Project Proposal 2018
Table of Contents……………………………………………………………………............................i
1. Executive Summary .................................................................................................................................. iii
1.
2.
Introduction .......................................................................................................................................... 1
1.1.
General.......................................................................................................................................... 1
1.2.
Promoter background ................................................................................................................... 1
1.3.
Project Justification ....................................................................................................................... 1
1.4.
Objective of the project ................................................................................................................ 2
1.5.
The Economic Significance of the Project ..................................................................................... 2
1.6.
Location of the Project .................................................................................................................. 4
1.7.
Gerbe Guracha Town General profile ........................................................................................... 5
1.7.1.
Basic Data .............................................................................................................................. 5
1.7.2.
The Economic Base of Town ................................................................................................. 5
1.7.3.
Location Map of the Region .................................................................................................. 6
THE MARKET STUDY .............................................................................................................................. 6
2.1.
2.1.1.
History of the Sector ............................................................................................................. 7
2.1.2.
Building construction in recent years ................................................................................... 7
2.2.
3.
Industry Assessment of Mixed Used Buildings ............................................................................. 6
Marketing and Business Assessment ............................................................................................ 7
2.2.1.
Current supply of mixed use building ................................................................................... 7
2.2.2.
Future supply of commercial Building .................................................................................. 9
2.2.3.
Future Market or Demand of Commercial Building Rental ................................................ 10
2.3.
Target customers ........................................................................................................................ 11
2.4.
Market prospects ........................................................................................................................ 11
2.5.
Marketing promotion and strategy ............................................................................................ 11
2.6.
Service Program .......................................................................................................................... 12
2.7.
Pricing.......................................................................................................................................... 12
TECHNICAL STUDY............................................................................................................................... 13
3.1.
Description of the project service/ product mix ......................................................................... 13
3.2.
Land Use plan .............................................................................................................................. 13
3.3.
Construction work and Technology ............................................................................................ 13
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4.
5.
3.3.1.
Design Phase ....................................................................................................................... 14
3.3.2.
Construction Phase ............................................................................................................. 15
3.4.
Utilities ........................................................................................................................................ 16
3.5.
Project Implementation .............................................................................................................. 16
ORGANIZATIONAL STRUCTURE ........................................................................................................... 17
4.1.
Organization and Management .................................................................................................. 17
4.2.
Man Power .................................................................................................................................. 17
4.3.
Organizational Structure ............................................................................................................. 17
Economic Evaluation of Project .......................................................................................................... 20
5.1.
Approach ..................................................................................................................................... 20
5.2.
Components of Economic Evaluation ......................................................................................... 21
5.3.
Total investment Cost (Cost Components) ................................................................................. 21
5.3.1.
Initial working capital .......................................................................................................... 21
5.3.2.
Pre- service Expenses .......................................................................................................... 21
5.3.3.
Consultancy Service Expenses ............................................................................................ 21
5.3.4.
Fixed Investment Expenses ................................................................................................. 22
5.3.5.
Operating Expense at full Capacity ..................................................................................... 24
5.4.
Revenue schedule (Benefit Components) .................................................................................. 25
5.5.
Financial Analysis and statements (Cost-Benefit Analysis) ......................................................... 29
5.5.1.
Underlying Assumption....................................................................................................... 29
5.5.2.
Sources of fund ................................................................................................................... 29
5.5.3.
Depreciation schedule ........................................................................................................ 30
5.5.4.
Balance sheet (at the Beginning/Opening) ......................................................................... 30
5.5.5.
Financial Statement ............................................................................................................ 31
5.5.6.
Financial Analysis ................................................................................................................ 33
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1. Executive Summary
1) Type of Project
2) Location
Country
Region
Woreda
Town
General Information
Commercial Center. The territory of the complex
includes:
1. 3-storey building – total floor area of 330 m2,
includes business centers, café and restaurant,
offices, a meeting room, clinic;
2. Parking area.
Ethiopia
Oromia Region
Kuyyu
Gebre Gurracha,
N 9º48′, E 38º24′
3) Owner’s name
4) Ownership
altitude between 2500and 2545 meter above sea level.
Trading Organization Gudina Boru S.C.
 private
☐ state
commercial
☐ logistics
9) Land Required
☐ industry
☐ other
☐service
1. Land plot for allocation of a building – 80 m2
2. Total Land use area – 90m2
 lease
☐sale
☐other (specify)
Commercial Center building (G + 3) used for different
purposes including Shops, Restaurant, bar and café,
meeting hall, clinic and offices
90m2
10) Total Investment Cost
ETB 1,521,950.00.
11) Finance
100% from owner equity (shareholders)
i)At feasibility
study and Detail
Design stage
12) Employment
ii)At Construction
Opportunity
Stage
iii)Post
Construction
13) Social and Economic Benefit
7 Individuals
5) Purpose of use
6) Land plot area (m2)
7) Means of use
8) Project composition
Gudina Boru S.C.
24 Individuals
77 Individuals
Provide better mixed services, employment opportunities ,
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Project Proposal 2018
14) Economic Evaluation
15) Payback Period
Gudina Boru S.C.
generation of income and benefits for the local people
The commercial building need to be designed is
economically feasible based on the result of economic
evaluation with present worth and benefit/cost ratio
analysis which is NPW = 5,553,408.95ETB and
B/C=1.96>1 over 25 years project life and 15% internal
rate of return.
The building’s total investment cost will be fully
recovered at the 2.85 year of operation.
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1. Introduction
1.1.
General
The current fast and dynamic economic growth of Ethiopia especially in urban area (specifically
in Gerbe Guracha Town) necessitates equivalents growth of building and construction sector.
The sector should be expanding rapidly to support the overall economic development
sustainably.
In the building sector of the economy, the commercial center one become common and expands
in urban areas of the nation since dynamic economic development of urban economy requires the
construction of the buildings in towns to support the growing of business service sectors like
shops, offices, supermarkets, cinemas, beauty salons, cafeterias, restaurant, meeting hall and
other activities. In this regard, mixed used building expands in the all parts of the country mainly
in Addis Ababa and regional towns.
Ethiopian Government and Oromia regional urban land laws and policies initiate and support
individual or group of some people for developing urban land to overcome poverty in our
country. Accordingly, Trading Organization, Guddina Boru S.C. has request the local
administration of Gerbe Guracha Town to invest on urban land by constructing commercial
center building. Following their request the local administration allow them based on urban
development laws and policies which highly support a group of peoples (shareholder investor)
need to invest on urban land.
To this effect, the owner of the envisioned Commercial Building, Trading Organization Guddina
Boru S.C. is planned to invest in Gerbe Guracha Town and undertaken this project study to
check the market, technical and financial feasibility of project .The result of the study is very
sound and promising for the owner to start the project in the area.
