Sheet (in Birr): Continued PRODUCTION 5 6 7 8 9 10 TOTAL ASSETS 16203944.6 17284777 18440545 20563333 22686121 24808908 1. Total Current Assets 13694396.6 15018999 16418537 18785095 21151653 23518210 Inventory on Materials and Supplies 3813332.65 3813333 3813333 3813333 3813333 3813333 Work in Progress 356861.78 356861.8 356861.8 356861.8 356861.8 356861.8 Finished Products in Stock 713723.56 713723.6 713723.6 713723.6 713723.6 713723.6 Accounts Receivable 1760742.55 1760743 1760743 1760743 1760743 1760743 Cash in Hand 122112.681 122112.7 122112.7 122112.7 122112.7 122112.7 Cash Surplus, Finance Available 6927623.42 8252226 9651764 12018322 14384879 16751437 Securities 0 0 0 0 0 0 2. Total Fixed Assets, Net of Depreciation 2509548 2265778 2022008 1778238 1534468 1290698 Fixed Investment 3728398 3728398 3728398 3728398 3728398 3728398 Construction in Progress 0 0 0 0 0 0 Pre-Production Expenditure 186419.9 186419.9 186419.9 186419.9 186419.9 186419.9 Less Accumulated Depreciation 1405269.9 1649040 1892810 2136580 2380350 2624120 3. Accumulated Losses Brought Forward 0 0 0 0 0 0 4. Loss in Current Year 0 0 0 0 0 0 TOTAL LIABILITIES 16203944.6 17284777 18440545 20563333 22686121 24808908 5. Total Current Liabilities 1760742.55 1760743 1760743 1760743 1760743 1760743 Accounts Payable 1760742.55 1760743 1760743 1760743 1760743 1760743 Bank Overdraft 0 0 0 0 0 0 6. Total Long-term Debt 1784169.72 892084.9 0 0 0 0 Loan A 1784169.72 892084.9 0 0 0 0 Loan B 0 0 0 0 0 0 7. Total Equity Capital 3568339.44 3568339 3568339 3568339 3568339 3568339 Ordinary Capital 3568339.44 3568339 3568339 3568339 3568339 3568339 Preference Capital 0 0 0 0 0 0 Subsidies 0 0 0 0 0 0 8. Reserves, Retained Profits Brought Forward 7218809.35 9090693 11063610 13111463 15234251 17357039 9. Net Profit After Tax 1871883.61 1972918 2047853 2122788 2122788 2122788 Dividends Payable 0 0 0 0 0 0 Retained Profits 1871883.61 1972918 2047853 2122788 2122788 2122788
  • 27. 27