FESIBILITY STUDY FOR

AN AUTO LEAF SPRING MANUFACTURING

YONAS BONGER AGA-LEAF SPRING FACTORY

April-2016
 Table of Contents

EXECUTIVE SUMMERY.................................................................................................................................... 4
1. PRODUCT DESCRIPTION........................................................................................................................ 7
2. ANALYSIS OF THE BUSINESS ENVIRONMENT.......................................................................................... 9
2.1 ANALYSIS OF THE PEST FACTORS AND THEIR IMPACTS............................................................................9
2.1.1 Political........................................................................................................................................... 9
2.1.2 Economic.......................................................................................................................................10
2.1.3 Socio-Cultural/ Socio-Economy......................................................................................................11
2.1.4 Technology....................................................................................................................................12
2.2 CONCLUSION OF PEST ANALYSIS............................................................................................................13
2.3 INCENTIVES FOR INVESTORS..................................................................................................................14
3. MARKET STUDY, PLANT CAPACITY AND PRODUCTION PROGRAM........................................................16
3.1 MARKET STUDY..........................................................................................................................................16
3.1.1 Present Demand and Supply.........................................................................................................16
3.1.2 Projected Demand.........................................................................................................................17
3.2 PRICING AND DISTRIBUTION..........................................................................................................................19
3.2.1 Pricing...........................................................................................................................................19
3.2.2 Distribution...................................................................................................................................20
3.3 PLANT CAPACITY AND PRODUCTION PROGRAM.................................................................................................21
4. RAW MATERIALS AND UTILITIES.......................................................................................................... 23
4.1 REQUIREMENT OF RAW MATERIALS AND UTILITIES............................................................................................23
4.2 OFFICE FURNITURE AND EQUIPMENT..............................................................................................................26
4.3 VEHICLES...................................................................................................................................................27
5. TECHNOLOGY AND ENGINEERING........................................................................................................ 29
5.1 PRODUCTION PROCESS.................................................................................................................................29
5.1.1 Pre-Heat Treatment......................................................................................................................29
5.1.2 Heat Treatment.............................................................................................................................34
5.1.3 Post Heat Treatment.....................................................................................................................37
5.2 MACHINERY AND EQUIPMENT.......................................................................................................................41
5.3 LOCATION AND SITE.................................................................................................................................45
5.3.1 Location.........................................................................................................................................45
5.3.2 Site Layout and Plan......................................................................................................................45
5.3.3 Land, Building and Civil Works......................................................................................................45
6. ORGANIZATION AND HUMANRESOURCE............................................................................................. 47
6.1 ORGANIZATION STRUCTURE...................................................................................................................47
6.1.1 General Manager..........................................................................................................................48
6.1.2 Plant Manager..............................................................................................................................50
6.1.3 Commercial Manager....................................................................................................................52
6.2 HUMAN RESOURCE REQUIREMENT........................................................................................................54
6.3 TRAINING REQUIREMENT.......................................................................................................................57
6.4 EMPLOYEES BENEFITS............................................................................................................................58
7. PROJECT IMPLEMENTATION................................................................................................................ 59
7.1 PROJECT ORGANIZATION........................................................................................................................59
7.1.1 Project Management....................................................................................................................61
7.1.2 Project Engineering.......................................................................................................................61
7.1.2 PROCUREMENT AND CONSTRUCTION..........................................................................................................61
 7.1.3 Project Quality Control..................................................................................................................62
7.2 IMPLEMENTATION SCHEDULE................................................................................................................62
7.1.4 Machinery and Equipment............................................................................................................62
7.2 PROJECT IMPLEMENTATION COST.......................................................................................................- 1 -
8. FINANCIAL ANALYSIS......................................................................................................................... - 2 -
8.1 ASSUMPTION USED IN THE STUDY................................................................................................................- 2 -
8.1.1 Project Life..................................................................................................................................- 2 -
8.1.2 Repair And Maintenance Cost.....................................................................................................- 2 -
8.1.3 Depreciation And Amortization...................................................................................................- 2 -
8.1.4 Working Capital..........................................................................................................................- 3 -
8.1.5 Discounting.................................................................................................................................- 3 -
8.1.6 Income Tax..................................................................................................................................- 4 -
8.1.7 Revenue......................................................................................................................................- 4 -
8.2 RESULT OF FINANCIAL ANALYSIS..................................................................................................................- 4 -
8.2.1 Investment Cost..........................................................................................................................- 5 -
8.2.2 Source Of Finance.......................................................................................................................- 6 -
8.2.3 Loan Repayment Schedule..........................................................................................................- 7 -
8.2.4 Cash Flow....................................................................................................................................- 9 -
8.2.5 Profitability...............................................................................................................................- 11 -
8.2.6 Discounted Cash Flow...............................................................................................................- 12 -
8.2.7 BALANCE SHEET........................................................................................................................- 13 -
8.2.8 SENSITIVITY ANALYSES..............................................................................................................- 13 -
8.3 ECONOMIC AND SOCIAL BENEFITS.....................................................................................................- 14 -
 EXECUTIVE SUMMERY

This project feasibility study is prepared to assess the viability of establishing an Auto Leaf

Spring (Balistra) Factory by YONAS BONGER AGE in Oromia Regional State, in Holeta

“ሆለታ“ town. Hence, a detailed study of market, technical, organizational and financial study

is conducted to investigate the feasibility and viability of the project.

YONAS BONGER AGA GENERAL IMPORTER was in importing and distributing business

since 1995 EC by a young entrepreneur having a great role in the leaf spring market around

“Kera-ቄራ” Addis Ababa, which is circled by heavy truck garages and spare part stores. The

main objective of the company is importing auto leaf springs from Turkey, India, China, Iran

and Dubai to distribute for domestic market.

We have been importing leaf springs for heavy trucks of NISSAN UD, MITSUBISHI,

IVECO TURBO, IVECO EURO TRUCKER and SINO TRUCK. The leaf springs we import

is conventional once favorable to our country road and heavy loads. Besides to the heavy leaf

springs we import and distribute for light automobiles usually for all models of ISUZU, and

heavy Buses.

YONAS BONGER AGA also imports and distributes quality leaf spring accessories like U-

bolt, silent blocks and clamps.

Understanding the continual growth of auto leaf springs due to the economic growth of our

country demand for construction, transport and agricultural trucks and cars leaf spring

requirement and the capability of marketing the goods YONAS BONGER AGA IMPORTER

planned establishing a new auto leaf spring factory.

The average leaf springs annually imported from 2012-2015 to our country is about total
2,025 ton, which is 56% higher than the year 2008-2011 and the demand forecasted auto

leaf requirement is studied in the market study. Based on such forecast, demand for auto

leaf will be 3,261 ton by the year 2020.This shows that the market has sufficient room to

accommodate new factories even after the realization of this factory.

The factory is planning to produce auto leaf spring that would be used as heavy duty trucks

and light automobiles in the local market. The machinery is designed to produce 8 ton per 8

hours of a day. The total Investment cost of the project is Birr 49 million. The fixed

investment costs accounts Birr 41.7 million, which is about (85%) and the remaining balance

goes to pre-production cost of Birr 400,000 and Working Capital Birr 6,497,472 (14.2%).

As it’s indicated in the financial analysis of the study, the cash flow analysis of the project

shows surplus as of first year. At the end of the project life, the cumulative cash balance

reaches Birr 493.5 million excluding the salvage values.

The net present value of the project is found to be Birr 229 million at the rate of 10%

discounting. The internal rate of return (IRR) of the project with respect to committed

resource has been also computed to be about 98%. This rate is higher than the prevailing cost

of capital (discount rate) and shows viability of the project. IRR has been also tested further

using sensitivity analysis, and all the results encouraged the investment. The study also shows

that the payback period of the project is less one and a half years.

During the implementation of the project, it will create work during construction and provide

permanent job opportunity about 70 people. Besides, with establishment of this project

average annual revenue of Birr 168.5 million will remit to the government and thereby

benefiting the public at large.

The location of the project is found to be favorable when viewed from other considerations

like power and water supply, transport access, vicinity, communication facilities, and

availability of labor. Holeta town will be favorable to location.

Therefore, from the aforementioned overall market, technical and financial analysis, we can

conclude that the project is a viable and worthwhile for implementation.

 1. PRODUCT DESCRIPTION

Spring is a device that changes its shape in response to an external force/load, returning to its
original shape when the load is removed. The energy expended in deforming the spring is
stored in it and can be recovered when the spring returns to its original shape. Generally, the
amount of the shape changed is directly related to the amount of force exerted.

Auto Leaf Spring (also known as flat spring) is one of the vital automobile components since
full load of the car and its contents rests on the spring assembly. A leaf spring will be attached
directly to the frame at both ends and chassis, so it moves along in a guided definite path as it
deflects to act as structure member in addition to energy absorbing device. Thus the leaf
springs may carry lateral loads, break torque, driving torque, etc. When the vehicle bounces,
it will not directly be transmitted to the body thereby providing comfort and safety to the
passengers and minimizing stress to other parts.

For heavy vehicles, a leaf spring can be made from several leaves stacked on top of each other
in several layers, often with progressively shorter leaves as shown in Figure 1. The center of
the arc provides location for the axle, while tie holes are provided at either end for
attaching to the vehicle body called eye.

The material used for leaf springs is usually a medium carbon steel having 0.30 to
0.80% carbon and low alloy steel.

The leaves are heat treated after the eye forming process. The heat treatment of spring steel
products will have greater strength and therefore greater load capacity, greater range of
deflection and better fatigue properties.

Clamp Eye
Center
hole
 Figure 1: Leaf spring and components

Manufacturing leaf springs undergoes several processes. The major processes are: - special
steel materials are cut into its desired length, bars are then punched for its center bolt, eyes are
formed, leaves are heat treated under controlled conditions to attain desired hardness, leaves
are tempered to make it ductile, surface treatment include shoot penning and painting then
assembled.
 2. ANALYSIS OF THE BUSINESS ENVIRONMENT

External business environments affect the operations of this project. A prior review of the
situations would help to foresee factors that may affect the project and pave the way to make
preparations ahead.

The major external factors that affect the operation of a business enterprise are considered to
be the political, socio – economic/ socio-cultural and technological development (PEST).
Accordingly, analysis of the PEST factors and their impacts as related to the activity of the
project of are briefly discussed below.

2.1 ANALYSIS OF THE PEST FACTORS AND THEIR

IMPACTS

2.1.1 Political

The formal Ethiopian state structure has been transformed from a highly centralized system to
a federal and increasingly decentralized one. Due to the extensive capacity building programs
carried out, significant progress has been achieved in good governance & public service
delivery, in ensuring transparency of operation and the efficiency and accountability of the
justice system.

According to Investment Guide to Ethiopia: Opportunities and Conditions: which was

published jointly by UNCTAD and ICC (in 2008), Ethiopia offers a stable political and
economic environment as well as security; exceptional climate; almost complete absence of
routine corruption; and continuously improving public service delivery; make it potentially an
ideal destination for investment.

More specifically, even though Ethiopia is a large and very diverse country, the political
environment is characterized by very little crime and disorder. Since Ethiopia is one of the
less developed countries with the lowest levels of corruption, it can claim to offer one of the
cleanest business climates in the developing world. Thus, the publication cited above
describes Ethiopia as "Safe, peaceful, stable and very nearly free of corruption". Ethiopia is
also a signatory of the United Nations Convention against Corruption.

2.1.2 Economic

Ethiopia is one of the fastest growing economies of the world. Remarkable achievements of
economic growth and human resource development were registered. During the past several
years, real GDP has registered a double digit growth rate. Ethiopia`s economy is also expected
to continue to grow.

Since 1992, the government has successfully implemented a series of reform programs, in
order to transform the economy from a command to a market economy, to speed up the
integration of the economy into the world economy and encourage the wider participation of
the private sector in developing the national economy. Such reforms include, among others:

 Deregulation of domestic prices;

 Liberalization of foreign trade and abolition of all export taxes;

 Devaluation of the exchange rate;

 Enhancement of the private sector through development PPP;

 Promulgation of a liberal investment law ; and

 Issuance of a new labour law

Currently the government is working to transform the economy from agrarian to industrial. To
achieve this objective various activities that would enhance the establishment manufacturing
enterprises are underway. Among these are the development of industrial zones and/ or
industrial areas, prioritization of loans, allocation of land and various incentive mechanisms.

Ethiopia’s investment Code provides incentives for development related investments. Other
than these exclusively reserved for domestic investors the Ethiopian government reviews
investment proposals in non-discriminatory manner. The screening process is not regarded as
an impediment to investment, limit to competition or a means of protecting domestic interests.
Hence, macro-economic development, laws and regulations with regard to licensing, credit,
land allocation are generally positive for investment.