The promoter is very ambitious and committed to realize the project. Hence, the share company
expects to get the necessary from the city administration to make the project to be operational.
1.2.
Promoter background
The project owner shareholders, Trading Organization Guddina Boru S.C. are experienced in
different business activities. Therefore, from their past experience shareholders will
successfully run and become profitable from this planned commercial building development.
1.3.
Project Justification
Investment and project development play an important role in any emerging markets or
economies property generally comprises residential houses and commercial services (mainly
commercial center use buildings) developed for rental business and sales. The Property
investment market in Ethiopia remained under developed for several years. As a consequence,
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Project Proposal 2018
the supply of residential houses and non-residential real estate that can be used for residence,
office space, shopping malls and catering services in the urban centers of the country is
disproportionately low to cope with the growing demand in the country spinning from the
average growth in GDP of 5.5 percent over the last ten years and population increase. The
relatively good performance of the macro-economy (real growth in GDP, low inflation rate and
growth in investment and export sector) has stimulated unprecedented investment growth in the
property sector over the last five years. The growth of investment in the property market over the
last five years is consistent with the global experience suggesting the investment in the
residential and commercial property is greatly influenced by the performance of the macroeconomy conditions. In general, a stable macro- economic conditions leads to economic and
business growth and develops investors’ confidence this certainly encourage large demand in
the property market for office space, shopping malls, catering services. The future growing
demand trends, and with the expectation of high return on their investment capital, large number
of land developers pooled their financial resources and invested in the property market.
Looking at the past trends and permits issued by the government to the construction of mixed use
building properties including the commercial building in the major urban areas of the country,
one can conclude that the momentum is more likely to continue.
Besides, the government police and incentives for the private sector investment are very
promising that motivates the promoter to engaged in mixed use building business.
1.4.
Objective of the project
The main objective of this project is to build cost efficient and business centered mixed purpose
building (G + 3) that can be functional for multipurpose in Gerbe Guracha Town.
1.5.
The Economic Significance of the Project
The envisaged project demand to add the economic development of the nation in general and
zone and town in specific with the following features:
i.
Urban Development
Flexible and appropriate urban land laws and policies would allow the citizens to participate in
land development and this in turn can minimize illegal settlements and foster sustainable urban
land development. On the other hand, the investment increase the Aesthetic of the town, improve
trading activity in town, locally availability of resources for the community, attraction of other
investors, etc. which threat to sustainable land development.
ii.
Provide Quality Service
The Project will provide better building service on renting base. In doing this, the building will
provide quality building service for different purpose.
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iii.
Source of Revenue
As public policy of any nation, the government collects different forms of taxes from different
business organizations and individuals. Among the different forms of taxes, business income
taxes, payroll income tax and VAT are collected from undertaking business activities. Therefore,
the building will serve as source of revenue for the town as well as for the region.
iv.
Employment Opportunity
One of the problems that our country faced is unemployment. Therefore, the current objective of
the government is working on the tackling the problem of unemployment and fostering the
development process either through creating self-employment or employment in other
organization. Hence, this project will open different job opportunity at different stage of this
project including the following;
 At design Stage: at this stage it creates job opportunity for minimum 8 professions (1
Architect, 1 Structural Engineer, 1 Electrical Engineer, 1 Sanitary Engineer, 1 Quantity
Surveyor, Soil Expert, Draft Person, etc.).
 At Construction Stage: At this stage for two years period the project will open jop
opportunity on average; 1 site engineer, 1 construction foreman, 1 time keeper, 2
carpenters, 2 mason, 1 electrician, 2 Skilled laborer (for mixer, vibrato and other machine
operators), 16 Daily labors, consultant (supervisor), 1 store keeper, 1-purchesor, 1 guard,
etc. on constant basis. That means the project create job opportunity for 30 individuals on
constant bases for a period of two years. In addition the project will form for some
experts for short period of time like sanitary installation, glass work, metal work, painter,
etc.
 Post Construction Stage: It will open the following opportunity:a) Administration of the project (management team):1-Manager, 1-Office Manager
(Secretary), 1- Accountant, 2-Reciption, 4-Guards and 4-cleaner.
b) Project user (shopping): For about 15-shoping individuals. Each shopping including
two workers and totally 30 citizen job opportunities.
c) Restaurant and Cafeteria Service: job opportunity for 1-manager, 1-accountant, 4chief, 5-custemor service, 2-cleaner.
d) Office service: for 6 individuals.
Accordingly, the project will planned to open job opportunity for about 80 citizens throughout
the Project (building) life after construction.
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v.
Benefit for the Local Community
As a corporate responsibility the building will engage different development activities for the
surrounding area. This will transfer technology for the community and contribute for the
development of the nation.
1.6.
Location of the Project
Country:
Ethiopia
Region:
Oromia Region
Zone and Woreda:
North Shoa, Kuyyu Woreda
Town:
Gebre Gurracha,
N 9º48′, E 38º24′
Distance from Addis
Ababa:
156 Km
The project will be specifically located in one of the central business zone of the city. For the
purpose of this study, the organizers identified a market drawing area that comprises the areas
where major demand generators (such as larger employers, commercial developments, and
tourism organizations) as well as the areas including in Gohatsion, tullu-milki, Ali Doro, and
other surrounding areas. These areas were used to evaluate overall area growth trends of
economic indicators such as population retail sales, eating and drinking sales, and effective
buying income. In addition to the above surrounding towns and areas took into consideration
different manufacturing industries planed and constructed in cities like cement factory, gypsum
factory, creasier site and building projects used for hotel and commercial purpose are one of our
focuses to develop this business and in the country’s access to visitors from a 200-mile radius
surrounding Ethiopia. Approximately 28,000 people live within the city and about 4,000
passengers pass through the town per day.
The population base in the market drawing area is project by the Ethiopian Government Census
Bureau to increase by approximately. Based on figures from the central statistical Agency in
2005, Gerbe Guracha town has an estimated total population of 19,830. This area, to a certain
degree may also generate demand for the subject market.
Population growth (annual %) in Ethiopia was reported at 2.5018 % in 2016, according to the
World Bank collection of development indicators, compiled from officially recognized sources.
Based on this data when we forecast for 2018, 13 year; Population of 2018 =
𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝟐𝟎𝟏𝟓 ∗ (𝟏 + 𝒊)𝒏 where, i=2.5018% and n=13.
Hence, population of at 2018 is estimated to be 27,398.35 people.
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1.7.
