Table of Contents

Executive Summary ........................................................................................................................ 3

1. COMPANY PROFILE ............................................................................................................ 1

1.1. Mission ............................................................................................................................. 1

1.2. Goal .................................................................................................................................. 1
1.3. Objectives ......................................................................................................................... 1
2. Industrial Analysis ................................................................................................................... 2

2.1. Demand and Supply of Essential Oils:............................................................................. 2

2.2. Present Demand and Supply ............................................................................................ 2
2.3. Projected Demand ............................................................................................................ 3
2.4. Potential Customers.......................................................................................................... 5
2.5. Local Competition ............................................................................................................ 5
2.6. Management ..................................................................................................................... 5
3. MARKETING PLAN .............................................................................................................. 6

3.1. Marketing Strategy: .......................................................................................................... 6

3.2. Pricing .............................................................................................................................. 6
4. Product Description ................................................................................................................. 6

4.1. Properties of Lemon Peel Oil ........................................................................................... 8

4.2. Uses of Lemon Peel Essential Oil .................................................................................... 8
4.3. Chemical Constituents (Computation) of Lemon Peel Essential Oils ............................. 9
5. OPERATIONS ...................................................................................................................... 11

5.1. Technology ......................................................................................................................... 11

5.2. Extraction Methods of Lemon Peel Essential Oils ......................................................... 11
5.3. Process Description of Essential Oil Extraction ............................................................. 13
5.4. Working Principle of Selected Material ......................................................................... 14
5.5. Plant Location ........................................................................................................................ 16

5.6. Plant Capacity ........................................................................................................................ 16

6. Social Responsibility ............................................................................................................. 17

6.1. Environmental Impacts .................................................................................................. 17

7. ECONOMICS ANALYSES .................................................................................................. 18

7.1. COST ESTIMATION................................................................................................. 18

Executive Summary

Essential oils are oils extracted from various plant materials through different methods, typically
steam distillation. They have applications in pharmaceutical, food processing, cosmetics and
massage. Among the various plant sources, our products will be made from lemon peel by using
steam distillation.
Currently, there is an ever-increasing growth in essential oils usage and demand. However, there
is a huge gap between the demand and supply since there are only few manufactures locally.in
addition, the present market price for essential oils is high due to the aforementioned reasons.
Consequently, the company will have a competitive advantage in the market by lowering the
selling price.
Besides, the growing demand, there are many attractive conditions to invest in essential oils
manufacturing. The low initial capital investment, the high rate of return on investment, and the
short payback period are a few reasons to mention here.
The total capital investment of the proposed company is calculated to be 1,507,512Br.
 1. COMPANY PROFILE

Bright future is an Ethiopian startup company that focuses on producing an essential oil from
natural and locally grown plants, the production technology is based in which high quality products
are provided to its potential customers. It is the first well researched company in Ethiopia created
by senior chemical engineering students in collaboration with the department of chemical and bio
engineering head of Addis Ababa institute of technology Mr.Girma. Who have a lifelong
experience and great achievements both as a chemical engineer and business man; and an
economist and a long time entrepreneur Mr.Girma, What makes the company more attractive to
its potential customers is its creators’ good business ethics, care for biodiversity, focus and
dedication to satisfy their need and requirements and in addition to that the country’s suitable
environment to cultivate various species of plants adds value to the business. Essential oil is an
aromatic volatile substance extracted by distillation or expression from seeds, fruits, fruit peels,
leaves, stems, barks, wood, roots, and plant secretions. The resulting oil should have nothing added
either during or after this process. From the vast world of essential oils Bright Future will specialize
on the plants lemon. Although there are several methods of obtaining the oil from the plants, bright
future will implement steam distillation for economical and safety (contaminants) reason.

1.1. Mission

Bright Future Essential Oil Company is to be the leader of lemon oil exporter in Ethiopia .bringing
foreign currency to the country, creating a transfer of technology and providing employment
opportunities while maintain the biodiversity of the country.

1.2. Goal

To stand out as the best, knowledge and technology based quality essential oil producing company
in Ethiopia and to expand the business in to various types of essential oil producing company.

1.3. Objectives
To create an enterprise, which produces and sells lemon oil as an ingredient in the form of business
to business.