2.1.3 Socio-Cultural/ Socio-Economy

The country's current population is nearly 93 Million (WB 2013 report). One of the features of
Ethiopia`s demographic characteristics is that a large number of the population join the
national workforce each year. According to the Growth and Transformation Plan (GTP), the
ratio of the population of working age to the total population is about 54% and estimates are
that each year additional 1.2 Million people join the national work force. Provided that the
additional workforce receive the support necessary to be productive, the country`s workforce
plays a significant role for increased economic growth and development.

The total student population of the higher education system in Ethiopia has increased from
about 78,322 to 185,788 during the period 2005-2011, registering an average annual growth
rate of 24 %. During the same period, the number of higher education institutes has increased
from 50 to 90 exhibiting an average annual growth rate of 15.80%.

Furthermore, as part of the government’s effort to create a skilled labor force, the Technical
and Vocational Education and Training (TVET) program is given high priority. During the
period 2005-2011, the number of students enrolled in TVET education has increased from
106,336 to 717,603, registering an average annual growth rate of 30%, and the number of
schools has reached 253. Generally, during the past few years the education sector, which is
the basis for human resource development, has shown a remarkable achievement at all levels
measured in indicators such as number of schools, class rooms, and teachers; gross and net
enrollment ratio; as well as student-teacher and student class room ratios.

To strengthen the human resource base of the country the education sector is given high
priority in the current five year economic development plan (GTP, 2011-2015). Accordingly,
in addition to improving the quality and number in the primary and secondary education, it is
planned to increase the number of under graduate students in government higher education
institutions from the current 185,788 to 467,445 and TVET students from 717,603 to
1,127,330.

The above points discussed reveal that the country can avail skilled and semi-skilled labour
forces that are needed for industrialization. Moreover, due to the abundant work force
availability, the cost of the labor force is very competitive compared to the labor cost of the
Asian countries like China and India and many other African countries like Kenya, Uganda,
and Egypt.

2.1.4 Technology

The advancement of science and technology in the world and the spread of same in the
country will favorably influence the service rendering capacity of the envisaged project.
During the past ten years the ICT sector of the country has made a lot of progress. The mobile
network capacity has increased substantially from 0.5 Million users in 2005/06 to 25 Million
in 2012/13. In the Universal Access Program, a CDMA wireless network, which covers 90%
of the country and about 10 thousand km of fiber optic cables are installed. Generally, ICT
service quantity and quality has improved.

Realizing the importance of ICT in economic and social development the GTP has given high
priority to upgrade the existing ICT network to accommodate the latest information
technologies and improve network quality and expand services. Accordingly, in addition to
the planned expansion of fixed line, mobile and internet service coverage; the Global Link
Capacity is planned to reach 20 Gb/s from the current 3.5 Gb/s.

The spread of information and technology and the availability of internet services, the ability
to conduct virtual conferences, the possibility of processing and distribution of data using
computer hardware and software, telecommunications, and digital electronics will create an
opportunity for the envisaged project to become more effective.
 2.2 CONCLUSION OF PEST ANALYSIS

From the above PEST analysis, it can be concluded that there is a continuous improvement of
governance and public service delivery in the country. The macro economic performance in
the past several years has been very positive and the GTP indicates a very good prospect, with
a minimum of 11% GDP growth per annum, for the future. Although the incentive packages
that are currently given seem to be adequate the government is planning to give additional
incentives for the manufacturing sector, particularly to export oriented and import substituting
projects. More specifically, priorities will be given to the manufacturing sector in support
provision in the areas of licensing, land and finance allocation, training and the like.

Besides the favorable demographic characteristics of the population; the expansion of

universities as well as TVET in all parts of the country provides good opportunity in the
supply of skilled and semi-skilled technical personnel. The fast improving social and
economic infrastructures, including the advancement of ICT, in the country would enable
companies to run their business smoothly, which is a major opportunity

2.3 INCENTIVES FOR INVESTORS

In Ethiopia the Investment Proclamation No 280/2002 (as amended by proclamation

No.375/2003) and the 2003 Regulations on Investment Incentives constitute the main legal
frameworks for both foreign and domestic investments in Ethiopia. In the above
proclamations the government of Ethiopia has put forward various incentives to encourage
private investment. Accordingly, the following incentives are granted to investors which this
project enjoys as well:

Customs Import and Export Duty

 Duty free entry of all investment capital goods, such as plant machinery and
equipment, construction materials, etc.;
  Duty free entry of spare parts worth up to 15% of the value of the imported investment
capital goods; provided that the goods are not produced locally in comparable
quantity, quality and price;

 Transfer of investment capital goods entered duty free to another investor enjoying
similar privileges;

 Exemptions from customs duties or other taxes for raw materials necessary for the
production of export goods;

 Exemption from the payment of any export tax and other taxes destined for export.

 Income Tax Holiday

Tax holiday which ranges from one to five years, depending on location and type of the
investment, is granted to investors. The envisaged project will not have income tax exemption.

 Loss Carried Forward

Business enterprises that suffer losses during the tax holiday period can carry forward such
losses for half of the income tax exemption period following the expiry of the exemption
period.

 Guarantees to Investors

Guarantees provided to investors and Ethiopia`s membership status in international

organizations which relate to this issue are:

 The Investment Proclamation provides investment guarantee against measures of

expropriation and nationalization that may only occur for public interest and in
compliance with the requirement of the law. The Government guarantees to
provide adequate compensation corresponding to the prevailing market value of
property and such payment shall be effected promptly;
 Ethiopia is a member of the World Bank-affiliated Multilateral Investment
Guarantee Agency (MIGA), which issues guarantees against non-commercial risks
to enterprises that invest in signatory countries;

 Ethiopia has signed the World Bank treaty of “International Convention on

Settlement of Investment Disputes (ICSID)” between states and nationals of other
states;

 Ethiopia has also an observer status in the World Trade Organization (WTO).
 3. MARKET STUDY, PLANT CAPACITY AND

PRODUCTION PROGRAM

3.1 Market Study

3.1.1 Present Demand and Supply

Establishing a leaf spring plant is like becoming one part of the current increasing automotive
and transport industry in Ethiopia.

Recent data, dated in February 2015, from the Ethiopian Investment Agency (EIC) indicates
that 31 foreign vehicle investment projects and 73 domestic vehicle assembly investment
projects have been licensed since 1998.

On this huge number small numbers only are operational and the major players are Mesfin
Industrial Engineering, Belay AB Motors, Metal & Engineering Cooperation (MeTEC),
LIFAM Motors, Yang Fan and Nigma Motors. The growth of car and truck assembly is
directly related to the supply of complete set leaf spring.

In Ethiopia, auto leaf spring products are supplied both locally and through imports. Although
there is no disaggregated data that shows the actual figure of the local production, it is certain
that the import figure is much higher than local production. The figure of the imported leaf
spring the past eight years is given in Table 1.

Table 1: Import of auto leaf spring

 Year Monitory value in Amount in Four Years
Birr Ton Average
2008 25,891,059 1,655
2009 29,833,458 1,569
2010 32,391,531 1,317 1,295

2011 21,978,585 637

2012 68,429,931 2,423
2013 55,318,285 1,771
2014 73,682,576 2,226 2,025

2015 55,030,374 1,679

Source: Compiled from CSA Import Data of Different Years

The eight year date is classified in two categories the last four years and latest four years. The
average of the last four years is 1,295tons and latest four years has grown to 2,025 tons. The
growth is about 56%, which is a significant growth directly related to the growth of heavy
trucks.

3.1.2 Projected Demand

Since there is no disaggregated data that shows the actual figure on the local production of
auto leaf springs and the demand projection is made based on the past import data.

The demand for the auto leaf springs like many industrial goods is a function of several
numbers of interrelated variables. These variables that are essential in determining the
magnitude and trend of the demand for auto leaf are:

 The overall economic development level and growth trend of the country

 Locally manufacturing of automotives and wheel carrying equipments growth

 The pattern and trend of transport, agriculture and construction sector

 Size of population and its growth

The main variable, the country economy, is in two digit growth for the last ten years. There
are several organizations engaged in automotive assembly and manufacturing business. The
achieved skill and experience will increase the demand of complete set auto leafs. Besides
these variables the current increase of automotive density in the transport, agriculture and
construction sectors will increase the demand of auto leaf for breakage
maintenance/replacement.

Therefore in the view of these variables trend, it is not difficult to conclude the demand for the
leaf spring will grow in the future. The average overall GDP growth of the country was 10%
annually and applied on the effective demand of leaf spring based on the average of the last
four year’s import that is 2,025 ton. The result for the future demand growth is shown in Table
2.
 Table2: Projected demand for auto leaf spring

Year Net weight(ton)

2016 2,227.50
2017 2,450.25
2018 2,695.28
2019 2,964.80
2020 3,261.283

3.2 Pricing and Distribution

3.2.1 Pricing
Pricing a product is an important and critical activity since it is the major factor in
determining revenue. If a lower price is fixed, it will affect the profitability of the company,
and if a higher price is fixed, the product will not be able to stand in competition and may be
priced out of the market. Therefore, the right price has to be fixed.

The determination of sales price for an industrial capital goods- depends on a complex series
of factors such as the production and marketing costs, distribution techniques, the prevailing
competitors price and market conditions.

In general price setting is done by selecting one of the two frequently used pricing approaches.
The simplest method is cost-based approach (cost-plus pricing), which involves adding a
standard mark-up to the cost of the product, and competition based approach (going-rate
pricing), which bases its price largely on competitors prices.

The leaf spring plant can produce many types and different sizes of products depending on the
demand for the items. Thus, it is not possible to set prices for each. However, the current
average wholesale price of such items per ton of locally produced is about Birr 60 ,000-
65,000per ton and that of the imported from Turkish, and Dubai Birr 75, 500 per ton, these
from China is about Birr 65,000-70,000 per ton and that is the highly moving item. The
average imported leaf spring price is about Birr 71,500 per ton.

The product will be manufactured by Chinese fine technology and resulted quality is
competitive to the imported once and by far better than local product.
As a new entrant, the envisaged project plans to sell its products by less than 10% of imported
product that is 64,300 Birr for ton of fine product.

3.2.2 Distribution
Distribution refers to the selling of the product to the consumers by the producer while
channel of distribution is the network a middlemen through whom the products flows till it
finally reaches the hands of the actual users or consumers.

The availability of various distribution channels is at the same time an opportunity and a
problem. The opportunity lies in the fact that the manufacturer can choose between different
channels to close the gap between himself and the consumer of the product. The problem is to
find out which channel is best suited to his needs and aims and is accessible to him. Thus the
choice of the right channel is a critical decision and a complex task, which is not decided
entirely on rational economic analysis, a number of factors such as product and consumer
characteristics have to be considered.

Channel of distribution varies in its form and length from consumer goods to industrial goods
and within one class of goods; it varies from product to product.

The following are the main alternative distribution channels commonly used by producers to
reach consumers.

I. Direct sale to consumers

Manufacture Consumer

II. In direct. sale through the medium of third party

Manufacturer wholesaler retailer consumer

Manufacturer Agent Wholesaler Retailer Consumer

Manufacturer Retailer Consumer

III. A combination of both direct and indirect sale.

At first sight it would seem that direct sale offer a greater degree of control, more efficient and
less costly than indirect sale. This is, however, not necessarily true for a number of reasons.
The various distribution functions need to be performed can be a huge border for one
enterprise attempting to cover all of them, several intermediaries cooperating and sharing
responsibility for them may well be able to achieve a better overall result. The distribution
risks-delay in shipments, loss of merchandise, credit risk, seasonal and other variations in
sales volume etc. can also be absorbed more readily if they are shared between several
enterprises. Thus, most manufacturers prefer to sell through some form of intermediaries.

The recommended leaf distribution is the combination of direct and indirect once. Since using
the existing channels of auto leaf spring marketing is effective and less cost.

Manufacturer Consumer

Manufacturer Retailer Consumer

3.3 Plant Capacity and Production Program

The plant operates in single shift basis for 275 working days in a year. This is set by deducting
52 Sundays, 13 public holidays, 15 days for annual maintenance and 10 days for unexpected
work interruptions from a given year. The annual production capacity of the plant based on 8
ton per day is 2,200 ton per year. This capacity will have a chance to increase double by
operating two shift production operations and more. The finished product conversion rate is
about 96%.

The production program follows gradual capacity utilization due to market and technological
reasons. The first refers to the time required to penetrate the market of imported and local
products of leaf spring and to secure reasonable share, while the technology refers to the speed
with which the operators assimilate the process know how. Accordingly, 70 %, 80 % and 90
% capacity utilization are assumed for the first, the second and third year to the project life to
tenth year is assumed.

