Feasibility Study on: Animal Food

Processing and Cow Milk Production

Project Holder: My Land Agro-Processing Share

Company

Submitted to: Silte Zone Investment Office

December 2020

Page 1 of 30
Table of Content
1. SUMMARY...............................................................................................................................................2
2. Organizational profile................................................................................................................................2
3. PRODUCT DESCRIPTION AND APPLICATION..................................................................................2
3.1 Livestock Food Processing.................................................................................................................2
3.2 Cow milk............................................................................................................................................2
3.3 High yielding calf production.............................................................................................................2
4. Market Study and Production Capacity......................................................................................................2
4.1 Market Study......................................................................................................................................2
4.1.1 Past Supply and Present Demand of Livestock feed...................................................................2
4.1.2 Demand Projection of Livestock Feed........................................................................................2
Table 3.4 .PROJECTED DEMAND FOR ANIMAL FEED (TONNES)...................................................2
4.2 Pricing and Distribution.....................................................................................................................2
4.2.1 Pricing and Distribution of Animal Feed....................................................................................2
4.2.2 Pricing and Distribution of cow milk.........................................................................................2
4.2.3 Price of calf................................................................................................................................2
4.3 Plant Capacity and Production Program.............................................................................................2
4.3.1 Animal Feed Processing plant Capacity.....................................................................................2
5. Martials and Inputs....................................................................................................................................2
5.1 Materials for Animal Food Processing...............................................................................................2
5.2 Cow Milk Production.........................................................................................................................2
5.3 Utilities...............................................................................................................................................2
6. Technology and Engineering.....................................................................................................................2
6.1 Technology........................................................................................................................................2
6.1.1 Production Process Animal Feed Processing..............................................................................2
6.1.2 Production Process Animal Feed Processing..............................................................................2
6.2.1 Machinery and Equipment for Animal Feed Processing............................................................2
6.2.2 Machinery and Equipment Milk production...............................................................................2
7. Manpower and Training Requirement........................................................................................................2
7.1 Organizational Structure....................................................................................................................2
7.2 Manpower Requirement.....................................................................................................................2
8. Financial Analysis......................................................................................................................................2

Page 2 of 30
 8.1 Sources of Fund.................................................................................................................................2
8.2 Initial Investment...............................................................................................................................2
8.3 Fixed Investment................................................................................................................................2
8.4 Pre-Operating Expense.......................................................................................................................2
8.5 Operating cost....................................................................................................................................2
8.6 Bank Finance Repayment Schedule...................................................................................................2
8.7 Depreciation Schedule........................................................................................................................2
8.8 Revenue.............................................................................................................................................2
9. Financial Profitability and Sustainability Analysis....................................................................................2
9.1 Projected Income Statement...............................................................................................................2
9.2 Cash flow statement...........................................................................................................................2
9.3 Net present value criteria (NPV)........................................................................................................2
9.4 Internal Rate of Return (IRR).............................................................................................................2
9.5 Payback Period (PBP)........................................................................................................................2
9.6 Benefit cost ratio................................................................................................................................2
10.1 Job creation........................................................................................................................................2
10.2 Tax Revenue......................................................................................................................................2

List of tables

Table 1: Domestic production of animal feed (2009-2016).......................................................................................2

Table 2: Projected demand for animal feed (tons).......................................................................................................2
Table 3: Cow milk Production Capacity.....................................................................................................................2
Table 4: Milk production program..............................................................................................................................2
Table 5: Annual Raw Material requirement and costs of feed processing farm at full capacity..................................2
Table 6: Annual Raw Material requirement and costs of feed processing farm at full capacity..................................2
Table 7: Annual Utilities Requirement and Cost........................................................................................................2
Table 8: List of Machinery and Equipment for Animal Feed Processing...................................................................2
Table 9: List of Machinery and Equipment for Milk Production...............................................................................2
Table 10: Manpower requirement and annual labour cost...........................................................................................2
Table 11: Source of Finance........................................................................................................................................2

Page 3 of 30
Table 12: Initial Investment.........................................................................................................................................2
Table 13: Fixed Costs..................................................................................................................................................2
Table 14: Pre-operating Expense.................................................................................................................................2
Table 15: Projected Annual Operational Cost.............................................................................................................2
Table 16: Loan Repayment Schedule.........................................................................................................................2
Table 17: Annual Depreciation Expense.....................................................................................................................2
Table 18: Five Years Revenue Projection..................................................................................................................2
Table 19: Five Years Projected Income Statement......................................................................................................2
Table 20: Five years projected cash flow statement....................................................................................................2

Page 4 of 30
 1. SUMMARY
The envisage project aims to establish animal food processing farm at Silti zone hulbareg woreda.
The owner of the project is My Land Agro processing Share Company. The firm will have a capacity
of processing 22,150 tons of livestock feed per annum. The present demand is estimated at 20,037
tons livestock feed per annum. The demand is projected to reach 28,567 tons by the year 2012 per
annum for livestock fee. In addition, the envisage project will also focus on milk production to
produced from 200 cows that will be processed in its sister company nearby to this project. The
envisaged project will create employment opportunity for about 71 persons.