1
 2. Industrial Analysis

Nowadays in Ethiopia, there is a new trend in the middle and upper class styles, which includes
beauty and health care systems, spa and aromatherapy. Many beauty salons are also providing
these services. And, in the heart of those service are essential oils.

On the other hand, the local food processing industry is getting a boom. Essential oils have a great
role in such industries as natural flavorings.

2.1. Demand and Supply of Essential Oils:

2.2. Present Demand and Supply

Currently industrial demand for essential oil is met through import. There is also
Essential Oils Research Centre that has its head office and the main laboratory in Addis
Ababa and an agricultural research station, laboratory and a small-scale production unit at
Wondo Genet, (about 267 km south of Addis Ababa). In addition to this, some firms are
engaged in processing and export of some specific types of essential oil. This includes
Ariti Herbal Private Company, Aroma abyssinia Plc and Cheleleka Edible Oil Factory.
On the other hand various types of essential oil are imported to Ethiopia which can be
categorized under some major groups according to their application. These are for:
Perfumery, Pharmaceutical, Cosmetics, Toiletries, and Confectionery industry.
However, detail data of essential oil for each sub section could not be obtained. But it can
be asserted that much of the demand is derived from the toiletries, and confectionery
industries given the relatively more production in these sectors.
Nonetheless, the supply of essential oil is derived from import mainly from India
Germany, Ireland, Italy, South Africa, Great Britain and China (Customs Authority,
various years). The total import demand for the oil is presented in the following table.

2
The above table shows that annual demand for essential oil has increased by almost three
fold within the last ten years under consideration. Such huge increase is a result of
expansion of the industrial sector that makes use of essential oil. Relatedly, on average
Birr 62.7 million (more than USD 6 million) has been allocated every year to import the
oil. This presents the existence of huge demand for the product and the burden it is
exerting on the country’s foreign exchange reserve.

2.3. Projected Demand

The future demand for essential oil very much depends on the growth of the industrial
sector. However, since all industrial production processes do not use essential oil, the
growth of the sector as a whole could not be used. But, since the growth of industrial
outputs that make use of essential oil (such as food industry, soap industry, etc) is related

3
with the growth of the urban population growth rate, population based forecast can be
made. Accordingly, it is conservatively assumed that the demand for essential oil grows at 3% per year to
obtain the following projected demand.

Projected Demand for Essential Oil The forecasted result indicates that demand for essential oil will be
higher than 1000 tons beginning from 2008/09 and points out the importance of local production that can
relieve to some extent the import demand.

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 2.4. Potential Customers

The potential customers for the product are mainly found in major cities of the country. Due to the
introduction of modern health care systems and a new life style, the number of beauty salons and
hotels with aromatherapies and spas are increasing from time to time. These will be our target
customers. They would pay even higher prices since their business will return huge profits from
the growing trend. In addition to these, food processing and soap factories are also the potential
customers of our products.

2.5. Local Competition

Although they are very few in number, there are some well-established essential oil producing
factories locally. Among these are Ariti Herbal, Aroma Abyssinia, Tes-Alon Spices and thyme
Aggrotech. We planned to manage to compete with a lower selling price than the current market
price.in addition to this, our competitive advantage is relying on customer’s incentives like door
to-door deliveries of the product.

2.6. Management

The management of the company is made up of four AAIT/AAU undergraduate chemical

engineers. They will carry out the design and controlling of the production process, research,
development and public relations.

The management members are:

1. Wasihun Melese – production control and management officer.

2. Fikadu Yoseph – public relations and communications officer.
3. Tsehaye Birhane – marketing officer.
4. Fasil Getenet - research and development officer.

The management will gain technical assistance from Mr.Girma Moges, who is a long time
entrepreneur with many skills and knowledge in different field.

5
 3. MARKETING PLAN

3.1. Marketing Strategy:

There are various ways planned to reach out the customers. As a new firm, the first strategy is to
place our product samples in supermarkets and trade fairs to introduce them for free. The samples
will bear the company’s logo and address in addition to the products description. Beside this, social
media accounts will be signed up to promote our products. Once we got settled our firm financially,
we will make advertisements on the mass media in order to widen our popularity.

There will be daily or weekly updates on the company’s news and products information on the
social media. The social media accounts and the advertisement on the mass media will be managed
by public relations and communications officer from the members of the company’s management.

