Rift Valley University Bishoftuu Campus

Department Of Accounting and Finance

Project Analysis and Evaluation
Project Proposal for the Construction of Mixed Use Building

Student Names: -
1. Kerima ID

April, 2021
Adama
Executive Summary
1. Project name: Mixed use Building
2. project Type : Multipurpose service business building
3. Nationality: Ethiopian
4. Project Owner: Group
5. Project location: oromia region Adama town
6. Project composition: multipurpose Building (G+3) used for diverse
business centers like banking & insurance, super market, shops,
restaurant, café, beauty salon, Pharmacy, bed rooms and offices.
7. Premises Required: 5000m2
8. Total investment Cost: 45,000,000 ETB is required from this
amount 30% or 13,500,000.00 ETB from owner equity and the rest
70% from bank loan.
9. Employment opportunity: 26 individuals on permanent 80 on
casual basis
10. Social and Economic Benefit: provide better Building service,
employment opportunities, generation of income and benefits for
the local people.
 1. Introduction
1.1. General Background
The current fast and dynamic economic growth of Ethiopia especially in
urban area necessitates equivalent growth of building and construction
sector. The sector should expand rapidly to support the overall economic
development sustainable.
In the building sector of the economy, the multi- purpose in the one
becoming rapidly expanding in urban areas of the nation since dynamic
economic development of urban economy requires the construction of
these buildings in towns to support the growing of business service
sectors like supermarkets, Beauty salon, shops, offices cinemas,
Computer Center, Cafeterias, restaurant, assembly hall, guest house and
other activities. In this regard, mixed used building expands in the all
parts of the country.
To this effect, the owner of the envisioned Mixed Use Building Group who
has been living for long time in this town, planned to construct in Adama
town and undertaken this project study to check the market, technical
and financial feasibility of this project. The promoter is very ambitious
and committed to realize the project. Hence, he expects to get the
necessary support from the city administration to make the project to be
operational.
Besides, the government polices and incentives for the private sector
investment are very promising that motivates the promoter to engaged in
mixed use building business.
 1.2. Objective Of The Project
The major goal of this project is to contribute towards the growth of the
trade sector in Adama town. Its specific objectives include the following.
 To construct and develop modern shops, offices, and restaurant,
bedroom & cafeteria facilities that enable to provide standard services
to visitors.
 To create employment opportunities for the population in the town
and
 Contribute towards the beautification of the town through the
construction of modern building infrastructure and facilities.
1.3. Project Description
The long-term goal of the project is become the best choice in Adama and
its surrounding areas by creating a differentiated experience capitalizing
on personal service. The proposed project will have a total area of 1500
m2, designed to reader a multipurpose giving business, which will in
turn plays significant role towards solving shortage of business center in
Adama town.
1.4. Project Rationale
Internationally the economic growth this country is experiencing, the
good governance created and even if the town is in its nascent stage of
development these project are the first in kind in the town are feasible
and would be a model development in promoting and attracting different
urban investments.
1.5. The Significance Of The Project
The envisaged project deemed to add to the economic development of the
nation in general and zone and town in specific with following ways:
A. Source of Revenue
As public policy of any nation, the government collects different forms of
taxes from different business organizations and individuals. Among the
different forms of taxes, business income taxes, payroll income tax and
VAT are collected from undertaking business activities.
B. Employment opportunity
One of the problems that our country faced is unemployment. Therefore,
the current objective of the government is working on tackling the
problem of unemployment and fostering the development process either
through creating self employment or employment in other organization.
Hence, this project will hire 26 individuals and more than eighty
individual during construction.
C. Sources Of Social Service
In addition to serving as a source of employment and income for the
region, the project renders social services for different group of people.
Hence, it Is also provide the following services;
 Serve as a source of mental satisfaction for the different users,
 Since, the center encompasses different recreational areas; it will
divert the attention of the users from different evil deeds.
1.6. Project Location
As aforementioned on the introductory part the envisioned project is
intended to be located in Adama town at about 100 km from Addis
Ababa to the east. Adama is located approximately at a distance of 100
km from finfine. It is located in the Rift Valley Region. The zone extends
from 6012’29’’ to 7o42’55’’ latitude and 38004’04’’ to 39056’08’’ longitude.
Adama town is one of the East shewa political administrations. The town
has a longitude and latitude of 7o21’N 38o42’E/7.35oN 38.7oE and an
elevation of 2043 meters above sea level.
2. The market Study
2.1. market Analysis
There are a number of factors which affects the demand of standardized
mixed use building. Of these factors, the most important to have
influence is population growth and the level of income.