Table3: Production capacity

Product Raw material input @ Product conversion capacity-96%

100 capacity
Year1-70% Year2-80% Year3-10 90%

Leaf steel 2200 ton 1478 ton 1690 ton 1901 ton
 4. RAW MATERIALS and UTILITIES

4.1 Requirement of Raw Materials and Utilities

Main Raw Material-spring steel

The material used for making leaf spring is low alloy, medium carbon steel. Steel can be
classified in many ways, such as manufacturing, its final use, and its content. The most
common classification of alloy is by its content as:
a) Carbon steel,
b) Alloy Steel
Carbon steel is steel that receives its distinctive properties from carbon it contains from a trace
to 1.7% but there are other elements may present relatively small amounts and their purpose is
not to modify the mechanical properties of steel. As the carbon content increase ductility,
weld ability and machine ability decrease; its structure and hardness increase; and the
mechanical properties altered by proper heat treatment. Low carbon steel or mild steel carbon
content range from 0.08% to 0.3%; medium carbon steel carbon content is in the range of
0.3% to 0.8% ; and high carbon steels carbon contains from 0.8% to 1.7%
Alloy steels contain other elements (silicon, manganese, vanadium and copper) other than iron
and carbon in sufficient amount to modify the properties. Micro alloy steels contains about
one percent, widely used for many engineering industries manufacturing of pipe lines,
automobiles and aircraft industries. The other alloy steel is Low alloy steel contains below 5%
it have superior mechanical properties than carbon steels.

Spring steels are a low alloy steel, and medium carbon steel with a very high yield strength
this allows objects made of spring steel to return to their original shape despite significant
bending or twisting. Spring steel chemical compositions which are given as under Table 4:

Table 4: spring steel composition

ELEMENTS IN % OF ELEMENTS
 LEAFSPRING
CARBON 0.05 ~0.65
SILICON 0.15 ~0.35
MANGANESE 0.65 ~0.95
PHOPHOROUS 0.035
SILICON 0.035
CHROMIUM 0.65 ~0.95

Springs must be capable of storing and releasing the energy. After repeated applications
of load, they must retain their original shape and dimensions. This property may be attained
by the use of a highly elastic material and by proper design because the allowable stress
values determine the choice of material and design.

Major requirements of spring steels are:

1 Should have a highly yield strength (of the order of 21000kg/mm 2) or more accurately,
a high proportional limit, so that it will not show any appreciable permanent set
2 High fatigue strength under alternating and fluctuating stresses with a reserve for
occasional or more frequent overloads (e.g. Vehicle springs when stressed in their
resonance range)
3 Should have an adequate plastic range for the forming (winding) of the springs.

These desirable properties of springs can be achieved firstly by a higher carbon content or
with suitable alloying elements, and secondly by heat treatment.

Generally leaf springs are made of various fine grade alloy steel. The most commonly used
grades of steel are:

 For automobiles:50Cr1, 50Cr1V23 and 55Si2Mn90 all used hardened and tempered
states

 For rail road C55 (water hardened), C75 (oil hardened), 40Si2Mn90 (water hardened)
and 55Si2Mn90 (oil hardened).
The main raw material leaf spring steel is imported; average price is about 500 USD per ton
and 30% tax 150 USD and material handling cost is 4,000 Birr per ton. Therefore the total
cost of material at warehouse is 17,000 Birr per ton (650 USD in FC and 4000 Birr in LC, 1
USD=21.55 Birr).

Furnace fuel

The other main raw material is the furnace fuel for the thermal treatment of the leaf. To
process one ton of leaf requires in the end heating furnace 20 Kg, hardening furnace 40 Kg
and tempering furnace 20 Kg fuel total of 80 Kg light furnace oil (diesel fuel) per one ton. At
full capacity of 2200 ton, the annual fuel consumption will be 176 ton. The average price of
the light furnace oil is about 15 Birr per kg available in the local market.

Electricity

The factory requires an electricity power supply of 300KW. The cost of installation is Birr
380,000. Electricity requirement for 275 days per year and 8 hours per day is about
300X8X275=660,000KWh/Year, (at 0.4087 Birr/KWh Industrial Tariff)the total annual cost
of utility at full capacity will be Birr 269,742.

Water

The factory water requirement is for human use and cooling and that is recyclable. The water
line installation will cost about Birr 20,000. Considering 200m 3 for annual consumption, that
is about 800 Birr. The electricity and water installation cost will be about Birr 400,000.

Table 5: Annual raw material requirement and utilities at full capacity

No Unit Qty. Cost(In Birr)

Raw Material
Required in FC- Required in Total
USD Birr

1 Steel flats 17,000 Tons 2,200 1,430,000 8,800,000 37,400,000

birr/ton
Annual utility consumption

1 Furnace oil Tons 176 - 2,640,000 2,640,000

 @ 15 Birr/kg
2 Electricity MWh 660 - 269,742 269,742
3 Water M3 200 - 800 800
Total 30,816,500 7,336,724 40,310,542

4.2 Office Furniture and Equipment

All required furniture and equipment for office, and canteen will be purchased at estimated

cost of Birr 195,530. The detail is shown in the Table 6. The annual office stationery and

supply is assumed to be about Birr 25,000 Birr.

Table 6: Furniture and fixture

No Description Unit unit price Total

1 Office table 6 2000 12000
2 managerial swivel chair 3 2500 7500
3 filling cabinet 5 3400 17000
4 conference gust chair 11 2000 22000
5 conference table 2 4500 9000
6 Paper puncher 720 6 170 1020
7 stapler 435 1 150 150
9 stapler 335 13 80 1040
10 calculator 8 240 1920
11 desk top computer dell 790 4 8000 32000
12 printer 1102 2 4000 8000
13 photo copy machine 2420 1 29,900 29900
14 Canteen 1table and 4chair 10 3000 30000
15 Refrigerator 2 10,000 20000
TOTAL 191,530
 4.3 Vehicles

The total cost of vehicles is estimated to be Birr 3.27 Million in foreign currency, the
company intends to purchase Forklift, Double Cabin Pick up and mid- bus and Automatic
Pallet Trucks. The list and cost of transportation and material handling facilities and their fuel
and oil costs are presented in Table 7 & 8.

Table 7: List and cost of transportation and material handling facilities

NO. DESCRIPTION QUANITITY UNIT Cost ( "000 ) Birr

(PCS ) COST
(‘000 LC FC Total
BIRR)
I ADMINSTRATION
ACTIVITES
1.1 Mid-Bus 1 800 800 800
1.2 Pick Up 1 1,100 1,100 1,100
II LOGISTIC ACTIVITIES

2.1 Fork Lift 3 Ton 1 500 500 500

2.2 Truck Trailer 1 850 850 850
2.3 Automatic Pallet Trucks 2 2 12 24 24
Ton

GRAND TOTAL 0.00 3,274 3,274

 Table 8: Annual fuel and lubricant expenses

NO DESCRIPTION QUANITITY Km/Yr Lt/Km Total Fuel Total cost

(PCS ) requireme @14 Br/Lt
nt
1 production purpose vehicles and machinery
1.1 Fork lift 3 ton 1 10,000 0.25 2,500 35000
1.2 Truck Trailer 1 90,000 0.17 15,300 214200
1.3 Automatic pallet trucks 2 2 60,000 0.2 24,000 336000
ton
Sub Total 41,800 58
5,200
Oil and lubricant (10%) 5
8,520
Production purpose vehicles and machineries fuel and lubricants 643,720

2 Administrative purpose vehicles

2.1 Mid Bus 1 15,000 0.13 1950 27300
2.2 Pick-up 1 15,000 0.13 1950 27300
Sub Total 3900 54600
Oil and lubricant (10%) 5460
Total Fuel 63
9,800
Total oil and lubricants (10%) 63,
980
Admin Purpose vehicles fuel and lubricants 703,780
 5. TECHNOLOGY AND ENGINEERING

5.1 Production Process

A well-defined, tried and tested, industry compliant process is what leads to great results. At
YONAS BONGER AGA Leaf Spring Factory a well developed system will be installed by
considering suppliers technology and intensive on job training with a continues development.
We will strictly follow the state of art technology and process that combines with expert
engineers, technical experts and knowledgeable staff. Manufacturing of multi-leaf spring
involves following operation’s which are discussed briefly as follows:

Figure 2: Leaf spring manufacturing process

5.1.1 Pre-Heat Treatment

The process starts with the procurement and inspection of spring steel flats, the primary raw
material used in the manufacture of leaf springs. Spring Steel is an alloy of Iron, Carbon,
Silicon, Manganese and Chromium. The commonly used grades of spring steel are EN 45, EN
45A, EN 47, 60 Si7, 65 Si 7, Sup 9, Sup 9A, Sup 11, Sup 11A, 50 CrV4, 58 CrV4. Flats are
checked for chemical composition, grain structure and conformance to dimensional
specifications. The preheat treatment phase consists of shearing the steel flats in the specified
lengths followed by end-v-cutting and grinding. This is followed by punching of centre-holes.
The main and the second leaves are subjected to end heating and subsequently eye-rolling.
This marks the completion of the first phase of manufacturing.

Manufacturing of multi-leaf spring involves following operation’s in the pre heat treatment
unit which are discussed briefly as follows:

Raw Material

 On receipt of raw material (Spring steel flats of 6 m length are stacked in the stockyard
grade wise.
 Cross Section Size of the steel flats range from 45x6mm to 120x40mm depending
upon the specific customer requirements and product requirements.
 Cross Section Size of the steel flats range from 45x6mm to 120x40mm depending
upon the specific customer requirements and product requirements.
 On approval it is send for shearing operation.

Figure 3: Raw material handling

Shearing

 In this operation the leaves that constitute an assembly are cold sheared to the required
lengths based on the drawing provided by the customers and in-house product designs
on the shearing machine.

Drilling

 In this operation the leaves are drilled at the centre on all the leaves and at the ends on
the specific leaves for bearing wear pads and clips depending upon the design of the
springs.

Eye Rolling

 After Drilling, Main Leaf and/or the second leaf of the Assembly is sent for this
operation. In this operation the leaf ends are heated in oil fired furnace to 950 deg c
and rolled to the specific diameter for enclosing bushes for fitment and different eye
requirements as shown below in the figure.
 Figure 4: Spring eyes

Standard eyes are the most popular and easiest to make. Main plates with Standard eyes can

receive additional support by extending the second leaf or a wrap plate.

Berlin eyes places the load through the centerline of the Main Plate, which reduces lateral

deflection.

Reverse eyes will lower a vehicle while providing maximum spring travel.

The disadvantage of Berlin and Reverse eyes is that they cannot be provided additional

support from the second leaf. However this may not be required in most cases.
Treaming/End Cropping

 After Drilling, the second leaf and the subsequent leaves are sent for end cropping
where the leaves are heated at the ends in the oil fired furnace to 950 deg c to crop the
leaves to the desired size based on the drawing.

 Ends of the leaves finishing will have a major effect on the ride quality a spring will

provide. The ends of the individual spring leaves can be formed in three basic

fashions. Springs that are identical except for the end finish will perform differently.

 Square or constant thickness ends are often unsatisfactory

for automotive springs. Concentrations of interleaf pressures,

friction and stress result in a very poor acting spring for

lightweight vehicles.

 Diamond Point ends are the same as square cut except

excess material on the ends is cut off. Diamond pointing will

result in a better-stressed spring. This end is fine for working

truck applications

 Rolled ends gradually decrease in thickness. The reduced thickness at the ends allow

for increased flexibility of the leaf end, resulting in reduced

stress and interleaf friction. Rolled ends produce the

smoothest acting spring

Taper rolling

 After cropping the cropped 2nd leaf is reheated to form a wrap on one end or both the
ends as desired to provide protection in service on failure of first leaf.
The pre heat treatment operations also called end preparation operations and eye making of

the leaf springs operation require the following machineries.

1. Shearing machine
2. Drilling machine
3. End heating furnace
4. Taper rolling machine
5. Eye making machine
6. Eye grinding machine

5.1.2 Heat Treatment

The heat treatment of leaves is the most important phase in the manufacturing of leaf springs.
First the leaves are subjected to hardening wherein they are heated to approximately 900
degrees centigrade in a walking beam furnace. At the exit from the furnace, the red hot leaves
are subjected to cambering and rapid cooling in quenching oil. The rapid cooling marks the
transformation in the microstructure of steel and gives rise to a martensitic structure which is
characterized by high hardness and brittleness. The cambering is done on an automatic
hydraulic cambering press that ensures uniformity of camber.