The total investment required to complete the project is 31,900,605.00 Birr of which 70 % will be
covered by bank financing and the remaining 30% will be will be covered by owners’ equity.

At 15% discount rate the NPV of the project is 12,671,672 birr, the IRR is 25.49%, and the project
payback period is 2 years and 6 months and the discounted benefit cost ratio is 1.39. In all financial,
technical and Economic criterions the project is feasible and attractive.

Page 5 of 30
 2. Organizational profile
Capital Plus consultants Ltd is a private limited company established in 2020GC by

professionals who have various academic background and have long experience in the areas of

business consultancy and social development. Its main aim is to fill the gap in the business

sectors through conducting research’s and consultancy services so that the business sectors of the

country uplifted to the level of scientific business. Though, our organization has recently join the

sector, professionals forming the business has ample experience in delivering different

consultancy services in business sectors through conducting feasibility studies on range of

business sectors, baseline and impact assessment researches, organizing and delivering

trainings for business practitioners and other consultancy service.

3. PRODUCT DESCRIPTION AND APPLICATION

3.1 Livestock Food Processing

Livestock feed is a mixture of feedstuffs produced by feed processing plant. It contains
protein, minerals, and other nutrients which are useful for beef and milk production and
survival of the animals. The mixture will be produced from oil seed cake, molasses, meal (bone and
blood), Sodium hydroxide (NaOH), lye-tearement of straw or stock. Such mix may be varied over a
wide range of compositions, determined by nutritional values required, within the following average
minimum and maximum values:

- NaOH lye-treated straw or stocks 40 – 64%n

- Oil seed Cake 26 – 60%

- Molasses 0 – 12 %

The plant will be sized according to the possibility of treating the maximum amount of each material
as per the required feed composition.

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 3.2 Cow milk
Cow's milk is a complex and dynamic fluid that contains all nutrients needed for the development
and growth of the calf. Milk contains lipids (dairy fat), high-quality protein, vitamins, minerals, and
other bioactive components. The nutritional composition in milk varies depending on factors such as
breed and age of the cow and the forage composition

3.3 High yielding calf production

Calf: is the term used from birth to weaning, when it becomes known as a weaner or weaner calf,
though in some areas the term "calf" may be used until the animal is a yearling. The birth of a calf is
known as calving. A calf that has lost its mother is an orphan calf, also known as a poddy or poddy-
calf in British English.

Page 7 of 30
 4. Market Study and Production Capacity

4.1 Market Study

4.1.1 Past Supply and Present Demand of Livestock feed

Agriculture is the dominant feature of the Ethiopian economy in which the livestock subsector is an
integral part. According to the agricultural sample survey (C.S.A) of 1999/2000 the national private
holdings of cattle, sheep and goats were 33,075,330.00, 10,950,680.00 and 8,591,760.00
respectively. The country however did not exploit the potential advantages of its geographical
location and huge animal resources. Ruminant feed is one of the major factors that contribute to low
productivity of local animals. Animal feeds are not imported into the country. The need for animal
feed is supplied from locally existing private and public animal feed processing plants. According to
a study conducted by IPS, at present there are six animal feed processing plants in the country. Table
3.1 presents the volume of domestic production of animal feed for the period 1988-1998.

Table 1: Domestic production of animal feed (2009-2016)

Year Quantity/ tones

2009 20,897
2010 11,186
2011 7,120
2012 6,019
2013 10,549
2014 4,601
2015 5,453
2016 4,991

Source: CSA Statistical Abstract

As can be seen in Table 1, local production of animal feed ranges between a low figures of 4,601
tons in the year 2014 to a high figure of 20897 tons in the year 2009. The annual average production
of these factories for the time under reference was about 8852 tones. Considering the size of the
livestock population in the country and the recommended per capita consumption per annum, it is
clear that the supply of animal feeds in the country fall short of the anticipated demand due to
several reasons.

Page 8 of 30
Shortage of grazing land from year to year due to urbanization, increasing farming land and the
expansion of agro processing industries that demand processed animal feed can be mentioned as a
reason the declining of supply with respect to the projected demand.