2.2. The Demand-Supply Gap

Adama town is situated in very centre of Ethiopian diffrent production
area which is highly known for its alcoholic content and special flavor.
Adama town is also a major business center and commercial route that
attracts thousands of business travelers.
2.3. Current supply of Mixed use building
Commercial building/office sector has shown a dynamic change in the
past few years. The reason for this could be rapid economic growth and a
supporting public infrastructural development.
2.4. Future market or Demand of commercial Building rental
The demand for office space is a derived demand because firms rent
space as an input to the production of services or goods they provide to
businesses and households in the local regional or national economy.
2.5. Target customers
The target customers of this envisaged project include:-
1. business Community
2. Nearby business organization
3. the government bureau
4. small accounts(SOHO) SME
5. Nongovernmental organizations
2.6. marketing promotion and strategy
In order to penetrate and gain considerable market share, one of the
major marketing strategies for the project is consistently rendering
quality service to its tenants. The major marketing strategies to promote
the project and gain considerable market share include:
 Advertising through different means focusing on the existing
service and facilities
 Promote in association to the key location and nearby business
 Working on sustained promotional work.

2.7. competition
There are different forms of competition that may face the envisaged
mixed use building. These are price and non price based competition.
Moreover, there are different competitors that will compete with the
project either directly or indirectly.
2.8. The Project Facilities And Services Plan
In order to provide mixed use business center building services of a high
standard, it has been planned to construct and develop the
infrastructure and facilities that would viable to meet the requirements of
an international standard business center.
3. Technical Study
3.1. description of the project Service/ Product mix
The envisioned mixed purpose building will provide different rental
services to the different customer groups for different purpose. The
building will have basement, ground and eight floors. The purpose of the
building explained as follows;
 the ground floor, first floor and second floor designed for different
business centers like banks, supermarket, beauty salon(man and
women), Computer center, pharmacy, internet café, boutiques,
different shops and other business activities,
 The third floor designed for bed room services.
Besides, the buildings will have enough parking facility for its customers
and green area in its compound.
3.2. land Use Plan
The total land required for the envisioned project is estimated to be
5000m2. The total area for the construction of the building will be 180
m2, as revealed below.

3.3. Construction work and Technology

3.3.1. Construction schedule
The construction project is proposed to be started on august 2021, and
is expected to be finished on January 2022. as seen in the abbreviated
construction schedule above, a majority of the schedule’s time is made
up of five major activities; Concrete, building Enclosure, masonry,
mechanical &HVAC and Electrical install.
3.4. Utilities
A number of utilities world be put in place in order to ensure smooth
functioning of the project. These utilities include:
 Water Supply,
 Supplementary Electricity supply.
 Telephone line Internet Broadband
 Fuel, Oil and lubricant
 Drainage Facility
3.5. Project implementation
The project’s implementation is expected to take 24 months. The major
activities include Bank loan processing construction of the building,
cleaning the area around the building, Procurement of equipments and
start rendering services. The time schedule for the above matured major
activities is presented below:
4. Organizational Structure
4.1. Organization and management
The organizational structure should be in a way that the company able to
achieve its objectives as well as the satisfaction of standard requirement.
In addition to this, the structure should fit the dynamics of all customers
in the building ranging from small business to large tenants.
4.2. Man Power
The total manpower required for the building will be 26 persons. The
manpower list and the corresponding labor cost are shown in part five of
this document.
4.3. organizational Structure
The organizational structure of the project is designed by including all
the necessary personnel under the right division. At the top of the
organizational structure, there will be manager with the responsibility of
supervising the overall activity of the building. Depending up on the
nature of the center and the amount of work to be performs; there exist
auxiliary units under the general manager.

Owner

General
Manager

Building Marketing Technical and

Admin maintenance manager

HRM and finance IT, Electricity and

plumper

Cashie Purchaser

Fig: organization structure of the Building

As clearly shown in the organizational structure, the center organization
has one general manager and three main sections. Under the general
manager there are the, marketing Department, maintenance and
building administration department. The following section deals with the
duties and responsibilities of each department.
A. The General Manager’s Duties and Responsibilities
 He/she will plan, organize, direct and control the overall activities of
the building.
 He/she will devise policies and strategies that will enable the center to
be profitable.
 He/she will incorporate modern technological innovation that will
facilitate the service delivery of the building to increase customer’s
satisfaction.
B. Building Administration Department
The building Administration Department of the multipurpose building
has two main sections (HRM and Finance and General Service section). It
has responsible for undertaking the following activities;
 Manage the human resources and control employee’s activity
 Well non human resources of the project, which include; effective
handling of the different resources of the building, and devise
strategies of controlling against fraud and damage.
 Will provide the right material or inventory to the center with right
price at the right time.
 Will plan, organize direct and control the financial transaction of
the building by using all the necessary documents.
 Accountant and casher that will collect money from the customers.
C. The marketing Department
 Will handle the overall marketing activities of the organization
which include planning, organizing, directing, and controlling.
  Will develop the marketing strategies for future multipurpose
building development
D. Technical and maintenance manager
 Will handle the overall physical maintenance and related issues
 Will make sure electricity and back up is organized.
5. Financial Requirement And Analysis
The financial resource is a prime resource for undertaking any activities.
Hence for implementing this mixed use building a total of 45,000,000
ETB is required. From this 30% 13,500,000.00 birr will be covered by the
promoter of the project while the rest 70% will be covered through loan
from bank at the prevailing interest rate.
Therefore the said amount of finance is needed for undertaking the
following.