Gerbe Guracha Town General profile
1.7.1. Basic Data
Population
Kebeles
School
Health Institutions
Water Supply
Electricity supply
Governmental and NonGovernmental
Organizations
General Information
The town has a population of 28,000
2 kebeles
has enough infrastructures of elementary, high school, preparatory
school and college institution.
The town has one hospital.
Available
Available
Banks, Clinic, Factory, Electric Power Sub-Station, etc.
Climate
Dega; Gebre Guracha town has conducive climate condition for the
human settlement and the growth different types of crops. Since town
is found in the central highland the weather condition is suitable for
human settlement.
Altitude
Altitude of Gerbe Guracha: 2,504m
Road Infrastructure
Socio-Economic condition
The Addis Ababa-Bahirdar collider road is pas through the town. In
addition the Town is linked to different woreda kebeles with rural
gravel roads.
The socio-economic activity of the society is mainly educated and
commercial and agricultural based community live in the town.
1.7.2. The Economic Base of Town
Gebre Guracha town is estimated to have a population of about 28,000. The town has relatively
developed infrastructural facilities (like telecommunication, electric power, road, hospital, etc.)
that could contribute toward the development of the town. Today the favorable economic
situation put the town at the advantage of attracting the private sector investment as a number of
investors are coming to the zone for investing. The establishment of new mixed use no doubt in
helping the population of the town in getting new employment opportunities and different
services which are related with hotel services and retail services.
Other than being employed in government and private organization, most of the population of
the town is engaged in trading activities be it formal or informal. Unlike the urban people, the
rural population is engaged in farming.
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1.7.3. Location Map of the Region
2. THE MARKET STUDY
2.1.
Industry Assessment of Mixed Used Buildings
In 1991, the new market oriented economic system took over with the coming of EPRDF (the
current ruling party) to power. Since then boosting private investment was one of the primary
agendas of the Government of Ethiopia. The private sector has been involved in various sectors
of the economy, one of which being urban land development (Investment), construction and real
estate development. The government has been focusing on construction of different
infrastructure as per the master plan of the Region or Town.
Accordingly, the Ethiopia Government has developed different urban infrastructure development
polices. This polices include different manufacturing, recreation area, hotels, commercial
centers, and other infrastructure investment of the country. Based on the country and specifically
oromia regional state investment procedure the Gerbe Guracha town has plan different land
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investment program and arranging (organizing) different private share company for the town
urban land development.
2.1.1. History of the Sector
The construction sector has shown a tremendous increase over the last twenty years in the
Region. The building infrastructure sector, particularly commercial buildings, is also regarded as
one of the major components of this sector. Since the government is owner of land, the primary
role of the government has been land administration which is critical for the different sector.
2.1.2. Building construction in recent years
The construction sector, especially of building, has been booming in Gerbe Guracha town in the
last five years.
2.2.
Marketing and Business Assessment
2.2.1. Current supply of mixed use building
Building/Office space
Commercial building/office sector has shown a dynamic change in the past few years in the
country. Moreover, currently share holder company investment is becoming familiar and
initiated and supported by government policy for sharing/distributing service for more number of
citizens rather than one individual person.
The reason for this could be rapid economic growth and supporting sustainable public
infrastructural development which have great input in solving poverty and unemployment
currently increasing in the country. Other factors relevant in the specific case of commercial
building are increasing spontaneously in national and international businesses, particularly firms
in the services sector.
The business of commercial center building is booming highly due to the recent rapid growth
experienced in Ethiopia. As a result a good number of local and international organizations are
coming in place. Government offices which used to operate in limited spaces all over the city are
also concentrating on leasing new and modern buildings. Increasing numbers of government
organization, different manufacturing factories, bank services, international organizations, and
NGOs which in the past had typically increasing rental price of the multipurpose building within
the city.
Scattered data from central statistical Authority of Ethiopia (CSA) on building permits were
available from 1998/1999 till 2000/2001 indicated the number of permits as well as site area.
Data from CSA indicated that a total of 720 commercial building permits were granted during
the three years that is an average building permit of 240 under review period. However, data for
2001/2002 is not available. Therefore, assuming the average number of annual building permits
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growth rate over the three years, the number of permits granted would reach 240 building
making total building permits between 1998/1999 till 2001/2002 at 960 for commercial
buildings.
Since 2002/2003, building permits were granted at the Addis Ababa city Administration level for
all buildings. Hence data obtained from construction regulatory and capacity building Authority
indicated that a total of 6,255 permits were given and the estimated total building permits from
1998 till 2009/2010 has reached 13,017 buildings.
In addition, building permits in the past five years only, i.e. 2005/2006 till 2009/2010 was a total
of 3,122 out of which 40% were granted for commercial buildings. Therefore, total commercial
buildings that have been granted permits from 1998/1999 until 2004/2005 in Addis Ababa
include 3,834 that is (13,017-3122)*40% buildings.
On the other hand, following the scattered data available analysis from CSA, percentage of
commercial building based on level or number of storey were computed as shown in the table
below.
Table-1 number of stories and percentage share of commercial buildings
Building
Percentage
1 storey
29.7%
2 storey
11.5%
3 storey
10.3%
4 storey
9.3%
5 storey
18.1%
6 storey
7.5%
7 storey
3.7%
8 storey
2.9%
9 storey
3.1%
10 storey
1.8%
11 storey
0.6%
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12 storey
0.3%
13 storey
0.6%
14 storey
0.3%
1 5storey
0.4%
.
Source:
Computation
Based on CSA data
It is important to note that in recent years the trears the trend is moving towards taller buildings
but data is not readily available. The above data is taken for office space computation purpose
and is only an estimate. In addition, commercial building shop space supply only includes data
from 1998 onwards. Building space that existed before this time is not included in the study.
2.2.2. Future supply of commercial Building
The market for commercial building has increased in the past few years. Data on building
permits granted by the city Administration between 2005/2006 and2009/2010 indicate that, out
of the two major real estate categories, commercial buildings have been granted the largest
share(40 percent) of building permits issued during this period; by comparison, residential
building permits accounted for 30 percent of the total.
Demand composition of Buildings
Moreover data from construction Regulatory and capacity Building office of the Addis Ababa
city Administration was used for 2005/2006 till 2009/2010 to forecast the supply of office space
for the next five years. In addition, it has been assumed that an average of 5 years is required to
build commercial a minimum of five stores.
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Table-2 Office space supply forecast
Year
Office space supply in square
2010/2011
2011/2012
2012/2013
2013/2014
2014/2015
2015/2016
9,916,543
10,576.68
11,363,051
12,248,752
12,767,135
13,146,869
Source: Computation Based on CSA data
2.2.3. Future Market or Demand of Commercial Building Rental
The demand for office space is a derived demand because firms rent space as an input to the
production of services or goods they provide to businesses and households in the local, regional
or national economy.