4.1.2 Demand Projection of Livestock Feed

Demand projection is made on the assumption that the demand for animal feed should grow with the
growth in size of livestock population, income of farmers and the attitude of farmers towards the
product. Hence, a modest growth rate of 3 per cent is used to project the demand for animal feed in
the region as depicted bellow.
Table 2: Projected demand for animal feed (tons)

Year Projected Demand

2019 27,735
2020 28,567
2012 29424
2022 30307
2023 31216
2024 32152
2025 33117

4.2 Pricing and Distribution

4.2.1 Pricing and Distribution of Animal Feed

The price of processed animal feed depends upon the availability, quality and nutritive value of raw
materials.
In this profile, the ex-factory price of animal feed to be produced by the project under
consideration is estimated to be Birr 675 per quintal.

For the envisaged project, it is recommended either to distribute the product directly to end-users
wherever they are accessible or by establishing a small distributing store or using commissioned
agent at strategic locations.

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 4.2.2 Pricing and Distribution of cow milk
Out of the total milk produced in this envisage project 200 litter per day in this envisages project will
be sold to its sister company that will be established in Worabi town to further process it. The
remaining huge amount of milk will be sold to the community. The price of cow milk is estimated
to be 21 birr per litter.

4.2.3 Price of calf

Scientifically it is known that a cow will give a birth once in a year. Thus, it is expected that on the
second year of the project each two hundred cows will give a birth. Thus, the envisage project will
have a total of two hundred cows. Currently a calf with the age of 3 to 5 months is being sold from
5000 to 7000 birr. Considering the remoteness of the project from the city, the project set 5000 birr
as price for a single calf .

4.3 Plant Capacity and Production Program

4.3.1 Animal Feed Processing plant Capacity
The plant will have a production capacity of 26, 8500 tons of integrated livestock feed per annum at
full capacity.

4.3.1.1 Cow milk production plant capacity

The dairy farm would have:
 200 milking cows at 80% calving rate. The cows should be of a good breed.
 The average yield per cow is estimated at 20 liters per day.
 The overall daily milk production is estimated at 4000 liters/day.
Table 3: Cow milk Production Capacity

Annual Production
Average Unit Selling Price
No. Product Mix Capacity
price/(kg)
Quantity(litter ) (Birr)

1 Cow Milk ( own 1,440,000 21 4,590,000

production

Page 10 of 30
 4.3.1.2 Production Program of Animal Feed Processing
The plant will work about 185 days per annum and three shifts of 8 hours per day. The plant will
start its operation with 75% capacity in the first year and operate at full capacity in the second year
and thereafter.

4.3.1.3 Production Program milk processing

The initial year the estimated output of the projected dairy farm is expected to be not more than 20%
of its full capacity, and eventually proceed to be 40% in its second year and finally reach a 100%
working capacity in its fifth year. Over the years the techniques used are foreseen to improve and
technologically advance.
Table 4: Milk production program

Production Program

Product Quantity Quantity Quantity

No. Quantity (ton) Quantity (ton)
Mix (litter ) (litter ) (ton)
year 4 and year 5 and
year 1 year 2 year 3 and
after after
after
1 Cow Milk 288,000 576,000 1,440,000 1,440,000 1,440,000

Page 11 of 30
 5. Martials and Inputs

5.1 Materials for Animal Food Processing

Raw material required for the production of livestock feed at full operation capacity is given in Table

Table 5: Annual Raw Material requirement and costs of feed processing farm at full capacity

No Description Qty Unit price Cost in Birr

Local Foreign Total

Oil Seed Cake

1 5400 420 2268000 2,268,000
(tons)

1,332,00
2 Molases tons 2020 659 - 1,332,000
0

NaOH (50%
3 265 2400 636,000.00 636,000
solution)- tons

1450
4 Wheat Bran (qut.) 0.42 6090 6,090,000
0

Jute Bags (100 kg 2215

0.003 664.5 664,500
capacity)- 00

Total 4192834.5 636,000.00 11,576,580

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 5.2 Cow Milk Production
Raw material required for the production of livestock feed at full operation capacity is given in Table
below.