3.2. Pricing

In order to penetrate the market as a newly establishing company, we will lower our products’
price relatively from the current market price. This will help us to attract many customers. In
addition, there will be other incentives, like door-to-door deliveries, discounts for mass orders, and
credits for customer companies.

In order to compete with the imported and locally produced similar products, the whole sale pricing
of the lemon peel essential oil are estimated 1200birr per liter.

4. Product Description

Essential oils are concentrated volatile aromatic compounds produced from plants. Essential oils
are frequently referred to as the “life force” of plants. Unlike fatty oils, these "essential" oils are
volatile, highly concentrated, substances extracted from flowers, leaves, stems, roots, seeds, bark,
resin or fruit rinds. The amount of essential oils found in these plants can be anywhere from 0.01

6
percent to 10 percent of the total. That's why tons of plant material is required for just a few
hundred pounds of oil. These oils have potent antimicrobial factors, having wide range of
therapeutic constituents. These oils are often used for their flavor and their therapeutic or
odoriferous properties, in a wide selection of products such as foods, medicines, and cosmetics.
Beware of imitations. Essential oils cannot be substituted with synthetics.

The genus Citrus includes several important fruits such as oranges, mandarins, lime, lemons and
grape fruits. The essential oil is present in fruit flavado in great quantities. The Citrus essential oils
are mixture of volatile compounds and mainly consisted of monoterpene hydrocarbon. Citrus oils
are mixtures over a hundred compounds that can be approximated into three fractions: terpene
hydrocarbons, oxygenated compounds and nonvolatile compounds. The terpene fraction can
constitute from 50% to more than 95% of the oil. However, it makes little contribution to the flavor
and fragrance of the oil. Lemon are now commonly enjoyed by many and used for other purposes
besides general consumption. It can be made into juice or incorporated into food products. It is a
fruit with significant history, and oranges will remain a popular choice among consumers as a
source of vitamin and to aid in wellbeing maintenance.

Essential oils basically are made up of carbon, hydrogen, oxygen and occasionally nitrogen,
Sulphur and other minerals and vitamins. The volatile components of essential oils usually contain
15 carbon atoms or less. Essential oils contain the DNA of the plant of herb they are extracted
from. Essential oils or as they are sometimes called volatile oils are believed to be the small portion
of the plant material, which imparts the characteristic odor and flavor. It is normally concentrated,
having about 100 times the flavoring strength of the parent plant. Most essential oils are used at
about a level of 0.01-0.1 percent in the finished product.

Nowadays, people worldwide are looking towards natural base products since there are no side
effects when taken accordingly. Furthermore, there is also an interest in the production of
functional, high value, natural products without chemical modification and residues of solvents or
additives, for these reasons lemon peel essential oils are used as raw materials for many products
including food flavorings, additives, flavoring agents used in the cigarette industry and in the
compounding of cosmetics and perfumes. They are used also in air fresheners and deodorizers as
well as in all branches of medicine such as: pharmacy, balneology, massage and homeopathy. The
traditional method to extract essential oils from the citrus peels is by cold pressing. Distillation is

7
also used in some countries as an economical way to recover the oils, with a better yield of 0.21%
compared to 0.05% for cold pressing. Nowadays, many novel techniques for the extraction of
essential oils that could lead to more compact, safer, more efficient, energy saving, and sustainable
extraction processes, including ultrasound-assisted extraction (UAE), microwave-assisted
extraction (MAE), supercritical fluid extraction (SFE) and accelerated solvent extraction (ASE)
have become relatively mature and widely accepted by industries

4.1. Properties of Lemon Peel Oil

Lemon peel essential oils are generally liquid at room temperature and have a PH of 6.5-7. They
are almost always bactericides. Many components of essential oils are chemically active, thus
could participate readily in metabolic reaction. They are sources of plant metabolic energy. The
chemical composition and aroma of essential oils can provide valuable psychological and physical
therapeutic benefits. These benefits are usually achieved through methods including inhalation and
application of the diluted oil to the skin.