Following our survey of office space users in Ethiopia and specifically in Gerbe Guracha Town
we make market study of building project investment used for Office, café and restaurant and
Shopping centers. As per our condition survey of the town office space users firm are mainly
firms providing banking, insurance, cafes and restaurants, supermarkets and management
institutions, Colleges, IT information/Internet cafe service, Cement factory, Gypsum factory,
Crasher Site, Engineering Institutions (contractor and consultant), health organization, Legal and
accounting service providers which are primarily professional businesses. In addition,
government services and some NGOs are opting to lease large space of commercial building.
Moreover, according to the actual town business center status, different customers for
commercial building also include shops and game zone areas those are currently renting out to
provide their goods and services.
Future demand for office space is actually driven from growth in number of offices in the city
which in turn is influenced by the macro-economic growth in the country following the
government five year growth and transformation plan(GTP),the Ethiopian.
Economy is expected to increase by 11% for base case scenario and 14% under the optimistic
case scenario. Assuming that demand for office space is directly related to the growth in the
economy, the forecast for office space demand is shown in the following table:
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Table-3 –office space Demand Forecast
Years
2010/2011
2011/2012
2012/2013
2013/2014
2014/2015
2015/2016
Office space demand
under base case economic
growth
9,916,543
11,007,363
12,218,173
13,562,172
15,054,011
16,709,952
Office space demand
under high case
economic Growth
11,304,859
12,057,416
12,953,878
13,963,577
14,554,534
14,987,431
Source: G2 estimation based on GTP’s forecasted Ethiopian Economic Growth
2.3.
Target customers
The target customers of this envisaged project include:
I.
II.
III.
IV.
V.
2.4.
Business community (shopping centers, Banks and Insurance, café and restaurant
game zones, etc.)
Nearby business organizations
The government bureau
Small accounts and legal service
Nongovernmental organizations
Market prospects
Based on market study, the demand of mixed purpose building in the town is very high.
Therefore, the envisioned Building will be successful by entering in to this market in the city and
achieves full scale service in its year. Furthermore, the investment has play cruiser role for
solving unemployment problem available in the local area.
2.5.
Marketing promotion and strategy
In order to penetrate and gain considerable market share, one of the major marketing strategies
for the project is consistently rendering quality service to its tenants. Due emphasis must be
placed on improving quality of service and facilities. The major marketing strategies to promote
the project and gain considerable market share include:
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








Advertising though different means focusing on the existing and facilities;
Promote in association to the key location and nearby business;
Working on sustained promotional work;
Planning and implementing to include multipurpose service of the project;
Working on public relations to reach and influence key persons and organizations with a
capacity of making decisions;
Keeping the quality of its service/facilities and consistently improving with changing
situations
Installing current technology;
Good administration team during project service;
Good Security;
2.6.
Service Program
At the initial stage of the service provision period, the Building would require some years to
penetrate into the market and capture a significant market share. Therefore, in the first and
second year of service the capacity utilization rate will be 60% and 80% respectively. Full
service provision shall be attained in the third year and then after.
2.7.
Pricing
Based on the market price of similar mixed use building in the area, the envisioned Buildings
set the following fair price (Before VAT) for its services as indicated below:
Unit
Unit price in
Br
Store
M2
100
1.2
Business centers
M2
180
1.3
Bar, Café and restaurant
M2
180
1.4
Office
M2
150
2
Parking service
Car
10
SN
Description
1
Building
1.1
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3. TECHNICAL STUDY
3.1.
Description of the project service/ product mix
The envisioned mixed purpose building will provide different rental services to the different
customer groups for different purpose. The building will have ground and 3 floors. The purpose
of the building explained as follows;


Ground floor for business center like bank and other service;
The remaining floors designed for different business centers like supermarket, beauty
salons (men and women), pharmacy internet café, and different shops and other business
activities, cafeteria, restaurant, bar services and the rest floor for rental office.
3.2.
Land Use plan
The total land required for the envisioned project is estimated to be 391m2. The total areas for
construction of the building will be as follows.
Table Land utilization plan
SN
1
Description
Land covered by Building
Land in M2
80
Table Total Building Floor Area utilization plan
SN
3.3.
Description
Floor Area(m2)
1.1
Store
40
1.2
Business centers
150
1.3
1.4
Bar, café and restaurant
Office
80
60
Construction work and Technology
The building project Investment has two phases:
i. Design Phase and
ii.
Construction Phase.
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3.3.1. Design Phase
I)
Architectural Design & Layout
Although functional spaces for the project were laid out in significant detail, the rest of the
building has designated spaces nut no set layouts. It was at the discretion of the project promoter
to devise typical layouts for the non- detailed commercial and office spaces. To make sure that
the building’s layouts were practical, the project owner researched typical architectural layouts
for laboratory and executive office spaces.
The walls and partitions throughout the floor were congruent with the structural frame and
column locations.
II)
Structural Design
One of principle deliverables of our project is the structural design of the building. The structural
bays were coordinated with the layout of the building. Adjustments were made to the bays if
specific layouts are necessary. The frame was made up of a grid with repeating standard
structural bays. Included in the structural system are bay sizes, shape and size of structural
members, floor compositions and curtain walls. These elements were established to resist
gravity and lateral loads as appropriate.
The gravity load design was completed for two frames; one of structural steel and one of
reinforced concrete. The structural steel frame was chosen for further design based on cost per
square foot, local availability of material and constructability considerations, such as erection
and fabrication. The steel system was then designed for lateral loading with necessary
adjustments being made to framing.
III)
Reinforced concrete
The project group prepared hand structural design calculations for a typical bay of a reinforced
concrete frame. In all reinforced concrete bay designs, a superimposed dead load of 7.5 pounds
per square foot was assumed for mechanical equipment, floor coverings and ceilings.
Similarly the design of the typical bay accounted for the use of different commercial space, in
which a live load of 125 pounds per square was assumed. Loads were calculated based on the
requirements of the minimum Design loads for Buildings and other structures (EBCS).
IV)
Foundation Design
The design of a superstructure may be accurate, have considered all possibilities and still fail
because the substructure is in capable of distributing the applied loads to the supporting soil.
Gudina Boru S.C.
Page 14
Project Proposal 2018
Foundation design takes more into consideration than merely the loading from the columns.
While the main part of the project focused on the structural frame and its alternate designs, a
preliminary foundation plan was designed based upon maximum loads carried from the
superstructure through the columns. The foundation design conducted by the project team
consisted of the selection of foundation type, determination of the bearing capacity and the
design for design for typical interior and exterior spread footings.