Table 6: Annual Raw Material requirement and costs of feed processing farm at full capacity

No. Description Qty Cost Birr

Cost Total
1 Feed (tones) 3960 148 586080

2 Concentrate (tones) 560 112 62720

3 Veterinary services Sum 0.2 12000

4 Cow Milk from sister company 200 Lt 22 0

Total - 660,800

5.3 Utilities
Utilities required by the plant are electricity, steam and water for processing and sanitation.
Annual utilities requirement of the plant and corresponding cost are indicated in

Table 7: Annual Utilities Requirement and Cost

No Description Qty Cost in Birr

1 Electricity (Kwh) 233.1 65,300
2 Water (M3) 90300 45,000
3 Steam (Kg) 2664 266.4 2664 266,000
4 Fuel (litter) 75,000 1,500,000
Total 1,876,300

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 6. Technology and Engineering

6.1 Technology

6.1.1 Production Process Animal Feed Processing

The livestock feed production will be undertaken on the following process. Raw materials, oil seed
cake, molasses, straw or stock and NaOH are supplied to the processing plant. The stock or straw is
unpacked and break into pieces before NaOH lye treatment took place. After the lye-treatment
mixing, pelletizing and drying up of these component completed. Then, integrated fodder is weighed
and bagged in jute bags and distributed to the market.

6.1.2 Production Process Animal Feed Processing

After structuring and establishment of the farm including buildings and other farm structures, cows
and calf heifers will be purchased from a reliable supplier. The heifers are expected to give birth in
six to nine months’ time. With 2000 cows purchased the production of milk will be started. Daily
milk production is estimated to be 4000 liters. The milk will be taken directly from the milking
parlor with pipe line to a cooling tank for temporary storage. A part of the fat content is separated
and chilled in a cold store. Then distributed to sister company and to the community for final
consumption.

6.2 Engineering

6.2.1 Machinery and Equipment for Animal Feed Processing

The total cost is estimated at Birr 7 million, out of which Birr 6.4 million (90.8%) is in foreign
currency. The required machinery and equipment are supplied as a set.

Table 8: List of Machinery and Equipment for Animal Feed Processing

No Description Quantity
1 Hammer mill and accessories (unit) 1
2 Intake feeder 1
3 Bucket elevator (40 ton/hr)4 4
4 Redler conveyers 4
5 Belt weigher 3
6 Belt conveyer 5
7 Row material silo 8
8 Pre cutter 2

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 9 Straw cutter 2
10 Feeding Table 1
11 Horizontal mixer 1
12 Lye-mixing tank 2
13 Lye-mixure 1
14 Lye-(NaOH) holding tank (30 m3) 1
15 Molasses tank (30 m3) 2
16 Molasses mixer (7 t/hr)
17 Conditioner (20 m3) 1
18 Pellet processer (7 t/hr) 1
19 Sieve (30 t/hr) 1 1
20 Straw feeder (10 t/hr) 1
21 Finished feed silo and bagging
22 Compressor (7atm, 400 lts/min) 1
22 Steam production plant and other 1

6.2.2 Machinery and Equipment Milk production

The total cost is estimated at Birr 2,585,000 million. The required machinery and equipment are
supplied as a set.

Table 9: List of Machinery and Equipment for Milk Production

Description Qt Unit Price Total

Tractor (70 hp) with accessories 1 850,000 850,000
Pick-up car (Manager) 1 400,000 400,000
Water tank (7000 lts) 2 30,000 60,000
Vet. Clinic equipment (set) - 50,000 50,000
Full automatic dairy milk production machine 1 1,200,000 1,200,000
Water refrigerator 1 25,000 25, 000
Total 2,585,000

6.3 Proposed Location

The envisage project will be located at South Nation Nationalities Peoples region, Silte Zone,
Hulbareq Woreda.

Page 15 of 30
 6.4 Land, Buildings and Civil Works
The Total land requirement for the envisaged plant is 15 hectare, of which 1 hectare is earmarked
for processing plant building, storage for raw material, storage for finished product and offices
buildings. The remaining areas will be used for shades, pasture, and high breeding areas, calf
nurturing areas and open areas. The total expenditure for land at the lease rate of Birr 0.045 per
m2/per year for 95 years of land holding is estimated at Birr 641,250. On the other hand, the total
cost of building and civil works, at the unit cost of Birr 800 per m2 is estimated at Birr 8,000,000.00

7. Manpower and Training Requirement

The overall management of the organization resides with a Board of Directors headed by a Chairman
who is responsible for overall execution of all the activities. The Board is responsible for the
appointment of an Auditor to carry out the Internal Audit Inspection. The General Manager is
responsible to the Chair the day to day operation of the farm, with the assistance of the Finance and
Administration head who is responsible for carrying out the enterprise’s accountancy system, the
Sales Manager in charge of marketing, the Production Manager responsible for all milk processing
activities, starting from the Dairy farm and Cashier working under the supervision of Finance &
Administration head. Two of the establishing members, will act as a Chairman and a Production
Manager. In general the envisage project will have a total of 71 employees from unskilled to
different skilled professionals.