4.2. Uses of Lemon Peel Essential Oil

Essential oils are used in several healing systems, including aromatherapy, medicine and massage
therapy. Essential oils are used for skin and scalp conditions including acne, burns, cuts, dandruff,
insect bites, parasites, warts, and wrinkles. They are recommended for muscle, joint, and
circulation problems such as high blood pressure, cellulite (fatty deposit causing a dimpled or
uneven appearance, around the thighs and buttocks), aches and pains. For respiratory problems
and infections, various essential oils are prescribed for allergies, asthma, earache, sinus infections,
colds and flu. Lemon peel essential oils are also used to improve digestion, promote hormonal
balance, and tone the nervous system in conditions including anxiety, depression, sexual
dysfunction, and exhaustion. Lemon peel essential oils can be used as quick and effective mood
enhancers, for increasing energy and alertness or reducing stress and promoting relaxation. Lemon

8
peel essential oils can be used as perfumes and lotions, and can be used as incense to improve the
atmosphere in houses and offices.

The industrial application of lemon peel essential oils is as adhesives, automobile industry
(polishes, cleaners), insecticide industry (Sprays Attractants), food industry (Flavoring,
preservation and confectionary), meat packing industry, paint industry (removers, cleaners),
perfume industry, pharmaceuticals industry (Antibacterial and antifungal), soap industry, tobacco
industry (Flavoring and Fixatives), textile processing industry (Finishing materials of upholstery
materials) etc.

4.3. Chemical Constituents (Computation) of Lemon Peel Essential Oils

Pure lemon peel essential oils are mixtures of more than 200 components, normally mixtures of
terpenes or phenyl propanic derivatives, in which the chemical and structural differences between
compounds are minimal.

The majority of the compounds found in lemon peel essential oil are classified into the following
four main groups:

 Terpenes
 Straight chain compounds
 Benzene derivatives and
 Miscellaneous

Terpenes: - The most characteristic group present in any essential oil contains hydrocarbons
of molecular formula C10H16 and their oxygenated derivatives C10H16O which are known as
monoterpenes. Generally have names ending in “ ene.” For examples: Limonene, Pinene, Piperene,
etc. Terpenes are antiseptic, antiviral, and bactericidal. Terpenes can be further categorized in
monoterpenes, sesquiterpenes and diterpenes. Referring back to isoprene units under the
Hydrocarbon heading, when two of these isoprene units join head to tail, the result is a
monoterpene, when three join, it’s a sesquiterpene and four linked isoprene units are diterpenes.

9
Straight chain compounds: - These groups contain straight chain hydrocarbons and their
oxygenated derivatives and range from n-heptane to hydrocarbons containing 15-35%
carbon atoms.

Benzene Derivatives: - a large number of benzenoid compounds are found distributed

throughout the essential oil kingdom.

Miscellaneous: - many compounds obtained in this group are sulfur compounds and are
rather specific for a limited species.

The compotation can also classify in to two groups:-

Volatile fraction: Essential oil constituting of 90%–95% of the oil in weight, containing the
monoterpene and sesquiterpene hydrocarbons, as well as their oxygenated derivatives along with
aliphatic aldehydes, alcohols, and esters.

Nonvolatile residue: that comprises 1–10% of the oil, containing hydrocarbons, fatty acids,
sterols, carotenoids, waxes, and flavonoids.

Hydrocarbon: Essential oils consist of chemical compounds that have hydrogen and carbon as
their building blocks. Basic Hydrocarbon found in peels is isoprene having the following structure.

(Isoprene)

Aldehydes: Properties: anti-fungal, anti-inflammatory, anti-septic, anti-viral, bactericidal,

disinfectant, sedative. Medicinally, essential oils containing aldehydes are effective in treating
Candida and other fungal infections. Example: Citral in lemon.

Acids: Properties: anti-inflammatory. Organic acids in their free state are generally found in very
small quantities within lemon peel oil. Example citric acid additionally lemon peel oil is also
computation of lactones, alcohols, esters, ketenes etc.

10
 5. OPERATIONS

5.1. Technology

5.2. Extraction Methods of Lemon Peel Essential Oils

Lemon essential oil can be extracted by many methods; some of these are cold pressing, Solvent
extraction, steam distillation etc.

A). Cold Pressing: Cold pressing is used to extract the essential oils from peels
rinds such as orange, lemon, grapefruit and bergamot. This method involves the simple
pressing of the rind at about 120 degrees to extract the oil. The rinds are separated from
the fruit, are ground or chopped and are then pressed. The result is a watery mixture of
essential oil and liquid which will separate given time. Little, if any, alteration from the
oil's original state occurs – these citrus oils retain their bright, fresh, uplifting aromas like
that of smelling a wonderfully ripe fruit. It is important to note that oils extracted using
this method have a relatively short shelf life, so make or purchase only what you will be
using within the next six months.