3.3.2. Construction Phase
I)
Construction Schedule
The construction project is proposed to be started on November 2018, and is expected to be
finished on September, 2020. As seen in the abbreviated construction schedule above, a majority
of the schedule’s time is made up of five major activities. Earth Work, Concrete, Building
Enclosure, Masonry, Sanitary Installation, mechanical and HVAC and Electrical Install.
Concrete activities include processes such as placing foundations and other building structural
member. The building Enclosure phase includes erecting the scaffolding that will allow for
exterior sheathing installation and bricklaying
Mechanical and Electrical install coincide with each other due to the need for coordination
between the two divisions. There are several periods of construction during the schedule in
which there are multiple construction activities occurring at the same time.
The construction site must be organized accordingly as these processes take place. As with any
construction project, the goal of the schedule was to complete all construction activities before
the required Date of completion.
This date of completion is practical based on the time of year in which the building will be
completed. The team allowed a two week contingency for any setbacks. Typically, winter
construction tends to cause unforeseen delays that negatively impact a construction project.
These conditions can and will almost undoubtedly impact the project schedule by causing
unforeseen delays and project inefficiency.
II)
Construction plan and process (Implementation)
The project team developed a coordinated project schedule and construction plans that would
reflect the expectation for an actual construction project. The project schedule was developed
using the preliminary designs give to the project team.
Additionally the group considered typical construction activities and durations taken from
similar construction projects as well as realistic constraints on building development. For
instance, it is necessary for the structural frame to be completed before concrete can be placed
for the slab on deck. Hand drawn construction plans detailing site entrances and storage areas
Gudina Boru S.C.
Page 15
Project Proposal 2018
were coordinated with the project schedule to give the reader visualizations of the construction
site set up through various periods of the construction process.
The construction process for this project is normally a disjointed three stages development by
which the conceptualized need of the promoter of this project is translated in to a functional
facility that will meet their needs in terms, cost and quality.
Based on a general program of the project owners the consultant who is going to be hired makes
site studies, develops structural designs, prepares drawings and specifications, determines
quantities involved and estimated the resultants costs. All these activities will be done in the first
phase of the project which is the design stage after the document are produced by the designers
have been received, and the works secured the project is supposed to enter the tendering stage.
At this stage contractors study the project document analyze and subsequently determine the
construction methods, built up their unit rates and submit their bids for the works. The promoter
of this project intends to compare the bids and award the contract for the lowest responsible
bidder. This is of course, presupposes that the favorable proposal does not exceed the allocated
budget.
After the award is made and the contract signed between this project owner and the contractor,
the project constructor is expected to prepare and submits a detailed construction program which
includes material schedule, man power requirement and cash flow forecast.
3.4.
Utilities
A number of utilities would be put in place in order to ensure smooth functioning of the project.
These utilities include:




Water supply
Supplementary Electricity supply and Telephone line
Fuel, oil and lubricant
Paved Road Transportation and Drainage Facility.
3.5.
Project Implementation
The project’s implementation is expected to take 24 months. The major activities include
collection of budget from each shareholder, procurement of work and consultancy service,
construction of the building, safety issues, cleaning the area around the building; procurement of
equipment’s and start rendering services and construction management. The time schedule for
the above mentioned major activities is presented below:
Gudina Boru S.C.
Page 16
Project Proposal 2018
Table- Project –Implementation-Schedule
SN
1
Activities
Land Approval
Date
October,2018
2
3
Collecting money from share
holders
Site Development
2018, 2019
November, 2018
4
5
6
Building and construction work
Preparation for service
Service execution
November,2018October, 2020
June, 2020
October, 2020
4. ORGANIZATIONAL STRUCTURE
4.1.
Organization and Management
The organizational structure should be in a way that the company able to achieve its objectives as
well as the satisfaction of standard requirement. In addition to this, the structure should fit the
dynamics of all customers in the building ranging from small business to large tenants.
4.2.
Man Power
The total man power required for the building will be 22 persons. The man power list and the
corresponding labor cost are shown in part five this document.
4.3.
Organizational Structure
The organizational structure of the project is designed by including all the necessary personnel
under the right division. At the top of the organizational structure, there will be manager with the
responsibility of supervising the overall activity of the building. Depending up on the nature of
the center and the amount of work to be performs; there exist auxiliary units under the general
manager. Employees under each unit will be supervised by the department head that is
accountable for the general manager. General Manager is appointed by owner.
Gudina Boru S.C.
Page 17
Project Proposal 2018
owner
General manager
Building Admin
HMR and finance
cashier
Technical
mantenace
manger
marketing
General service
like cleaning and
Security
Building
mentenace
IT,Electricity and
pulmper
pushaser
Fige1. Organization structure of the Building




As clearly shown in the organizational structure, the center organization has one general
manager and three main sections. Under the general manager there are the, marketing
Department, maintenance and building Administration department. Under building
Admin dept there exist two sections i.e. HRM & finance and general service. Further sub
sections are also organized under technical and maintenance manager. The following
section deals with the duties and responsibilities of each department.
A. The general manager’s Duties and Responsibilities
He/she will plan organize, direct and control the overall activities of the building.
He/ She will devise policies and strategies that will enable the center to be profitable
He/she will incorporate modern technological innovation that will facilitate the service
delivery of the building to increase customer’s satisfaction.
He/she will, organize, direct and control the human and non- human resources of the
building so as to achieve the short and long run objectives of the organization.
B. Building Administration Department
The Building Administration Department of the multipurpose building has two main sections
(HRM and Finance and General Service section). It has responsible for undertaking the
following activities:
 Manage the human resources and control employee’s activity
 Will non-human resources of the project, which include: effective handling the different
resources of the building, and devise strategies of controlling against fraud and damage.
Gudina Boru S.C.
Page 18
Project Proposal 2018
 Will provide the right material or inventory to the center with right price at the right time.
 Will plan, organize direct and control the financial transaction of the building by using all
the necessary documents.
 Accountant and cashers that will collect money from the customers.
 Will develop sound financial control system by developing modern financial control
systems.
 Will prepare the annual financial statements and prepare condensed reports for both the
General Manager and other concerned government body.
 Follow the overall status of the business and provide maintenance and repair services
C. The marketing Department
 Will handle the overall marketing activities of the organization which include planning
organizing, directing and controlling
 Will develop the marketing strategies for future multipurpose building development
 Will develop effective customer handling strategies
 Execute the promotion methods
D. Technical and maintenance manager
 Will handle the overall physical maintenance and related issues.
