PROJECT ROFILE FOR

INVESTMENT ON GYNECOLOGY
AND OBSTETRICS
SPECIALIZED CLINIC

PROJECT TO BE IMPLEMENTED:-
ADDIS ABABA CITY ADMINISTRATION

PROMOTER:- MESTAWOT PLC.

DECEMBER, 2018
ETHIOPIA
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Contents
1. Executive Summary..........................................................................................................................3
2. Service Description.........................................................................................................................4
3. Market Study And Service Capacity..............................................................................................5
A. Market Study...............................................................................................................................6
B. Service Capacity And Programme.............................................................................................7
1. Capacity.......................................................................................................................................8
2. Service Programme....................................................................................................................8
4. Medical Supplies & Utilities..........................................................................................................9
A. Medical Supplies.........................................................................................................................9
B. Utilities......................................................................................................................................10
5. Technology And Engineering......................................................................................................10
A. Technology................................................................................................................................11
B. Engineering...............................................................................................................................12
6. Manpower And Training Requirement........................................................................................13
A. Manpower Requirement...........................................................................................................13
B. Training Requirement...............................................................................................................14
7. Financial Analysis.........................................................................................................................14
A. Total Initial Investment Cost....................................................................................................15
B. Operating Cost...........................................................................................................................15
C. Financial Evaluation..................................................................................................................16
D. Economic Benefits....................................................................................................................18

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 EXECUTIVE SUMMARY
1. Project Name Mestawot Gynecology And Obstetrics Specialized Clinic
2. Project Owner Mestawot Plc.
3. Nationality Ethiopia
4. Project Location Addis Ababa City Administration
5. Project Composition Primary Gynecology And Obstetrics Specialized Clinic
Service.
6. Premises Required Existing Land 2,500 M2
7. Total Capital Birr 27,576,578 out of this amount 30% Br. 8,272,973
including the existing
Financed by owner equity and 70% Br. 19,303,605 Financed by
asset
bank loan.
8. Employment 28 individuals casually & permanently
Opportunity
9. Benefits of the project -Supply of high quality, affordable medical services which
For The region/
focus on patient care.
country
-To increase health care access for majority of the population.
-Knowledge and skill transfer through training health care
providers
-Medical research to promote health of the community.
-Collaboration with regional health care professionals.
-Establish state of the art primary hospital with multiple trained
medical specialists & advanced medical technology

1. INTRODUCTION
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Over the last few decades, heightened global recognition of the centrality of health to
socioeconomic progress and sustainable development has called to the urgent need
for increased investments in the health sector of developing countries. This is clearly
reflected in the Millennium Development Goals (MDGs) adopted at the beginning of this
century by the United Nations as the overarching framework of action for Ending global
poverty and measuring development progress. Four of the eight MDGs are directly concerned
with the health. Yet health systems in much of the developing world remain weak and
fragmented. In many countries, health conditions have deteriorated progressively as a
result of insufficient financing of the healthcare sector and ineffective public health Policies
which have failed to redress the most pressing Constraints; poor health infrastructure
and facilities, chronic.

The continued migration of skilled medical professionals in search of better economic

opportunities and working conditions in the developed world has been one of the most
critical difficulties faced by developing countries such as Ethiopia which are
struggling to meet the health needs of their growing populations. The enormous 'brain drain'
that Ethiopia has endured over past decades has had a particularly detrimental
impact in its health sector. An estimated 80 percent of physicians leave Ethiopia
within five years of graduating from medical school. Statistics from recent
research suggest that there are more Ethiopian born physicians practicing in the
Unites States than in Ethiopia. With less than 2000 physicians working throughout
the country, Ethiopia currently has a physician-to-patient ratio of 1:100,000 proportions
woefully short of the minimum acceptable ratio of 1:10,000 recommended by
the World Health Organization (Ethiopian Ministry of Health annual report; 2001)