7.1 Organizational Structure

Page 16 of 30
 Board of Director

Farm Manager

markating Logistic and Finance Production

Department Department Depatment

Animal Feed
Sales Markating logistic Finance Cow Milkproduction
processing

Milker
Sales Persons Markating Officer Internal Auditor

Accountant

Casher

Page 17 of 30
 7.2 Manpower Requirement
Manpower required and the corresponding labour cost for the envisaged project is indicated
in Table 10.

Table 10: Manpower requirement and annual labour cost

No Description Req. Person Monthly Annual

salary, (Birr) salary(Birr)
1 Farm Manger 1 10,0000 120,000
2 Shift Supervisor 2 6000 144000
2 Secretary 3 2500 90,000
3 Unit leaders 3 5000 180000
4 Milling Line Operator 3 4000 48,000
5 Straw Operator 3 2500 90,000
6 Molasses line operator 3 2500 90000
7 Finished Line Operator 3 2500 90000
8 Fork Lift operator 3 1500 54000
9 Mechanic /Electrician 1 3000 36000
10 Cattle Attendant 6 1000 72000
11 Sales person 2 2500 60000
12 Ass. Feed specialist 1 1500 18000
13 Veterinarian 1 7000 84000
14 Cowshed Worker 5 2000 120,000
15 Milkier 15 2000 360,000
8 Record keeper 2 1500 36000
9 Drivers 5 3000 180000
10 Ass. Driver 5 1500 9000
11 Guards 4 1500 72000
Sub-Total 1,554,000
Employee's Benefits (25%) 388,500.00
Grand Total 71 2,422,500.00

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 8. Financial Analysis
The financial analysis include insight to the total capital outlay required for the project (which would
consist of total fixed investment cost, and pre-production cost; the source of finance for the total
planned) initial investment cost requirement and the operating expenses and operating revenue will
be projected. Financial parameter of feasibility analysis includes projection of profit/loss statement,
cash flow statement, IRR, NPV and payback analysis.

Underlying Assumptions:

The financial analysis of the project is based on the data provided in the previous part and the
following assumptions.

A. Construction Period and Finance

Project Construction Period 2 Years
Source of finance 30% equity and 70% loan
Bank Lease rate 12.5% (for Ten year payment)
Discount rate for cash flow 18%
Spare Parts, Repair & Maintenance 5% of fixed investment
Marketing and Sales expense 1 % of the Sales
Land value Based on estimated lease rate of the region
Accounts receivable 30 days
Raw material local 30 days
Accounts payable 30 days
Cash in hand 5 days
Finished products 30 days
Raw materials import 90 days’
Work in progress 90 days
Currency In use Ethiopian Birr

B. Depreciation

Page 19 of 30
Office furniture 15%
Other Equipment 15%
Computer, software and printer 20%
Depreciation method Straight line method
Working capital 6-month coverage of Ope. Cost

8.1 Sources of Fund

The source of fund to finance the project is planned to be from two sources. These are promoter’s
equity and bank loan. The loan is expected to be obtained from commercial banks. Since the project
is expected to take some times to repay all its debts, the Bank Finance will be lease finance and will
be repaid within ten Years. Taking the financial position of the promoter in to account, equity
contribution and Bank Finance to finance the total investment outlays of the project is assumed to be
30% (9,570,181.50) and 70%(22,330,423.50) respectively. Accordingly, the share of financial
requirement from the two sources is detailed in the following table.

Table 11: Source of Finance

Sources Percentage share Total birr

Owners’ Contribution 30% 9,570,181.50
Bank Loan 70% 22,330,423.50
Total 100 31,900,605.00

8.2 Initial Investment

The total amount of money that is required to establish the envisaged project is estimated to be birr
31,900,605.00 of which land, building and civil works amount 8.64125 million-birr Machinery and
Equipment 9.585 million-birr, milk cow 6 million- birr Per-operating expense 0.275 million birr and
working capital 2.9 million birr. The working capital is estimated to cover the six-month salary and
operating expense costs. The details of the initial investment of the envisage project is presented in
the table below

Page 20 of 30
 Table 12: Initial Investment

No. Description Foreign currency Local Currency Total

1 Land 0 641,250 641250
Building and
2 0
Civil Work 8,000,000.00 8,000,000.00
Machinery and
3 600,000
Equipment 8,985,000.00 9,585,000.00
Milk cow 6,000,000
6,000,000.00
Office
4 Furniture and 0
500,000.00 500,000.00
Equipment
5 Vehicle 0
3,000,000.00 3,000,000.00
Pre-production
6 0 275,000 275,000
Expenditure*
Total
Investment cost 600,000.00 28,400,550.00 29,000,550.00
Working
7 3,839,355.00 3,899,355
Capital 60,000.00
Total
660,000.00 31,240,605.00 31,900,605.00

* Pre-production expenditure include interest during construction (Birr 2,75,000) and

cost of registration, licensing and formation of the company including legal fees, commissioning expenses,
etc.