After the hardening process, the leaves are subjected to the second heat treatment process
called Tempering. In this process, the hardened leaves are fed into a tempering furnace where
they are heated to a temperature of about 500 degree centigrade and then cooled at room
temperature. Tempering not only reduces the hardness of the leaves but also fortifies their
endurance strength. It also successfully removes the stresses induced during oil quenching
during hardening. Tempering marks the end of the heat treatment phase. After tempering,
leaves are checked for hardness (BHN) to ensure efficaciousness of the heat treatment
process. The heat treated leaves are then shot-peened to remove the surface irregularities and
to impart superior fatigue strength.
Hardening

 After all the end processing is over the leaves are passed on to the heat treatment zone.
In this the leaves are heated in the oil fired Walking Beam Furnace controlled
temperature to 900oc. Depending upon the cross section of the leaf to be heat treated
the stroke & cycle time are adjusted to ensure the total travel time in the furnace. On
heating the structure of the steel is completely austenitic.

Cambering

 After the specific total travel time the leaves drop out at the exit of the furnace and are
picked and placed on the cambering tool where the desired bend is given to the
individual leaves.

Quenching

 On providing the desired bend the cambering tool opens up, on which the leaf is
picked up and quenched in the oil. The temperature of the oil tank is maintained
between 70 to 90 oc to ensure correct rate of cooling. The Austenitic structure changes
to martensitic structure on quenching. It takes about 15 min for the leaf to come out of
the quenching tank.

Tempering

 Leaf is then placed in the tempering furnace where the temperature is maintained at
480 oc to 520 oc depending upon the grade of the steel being used. It takes about 1 hr
45 min for the leaf to travel through this furnace. Leaf is exposed to the hot air draft.
The micro structure is changed to tempered martensite. This operation imparts
 toughness to the steel by reducing the hardness. The temperature of the furnace is also
controlled within ± 10 oc .

Hardness Testing

 Leaves coming out of the tempering furnace are tested for hardness on Brinell
Hardness Testing Machine at periodic intervals to ensure that the desired hardness is
achieved. The Desired range of hardness is 388 to 444 BHN.

Shot Penning/Surface treatment

 Leaves are then subjected to shot penning, it is a cold working process used to avoid
the propagation of micro-cracks from a surface. Such cracks do not propagate or
transfer or enlarged in a material that is under a compressive stress; shot penning can
create such a stress in the surface.

The penning process is takes place by shooting small metal balls in to the surface in a
high speed; this process also removes the dust and causing changes in the mechanical
properties of the surface.

Shot penning is a crucial process in spring making, which enables the spring to gain
extra life of 10-20% more and smooth surface.

In this important unit of leaf spring making, heat treatment operation, the following
machineries are important:

1. Hardening furnace

2. Cambering machine

3. Quenching tank, and oil cooling system

 4. Tempering furnace

5. Hardness testing machine.

6. Shoot penning machine

5.1.3 Post Heat Treatment

The post heat-treatment phase is driven by customer requirements and product characteristics.
The loose leafs are sent for bush-fitting, inspection, painting, marking and dispatch. The leaf
spring assemblies are subjected to a coat of primer paint after which they are assembled into
one unit. The assembly operation is followed by scragging, load testing, painting and marking
activities. The quality inspection process is an integral part of the entire manufacturing
process and encapsulates product quality at every stage of the production cycle. The marked
leaves/assemblies are ready for dispatch.

Eye Grinding

 Main leaf ends are grinded to the specified width to ensure fitment. A double wheel
grinding machine is used for this purpose.

Bush Fitting

 Main leaf is fitted with the bushing as desired by hydraulic machine

Bush Reaming

 Bush inner dia is reamed to the final size to ensure fitment of the spring eyes by means
of carbide reamers mounted on the reaming machines.

Clip Folding

 Clips are then folded on Clamp folding machine to prevent the fanning of the leaves in
service.
Clamp Riveting

 Clips are riveted to the leaves by means of rivets. These clips prevent the fanning of
the leaves in service.

Clamps are the devices which are used for holding the leaf springs together. Clamps are made

of Mild Steel. Procedure for making clamps:

1. At first the material is cut into the required length on the 50 ton cutting

machine by using blades. Next the cutted material is punched on the

punching machine to obtain required circular shape at the edge by using

suitable die.

2. Measuring the correct size the other end is also punched

on punching machine to obtain circular shape by using the same die.

This circular shape at the ends is provided for clamps of width greater

than 20 mm.

3. After making the required size the clamp materials are heated in the

end heating furnace at 1000oCfurnace. The clamps are heated for 15

minutes in the furnace.

4. After heating they are taken out and placed on the punching machines

to make the clamp of “U” shape by using clamp dies.

Different dies are used for making clamps of different widths.

Generally 4 clamps are used for 12 plates and 2 clamps are used for 7 leaf plates. The clamps

are arranged at equal distance from the centre.

 Figure 5: Leaf spring clamps

Assembly

 All the leaves are assembled on this machine and secured by means of centre bolt
which passes through the centre of all the leaves. The desired torque is applied
depending upon the size of the bolt.

Painting

 Springs are then sent for painting where the entire assembly is painted by enamel or
Nitro cellulose paint by spray guns in painting booths to prevent rust in service. The
total coat thickness is approx 70 microns minimum.

Marking

 Spring’s are marked by screening or stenciling for identification purpose.

Packing

 Springs are then stacked on the pallets with each layer seperated by wooden ribs and
then covered by air tight covers and then secured by steel strips to the pallets for
despatch.

The post het tretament operations require the following machines of:
1. Punch machine 40ton
2. Haydraulic press for the bush
3. Two station assemebling line
4. Eye grinding machine
5. Rock well hardness testing machine

5.2 Machinery and Equipment

The machine supply selection is made by comparing the technology and price. We have
visited four suppliers, one in India and three in China.

The price of the Indian supplier was very cheap, but the technology is not comparable with the
existing manufacturing volume and quality demand.

One of the Chinese supplier is failed because the supply is partial. The intensive investigation
was made within two Chinese companies, we have visited their facilities, visited leaf spring
factories supplied by respective of each company, export market potential, their after sales
service and years of service was compared .

The visit was accompanied by an Industrial Engineer as private consultant, and the supplier is
selected which is a company which has several manufacturing unit, with more than 200
machine export and inland sales, called SHANDONG GENERAL TECHNOLOGY The
machinery and equipment required and the cost estimate is presented in Table 9:

Table 9: Machinery list

No Description Quantity Unit price
1 shearing machine 250 ton 1 61,000
2 Drilling machine 2 13,800
3 End heating furnace 1 34,000
4 Eye forming machine 1 88,500
5 Short taper rolling machine 1 85,500
6 Punch machine 63 ton 1 35,500
7 Punch machine 160 ton 1 45,900
8 Hydraulic press machine 1 37,400
9 Hardening furnace machine 1 103,000

10 3-cylinder hydraulic quenching machine 3 41,100

11 Tempering furnace 1 119,000
12 Convey system and water cooling circulation system 1 133,900
13 Straightening machine in heat treatment line 1 26,000
14 Free shoot penning machine 1 116,500
15 Two station table assembling line 1 17,450
16 Brenill Hardness testing machine 1 1,800
17 Rockwell hardness testing machine 1 850
18 hydraulic press for bush 1 11,000
19 Punch machine 40 ton 1 18,300
20 Eye grinding machine 1 30,500
21 Milling machine 1 33,000
22 Material handling fork lift 3 ton 1 15,000
23 Quenching oil * 50 ton 135,500
24 Hydraulic oil ** 4.5 ton 11,925
25 Installation tools 1 set 30,000
Total Machinery costs –USD 1,246,425
26 Fright charge 20,000
27 Machine installation and training (5% of the machine)-USD 62,321
Total Machinery and installation costs –USD 1,328,746
Total machine and equ cost in Birr (@21.55 Br/USD) 28,568,044

The total cost of machinery/equipments, transport and installation is estimated about1,328,746

USD(28,568,044 Birr).
*Quenching oil
Hardening is carried out to achieve the maximum hardness. The main blades after the
eye formation are heated to a temperature of 800-1000oC in a furnace to increase the hardness
of the material. The other blades along with main blades are heated in the furnace. The
furnace is heated by using air and furnace oil through conventional air flow system. The
conventional air flow system is used to mix both air and furnace oil for heating purpose.
A pump is provided for the air to go out.

After heating the blades in the furnace for 45 minutes they are taken out and bent to the
required angle on the hydraulic bending machine also called cambering machine. The required
angle can be obtained by using required angle dies.

The blades after making the required angle they are immersed in the Quenching oil to increase
the hardness. The hardness at the end of this stage is about 50 to 60.

Quenched steel, while very hard and strong, is too brittle to be useful for most
application. A method for alleviating this problem is called tempering. For most steels,
tempering involves heating to between 250 and 500 oC, holding that temperature (soaking)
for an appropriate of time amount of time (on the order of seconds or hours), then
cooling slowly over an appropriate length of time (minutes or hours). This heat treatment
results in higher toughness and ductility, without sacrificing all of the hardness and
tensile strength gained from rapid quenching. Tempering balances the amount of hard marten
site with ductile ferrite and pearlier.

In some applications, different areas of a single object are given different heat
treatments. This is called differential hardening. It is common in high quality knives and
swords.

The quenching oil will be used for about 5 years; since it is not consumable it recycles itself
passing via cooling and filtration systems. The plant will require about 45-50 ton, which costs
about 2650 USD/ton. Taking the highest value 50 ton, at 21.5 Birr/USD rate the total cost will
be 2,848,750 Birr.
**Hydraulic oil
Hydraulic oil also called hydraulic fluid is the medium by which power is transferred in
hydraulic machinery. Since the leaf springs are heavy most of the mechanisms are hydraulic,
these are: shearing machine, Eye making machine, Short tapper rolling machine, Hydraulic
press machine, Cylinder hydraulic quenching machine, Straightening machine, Two station
table assembly, Hydraulic press for bush and the fork lift machine.

The hydraulic oil is part of the machines it will last long with it, since the machines hydraulic
system machines also installed with filtration; it will recycle in a closed system. When there is
a leakage in the system and loss during maintenance operation little amount will be required
for makeup.

The requirement of hydraulic oil based on suppliers recommendations 4.2 to 4.5 ton is
required. Taking the highest quantity of 4.5 ton with a price of 2650 USD/ton at the rate of
21.5Birr/USD, the total cost will be 256,387.50 Birr.

5.3 LOCATION and SITE

5.3.1 Location
The project is located in Oromia Regional State, near Holeta town. The location of the project

is found to be favorable when viewed from other considerations like power and water supply,

transport access, vicinity to market, availability of social services, communication facilities,

and availability of labor.

5.3.2 Site Layout and Plan

The project requires total land area of 5,000 m 2 for construction of production halls,

warehouse (for Raw material and finished goods), canteen, recreation center, and for other

purposes. Table 4.1 shows the breakdown of site layout and land requirements.

5.3.3 Land, Building and Civil Works

As indicated above the total area of the premise required for the plant is estimated to
be 5,000m 2 .

The land will be obtained from the Regional lease office at the cost of Birr 18 per m2 per year

for 80 years that should be paid in 40 years. The first payment is 10% of the total payment.

Therefore the total leas value of land is 7.5 million. An advance payment of Birr 750,000 the

yearly payment will be Birr 168,750.

Table 10: site lay out land requirement

S.N Facilities Land required(m2)

1 Production and Warehouse 1,330

2 Office Block 250

3 Canteen and Rec. center 250

4 Showers and Toilets 50

5 Green area 960

7 Yard and safety space 1,335

6 Future Expansion 1,000

Total land area required 5175

The building structure for the production hall will be EGA roofing. HCB wall and cement tile

floor. The total cost of building and civil works is estimated about Birr 8,500,000.
 6. ORGANIZATION AND HUMANRESOURCE

6.1 ORGANIZATION STRUCTURE

The proposed organization structure for the envisaged plant will have two managerial units
namely:
 Plant manager
 Commercial manager
To be further divided in to four function sections as:
 Production & Technique
 Administrative & finance,
 Marketing & Sales
 Supply and procurement

Among the functional units Production and Technique will have service units namely Quality
control and Maintenance. And functional unit of the Production and Technique are:

 Preparation: Shearing, Drilling, Eye making and tapper rolling

 Heat Treatment: Hardening, Cambering, and Tempering
 Surface Treatment: Shoot penning, painting, assembling

Similarly other functional departments have functional and support sections as shown in the
proposed organizational structure shown below in Figure 6.
 GENERAL
MANAGER

EXECUTIVE
SECREATEARY

PLANT MANAGER COMMERCIAL

PRODUCTION AND ADMINSTRATION SUPPLY AND MARKETING AND

TECHNIQUE AND FINANCE PROCUREMENT SALES

PRODUCTION AND
FINANCE PURCHASING SALES
MAINTENCE

HEAT TREATMENT
PRE HEAT TRATEMENT UNIT ADMINISTRATION STORE MARKETING

SURFACE TRETMENT AND MECHANICAL AND

FINSHING ELECTRICAL
MAINTENCE GENERAL SERVICE

QUALITY

FIGURE 6: PROPOSED ORGANIZATION STRUCTURE

The organizational structure of the envisaged project will consist of the following hierarchy
as:

 General Manager
 Plant manager
 Commercial manager

6.1.1 General Manager

The General Manager discharges all the duties and responsibilities vested on him in the
Memorandum and Articles of Association of the enterprise. Besides strategic and policy
directing role, the General Manager is in charge of the following main duties and
responsibilities.