B). Solvent Extraction (Soxhlet Extraction): A hydrocarbon solvent is added to the raw material
to help dissolve the essential oil. When the solution is filtered and concentrated by
distillation, a substance containing a combination of wax and essential oil) remains. From the
concentrate, pure alcohol is used to extract the oil. When the alcohol evaporates, the oil is left
behind. This is not considered the best method for extraction as the solvents can leave a small
amount of residue behind which could cause allergies and effect the immune system.

C). Steam Distillation: Distillation is the process of separating the component or substances
from a liquid mixture by selective evaporation and condensation. Distillation may result in
essentially complete separation (nearly pure components), or it may be a partial separation that
increases the concentration of selected components of the mixture.

Distilled essential oils are generally recovered by three methods, classified according to the way
heat is applied to materials: boiling water, steam distillation or a combination of both. Conditions

11
of temperature, particle size, processing time will depend on the characteristics of the essential oil,
particularly as regards susceptibility to oxidation and heat decomposition.

This system is commonly used in the fields for processing citrus oils like orange, lemon, lemon
grass etc. Typical conditions for this method are to heat a mixture of raw material with water to
boiling point (80-120oC) while injecting steam. The distillation process goes for approximately
hours. If the time and temperature are increased it leads thermal decomposition of the essential oil.
The resulting vapors are then condensed and recovered. This usually results in two phases: a heavy
phase mostly composed of water, and a light phase, which contains the essential oil.

D). Molecular distillation: In this evaporation system the liquid introduced is spread on the walls
of a heated vertical cylinder under high vacuum (less than 50 mmHg) by wiper
blades forming a thin layer. This produces highly efficient mixing and heat transfer of the fluid,
reducing the residence time to a minimum. Variable temperature allows for the fractionation of
aroma components according to their molecular weight. Heat sensitive aromas and specialized
aromas such as dairy flavors are manufactured by the industry using this type of distillation system.
Other methods for recovering aromas and fragrances are solvent extraction (hexane, alcohols) and
supercritical CO2 extraction. Strictly speaking, the resulting oils from these extraction methods are
not essential oils since any evaporation or distillation takes place. However, recovery of high
priced aromas and fragrances by supercritical extraction is growing worldwide and extraction of
some low price essential oils is also done using hexane or alcohol. Supercritical extraction has the
advantage that it does not involve the application of high heat and addition of steam or water.

Extraction methods by cold pressing, steam distillation, solvent extraction and supercritical CO2
usually produce different results with regards to yield and composition profiles of the extracted
materials. Steam distillation usually gives the lowest yield of recovered aroma but produces a
concentrate that is a true essential oil. Solvent extraction with hexane or alcohols produces the
highest yield but there is always the possibility that unwanted in volatile materials might end up
in the final product. Also, solvent extraction uses high temperatures. Supercritical CO2 extraction
produces a lower yield than conventional solvent extraction but higher than steam distillation and
it also has the advantage of using little or no heat and no steam or moisture in the process. However,
this method has the disadvantage of being expensive since it involves high pressure and

12
sophisticated equipment and controls. In some cases the quality of the aroma extracts from CO 2
extraction is superior to aromas recovered by steam distillation.

5.3. Process Description of Essential Oil Extraction

As proposed in the objective section our essential oil is extracted by steam distillation. The first
process is collection of raw material

Raw material collection: purchasing of lemon fruit from local market and equipment from
chemical engineering laboratory storage.

Cleaning and piling of lemon peel: This is washing of the lemon fruit by using cold and hot water
to remove all impurities on the surface of the lemon fruit and peeling.

Size redaction: with the help of knife reducing of the lemon peel to the desired level, which
increases the surface area and heat transfer rate.

Drying: After size redaction drying of the grind (size reduced) lemon peel with the help of oven.
This is the process of evaporating of the moisture from the lemon peel. Then after preparation of
the raw material the basic process is setup the steam distillation and conducting the experiment
(extraction of oil).

Essential oil extraction: The experiment takes a time of 2hr, 3hr and 4hr for different batches or
extraction time is one of the basic factor and to know the effect of extraction time on the yield of
lemon peel essential oil for all cases, that is for dry, fresh and mixture of dry and fresh lemon peel.