In addition to the social loss there is also a considerable direct financial loss to the nation
whenever a doctor, whose education has been provided by the state, leaves the country. A
recent United Nations study estimates the loss sustained by the country in teaching them from
grade school through their M.D. degree at $184,000 for each departing physician.
With the population of around 90 million, (according to latest census) Ethiopia clearly faces
enormous challenges in meeting the healthcare needs of its people. Despite increased
government and international investments in the country's health sector in recent years,
Ethiopia's health indicator remain among the poorest in the African region. Widespread
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malnutrition and largely preventable infectious diseases, such as HIV/AIDS, TB and Malaria,
continue to contribute to the country's poor life expectancy rates which remain as low 52
years at birth. Infant and maternal mortality rates also remain high; in 2007, infant mortality
stood at 77 per 1000 live births and maternal deaths at 850 per 100,000 live births (WHO
2006).While daunting, these challenges are not insurmountable; but overcoming them will
require committed efforts and a radical shift away from previous approaches of health care
delivery. Indeed, such a shift is already occurring in Ethiopia, albeit at a very gradual pace. It
is increasingly recognized that new strategies, new partnerships and innovative ways of
reaching the majority of the country's poor and underserved communities.

With a view to addressing the critical shortage of health professionals, encouraging efforts are
being made to train and mobilize more health workers throughout the country. However, to be
effective, these measures must also be complemented by parallel efforts to ensure adequate
remuneration and incentives for retaining these trained health establishments of new and
improved health facilities equipped with adequate medical supplies and technologies. This
requires policies and strategies which fully recognize and support the contributions of all
stakeholders, including notably, the crucial role that can be played by the country's private
healthcare sector.
Indeed, the vital contributions that can be made by private sector in accelerating health
development has been recognized by an extensive study spearheaded by the Ethiopian
Ministry of Health as part of the country's "Health Sector Development Program" a major
sector-wide government initiative launched in 1998. It anticipates an acceleration of the
establishment of more healthcare facilities throughout the country. This movement will be
aided by promoting the participation of the private sector and is a key element in the priorities
identified by the study.
Policymakers at the international level are also increasingly recommending ways to support
and enhance the quality of medical services offered by private sectors in low and middle
income countries. Disenchantment with the discouraging success rate of long-standing
international health development strategies is leading to a new trend in health development
funding. It is widely acknowledged today, that the internationally supported health sector
reform initiatives of the 1980s and 1990s have largely fallen short of expectations. Moreover,
health pains made in previous decades are being reversed by the spread of AIDS and the
resurgence of other major infectious diseases such as TB and malaria, especially in sub-
Saharan Africa. As a result, governments, major international development agencies,
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development banks and philanthropic organizations are introducing flexibility in their
engagements in the health sectors of developing countries. Increasingly, approaches which
include greater involvement of the private sector are being considered. For example, the
World Bank which has traditionally supported mainly government-sponsored projects has
been focusing attention on the significant potential of the private sector in improving
healthcare delivery and accelerating the capacity building process.

Fostering the private sector will result in increased competition in the healthcare market,
thereby, broadening access to a wider range of services of improved quality. This, in turn, can
free up and redirect the limited government resources currently committed to service
provision towards strengthening the state's important health regulatory and underwriting
functions. Private healthcare providers can also complement government-led efforts by
mobilizing additional resources and providing access to a broader range of high quality
medical services through innovative approaches and partnerships.

It is clear that lasting solutions to Ethiopia's health development problems will require the
participation of all stakeholders, and especially the country's young but growing private
healthcare sector. If significant improvements in the delivery of quality healthcare are to be
accelerated in Ethiopia, deliberate efforts need to be made to foster and harness the resources,
innovativeness and efficiency that can be contributed by the private sector. With adequate
incentives and support from government policy-makers and the international development
community, private investment in Ethiopia's health sector can help bring about accelerated
and lasting improvements in the health.