 Plans, Organizes, coordinate, direct and supervise the overall activities majorly on
plant and commercial management
  Reviews strategy, operational manuals and procedures for implementation
 Sorts out problems faced in supply, operation process and provides appropriate
solutions;
 Takes part in implementing company management systems, tools and bench marking
practice;
 Ensure implementation of quality management system;

 Develop performance evaluation mechanism and ensure continuous performance

improvement within the plant that result in productivity improvement;
 Ensure cleanliness and operational and nonoperational over all areas of factory
compound.
 Ensure proper and efficient utilization of resources and cost control;
 Follow – up operation status through regular meetings; and
 Maintain close and smooth working relationship with departments.
 Manages the day to day affairs of the enterprise
 Represents the factory before courts of law and all other parties, and delegates his
power as may be necessary.
 Develops strategic and operational plans and organizes, administers and controls the
overall operation of the factory in line with Company policy.
 Draws, signs, endorses, accepts and negotiates any commercial documents in
accordance with the internal regulations of the factory.
 Authorizes expenditures, sign cheque and authorize signatories on checque as
appropriate.
 Ensures the accomplishment of the enterprise objectives, plans and policies set.
 Issues policy guidelines to the various managerial staff.
 Chairs management and other higher committee meetings of the factory.

6.1.2 Plant Manager

The major duties and responsibilities to be performed under the plant manager include:
 Planning, organizing, directing, coordinating and supervising the production
&technical operations, of the Factory;
 Ensures that the necessary manpower, equipment and facilities are organized for
production and maintenance operations;
 Assess production requirements in relation to plant capacity and performance,
manpower availability & materials supply;
 Sets production and performance targets in consultation with top management;
 Ensures that the required type, quality and quantity of raw materials are available to
maintain continuous and optimum level of operation;
 Ensures that production plan and program, records etc are properly maintained for
future reference;
 Studies equipment developments and improved production techniques;
 Devises inspection program to control quality and develops production reporting
procedures;
 Ensures that all equipment and machinery are operated and maintained in accordance
with the required standards;
 Develops and recommends equipment management system for efficient operation,
usage maintenance and replacement of equipment and machinery
 Assists management in establishing criteria, policies and procedures for replacement,
disposal or obsolesce of equipment and vehicles
 Plans, organizes, directs, coordinates and supervises the administration and human
resources management functions of the department;
 Ensures that personnel policies, regulations and procedures of the Company are
compiled and executed properly;
 Ensures the provision of efficient communication, clerical, etc. services to the various
offices of the plant;
 Administer the manpower planning and maintenance of employee statistical data;
 Plans, organizes, directs, coordinates and supervises the general service, functions;
 Advises management on human resource management issues;
  Plans, organizes, directs, coordinates and controls the financial, costing and budgetary
control activities;
 Analyzes the impacts of financial performance or the liquidity and profitability of the
plant;
 Analyzes financial statements and advised management on its implication together
with possible course of action;
 supervise cost analysis and financial budget control activities;
 Follows-up monitors the assets of the Company as per the existing financial rules and
regulations and prepares annual inventory programmers’ of assets,
 Indicates the source, position and financial trend of the Company,
 Developing & proposing quality policy of the company.
 Ensure approved Quality policy is communicated & understood by every employee of
the company.
 Ensure Quality management system procedures of the company & QA are developed,
implemented, maintained & continually improved.
 Ensure that quality of raw materials and components purchased conforming to
requirement through effective incoming inspection procedures.
 Ensure that the quality of semi-finished products /items conforming to requirements
through effective processes inspection & testing procedures.
 Ensure that all products supplied /delivered to customer conform to customer
requirements through effective final inspection & testing procedures.
 Managing non-conforming products /items
 Timely initiation and follow-up of remedial and corrective action for non-conforming
processes.
 Analyze quality cost of the company and proposing corrective /preventing action to
minimize quality cost.

To carry out the above activities the production and technical department will have two
functional divisions, namely

 Production and technique

  Quality control

 Administration and finance

6.1.3 Commercial Manager

The major duties and responsibilities to be performed by the Commercial Department include:

 Plans, organizes directs, coordinates and controls the overall activities of the sales and
purchase in domestic and foreign and the store and property administration;

 Develops systems & procedures necessary for the efficient and effective operation of
the sales, purchasing and storage functions of the plant;
 Promotes the business of the company through sales campaigns and advertisements;
 Identifies suitable supply markets for local and foreign purchases on the basis of
established systems and procedures and bargains prices; ascertains the delivery of
supplies on time;
 Ensures that all supplies purchased are of the required type, quality and standards;
 Initiates and prepares operational directives and guidelines governing procurement,
sales and store and property administration of the company;
 Ensures that all materials (raw materials, spare parts, office supplies and finished
products) are properly received and kept in stores as per established rules and
regulations; and
 Exercises inventory control and materials programming that ensures an effective
materials management system
 Keep record of reliable suppliers and maintain continuous contacts and long-range
relationship identify new suppliers and compare them with previous suppliers;
 Ensure that there are no delays in material supply that may affect production;
 Maintain an effective inventory control system through application of periodic
inventory;
 Implement adequate system for maintaining minimum stock and reordering level of
stock;
  Raise timely purchase requisition to maintain sufficient stock as per the policy of the
Company;
 Ensure purchase requests are budgeted or approved by the General Manager and are
being carried out as per the set procedure;
 Confirm purchase order to suppliers after obtaining approval from the general
manager;
 Propose marketing policies and develop marketing strategy & disseminate after
approval; continuously review policies and strategies for retaining market leadership;
 Develop marketing strategies and oversee implementation and secure sufficient orders;
 Identifying new markets opportunities for products;
 Collect & analyze data pertaining to competition and technology development and
submit findings to management for decision; ensure company awareness of market
trends and opportunities;

The commercial department is internally structured and comprising sections such as:

 Supply and procurement

 Marketing and sales

6.2 HUMAN RESOURCE REQUIREMENT

The total personnel requirement of the plant is estimated to be 69 persons. The annual salaries
and wages to run the envisaged plant amount to Birr 2.9 Million in one shift annual operation
of the plant
The staff combination of all the senior technical and production management personnel
should be at qualifications of Degree/Diploma level or equivalent from, mechanical
engineering and industrial engineering.
Similarly, the other professional departmental staffs and managers are required to have a
University Degree with rich experience in their respective fields. All senior personnel are also
required to have successful relevant experience in their position of recruitment
As those the frontline supervisors of labor on the shop floor, it is particularly important that
they have a good experience of their relevant assigned position so as to guide and control the
workforce for the achievement of planned productivity target.

Mechanics, electricians and senior operators should have intensive technical skills and should
be trained by the technology and machinery supplier to ensure the efficient running of the
production machinery and equipments.
In addition machine operators and quality supervisors need to be fully trained of the standard
practice and quality characteristics of leaf spring. More over the overall maintenance
organization and system should be strong to avoid any equipments failure
The efficiency of the operators will increase through experience and subsequent training
programs which will be planned and allocated from the project implementation up to full
capacity running of the factory. The man power requirement and the related annual cost are
shown in the table below.
TABLE 10: Annual manpower requirement and related cost

No. Position Monthly Salary Qty Annual Total salary

1 General Manager 15,000.00 1 180,000

1.2 Executive Secretary 2,000.00 1 24,000

1.3 Plant /Factory Manager 12,000.00 1 144,000
Sub Total 1 3 348,000
2 Commercial And Property Administration
2.1 Procurement And Supply 8,000.00 1 96000
Manager

2.2 Purchaser 5,000.00 1 60000

2.3 Store Keeper 2,500.00 1 30000
2.4 Store Assistance 1,200.00 1 14400
2.5 Clerk 1,000.00 1 12000

Sub Total 2 5 212400

3 Market and sales

3.1 Market And Sales Manager 8,000.00 1 96000

3.2 Marketing Officer 4,500.00 1 54000

3.3 Sales Officer 4,500.00 1 54000

No. Position Monthly Salary Qty Annual Total salary
Sub Total 3 3 204000

4 Administration and finance

4.1 Finance And Administration 8,000.00 1 96000

Manager
4.2 Accountants 5,000.00 2 120000

4.3 Casher 2,500.00 1 30000

4.4 Personnel 2500 1 30000

4.5 General Service Officer 3500 1 42000

4.6 Driver 2500 2 60000

4.7 Guard 1200 4 57600

4.8 Janitors 700 2 16800

Sub Total 4 14 452,400.00

Total Indirect labor cost 25 1,216,800.00
5 Production And Technical Department
5.1 Production And Technical 8,000.00 1 96,000
Manager

5.2 Shearing and drilling 2,500.00 4 120,000

5.3 Eye Making and tapering 2,500.00 4 120,000
5.4 Helper (Laborer) 1,500.00 2 36,000
5.5 Heat Treatment 2,500.00 4 120,000
5.6 Helper (Laborer) 1,500.00 9 162,000
5.6 Finishing 2,000.00 4 96,000
5.7 Senior Machinist 4,500.00 2 108,000
5.8 Junior Machinist 4,500.00 2 108,000
5.9 Senior Electrician 4,500.00 2 108,000
5.1 Junior Electrician 4,000.00 2 96,000
Sub Total 5 36 1,170,000
6 Quality
6.1 Quality Manager 8,000.00 1 96,000
6.2 Quality Controller 4,500.00 2 108,000
6.4 Quality Assurance Head 5,000.00 2 120,000
Sub Total 6 5 324,000
Planning and Designing
7.1 Planning Manager 8,000.00 1 96,000
No. Position Monthly Salary Qty Annual Total salary
7.2 Planning Engineer 5,000.00 1 60,000
7.3 Designer Engineer 5,000.00 1 60,000
Sub Total 7 3 216,000
Total direct labor Cost 44 1,710,000
Grand Total 69 2,926,800

6.3 TRAINING REQUIREMENT

Since the local leaf spring manufacturing processing technology experience is very limited it
would be appropriate to provide short and long term training to technical, production, and
quality department’s personnel locally by the technology supplier firm before and during
machinery erection, commissioning and running which will give in-depth knowledge of leaf
spring manufacturing technology knowhow, which creates a strong staff to depend on for long
and short term company’s objectives and goals.
It should be emphasized, however, that training should be viewed as ongoing activity of the
factory and not just one-time affair. The annual training cost would be 5% of the employees
cost, which is equivalent to 146,340 Birr.

6.4 EMPLOYEES BENEFITS

Legal recruitment of employee demands coverage of some employees benefits such as

pension contribution, and medical allowance that are protected by the labor law. The
breakdown of benefit packages to be offered to employees is presented in the Table 11.
TABLE 11-A: Admin staffs annual benefits
No. Description Annual cost in Birr

1 Pension contribution -12 % of salary 146,016

2 Medical Allowance - 1 month salary 101,400
3 Employees Incentive 2 month salary 202,800
Total 450,216

TABLE 11-B: Direct labor annual benefits

No. Description Annual cost in Birr

1 Pension contribution -12 % of salary 205,200

2 Medical Allowance - 1 month salary 142,500
3 Employees Incentive 2 months’ salary 285,000

4 Uniform and Safety Device 1000 per person 44,000

Total 676,700
 7. PROJECT IMPLEMENTATION

The nature of this project is unique in its nature since the owner, Ato Yonas Bonger Aga has
been dreaming and planning its execution. The owner had visited leaf spring factories in Iran,
India and China. Besides the visiting of leaf spring factories the owner and his personal
advisor Ato Gebremeskel Atsbha (MSc in Chemical Engineer and BSc Industrial
Engineering) made technical visits of the plant suppliers.
Since leaf spring machineries are not standard machine, means they will not used for other
purposes except leaf spring only, it makes the project machineries special and can be
manufactured by limited suppliers. The experts used to work in leaf spring machinery makers
work most of their life since their experience will not help them to work in other fields. This
makes the technology fine and expensive.
Accordingly the promoter of the project has already acquired the manufacturing land, and
identified the technology and supplier by making critical analysis of suppliers.