Separating: Separation of essential oil from condensed water by using density difference with the
help of separator fennel.

13
 Figure 1.Process Flow Diagram of Lemon Peel Oil Extraction by using Steam Distillation
Method

5.4. Working Principle of Selected Material

Steam Distillation Unit

14
A). Steam Distillation Definition: Steam distillation is a separation process used to purify or
isolate temperature sensitive materials, like natural aromatic compounds. Steam is added to
the distillation apparatus, lowering the boiling points of the compounds. The goal is to heat and
separate the components at temperatures below their decomposition point.

Steam is passed through the area and becomes "charged" with the essence.
The steam then passes through an area where it cools and condenses. This mixture of
water and essential oil is separated and bottled. Since plants contain such a small amount
of this precious oil, several hundred pounds may need to produce a single ounce.

B) Advantages of Steam Distillation

The reason to use steam distillation for extraction of essential oil is because

 It gives them very concentrated oil that is a true essential oil but lowest yield of recovered
aroma. And also economically it good, because it cannot need additional solvent (ethanol,
hexane) to extracted.
 Amount of steam can be readily controlled.
 No thermal decomposition of oil constituents.
 Most widely accepted process for large-scale oil production, superior to the other two
processes.
 It is also relatively cheap process to operate at a basic level, and the properties of oils
produced by this method are well known.

C) Working principle of steam distillation:

The first process in steam distillation was production of steam; to produce steam also the first
process is treatment of water, because of the steam generator (boiler) is sensitive to corrosion.
After water is treated, this treated water injected to the steam generator by pump, finally the steam
is generated at maximum parameter value of 4.5 bar and 91oc. If steam is generated, by adjusting
the distillation column (consists of 4 neck bottom flask i.e. row material holder, the condenser and
the separator funnel or receiver) inject the generated steam in to the steam distillation column
continually with manual adjustments of flow rate. Than distilled the raw material at 2, 3 and 4 hour
for different batches. Finally by using density difference we can separate the oil from condensed
water.

15
D) Parameters of Steam Distillation

The factors or parameters which are controlled in steam distillation oil extraction were: operating
temperature, particle size, processing time and flow rate of steam. The basic factors which are
considered in our study were particle size, process time, temperature and the moisture amount (dry
and fresh) in the peel. But we cannot maximize the temperature of the steam above 910c; because
if it is above 91oc the distillate will be burst, due to very low efficiency of the steam condenser.

5.5. Plant Location

The location of the envisaged project can be around Debrezeyt.

The points here under attract us to choose our site at the mentioned town.

Suitable land for erecting and expansion of the plant is available

The infrastructure like road, electricity, water etc. is available

The selected place is suitable for transportation of raw material and finished product (oil)

Local work force is readily available

Climate condition, humidity, wind speed, rainfall etc are suitable and do not ask additional cost

Raw material is available there.

5.6. Plant Capacity

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The envisaged plant is planned to start production in 2019. The local essential oil demand in this
year is projected to reach 1,357 ton, we plan to address 1% of this demand. Therefore, our
production amount is set to produce 1500 L of essential oil per year.

6. Social Responsibility

Besides reducing a significant amount of foreign currency expenditure, our company

will provide some benefits for the society beyond these. Here are the main benefits:

 The customers will be served with quality products.

 Environmental conservation and protection programs for the surrounding.
 To create job opportunity.

6.1. Environmental Impacts

The plant will have no a negative impacts on the environment. Instead, it will contribute to the
conservation and protection of the environment. We will keep our plant and the surrounding clean.

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 7. ECONOMICS ANALYSES

The financial analysis of the plant is based on the data provided in the following assumptions.

7.1. COST ESTIMATION

Lemon peel essential oil plant size capacity =1500 liter/year

Direct cost:
A) Purchased equipment cost.

Table 1: Equipment cost estimation of a lemon peel oil plant

No
Equipment Quantity Size unit Cost (Birr)
1 1
Washing 150kg/h 70,234
2 2
Extractor 22m3 30,453
3 1
Steam generator 48m2 32,000
4 Steam condenser 1 24m2 21,000
5 Sample holder flask 3 71kg/h 18,000
6 Oil tank 40m3 4,300
7 1
Residual storage 10m3 20,367
8 1
Packaging 35m2 35,541
Total Purchased equipment cost
231,895
birr

Source for all equipment costs: - [http://www.matche.com/EquipCost/]

b) Installation cost :( 35-45% of PEC), Assume 40% PEC= 92,758 Birr.

c) Instrument control installed :( 6-30% of PEC), Assume 30% PEC= 69,568.5Birr.