 Will make sure electricity and back up is organized
 Follow up security issues and educate tenants
 Works in collaboration with general service to make sure tenants are well served
Gudina Boru S.C.
Page 19
Project Proposal 2018
5. Economic Evaluation of Project
5.1.
Approach
This economic appraisal exercise has been done in order to assess the benefits of the project to
economy in construction of building i.e. Commercial Building in Gebre Guracha Town which is
156km from Addis Ababa and one of good locally available commercial centre town in North
Shoa. This exercise has been carried out by using socio-economic cost benefit analysis:
 Project development cost
 Operation cost
The economic appraisal exercise has been carried out by concept of “Cost-Benefit analysis
method,” i.e. the method can be used for assessing technical, economic, social and environmental
impacts of the project investment. Hence we have decided the method for economic evaluation
the project in this feasibility study.
The model analysis the total transport costs of alternative project initial construction and
maintenance strategies through the life cycle economic evaluation. The program provides
detailed modelling of pavement deterioration and maintenance effects, and calculates annual
costs of road construction, maintenance, vehicle operation and travel time. Thus we use this
concept to estimate the above three potential cost mentioned.
We use two approaches or alternative for the economic feasibility study of the proposed project:
1. Evaluation of cost-benefit base case without project case:Senario-1 no cost and no
benefit
2. Evaluation of cost-benefit with project case: Senario-2 there is cost and benefit
The appropriate input data and information for the both scenario has been conducted on
assumption base. The project has been designed to meet a certain level of service of the
surrounding project area. In addition the design has impact on availability of goods at right time
and place within the town. However, economic analysis brings two together (cost and benefit)
and weighs them to assess the returns on the investment proposed for design.
Using Cost-Benefit analysis concept; operation cost, maintenance cost and user cost has been
made on a yearly basis for the entire project appraisal period, i.e. 25 years starting from 2020,
assuming as opening of the project for service. The concept behind concept is that if project
(building) is constructed, the benefit will be the increased accessibility of goods locally for
society, increased city beauty, and trading activity between the societies, Increased job
opportunity, Increased communication within country, etc.
Gudina Boru S.C.
Page 20
Project Proposal 2018
It may be pertinent to bring out that the investment in the building project, offering good
commercial activity, would lead to an overall improvement in the country and economic
development.
5.2.
Components of Economic Evaluation
There are two basic components of cost-benefit analysis used for economic evaluation of project:
1) Cost components and
2) Benefit components
5.3.
Total investment Cost (Cost Components)
 Initial Working Capital
 Pre- service Expenses: for preparation of project proposal and official Licensing fee
and others;
 Consultancy Service Expenses: for detail design and construction supervision
expenses;
 Fixed Investment: Expense for Land, Building construction, Assembly Hall
Equipment’s, Vehicle, Office Equipment’s and Building machineries and
Equipment’s;
 Operation Cost: Salary and operating expense
5.3.1. Initial working capital
The initial working capital is estimated to be birr 500,000
5.3.2. Pre- service Expenses
SN
Description
1
Project proposal
2
Licensing
others
fee
Total
Cost in Br.
15,000.00
and
3,000.00
18,000.00
5.3.3. Consultancy Service Expenses
SN
Description
Cost in Br.
1
Design
25,000
2
Supervision
120,000
Gudina Boru S.C.
Page 21
Project Proposal 2018
5.3.4. Fixed Investment Expenses
A. Land, Building & Construction
Description of work
Total Cost in
Br
1
Foundation work
160,000
2
Ground
250,000.00
3
First and second floor
550,000.00
4
Third floor
300,000.00
6
Parking, spacing and road
40,000
7
Site Development
30,000
Grand-Total
1,330,000.00
SN
B. Assembly hall equipments
Unit
price in
Br
Total
price in
Br
SN
Description
UOM
Qty
1
Film projector machine &
its accessories
Set
1
18,000
18,000
2
Adjustable hall screen
Pcs
1
2,000
2,000
3
Decorative light system
LS
-
6,000
4
Public addressing system
of auditoria type
lot
1
5
Chair with adjustable
backrest and seat
Unit
40
1200
48,000
7
CD Player
pcs
2
2,500
5,000
5,000
Grand Total
58,000
C. Vehicle
SN
1
Description
Mini-Bus van
Gudina Boru S.C.
UOM
Unit
Qty
1
Unit cost
Br.
Total cost
in Br
Remark
Not
mandatory
Page 22
Project Proposal 2018
E. Office Equipments
SN
Description
Measurement
Qty
Unit cost
in br
Total cost
in Br
1
Managerial tables
Unit
2
2,600.00
5,200.00
2
3
Unit
Unit
2
5
1,950.00
1,350.00
3,900.00
6,750.00
Unit
1
1,450.00
1,450.00
5
Managerial chair
Office table with chairs
Secretarial
table
with
chairs
Computer with printer
Unit
2
22,000.00
44,000.00
6
Shelf
Unit
1
3,500.00
3,500.00
7
Filing cabinets
Unit
1
1,500.00
1,500.00
8
Guest chair
Unit
5
900
4,500.00
9
Fax & telephone machine
Unit
2
1,300.00
2,600.00
10
Carpet and machine
4
Ls
60,550
133,950
Total
Finally, the total amount of money that is required to establish the envisaged mixed use building
is estimated to be 1,521,950.00 ETB.
Table summary of total initial investment cost
SN
Description
1
Land,
Building
construction
2
Assembly Hall Equipment’s
58,000.00
3
Vehicle
0
4
Office Equipment
133,950
Total
Cost
Gudina Boru S.C.
Cost in Birr
Fixed
&
1,330,000.00
Investment 1,521,950.00
Page 23
Project Proposal 2018
5.3.5.
Operating Expense at full Capacity
iii.
Salary Expense
SN
Position
No
Qualification
Monthl
Annual
y salary
salary Br
Br
General manager
1
BA in Management
2,500
30,000
Secretary
1
10+2 in
science
1,500
18,000
HRM officer
1
10+2
in
management
1,600
19,200
1
Diploma in building
1,500
maintenance
18,000
Finance head
1
BA in Accounting
2,200
26,400
Guards /security
3
Basic
1,000
36,000
Purchaser
1
Diploma
in
management & sup. 1,600
Mgt
19,200
Cleaner
3
Unskilled
800
28,800
Driver
1
10completed
Not mandatory
Gardner
1
Unskilled
800
Total
14
1
2
3
Technical
manager
4
5
6
7
8
9
10
iv.
and
maintenance
secretariat
HRM/
9,600
205,200.00
Operating Expenses
1
Audit and legal fee
Total cost
Annual cost Assumptions used
in br
24,000.00
2,000 br per month
2
Stationery supplies
6,000.00
3
Property insurance
18,700
4
Cleaning supplies
4,800.00
SN
List of Items
Gudina Boru S.C.