7.1PROJECT ORGANIZATION

The first step to be taken in the execution of the project is the constitution of an appropriate
project organization. The following important phases are identified for the execution of
project without any cost or time overruns. These phases are not mutually exclusive and some
degree of over lapping is envisaged.
 Appraisal of the feasibility report by Financial Agency;
 Financial closure;
 Detailed planning;
 Procurement packages including inspection and expediting;
 Project management and Cost control;
 Commissioning and performance testing.

The project implementation team can be organization in different functional team as more
described below:
Project management team: - in order to ensure the timely completion of the project at
reasonable cost planning and organizing of the project and staffing the project with proper
manpower is highly essential.
The project management team is headed by the Project manager assisted by legal advisor,
Auditor, financial & administrative team as support functions and shall have the following
core functional departments.
Technical, Engineering and Project Quality Control Team: for the preparation of designs,
specification and bill of quantities; assistance in tendering and contracting processes. Quality
control involves inspection of any delivery and actual project progress at planned
intervals, checking completion of documentation, training, commissioning and handover of all
the various components of the project. The team can be assisted by engineering & design
consultant or a project manager experienced in the field as found appropriate
Procurement Supply Team: The project team will procure machinery, equipment, factory
supplies and all other requirements for the implementation as per the schedule developed and
as per their availability from foreign and local sources with optimized time and cost schedule.
Administration and Finance: this team will manages and control project activities related
financial transaction, security, personnel etc.
The implementation team is proposed to have vast experience in implementation of
manufacturing projects. The team will directly report to the management team organized from
the stockholders about the progress of the project implementation core activities.
The implementation of the envisaged plant involves a number of activities and processes or
functions which have to be carried out in order to bring the plant into successful operation.
The different functions in the project implementation are categorized into four broad groups,
namely, project management, project engineering, procurement and construction and project
quality control. These areas are described as follows.

7.1.1 Project Management

Like all other management functions, the management of the project involves planning,
controlling, organizing and staffing activities. Time and cost control will be the most
important aspect of the project management since the implementation of the project will
involve several parties including the owner, consultant, suppliers, and government authorities.
Therefore, adequate mechanisms should be in place for coordinating the various project
sectors.
 7.1.2 Project Engineering
Project engineering involves scoping of the project into different lots of work such as the
preparation specification and bill of quantities; management assistance in tendering and
contracting processes; and incorporating, as necessary, change and modifications in the
process of the project implementation.

7.1.2 Procurement and Construction

Procurement and construction are at the center of the implementation of the project as all
other activities are meant to facilitate them. The project team will procure machinery,
equipment, factory supplies and all other requirements for the implementation as per the
schedule developed and as per their availability from foreign and local sources with
optimized time and cost schedule.
As project factory shop site is under construction with all the necessary civil works and
infrastructure incorporated the civil work construction project activity in this project
management life cycle will not included.
However procurement and construction functions of the project management related to the
installation of machinery and equipment will be undertaken.

7.1.3 Project Quality Control

In order to ensure achieving the intended purpose, it is important to exercise adequate quality
control throughout the implementation of the project. Quality control involves inspection of
any delivery and actual project progress at planned intervals, checking completion of
documentation, training, commissioning and handover of all the various components of the
project this could be achieved by establishing strong project implementation team and/or
contracting the supervision work for independent consulting firm.

7.2 IMPLEMENTATION SCHEDULE

The project implementation schedule covers the activities starting from the project evaluation
and approval up to the trial-run and commissioning. It is envisaged that the complete
implementation program requires a total of 10 months.
The formation of implementation team, the personal consultant and the owner will start the
project except hiring the financial team it will be carried out within 0.5 month after the
approval of the project.
 7.1.4 Machinery and Equipment
The plant machinery and equipment suppliers has already identified it will start right after
project approval by the bank loan grant. Final evaluation, contract negotiation, signing and
LC opening, which will also start at 2nd month after the approval of the project, will be
completed within 1 month. Design, engineering and manufacture of plant machinery and
equipment will start after 3 months from project approval and supply will be completed within
5 months’ time frame from contract is signed.
Erection of machinery and equipment will start after completion of the machinery and
equipment delivery and will take 2 months. Delivery of raw materials will be arranged before
of erection of machinery and equipment is completed so that it will be used for wet test
commissioning.
Recruitment and training of manpower will start 4 months before the start of erection of
machinery and equipment and will be completed before commissioning and start up. The
plant will start dray and wet commissioning at the 8 th month after the project approval and will
be completed in 3 months. Similarly technology and knowhow transfer will be conducted
starting from and together with the erection and commissioning activities for 3 months
duration.
Finally the plant will start production operation at the end of 9th months from the approval
of the project and be operational then after .More over Project activities will be handled by
project management tools so as to optimize time and project cost utilization towards
realization of the project on the ground with minimum project implementation cost and time
as per planned schedule.
The project implementation schedule is presented in the next figure.
 Month
DUREATION
S/N Activity
( MONTH)
1 2 3 4 5 6 7 8 9 10 11

1 Approval of the study

Implementation team formation, employment of

2 1
consultant and Financial Arrangement (1M)
Machinery , Equipment, tools and raw materials
3
Procurement and Erection
3.1 Finalizing the contract and opening LC (2M) 2
Design , Manufacture and supply of Machinery and
3.3 5
Equipment (5 M)
3.4 Procurement of Raw materials for testing (2 M) 2
Erection and Commisionning of Machinery and
3.5 3
Equipment(3 M)
4 Recruitment of Workers( 1M) 1
5 Technology know-how transfer& training ( 1M) 3
6 Hand over (1M)
7 Start of operation

FIGURE 1: IMPLEMENTATION SCHEDULE

2 0 1 6
7.2 PROJECT IMPLEMENTATION COST

This part of the implementation cost covers the cost of erection & commissioning of plant
machinery and equipments of the plant. The project implementation cost which comprises
project office running and follow-up expenses, erection and commissioning expenses.
However for the implementation of the envisaged plant the project implementation team
will be organized from the existing business organization of the project promoter with some
additional technical staffs and project manager.
Accordingly the project implementation cost is estimated to be Birr447.84 thousand. The
breakdown of which is indicated in the table shown below.
TABLE 12: PROJECT IMPLEMENTATION COMPONENTS AND THEIR RELATED COST
No Job Title Qty DUREATION Amount Birr
( Month) Monthly Total
salary
I PROJECT STAFF
1.1 Project Manager 1 10 10,000.00 100,000.00
1.2 Project Coordinator 1 10 4,000.00 40,000.00
1.3 Executive Secretary 1 10 1,500.00 15,000.00
1.5 Erection Assistants 3 10 1,000.00 10,000.00
SUB TOTAL 1 165,000.00
III COMMISIONING AND ERRCTION EXPERTS PROFESIONAL EXPENSES
No Descriptions Qty Accommodation Duration Total
and air tickets month Amount
(With Air
Ticket)

1 Erection and commissioning 5 47,000 5 235,000

experts
SUB TOTAL 249.24
TOTAL COST FOR PROJECT IMPLEMENTATION ( "000 ) Birr 447.84

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8. FINANCIAL ANALYSIS

This section presents the financial analysis carried out for the feasibility study for Auto Leaf

Spring Factory of YONAS BONGER AGA. The financial analysis is based on market,

technical, and organizational assessment of the project discussed in the preceding sections of

the report.

8.1 Assumption Used in the Study

8.1.1 Project Life

The operational life of the project, a standard assumption of 10 years is considered. Hence,
the costs and benefits of the project are computed over 10 years.

8.1.2 Repair and Maintenance Cost

The annual repair and maintenance cost of all fixed assets except vehicles is taken to be 1.5%
of total cost while the annual cost of repair and maintenance for vehicles has assumed to be
3% total cost.

8.1.3 Depreciation and Amortization

Based on the Business Income Tax Proclamation Number 286/94, the following
depreciation rates are applied to depreciate the assets of the project:
 Civil works and associated 10%
 Machinery and equipments 20%
 Motor Vehicles 20%
 Water and Electricity installation 10%
 Office furniture and equipment 20%
 Pre-production expenditure 20%

YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 2

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8.1.4 Working Capital
The working capital requirement of the project during operation is calculated on the basis of
the minimum days of coverage needed for the different elements of the working capital.
Hence, the minimum days are specified as follows:-

TABLE 12: Minimum days of coverage for working capital computation

No Minimum Days of
Item
Coverage
1 Raw Materials 90 days

2 Spare Parts 30 days

3 Work in Progress 6 days
4 Finished Product 30 days

5 Cash in Hand 30 days

6 Accounts Receivables 5 days

7 Accounts Payable 0 days

8.1.5 Discounting
The total investment and equity capital of the project are discounted at 14 percent over the
life of the project.

8.1.6 Income Tax

According to the Investment Incentives Council of Ministers Regulations No.7/1996, the
project is entitled to the following incentives:
 Income tax exemption for 2 years
 Losses carry forward for 3 years, and
 Exemptions from payment of custom duty on machineries and equipments

YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 3

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8.1.7 Revenue
The total annual revenue to be generated by the project during its operation is shown in the
Table below. The result is considering the selling price and raw material cost similar
throughout the life, which is clarified in section 3.2.1. Based on the assumption the selling
price of leaf spring is 64,300 Br/ton.

TABLE 13: Annual revenue

('000 Birr)
Sellin Production Years
Descrip g
No. Price/u
tion 1 2 3 4 5 6 7 8 9 10
nit
Capacity
utilization 70% 80% 90% 90% 90% 90% 90% 90% 90% 90%
1 Production
Programme
Leaf Spring tons 1,5 1, 1, 1, 1, 1, 1, 1, 1,9 1,9
40 760 980 980 980 980 980 980 80 80
2 Total Sales 95, 108, 122, 122, 122, 122, 122, 122, 122,2 122,
Revenue 061 641 221 221 221 221 221 221 21 221
Leaf Spring 64,300 95, 108, 122, 122, 122, 122, 122, 122, 122,2 122,
061 641 221 221 221 221 221 221 21 221

8.2 Result of Financial Analysis

Projections are made based on assumptions. Based on these assumptions, a complete set of
financial projections are provided in this section. These projections include profit/loss
statement, and statement of cash flow and balance sheets. The projections are prepared on
an annual basis. Accordingly, the financial analysis results are as discussed below.

8.2.1 Investment Cost

The total investment required for the project is estimated to be Birr 53.5 Million. The cost
covers initial investment costs, working capital requirements and pre-operating expenses.
The detail of the investment is shown in the Table 14.

YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 4

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Table 14: Total initial investment in birr

Items Year 0 Year1 Total Grand

L. C. F. C. L. C. F. C. L. C. F. C. Total
Fixed investment 13,1 28,5 28,5
16 68 - - 13,116 68 41,684
Land lease advance 75
payment 0 - - - 750 - 750
Building & civil work 8,5
00 - - - 8,500 - 8,500
Machinery & equipment 28,5 28,5
- 68 - - - 68 28,568
Utilities installation 40
0 - - - 400 - 400
Vehicles 3,2
74 - - - 3,274 - 3,274
Office equipment & 16
furniture 0 - - - 160 - 160
Computer & software 3
products 2 - - - 32 - 32
Pre Production 40
expenditures 0 - - - 400 - 400
Working capital, initial 4, 6, 6,5
- - 895 541 4,895 41 11,435
Total 13,5 28,5 4, 6, 35,1
16 68 895 541 18,410 09 53,519
42,0 1
84 1,435 53,519

* Pre operating cost includes project implementation cost.

** The total working capital required at full capacity operation is Birr 14.27 Million.
However, only the initial working capital of Birr 11.43 Million during the first year of
production is assumed to be funded through external source. During the remaining years the
working capital requirement will be financed by funds generated internally.
Table 15: Total Initial Investment Share
Item Cost % Share
( in 000
Birr)
Fixed investment
Land lease advance payment 750 1.40%
Building and civil work 8,50 15.88%

YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 5

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0
Machinery and equipment 28,56 53.38%
8
Utilities installation 40 0.75%
0
Vehicles 3,27 6.12%
4
Office furniture and equipment 19 0.36%
2
Sub total 41,68 77.89%
4
Pre operating cost * 40 0.75%
0
Working capital ** 11,43 21.37%
5
Grand Total 53,51 100.00%
9

8.2.2 Source of Finance

The sources of finance for the total investment will be equity capital and long-term loan
obtained from Bank. The company will capitalize of Birr 12.4 Million (23%) and the
remaining balance, Birr 41.1 Million or 77% of total investment is to be obtained from loan.
The detail of the bank financing is presented in the Table 16.
The loan obtained for the project is financing the fixed investment (long term about 8 years)
and the working capital about five years.