8.3 Fixed Investment

The fixed investment cost of the project consists of land acquisition and development, construction cost of
building and civil works, cost for the acquisition of equipment and tools, and Cost of Vehicle and purchase of
first round Milk cow.

Table 13: Fixed Costs

S Description Cost in

Page 21 of 30
 N Birr
Land, building &
1 construction 8,641,250
9,585,000.0
2 Machines & Equipment 0
3 Milk Cow 6,000,000
4 Vehicle 3,000,000
Office Furniture and
5 Equipment 500,000

6 Total fixed investment cost 27,726,250

8.4 Pre-Operating Expense

The pre-operating cost includes costs spend consultancy service getting construction license and
other spend before the operation of the project.

Table 14: Pre-operating Expense

SN Description Cost in Br.

1 Project proposal preparation expenses 150,000
2 Legal and Administration Expenses 125,000
Total 275,000

8.5 Operating cost

Includes operational cost (the costs of direct materials consumed; direct labor involved directly and
indirect materials, factory supplies and utilities). The current costs are set by collecting data from
different market sources and by taking the current market price of inputs. The annual production cost
at full operation capacity of the plant is estimated at Birr 19,480,770.00(see Table 7.2). Annual
Production cost

Page 22 of 30
 Table 15: Projected Annual Operational Cost

Items Year
1 2 3 4
Raw material Input 8,682,435.00 11,576,580 11,576,580 11,576,580
Labor Direct 2,422,500.00 2,422,500.00 2,422,500.00 2,422,500.00
Utilities 1,876,300 1,876,300 1,876,300 1,876,300
Maintenance and Repair 243,240.0 324,310.0 324,310.0 324,310.0
0 0 0 0
Factory Overheads 92,430.0 123,240.0 123,240.0 123,240.0
0 0 0 0
Administration 115,800.0 11,580.0 11,580.0 11,580.0
Overheads 0 0 0 0
Total Operating Costs 13,432,705.00 16,334,510.00 16,334,510.00 16,334,510.00
Depreciation 1,667,650.00 1,667,650.00 1,667,650.00 1,667,650.00
Cost of Finance 1,511,880.0 1,478,610.0 1,478,610.0 1,478,610.0
0 0 0 0
Total Production Cost 16,612,235.00 19,480,770.00 19,480,770.00 19,480,770.00

8.6 Bank Finance Repayment Schedule

The bank loan will be a lease financing and will be paid within five years, 4,466,085 birr each year
plus lease fee. The lease fee rate is 12.5% and the detail is presented in the following table.

Table 16: Loan Repayment Schedule

Year Principal Payment Lease fee (12.5%) Total annual Payment Remaining Balance
0 0 0 0 22,330,424
1 4,466,085 2,791,303 7,257,388 17,864,339
2 4,466,085 2,233,042 6,699,127 13,398,254
3 4,466,085 1,674,782 6,140,866 8,932,169
4 4,466,085 1,116,521 5,582,606 4,466,085
5 4,466,085 558,261 5,024,345 0

8.7 Depreciation Schedule

The calculation of depreciation is based on the straight-line method. In order to calculate the residual
value of the project at the end of the period we calculate the remaining life of the plant building and
machineries. The formula is shown below,

Depreciation=(Book Value)/(Economic Life of the building , machineries …)

Page 23 of 30
The depreciation Calculation and schedule is presented in the appendix part of this paper.

Table 17: Annual Depreciation Expense

Type of Cost of Rate/ 2021 2022 2023 2024 2025 Terminal

fixed Asset Asset % Value
Building 8,641,250 5% 432,063 432,063 432,063 432,063 432,063 6,480,938
equipment 9,585,000 15% 1,437,75 1,437,75 1,437,75 1,437,75 1,437,75 2,396,250
and tools 0 0 0 0 0
Vehicle 3,000,000 15% 450,000 450,000 450,000 450,000 450,000 750,000
Office 500,000 20% 100,000 100,000 100,000 100,000 100,000 0
Furniture
&Compute
r
2,419,81 2,419,81 2,419,81 2,419,81 2,419,81 9,627,188
3 3 3 3 3

8.8 Revenue
The revenue of the project will be generated from the selling of commercial area and apartments.
The selling price both for apartments and business centers are taken the outskirt apartment selling
price and the details are presented on the table bellows.