18
d) Piping installation cost: (10 - 80% of PEC), Assume 40% PEC= 92,758 Birr.

e) Electrical installation cost: (10 - 40% of PEC), Assume 15%PEC = 34,784.25 Birr.

f) Building process and auxiliary: (10-70% of PEC), Assume 60% PEC = 139,137 Birr.

g) Service facilities :( 30 - 80% of PEC), Assume 40%PEC = 92,758 Birr.

h) Yard improvement :( 10 - 15% of PEC), Assume 15%PEC = 34,784.25 Birr,

I) land :( 4 - 8% of PEC), Assume 6% = 13,913.7 Birr.

Therefore direct cost =570,461.7 Birr.

Indirect cost: Expenses which are not directly involved with material and labor of actual
installation or complete facility.

Engineering and supervision: (5 - 15% of PEC), Assume 10% PEC = 231,895.5 Birr.

Contractors fee: (12- 20% of PEC), Assume 15% PEC = 34,784.25 Birr.

Contingency: (8 - 20 % PEC), Assume 10% PEC = 231,895.5 Birr

Therefore total indirect cost = 498,575.25 Birr

Fixed capital investment:

Fixed capital investment (FCI) = DC + IC = 570,461.7 + 498,575.25 =997,150.5 Birr

Working capital investment: (10 - 20 % of FCI), Assume 15% FCI = 573,361.54 Birr

Total capital investment = FCI + WC = 997,150.5 +573,361.54 = 1,570,512 Birr

Estimation of total product cost (TPC)

Fixed charges:

a) Depreciation: (10% of FCI) = 99,715.05 Birr

b) Local taxes: (3 - 4% of FCI), Assume 3% FCI = 39,886 Birr

c) Insurances: (0.4 -1 % of FCI), Assume 1%FCI=9,971.5 Birr

d) Rent :( 8 - 12% of FCI), Assume 3%FCI = 29,914.5 Birr

19
Therefore total fixed charge = 79,772 Birr

But, fixed charge = (10 - 20% of TPC), Assume 10%

Therefore total production cost = 797,720 Birr

Direct Production cost:

Raw material: (10 - 50% of TPC), but no raw material cost, because we use waste material

Operating labor (OL): (10 - 20% of TPC), Assume 15%TPC = 119,658 Birr

Direct supervisory and electric labor: (10 - 25% of OL), Assume 15% OL= 17,948.7 Birr

Utility :( 10 - 20% of TPC), Assume 15% TPC = 119,658 Birr

Maintenance :( 2 - 10% of FCI), Assume 10%FCI= 99,715.05 Birr

Operating supplies (OS): (10 - 20% of maintenance), Assume 10% = 9,971.505 Birr

Laboratory charge :( 10 - 20% of OL), Assume 10%OL = 11,965.8 Birr

Patent and royalties :( 2 - 6% of TPC), Assume 4% TPC = 31,908.8 Birr

Direct Production cost = 410,823 Birr

Plant overhead cost: 20 - 40% of (OL+OS+M), Assume 30% = 68,803 Birr

Therefore manufacturing cost (MC) = direct product cost + fixed charge +plant overhead= 559,398
Birr

General expense:

Administration cost :( 40 - 60% of OL), Assume 50% OL = 59,829 Birr

Distribution and selling price: (2 - 30% of TPC), Assume 15%TPC = 11,965.8 Birr

Research and development cost: (3% of TPC) = 2,393.2Birr

Therefore general expense (GE) = 74,187 Birr

Total operational cost:

TOC = MC + GE = 633,585 Birr

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Gross earning and rate of return:

Selling price = 1,200 birr / liter

Total annual income = selling price per * annual production capacity = 1,800,000 birr

Gross income = Total income-Total operational cost = 1,166,415 birr

Tax 30% = 349924.5 birr

Profitability analysis

Net profit = gross income – tax

Net profit = 816,490.5 birr

Rate of return = (net profit/total capital investment)*100%

= 52 %/year

Payback period = (total capital investment/ 816,490.5 net profit/year)

1.9 years.

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