Table 16: Source of finance

Amount ‘000 birr
Source of Finance
Yr 0 Yr 1 Total Share Financial terms
Equity capital 12,4 - 12,41 23%
16 6
Long-term loan (8 years) 29,6 - 29,66 77% Loan payable in
68 8 installments.
Medium-term loan (5 11,435 11,43 grace period, one
years) - 5 year.
42,0 11,435 53,51 100%
Total 84 9

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8.2.3 Loan Repayment Schedule
The project promoter has a good record of loan payment according in a schedule. The total
amount of bank loan including interest will be fully paid back within given periods. The
table below presents Loan repayment schedule.

YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 7

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TABLE 17: Bank loan repayment schedule

Description Total Impl. Yr. Operation Years

Disbursemen 0 1 2 3 4 5 6 7 8 9 10
t
Repayment of Term Loan
1. Borrowing 29,668 29,668 11,435 - - - - - - - - -
Long-term loan (8 yrs) 9,668 - -
Medium-term loan (5 - 11,435 -
yrs)
2. Accrued Interest - - 2,818 3,838 3,212 2,585 1,958 1,331 705 352 - -
Long-term loan 9.5% - 2,818 2,466 2,114 1,762 1,409 1,057 705 352 - -
Medium-term loan12.0% - - 1,372 1,098 823 549 274 - - - -
3. Repayment of Principal - - 3,708 5,996 5,996 5,996 5,996 5,996 3,708 3,708
- -
Long-term loan - 3,708 3,708 3,708 3,708 3,708 3,708 3,708 3,708 - -
Medium-term loan - - 2,287 2,287 2,287 2,287 2,287 - - - -
4. Repayment of Interest - - 2,818 3,838 3,212 2,585 1,958 1,331 705 352 - -
Long-term loan - 2,818 2,466 2,114 1,762 1,409 1,057 705 352 - -
Medium-term loan - 1,372 1,098 823 549 274 - - - -
5. End of Year Balance - 29,668 37,395 31,399 25,404 19,408 13,413 7,417 3,708 - - -
Long-term loan 29,668 25,959 22,251 18,542 14,834 11,125 7,417 3,708 - - -
Medium-term loan - 11,435 9,148 6,861 4,574 2,287 - - - - -
6. Term Debt - 29,668 37,395 31,399 25,404 19,408 13,413 7,417 3,708 - - -
Repayment of Overdraft
1. Borrowing -
- -
2. Accrued Interest - - - - - - - - - - - -
3. Repayment of Principal - - - - - - - - - - - -
4. Repayment of Interest - - - - - - - - - - - -
5. End of Year Balance - - - - - - - - - - - -
Repayment of Interest, - 2,8 3,83 3,21 2,58 1,95 1,33 7 3
Total - 18 8 2 5 8 1 05 52 - -

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YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 2

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Table 15: Total annual costs of product in ‘000 Birr
Cost item Production years Cost
1 2 3 4 5 6 7 8 9 10 Share
Capacity utilization 70% 80% 90% 90% 90% 90% 90% 90% 90% 90%
I. Costs of Goods Manufactured 38, 42, 46, 46, 46, 40, 40, 40, 40, 40, 82.54%
715 746 777 777 777 409 409 409 409 409
1. Direct & auxiliary materials 26,180 29,920 33,660 33,660 33,660 33,660 33,660 33,660 33,660 33,660 59.39%
2. Spare parts 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1.83%
3. Utilities 2,681 2,972 3,262 3,262 3,262 3,262 3,262 3,262 3,262 3,262 5.76%
4. Labour, direct 1,710 1,710 1,710 1,710 1,710 1,710 1,710 1,710 1,710 1,710 3.02%
5. Factory Overheads 7,105 7,105 7,105 7,105 7,105 737 737 737 737 737 12.54%
- Wages (+ benefits) 677 677 677 677 677 677 677 677 677 677 1.19%
-Depreciation & amortization 6,428 6,428 6,428 6,428 6,428 60 60 60 60 60 11.34%
II. Selling & Dist'n (Marketing) Costs 951 1,086 1,222 1,222 1,222 1,222 1,222 1,222 1,222 1,222 2.16%
-Selling and dist costs (% sales) 951 1,086 1,222 1,222 1,222 1,222 1,222 1,222 1,222 1,222 2.16%
III. General & Adm. Expenses 8,346 9,334 8,675 8,016 7,350 6,659 5,939 5,555 5,171 5,138 15.31%
1. Administrative Overheads 5,528 5,496 5,464 5,432 5,392 5,328 5,235 5,203 5,171 5,138 9.64%
Salaries & wages (+ benefits) 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 2.94%
Land lease 1,639 1,607 1,575 1,543 1,511 1,478 1,446 1,414 1,382 1,350 2.78%
Professional fees 100 100 100 100 100 100 100 100 100 100 0.18%
Depreciation 540 540 540 540 532 500 500 500 500 500 0.95%
Insurance 687 687 687 687 687 687 687 687 687 687 1.21%
Fuel & lubricants 704 704 704 704 704 704 704 704 704 704 1.24%
Travelling and perdiem 146 146 146 146 146 146 86 86 86 86 0.26%
Supplies & services 25 25 25 25 25 25 25 25 25 25 0.04%
Miscellaneous 20 20 20 20 20 20 20 20 20 20 0.04%
2. Financial costs (interest) 2,818 3,838 3,212 2,585 1,958 1,331 705 352 - - 5.67%
Total Operating Costs 48,012 53,167 56,675 56,016 55,349 48,290 47,570 47,186 46,802 46,770

YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 3

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8.2.4 Income statement

Table 16: Project Profit and loss
Description Production Years
1 2 3 4 5 6 7 8 9 10

Total Sales Revenue 95,061 108,641 122,221 122,221 122,221 122,221 122,221 122,221 122,221 122,221

Less Cost of Goods Sold 38,715 42,746 46,777 46,777 46,777 40,409 40,409 40,409 40,409 40,409

Gross Profit 56,346 65,895 75,444 75,444 75,444 81,813 81,813 81,813 81,813 81,813

Gross Profit Margin 59% 61% 62% 62% 62% 67% 67% 67% 67% 67%

Less Adminstrative Expenses 5,528 5,496 5,464 5,432 5,392 5,328 5,235 5,203 5,171 5,138

Profit (loss) before Interest, Sales Cost & Tax 50,818 60,399 69,981 70,013 70,053 76,485 76,578 76,610 76,642 76,674

Less Interest (Financial Costs) 2,818 3,838 3,212 2,585 1,958 1,331 705 352 - -

Profit (loss) before Sales Cost & Tax 48,000 56,561 66,769 67,428 68,095 75,154 75,873 76,258 76,642 76,674

Less Selling & Dist'n Costs 951 1,086 1,222 1,222 1,222 1,222 1,222 1,222 1,222 1,222

Profit (loss) before Tax 47,049 55,474 65,547 66,205 66,872 73,931 74,651 75,035 75,420 75,452

Less Income Tax (30%) * * * 19,862 20,062 22,179 22,395 22,511 22,626 22,636

Net Profit (Loss) 47,049 55,474 65,547 46,344 46,811 51,752 52,256 52,525 52,794 52,816

Cumulative Net Profit (Loss) 47,049 102,523 168,070 214,414 261,225 312,977 365,232 417,757 470,551 523,367

Profit (loss) before Tax (w.o. ex. financing) 49,867 59,313 68,758 68,790 68,830 75,263 75,356 75,388 75,420 75,452

Less Income Tax, w.o. ex. financing (30%) * * * 20,637 20,649 22,579 22,607 22,616 22,626 22,636

Net Profit (Loss), w.o. External Financing 49,867 59,313 68,758 48,153 48,181 52,684 52,749 52,771 52,794 52,816

Cumulative Net Profit (Loss) 49,867 109,180 177,939 226,092 274,273 326,957 379,706 432,477 485,271 538,088
* Tax holiday period
Ratios (%)
Return on sales (net income by revenue) 49% 51% 54% 38% 38% 42% 43% 43% 43% 43%
Return on equity (net profit divided by equity) 379% 447% 528% 373% 377% 417% 421% 423% 425% 425%
Return on assets (operating income divided by assets) 58% 45% 37% 31% 26% 25% 21% 19% 17% 15%
Return on total investment (Net profit + interest to investment) 118% 253% 407% 516% 625% 747% 870% 994% 1118% 1244%

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8.2.5 Balance sheet

Description Con.Yr Production Years

.
0 1 2 3 4 5 6 7 8 9 10
Fixed assets
Fixed investment 41,68 41,68 41,68 41,68 41,68 41,68 41,68 41,68 41,68 41,68 41,68
4 4 4 4 4 4 4 4 4 4 4
Pre-production exp 400 400 400 400 400 400 400 400 400 400 400

Total Fixed Assets 42,084 42,084 42,084 42,084 42,084 42,084 42,084 42,084 42,084 42,084 42,084

Less acc. Depr'n & - 6,968 13,936 20,904 27,873 34,833 35,393 35,952 36,512 37,072 37,632
ammortiz'n
Net fixed assets 42,084 35,115 28,147 21,179 14,211 7,251 6,691 6,131 5,571 5,012 4,452

Current assets
Cash on hand & at bank - 50,643 105,672 170,774 218,090 265,865 312,810 361,917 411,293 464,647 518,023

Debtors (recievables) - 521 595 670 670 670 670 670 670 670 670

Stocks - 10,580 11,923 13,267 13,267 13,267 12,639 12,639 12,639 12,639 12,639

Total current assets - 61,744 118,191 184,710 232,027 279,802 326,118 375,225 424,602 477,955 531,331

less Current liabilities

Creditors (payables) - - - - - - - - - - -

Overdraft - - - - - - - - - - -

Total current liabilities - - - - - - - - - - -

Total working capital - 61,744 118,191 184,710 232,027 279,802 326,118 375,225 424,602 477,955 531,331

Total net assets 42,084 96,859 146,338 205,889 246,238 287,053 332,809 381,357 430,173 482,967 535,783

Financed by
Paid-up capital 12,416 12,416 12,416 12,416 12,416 12,416 12,416 12,416 12,416 12,416 12,416

Loan and Credit 29,668 37,395 31,399 25,404 19,408 13,413 7,417 3,708 - - -

Retained profits (Losses) - 47,049 102,523 168,070 214,414 261,225 312,977 365,232 417,757 470,551 523,367

Total 42,08 96,85 146,33 205,88 246,23 287,05 332,80 381,35 430,17 482,96 535,78
4 9 8 9 8 3 9 7 3 7 3
0 0 0 0 0 0 0 0 0

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8.2.6 Cash Flow
Table
Description Imp. Production Years Book
Value
Yr.
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow 42,08 65,452 62,443 72,515 53,312 53,771 52,312 52,81 53,085 53,354 53,376 17,893
4 6
1. Inflow of funds 42,084 11,435 - - - - - - - - - -
Total equity 12,416 - - - - - - - - - - -
Borrowing (long 29,668 - - - - - - - - - - -
term loan)
Borrowing - 11,435 - - - - - - - - - -
(medium term)
Borrowing - - - - - - - - -
(overdraft) -
Increase in - - - - -
overdraft
2. Inflow from - 54,017 62,443 72,515 53,312 53,771 52,312 52,81 53,085 53,354 53,376 -
operation 6
Profit after tax - 47,049 55,474 65,547 46,344 46,811 51,752 52,25 52,525 52,794 52,816 -
6
Depreciation - 6,968 6,968 6,968 6,968 6,960 560 560 560 560 560 -
3. Other income - - - - - - - - - - - 17,893
Salvage value of - - - - - - - - - - - 4,250
assets
Recoverable - - - - - - - - - - - 13,643
assets
Total Cash Outflow 42,084 15,144 7,414 7,414 5,996 5,996 5,367 3,70 3,708 - - -
8
4. Investment
Fixed investment 41,684 - - - - - - - - - - -
Pre-Production 400 - - - - - - - - - - -
expenditures
Incremental working - 11,435 1,418 1,418 - - (628) - - - - -
capital

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Description Imp. Production Years Book
Value
Yr.
0 1 2 3 4 5 6 7 8 9 10 11
5. Loan repayment
Term loan - 3,708 5,996 5,996 5,996 5,996 5,996 3,70 3,708 - - -
(Principal) 8
Overdrft - - - - - - - - - - - -
(Principal)
Net cash flow - 50,309 55,029 65,101 47,316 47,775 46,944 49,10 49,376 53,354 53,376 17,893
7
50,30 105,33 170,43 217,75 265,53 312,47 361,58 410,95 464,31 517,68 535,58
Cumulative Net cash - 9 8 9 5 0 5 2 8 2 8 1
flow
Payback (years) 3 4 5 6 7 8 9
1 2 10
Note: a. Salvage value of assets is taken to be the book value of fixed assets.
b. Recoverable asset is taken to be the net working capital.