500br/month
1% of the building
cost
400br. Per month
Page 24
Project Proposal 2018
5
Uniforms
6,400.00
200 per for 16 people
and 2 times per year
6
Water consumption
4,725.00
1500M3 by 3.15br
7
Electric consumption
9,472.00
20000 KWH by
8
Fuel
25,500.00
1500 lit per year by
br.17
9
Oil & lubricants
2,500.00
10% of fuel cost
10
Telephone & fax
12,000.00
1000 per month
11
Repair expense
37,400.00
2% of building cost
12
Miscellaneous costs
16,000.00
2000 per month
Total
167,497.00
5.4.
Revenue schedule (Benefit Components)
Benefit Analysis
i)
Revenue from Building Rental
The revenue of the envisaged project that will be generated from rent fee of building (for the
stated purposes) at full operation is as follows.
SN
1
Description
UO
M
Unit
price in
br
Annual rent
4,000
60,000
27,000
345,600
14,400
216,000
9,000
115,200
2,000
24,000
Assumption
Building
1.1
Store
M2
100
1.2
Business centers
M2
180
1.3
Bar, café and restaurant
M2
180
1.5
Office
M2
150
Parking service
Car
6
2
Monthly
rent in br
Total
Gudina Boru S.C.
676,800.00
Page 25
Project Proposal 2018
ii)
Revenue from Employment Generation
The project creates jobs for both unskilled labours and skilled professional. Unskilled labour
employed on the construction and maintenance of projects will be estimated as follow:
Employment Benefit is the difference between the project wage rate and the wage rate in an
alternative employment.
Employment Benefit = Wage of labour work in project -- Wage of labour work in other work in
area.
Assume Construction period is two year start from now and opening at end of year 2020.
Wage of labour work in project now = 100ETB
Wage of labour work in project now = 80ETB
Employment Benefit = 20ETB per person-day
Assume an average 16 unskilled labour work in project, 300 working days per year and wage
increase by 5% per year.
CalculateEmployment Benefit
Employment Benefit at first year, A1= 16person /day*300day /year*20ETBper person-day
A1= 92,000ETB/year
Employment of Skilled
=130,000ETB/year.
Professional
benefit
is
calculated
by
similar
procedure
Total Employment Benefit, A1 = Unskilled benefit + Skilled benefit = 222,000ETB/year during
construction period (2year) and both skilled and unskilled wage assumed to increase by 5% per
year.
Gudina Boru S.C.
Page 26
Project Proposal 2018
Post Construction Employment Benefit
a) Employment Benefit From Building Administration Staff;
SN
Position
1
2
3
General manager
Secretary
HRM officer
Technical
and
maintenance manager
Finance head
Guards /security
Purchaser
Cleaner
Driver
Gardner
Total Benefit
4
5
6
7
8
9
10
1
1
1
Monthly
benefit
ETB
500
300
300
6,000
3,600
3,600
1
300
3,600
1
3
1
3
1
1
300
200
300
200
300
200
3,600
7,200
3,600
7,200
3,600
2,400
44,400.00
No
14
Annual
benefit
ETB
b) Employment Benefit From Working in different business centers
Also after construction assumes employment benefit at first year of opening is estimated by
collecting actual data available at investment site currently.
Per month benefit for skilled is taken as 300ETB and 500 ETB for skilled.
SN
Skill
Number
of employ
Monthly benefit
ETB per each
person
Annual
benefit
ETB
1
Un skilled
24
300
86,400
2
Skilled
20
500
150,000
Total Benefit
Gudina Boru S.C.
236,400
Page 27
Project Proposal 2018
Summary of Employment Benefit:
SN
Benefit Stage
Annual Benefit
ETB
1
At Construction Employment
Benefit
222,000
2
Post Construction Employment
Benefit
280,800
Summary of Cost-Benefit Analysis:
Item
No.
Cost or Benefit
Amount
Cost
1
Pre- service Expenses
18,000.00
2
Consultancy Service Expenses
3
Fixed Investment Cost
145,000.00
1,521,950.00
4
5
205,200.00
1
Salary Expenses
Operation Cost
Benefit
Revenue from Building Rental
2
At Construction Employment Benefit
222,000.00
3
Post Construction Employment Benefit
280,800.00
Gudina Boru S.C.
167,497.00
676,800.00
Page 28
Project Proposal 2018
5.5.
Financial Analysis and statements (Cost-Benefit Analysis)
5.5.1. Underlying Assumption
The financial analysis of the mixed use Building is based on the data provided in the preceding
sections and the following assumptions and assume both annual operation cost and annual
benefit increase by 5% per year and MARR= 12%.
A. Construction and finance
Construction period:
2years
Source of finance
:
100% Share equity
Bank interest rate
:
12%
Salary and wages increase by:
5% per year
Operating costs increase by:
5% per year
Revenue (rent) increase by:
5% per year
B. Working capital 3 months
C. Depreciation
Building:
4%
Building machinery and equipment:
10%
Office Equipment:
10%
5.5.2. Sources of fund
SN
Description
% share
Amount
1
Owners share
100%
1,521,950.00
Total
Gudina Boru S.C.
1,521,950.00
Page 29
Project Proposal 2018
5.5.3. Depreciation schedule
SN
Description
Depreciation
rate in%
1
Land, building &construction
4
2
Machines & equipments
10
3
Assemble hall equipments
10
4
Vehicle
5
5
Office equipment
10
5.5.4. Balance sheet (at the Beginning/Opening)
i. At Beginning (Currently)
Asset
Current Asset
Amount in br
Cash
450,000
Inventory raw materials and inputs
0
Total current Asset
450,000
Fixed Asset
Land, building and construction
0
Bldg machineries and equipments
0
Assemble hall equipments
0
Vehicle
0
Office equipment
0
Total fixed Asset
0
Total Asset
450,000.00
Liability
Account payable
0
Owners’ equity
Capital
450,000
Total liability & owners’ equity
450,000
Gudina Boru S.C.
Page 30
Project Proposal 2018
ii.