5.1 fixed Investment

Summary of Total initial investment cost
SN Description Cost in Birr
1 Land, building & construction 28,392,879.00
2 Building machines & Equipments 227,800.00
3 Vehicle 800,000.00
4 Office Equipment 200,500.00
5 Total fixed investment cost 371,400.00
6 Salary expense 392,400.00
7 Operation Expense 334,436.20
8 Pre service Expense 10,000.00
9 Total Working capital 731,836.00
10 Sub total 31,461,251.2
11 Contingency (10%) 460,453.20
Total initial investment capital 31,921,704.40

5.2 Financial analysis and Statements

5.2.1 Underlying Assumption
The financial analysis of the mixed use building is based on the data
provided in the preceding sections and the following assumptions.
A. construction and finance
Construction period 1 Years
Source of finance 30% equity and 70 loans
Bank interest rate 10%
B. depreciation
Building 10%
Building machinery and equipment 10%
Office Equipments 10%

5.2.2 sources of Fund

The source of fund to finance the project is planned to be from two
sources. These are promoter’s equity and bank loan. The loan is expected
to be obtained from one of the local lending institutions. Taking the
financial position of the promoters into account, equity contribution and
bank loan to finance the total investment outlays of the project are
assumed to be 30% and 70% respectively. Accordingly, the total financial requirement
from the two sources will be;
SN Description Percentage share Amount
Owners Share 30%
31,500,000.00
Bank Loan 70%
13,500,000.00
Total 100% 45,000,000.00

5.2.3 Bank loan Repayment Schedule

Year Principal Interest (10%) Total annual Remaining
Payment Payment in ETB Balance
0 0 00 00 3545489.5
1 31,500,000.00 354548.95 709097.9 3190940.55
2 31,500,000.00 319094.005 673643.005 283691.6
 3 31,500,000.00 283639.16 63818.11 2481842.65
4 31,500,000.00 248184.265 602733.215 2127293.7
5 31,500,000.00 212729.37 567278.32 1772744.75
6 31,500,000.00 177274.475 531823.425 1418195.8
7 31,500,000.00 141819.58 496368.53 1063646.85
8 31,500,000.00 106364.685 460913.635 709097.9
9 31,500,000.00 70909.79 425458.74 354548.95
10 31,500,000.00 35454.895 390003.845 0

5.3 Financial Statement

5.3.1 Income loss/statement
Project revenue and production costs are listed and compared to see
whether the project generate profits or not. Starting from first year of the
project operation, the project will generate a reasonable amount of net
profit for the owners throughout its life period. Profit and loss statement
shows that the project will generate net profit of ETB 8,785,000.00 in the
first year and increase to ETB 9,380,000.00starting from the third year
of the project life and hence it is found to be profitable.
Mixed use Building profit/Loss Statement
Revenue Year 1 Year 2 Year 3 and
after
Rental Income 8,785,000.00 9,380,000.00 11,975,000.00
Expenses
Salary Expense 235,440.00 313,920.00 392,400.00
Operating Expenses 200,661.06 267,548.08 334,436.20
Deprecation Building 323,242.95 323,242.95 323,242.95
Deprecation Bld. 22,780.00 22,780.00 22,780.00
Machineries and Equip.
Deprecation of Vehicle 60,000.00 60,000.00 60,000.00
Deprecation office Equip 11,245.00 11,245.00 11,245.00
Interest Expense3 354,548.95 319,094.055 177,274.475
Lease payment4 4,819.05 4,819.5 4,819.05
Total Expense 1,230,939.05 1,339,031.25 133,5298.65
Profit before Tax 7,554,061.00 8,040,968.75 10,639,701.35
Tax (30%) 166,218.03 312,290.625 491,910.405
 Net profit 7,387,842.97 7,728,678.13 10,147,790.95

5.4 Financial analysis

i. Profitability
According to the projected income statement, the building will start
generating profit in the 2nd year of operation. Important ration such as
profit to total sales, net profit to equity (Return on equity) and net profit
plus interest on total investment (return on total investment) show as
increasing trend during the lifetime of the project. The income statement
and the other indicators of profitability show that the project is viable.

ii. Pay-Back periods

The investment cost and income statement projection are used to project
the pay-back period. The building’s total investment will be fully
recovered at the 5.2 year of operation.
6. Environmental Impact Of The Project
The EIA of the project activities was determined by identifying the
environmental aspects and then undertaking an environmental risk
assessment to determine the significant environmental aspects.
Positive impact of the project
The positive impact of the project is:-
 Generation of employment opportunity
 Source income for the government through business income tax
 Income generation for the promoter
 Being exemplary for other investors who want to engage in the
same business line.
Negative Impact of the Project
The project has the following negative impacts:
1. Noise And Dust Emission During Construction
 There are some noises during the construction due to the
construction operation and the company will use construct the
construction during the day time. Again there is the emission of
dust which will be mitigated by sprinkling water on the service.
2. Problem On Workers On Construction
During construction there are some problems that will materialize on
workers. These are: damage on operation by using machines,
construction materials and others. To mitigate such impact the company
will provide safety insurance and safety equipments.
3. swages during operation
During operation there are some wastes emitting from the mixed use
building. These are wastes from the latrine and will be mitigated by using
modern waste treatment technology.