8.2.7 Working capital

Table: Total Working capital in ‘000 Birr
Description Days of Production Years
Coverage
1 2 3 4 5 6 7 8 9 10

1. Current assets 11,435 12,853 14,272 14,272 14,272 13,643 13,643 13,643 13,643 13,643

1.1 Accounts receivable 5 521 595 670 670 670 670 670 670 670 670
(debtors)
1.2 Inventory 10,58 11,92 13,26 13,26 13,26 12,63 12,63 12,63 12,63 12,63
0 3 7 7 7 9 9 9 9 9
a) Materials

- Local materials 30 220 244 268 268 268 268 268 268 268 268

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Description Days of Production Years
Coverage
1 2 3 4 5 6 7 8 9 10

- Imported materials 90 6,455 7,378 8,300 8,300 8,300 8,300 8,300 8,300 8,300 8,300

b) Spare parts in stock 30 85 85 85 85 85 85 85 85 85 85

c) Work-in-Progress 6 636 703 769 769 769 664 664 664 664 664
d) Finished Products 30 3,182 3,513 3,845 3,845 3,845 3,321 3,321 3,321 3,321 3,321
1.3 Cash-in-hand 30 335 335 335 335 335 335 335 335 335 335

2. Current liabilities - - - - - - - - - -

2.1 Accounts payable - - - - - - - - - - -

(creditors)
3. Working capital

3.1 Net working capital (1) - (2) 11,435 12,853 14,272 14,272 14,272 13,643 13,643 13,643 13,643 13,643

3.2 Increase in working capital 11,435 1,418 1,418 - - (628) - - - -

3.3 Foreign component (%) 57.2% 58.1% 58.8% 58.8% 58.8% 61.5% 61.5% 61.5% 61.5% 61.5%

8.2.8 Operating Cash Flow

Cost item Production years Cost
1 2 3 4 5 6 7 8 9 10 Share
Capacity utilization 70% 80% 90% 90% 90% 90% 90% 90% 90% 90%
I. Costs of Goods Manufactured 38,715 42,746 46,777 46,777 46,777 40,409 40,409 40,409 40,409 40,409 82.54%
1. Direct & auxiliary materials 26,180 29,920 33,660 33,660 33,660 33,660 33,660 33,660 33,660 33,660 59.39%
2. Spare parts 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1,040 1.83%
3. Utilities 2,681 2,972 3,262 3,262 ,262 3,262 3,262 3,262 3,262 3,262 5.76%
4. Labour, direct 1,710 1,710 1,710 1,710 1,710 1,710 1,710 1,710 1,710 1,710 3.02%
5. Factory Overheads 7,105 7,105 7,105 7,105 7,105 737 737 737 737 737 12.54%
- Wages (+ benefits) 677 677 677 677 677 677 677 677 677 677 1.19%

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Cost item Production years Cost
1 2 3 4 5 6 7 8 9 10 Share
-Depreciation & amortization 6,428 6,428 6,428 6,428 6,428 60 60 60 60 60 11.34%
II. Selling & Dist'n (Marketing) 951 1,086 1,222 1,222 1,222 1,222 1,222 1,222 1,222 1,222 2.16%
Costs
-Selling and dist costs (% 951 1,086 1,222 1,222 1,222 1,222 1,222 1,222 1,222 1,222 2.16%
sales)
III. General & Adm. Expenses 8,346 9,334 8,675 8,016 7,350 6,659 5,939 5,555 5,171 5,138 15.31%
1. Administrative Overheads 5,528 5,496 5,464 5,432 5,392 5,32 5,235 5,203 5,171 5,138 9.64%
8
Salaries & wages (+ benefits) 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 2.94%
Land lease 1,639 1,607 1,575 1,543 1,511 1,478 1,446 1,414 1,382 1,350 2.78%
Professional fees 100 100 100 100 100 100 100 100 100 100 0.18%
Depreciation 540 540 540 540 532 500 500 500 500 500 0.95%
Insurance 687 687 687 687 687 687 687 87 687 687 1.21%
Fuel & lubricants 704 704 04 704 704 704 704 704 704 704 1.24%
1 14 14 14 0.26%
Travelling and perdiem 146 46 6 6 6 86 86 86 86
146
Supplies & services 2 2 2 2 2 2 2 2 2 2 0.04%
5 5 5 5 5 5 5 5 5 5
Miscellaneous 2 2 2 2 2 2 2 2 2 2 0.04%
0 0 0 0 0 0 0 0 0 0
2. Financial costs (interest) 2,81 3,83 3,21 2,58 1,95 1,33 70 35 5.67%
8 8 2 5 8 1 5 2 - -
Total Operating Costs 48,01 53,16 56,67 56,01 55,34 48,29 47,57 47,18 46,80 46,77
2 7 5 6 9 0 0 6 2 0

Fixed cost
13,448 13,416 13,383 13,351 13,311 6,879 6,847 6,815 6,783 6,751
Financial cost 352 - -
2,818 3,838 3,212 2,585 1,958 1,331 705
Variable costs
31,746 35,913 40,080 40,080 40,080 40,080 40,019 40,019 40,019 40,019

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Cost item Production years Cost
1 2 3 4 5 6 7 8 9 10 Share
Total sales
95,061 108,641 122,221 122,221 122,221 122,22 122,221 122,221 122,221 122,221
1
Brake Even Sales Value
24,422 25,774 24,692 23,712 22,720 12,216 11,228 10,656 10,085 10,037
Brake Even Capacity utilization 25.69% 23.72% 20.20% 19.40% 18.59% 10.00% 9.19% 8.72% 8.25% 8.21%

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8.2.9 Discounted Cash Flow

A. INTERNAL RATE OF RETURN

The internal rate of return (IRR) is an indicator of the efficiency or quality of an investment. A
project is a good investment proposition if its IRR is greater than the rate of return that could
be earned by alternate investments or putting the money in a bank account. Accordingly, the
IRR of the total capital invested of the project is computed to be 129% and that of the invested
equity is about 415% indicating the viability of the project as shown in the following two
tables.
B. NET PRESENT VALUE
Net present value (NPV) is defined as the total present (discounted) value of a time series of
cash flows. NPV aggregates cash flows that occur during different periods of time during the
life of a project in to a common measuring unit i.e. present value. It is a standard method for
using the time value of money to appraise long-term projects. NPV is an indicator of how
much value an investment or project adds to the capital invested. In principle a project is
accepted if the NPV is non-negative.
Accordingly, the net present value of the total capital invested of the project is computed to be
278 Million Birr at 10% discount rate and that of the invested equity is Birr 279 million which
is acceptable as shown in the two tables.
C. PAYBACK PERIOD

The payback period, also called pay – off period is defined as the period required recovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial
investment will be fully recovered within the first and half operational year, which is a short
period of time and makes the project very attractive.

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Table: Discounted Return to Total Capital Invested in’000 Birr

Description Imp. Yr. Production Years Book

Value
0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow - 56,836 66,281 75,726 55,121 55,141 53,244 53,309 53,331 53,354 53,376 17,893
1. Inflow from operation - 56,836 66,281 75,726 55,121 55,141 53,244 53,309 53,331 53,354 53,376 -
Profit after tax without - 49,867 59,313 68,758 48,153 48,181 52,684 52,749 52,771 52,794 52,816 -
external Financing
Depreciation - 6,968 6,968 6,968 6,968 6,960 560 560 560 560 560 -
2. Other income - - - - - - - - - - - 17,893
Salvage value of - - - - - - - - - - - 4,250
assets
Recoverable asset - - - - - - - - - - - 13,643
Total Cash Outflow 42,084 11,435 1,418 1,418 - - (628) - - - - -
3. Investment
Fixed investment 41,684 - - - - - - - - - - -
Pre-Production 400 - - - - - - - - - - -
expenditures
Incremental working - 11,435 1,418 1,418 - - (628) - - - - -
capital
Net cash flow (42,084 45,400 64,863 74,308 55,121 55,141 53,872 53,309 53,331 53,354 53,376 17,893
)
Cumulative Net cash (42,084) 3,317 68,180 142,488 197,609 252,751 306,623 359,931 413,263 466,616 519,993 537,886
flow
NPV (@ 10%) 278,511
Internal rate of return 129%
(IRR)
Note: a. Salvage value of assets is taken to be the book value of fixed assets.

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b. Recoverable asset is taken to be the net working capital.

Table: Discounted return on Equity Capital Invested in ‘000 Birr

Description Imp. Yr. Production Years Book
Value

0 1 2 3 4 5 6 7 8 9 10 11
Total Cash Inflow 29,668 65,452 62,443 72,515 53,312 53,771 52,312 52,816 53,085 53,354 53,376 17,893
1. Inflow of funds 29,668 11,435 - - - - - - - - - -
Borrowing (long & med- 29,668 11,435 - - - - - - - - - -
term)
Borrowing (short term) - - - - - - - - - - - -
2. Inflow from operation - 54,017 62,443 72,515 53,312 53,771 52,312 52,816 53,085 53,354 53,376
-
Profit after tax - 47,049 55,474 65,547 46,344 46,811 51,752 52,256 52,525 52,794 52,816
-
Depreciation - 6,968 6,968 6,968 6,968 6,960 560 560 560 560 560 -
3. Other income - - - - - - - - - - - 17,893
Salvage value of assets - - - - - - - - - - - 4,250
Recoverable asset - - - - - - - - - - - 13,643
Total Cash Outflow 42,084 15,144 7,414 7,414 5,996 5,996 5,367 3,708 3,708 - - -
4. Investment
Fixed investment 41,684 - - - - - - - - - - -
Pre-Production 400 - - - - - - - - - - -
expenditures
Incremental working capital - 11,435 1,418 1,418 - - (628) - - - - -
5. Loan repayment
Long& med-term loan - 3,708 5,996 5,996 5,996 5,996 5,996 3,708 3,708 - - -
(Principal)
Short-term loan - - - - - - - - - - - -
(Principal)
Net cash flow (12,416) 50,309 55,029 65,101 47,316 47,775 46,944 49,107 49,376 53,354 53,376 17,893
Cumulative Net cash (12,416) (12,416) 37,893 42,613 102,994 89,930 150,769 136,874 199,876 186,250 253,230 239,626
flow
Net present value (@ 279,664

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10%)
Internal rate of return 415%
(IRR)
Note: a. Salvage value of assets is taken to be the book value of fixed assets.
b. Recoverable asset is taken to be the net working capital.

8.2.10 SENSITIVITY ANALYSES

Sensitivity analyses on selected cost components have been further conducted to test the strength and viability of the project.
In view of this, extreme conditions like cost escalation on investment and production cost and a decrease of sales price due to
various factors have been therefore examined. (See Table 17 below).
TABLE 1: Sensitivity analysis on key variables

Variables IRR NPV (in Millions)

Base result 99% 230.5
Fixed Investment Cost
Increase By 30% 79% 219.2
Increase By 40%
Increase By 50%
74% 215.4
69% 211.6
Production cost
Increase by 15% 89% 205.5
Increase by 30%
Increase by 45%
79% 180.4
69% 155.3

Revenue
Decrease by 10% 79% 180.2
Decrease by 20%
Decrease by 30%
60% 129.9
41% 79.6

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Revenue Decrease by 10% and 163.5
Production cost Increase by 10% 73%

Revenue Decrease by 15% and 71.5

Production cost Increase by 15% 38%

8.3 ECONOMIC AND SOCIAL BENEFITS

The economic impact of the project can be viewed in a number of ways. It can be viewed through its specific impact such as
employment generation and increasing government revenue. Moreover, other benefits such as the creation of conducive
environment for the development of the country should also be taken into account.
The project creates employment opportunities for 69 persons. Moreover, during the life of the project it will generate an
average of Birr 169 Million in terms of business tax and also contributes in the form of payroll tax. Furthermore the factory
will have foreign currency saving effect to the country by substituting part of the existing imports.

YONAS BONGER AGA-AUTO LEAF SPRING FACTORY-FEASIBILTY STUDY 15