Table 18: Five Years Revenue Projection

Year
Source of
NO. Revenue
1 2 3 4 5

1 Revenue from
13,2
sales of animal 17,720,000.00 17,720,000.00 17,720,000.00 17,720,000.00
90,000.00
feed
2 Revenue from
6,3
sales of cow 12,672,000.00 31,680,000.00 31,680,000.00 31,680,000.00
36,000.00
milk
3 Revenue from
1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00
sales of Caves -
19,6
Total Revenue 31,392,000.00 50,400,000.00 50,400,000.00 50,400,000.00
26,000.00

Page 24 of 30
 9. Financial Profitability and Sustainability Analysis
Sustainability analysis: - helps us to understand a projects future in paying its bills and providing
the required benefit throughout its entire life, whether these funds come from user charges or from
regular budget sources.

Profitability: - helps us to realize the projects ability in generating more than enough revenues to
cover annual expenditures and service obligations and still generates enough profit.

The financial appraisal part helps us to evaluate the benefits and the costs of the project in light with
different accounting criteria. And the deferent criteria’s we use in this part will helps us to make a
project appraisal decision whether to accept or reject the project. And the main criteria used to
evaluate this project are:
Projected income statement for five years
Cash flow statement for Five years
Net present value(NPV)
Internal Rate of Return (IRR)
Payback Period
Benefit cost ration
Return on Investment

9.1 Projected Income Statement

The projected income statement will show as the profitability of the project, by comparing the total
revenue with the total cost of the company. Thus, the analysis shows us that the project is profitable
throughout the project period. The detail is presented in the following table.

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 Table 19: Five Years Projected Income Statement

No.
Years

Revenue 1 2 3 4 5

13,290,000.00 17,720,000.00 17,720,000.00 17,720,000.00 17,720,000.00

1 Revenue from sales of cow

6,336,000.00 12,672,000.00 31,680,000.00 31,680,000.00 31,680,000.00
milk
2
Revenue from sales of Caves - 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00

3 Total Revenue 19,626,000.00 31,392,000.00 50,400,000.00 50,400,000.00 50,400,000.00

Expense
4 Operating cost 13,432,705.00 16,334,510.00 16,334,510.00 16,334,510.00 16,334,510.00
5 Depreciation 1,667,650.00 1,667,650.00 1,667,650.00 1,667,650.00 1,667,650.00
6 Insurance Expense 117,405 117,406 117,407 117,408 117,409
7 Total Expense 15,217,760.00 18,119,566.00 18,119,567.00 18,119,568.00 18,119,569.00
8 Net profit Before Tax 4,408,240.00 13,272,434.00 32,280,433.00 32,280,432.00 32,280,431.00
9 Profit Tax (30%) 1,322,472.00 3,981,730.20 9,684,129.90 9,684,129.60 9,684,129.30
10 Net income after Tax 3,085,768.00 9,290,703.80 22,596,303.10 22,596,302.40 22,596,301.70

9.2 Cash flow statement

A cash flow statement, when used in conjunction with the other financial statements, provides
information that enables users to evaluate the changes in net assets of an enterprise, its financial
structure (including its liquidity and solvency) and its ability to affect the amounts and timing of
cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is
useful in assessing the ability of the companies to generate cash and cash equivalents and enables
users to develop models to assess and compare the present value of the future cash flows of different
enterprises. The cash flow statement will also tell us where money came from and how it was used.

Based on the analysis the projected cash flow statement shows that the company generates enough cash
from operation to sustain the business, and it also indicates the company’s ability to pay the lease fee and
lease amount principal amount on time is very high.

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 Table 20: Five years projected cash flow statement

Year
0 1 2 3 24 5
CASH INFLOWS
Owner's Equity 9,570,182
Bank Loan 22,330,42
4
Net Profit (Before 3,085,768.0 22,596,303.1 22,596,301.70
depreciation) 0 9,290,703.8 0 22,596,302.4
0 0
depreciation 2,419,813 2,419,813 2,419,813 2,419,813 2,419,813
Total Cash Inflows 31,900,60 5,505,581 11,710,516 25,016,116 25,016,115 25,016,114
5

Cash Outflows
Inv'ment on Fix. 27,726,25
Assets 0
Working Capital & 4,174,355 -
Pre O.EXP
Replacement
Loan Repayment 2,791,303 11,165,212 6,140,866 5,582,606 5,024,345
Total Cash 31,900,60 2,791,303 11,165,212 6,140,866 5,582,606 5,024,345
Outflows 5

Net Cash Flow - 2,714,278 545,305 18,875,249 19,433,509 19,991,769

Cum. Cash - 2,714,278 3,259,582 19,420,554 38,308,758 39,425,278

Balance

9.3 Net present value criteria (NPV)

NPV Is the sum of the present value of all the cash flows (positive or negative) expected to occur
over the life of the project. NPV is the present value of cash inflows minus the present value cash
outflows, which arrives at a Birr amount that is the net benefit to the company.