At project/investment opening after Two Years
Asset
Current Asset
Amount in br
Cash
Inventory raw materials and inputs
Total Asset
Fixed Asset
Land, building and construction
Assemble hall equipments
Vehicle
Office equipment
Total fixed Asset
Liability
Account payable
Owners’ equity
Capital
Total liability & owners’ equity
450,000
0
450,000
1,330,000.00
58,000.00
0
133,950
1,521,950.00
0
1,521,950.00
1,521,950.00
5.5.5. Financial Statement
1. Income loss statement, projected
Description
Year1
Year2
Year3
Year4
etc.
and
Revenue
Rental income
676,800.00
710,640.00
746,172.00
783,480.60
Employment Benefit
280,800.00
294,840.00
309,582.00
325,061.10
957,600
1,005,480
1,055,754
1,108,542
Salary Expense
205,200.00
215,460.00
226,233.00
237,544.65
Operating Expenses
167,497.00
175,871.85
184,665.44
193,898.71
53,200.00
55,328.00
57,541.12
59,842.76
5,800.00
5,800.00
5,800.00
5,800.00
13,395.00
13,395.00
13,395.00
13,395.00
Total Revenue
Expenses
Deprecation building
deprecation assembly hall
equipments
Deprecation office equip
Gudina Boru S.C.
Page 31
Project Proposal 2018
Interest expense
182,634.00
204,550.08
229,096.09
256,587.62
5,000.00
5,000
5,000
5,000
Total expense
632,726.00
675,404.93
721,730.65
772,068.75
Profit before tax
324,874.00
330,075.07
334,023.35
336,472.95
Tax (30%)
97,462.20
99,022.52
100,207.00
100,941.89
Net profit
227,411.80
231,052.55
233,816.34
235,531.07
Lease payment
2. Cash flow statement
a) Cash inflow
Item
No.
1
2
Cost or Benefit
Annual Benefit
Amount
Benefit
Revenue from Building Rental + Post
Construction Employment Benefit
957,600.00
At Construction Employment Benefit
222,000
Note: A0 and A1 are annual benefit at construction stage for only 2 years construction
period. And B0, B1, ………. , B25 are benefit during building/investment operation.
Project duration is used as 25 years for evaluation.
A0=222,000, B1=957,600.00,
……… etc.
B25
B1 B2
A0 A1
0 1 2 3 .....................................................27
Gudina Boru S.C.
Page 32
Project Proposal 2018
b) Cash outflow
Item
No.
Cost or Benefit
Amount
Cost
1
Fixed Investment Cost
1,521,950.00
2
3
Salary Expenses
Operation Cost
205,200.00
167,497.00
Note: A=760,975.00 is total project Investment cost as it is budgeted equally on the two
year construction period. B1= annual salary expense + annual operation cost = 372,697.00
at first year of operation.
0 1 2 3
.....................................................50
A
B1 B2
B25
5.5.6. Financial Analysis
i.
Profitability
According to the projected income statement, the building will start generating profit in the 2nd
year of operation. Important ratios such as profit to total sales, net profit to equity (return on
equity) and net profit plus interest on total investment(return on total investment) show an
increasing trend during the life time of the project. The income statement and the other indicators
of profitability show that the project is viable.
Use Present Worth analysis: Cash flow show geometric gradient series.
1−(1+𝑔)𝑁 (1+𝑖)−𝑁
𝑃𝑊 = 𝐴1 [
Gudina Boru S.C.
𝑖−𝑔
]
Page 33
Project Proposal 2018
Present worth of inflow:
a) For Construction Employment Benefit:
Where, A1= 222,000,
N=2
i=12% and g= 5%
384,040.18 ETB
PW =
b) For Revenue from Building Rental + Post Construction Employment Benefit:
Where, A1= 957,600.00,
N=25
i=12% and g= 5%
11,339,030.76 ETB
PW =
Note: Building depreciation is assumed to be 4 % per year. Based on this the project life is
estimated to be, N=25 Years.
Present worth of Outflow:
a) Current Investment Cost:
PW=1,521,950.00ETB
b) For Salary cost + Operation Cost:
Where, A1= 372,697.00,
N=25
i=12% and g= 5%
5,785,621.81 ETB
PW =
Net Present Worth:
Net Present Worth = Present worth of inflow - Present worth of Outflow
NPW = (384,040.18 + 11,339,030.76) - ( 5,785,621.81 + 1,521,950.00)
=
5,553,408.95 ETB
Result of Analysis
Net Present Worth:NPW = 5,553,408.95 ETB > 0 ………………. OK!!!
Benefit to Cost Ratio: B/C = 1.96 > 1
Gudina Boru S.C.
OK!!
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Project Proposal 2018
Therefore, based on result of economic evaluation with present worth and benefit/cost ratio
analysis with project (scenario-2) is selected when compared to without project Senario-1.
The commercial building need to be designed is economically feasible.
ii.
Pay-Back period
The payback period is the time required for the amount invested in an asset to be repaid by
the net cash flow generated by the asset. It is a simple way to evaluate the risk associated
with a proposed project. An investment with a shorter payback period is considered to be
better, since the investor's initial outlay is at risk for a shorter period of time. The
calculation used to derive the payback period is called the payback method and estimation
shown in table below;
Description
Year-0
Year-1
Year-2
Year-3
Year-4
Revenue
Rental income
676,800.00
710,640.00
746,172.00
783,480.60
Employment
Benefit
280,800.00
294,840.00
309,582.00
325,061.10
957,600.00 1005480.00 1055754.00
1108541.70
Total Revenue
0
Expenses
Investment Cost
1,521,950.00
Salary Expense
Operating
Expenses
Deprecation
building
deprecation
assembly hall
equipments
Deprecation
office equip
Lease payment
205,200.00
215,460.00
226,233.00
237,544.65
167,497.00
175,871.85
184,665.44
193,898.71
53,200.00
55,328.00
57,541.12
59,842.76
5,800.00
5,800.00
5,800.00
5,800.00
13,395.00
13,395.00
13,395.00
13,395.00
5,000
5,000
5,000
Total expense
1,521,950.00
450,092.00
470,854.85
492,634.56
510,481.13
Net Cash Flow
-1,521,950.00
507,508.00
534,625.15
563,119.44
598,060.57
cumulative cash
flow
-1,521,950.00
-1,014,442.00
-479,816.85
83,302.59
681,363.16
Gudina Boru S.C.
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Project Proposal 2018
As you can see, in year 4, the cumulative cash flow sign changes from negative to positive,
meaning that at some point between year 3 and 4, costs (the summation of Investment cost at
time year-0 or opening year and annual running cost) would be recovered by generated profit.
So, the payback period is somewhere in third year. To calculate the fraction, we can simply
calculate from the -479,816.85 (Cumulative Cash Flow in year 2) and 83,302.59 (Net Cash Flow
in year 3). Therefore, the payback period equals: 2.85 years.
Hence, the building’s total investment cost will be fully recovered at the 2.85 year of operation.
Gudina Boru S.C.
Page 36