The discount NPV is calculated only for the new investment in order to understand the profitability
and attractiveness of the expansion project and in order to make decisions to accept or reject the
project.

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 NPV =PV of Cash Inflows−Initial Investment Cost

NPV =44,640,496−31,900,605

The projects NPV =Birr 12,739,891

Decision: A project with a positive NPV is acceptable; provided a sufficient margin of error above zero is
included in the NPV to account for uncertainty. This projects NPV value is positive and is more than 12
Million Birr, i.e. the project is acceptable and is highly attractive. The final decision is accepting the project.

9.4 Internal Rate of Return (IRR)

It is the discount rate at which the present value of cash inflows is equal to the present value of cash
outflows. Or Discount rate that makes project’s NPV zero. IRR represents the exact profitability of
the project. It is the rate of growth a project is expected generate. The higher the IRR the more
attractive is the project. The formula to calculate the IRR is:

Decision: A project with IRR greater than the WACC (weighted average cost of capital) or discount
rate is considered to be acceptable. The discount rate is an Opportunity cost of various sources of
funds for the project (Minimum return expected as a compensation for taking risk). The IRR (25%)
of this investment project exceeds the cost of the funds (15%) used for financing the project (cost of
capital), there is a surplus remaining after paying for the capital, and this surplus adds up on the
wealth of the owner of the company.

9.5 Payback Period (PBP)

Refers to the number of years required to recover the initial investment of a project considering.
When the annual cash inflow is a constant sum, the payback period is simply the initial outlay
divided by the annual cash inflow.

PBP=initial outlay / Annual cash inflow

When the project’s cash flows are not uniform, the payback period is computed as follows:

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 Un−recovered cost
PBP= years before full recovery +
Ca sh flow during the next year

16,188,833.20
PBP=2+ =2.6 years
24 , 263 , 953.1

The payback period for the project is 2 years 6 months. And the project is again attractive because it
shows that the company recover all the initial outlays of the project within 3 years and is good
compared to other similar investment.

9.6 Benefit cost ratio

There are two ways of defining the benefit-cost ratio. The first measure relates the present value of
benefits to the initial investment:

BCR=PVB /I

where : BCR=Benefit −Cost Ratio

PVB=Present Value of Benefits

I =Initial Investment

Based on the discount table presented in the appendix the BCR is calculated as follow.

PVB 44,640,496
BCR= = =1.39
I 31,900,605

Decision: if the BCR>1 the project is acceptable and attractive, or the present value of the benefit generated
is greater than the initial out lay. In this project case, the BCR is 1.39 and which is greater than one so, the
project is acceptable and is attractive because each one-birr investment generates 39 cent at present value.

The bottom line All the criteria shows that this project is attractive and generates
is: high return for the company. Based on this it is possible to conclude
that the project is financially feasible.

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 10. Economic and Social Cost Benefit Analysis (ESCBA)
The financial feasibility of a project is always important for the investor, but it is not enough; the
impact of the project on the society and for the country’s economy is a critical issue. As financial
feasibility of a project is a key issue for the investor economic and social feasibility is a key issue for
the government and the society. So, in order to say a project is feasible the project should be
technically, financially, socially and economically feasible.

The perspectives and parameters provided by the macro-level plans serve as the basis for ESCBA.
Like the project’s impacts on income distribution, savings, employment, supporting the
government’s effort in the expansion of industrial zones and industries in the country etc.

10.1 Job creation

This project will create a permanent and daily work opportunities for the community and the country
at large. The project can create employment opportunities for 71 persons. The establishment of such
factory will create job opportunities for youths in the project areas. This is in terms of providing raw
materials for those who are engaged and would like to engage in cattle fattening. In addition to this
the project will also create job opportunities for those who are interested to distribute milk to the
consumers collecting from the envisage project. Hence, the project will create a back and forth job
opportunities for youths in the community besides directly employed in the project.

10.2 Tax Revenue

In the project life the city will collect millions from income and other taxes. Such result creates
additional fund for the government, using it in expanding social and other basic services in the City.
And the projects output will facilitate and improve the performance of other organization

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