1.2. Project Justification

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The major health problems of the country remain largely preventable communicable diseases
and nutritional disorders. Despite major progresses have been made to improve the health
status of the population in the last one and half decades, Ethiopia’s population still face a high
rate of morbidity and mortality and the health status remains relatively poor. Figures on vital
health indicators from DHS 2005 show a life expectancy of 54 years (53.4 years for male and
55.4 for female), and an IMR of 77/1000. Under-five mortality rate has been reduced to
101/1000 in 2010 and more than 90% of child deaths are due to pneumonia, diarrhea, malaria,
neonatal problems, malnutrition and HIV/AIDS, and often a combination of these conditions.
These are very high levels, though there has been a gradual decline in these rates during the
past 15 years. In terms of women health, MMR has declined to 590/100,000 though it still
remains to be among the highest . The major causes of maternal death are
obstructed/prolonged labor (13%), ruptured uterus (12%), severe pre-eclampsia/ eclampsia
(11%) and malaria (9%) . Moreover, 6% of all maternal deaths were attributable to
complications from abortion. Shortage of skilled midwives, weak referral system at health
centre levels, lack of inadequate availability of BEmONC and CEmONC equipment, and
under financing of the service were identified as major supply side constraints that hindered
progress. On the demand side, cultural norms and societal emotional support bestowed to
mothers, distance to functioning health centers and financial barrier were found to be the
major causes.
Following changes of Government in 1991, the Government produced the health policy which
was the first of its kind in the country and was among a number of political and socio-
economic transformation measures that were put in place. The translation of the health policy
was followed by the formulation of four consecutive phases of comprehensive Health Sector
Development Plans (HSDPs), the first phase of which was implemented starting in 1996/97.
Both of the policy formulation as well as the development of the first HSDP have been the
result of critical reviews and scrutiny of the nature, magnitude and root causes of the
prevailing health problems of the country and the broader awareness of the newly emerging
health problems in the country.
The core elements of the health policy are democratization and decentralization of the health
care system, development of the preventive, promotive and curative components of health
care, assurance of accessibility of health care for all segments of the population and the
promotion of private sector and NGOs participation in the health sector. Since the
development of HSDP I which also paved the way for the subsequent HSDP II and HSDP III,
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the Federal Ministry of Health has formulated and implemented a number of policies and
strategies that afforded an effective framework for improving health in the country including
the recent addition of maternal and neonatal health. This include implementations of far
reaching and focused strategies such as Making Pregnancy Safer (2000), Reproductive Health
Strategy (2006), Adolescent and Youth Reproductive Health Strategy (2006) and the Revised
Abortion Law (2005). Others include strategies on free service for key maternal and child
health services (Health Care Financing Strategy), the training and deployment of new health
workforce called all female HEWs for the institutionalization of the community health care
services including clean and safe delivery at HP level, and deployment of HOs with MSc
training in skills of Integrated Emergency Obstetric and Surgery (IEOS). In addition, the
establishment of the MDG Performance Package Fund and the priority given to maternal
health therein is expected to mobilize the much required additional funding opportunities.

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 2. SERVICE DESCRIPTION

This profile envisages the establishment of a specialized clinic with a capacity to treat
7,320 out-patients and 1,464 in- patients per year.

The market study shows that in Addis Ababa currently an additional 122 specialized
clinics are required. If additional Specialized clinics are not established the requirement
will increase to 376 Specialized clinics by the year 2022.

The total investment requirement is estimated at about Birr 3.84 million, out of which
Birr 834.37 thousand is required for medical equipment. The service will create
employment opportunities for 10 persons.

The project is financially viable with an internal rate of return (IRR) of 14.46 % and a
net present value (NPV) of Birr 1.13 million, discounted at 8.5 %.

Specialized Clinic is an institution run by a general medical practitioner or specialist

assisted by various other specialists; and where diverse out-patient medical services are
given. A Specialized Clinic can have 1-5 beds for delivery and emergency cases.

Specifically, the Specialized Clinic would provide the following services:

 Antenatal out-patient emergency services;

 Diagnostic services on laboratory, x-ray, sonographer;

 Minor surgery; and

 Other services allowed to the medical members;

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 3. MARKET STUDY AND SERVICE CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Health services are essential elements in ensuring a full and meaningful life for people.
Good health contributes to increased production of goods and services while poor health
puts labor force out of income. This implies the necessity of providing adequate health
services through establishment of health facilities that are adequately staffed and well
supplied with qualified medical personnel, equipment and drugs.

Current health service providers in the city include Federal Government Agencies, Addis
Ababa Health Bureau, Non Governmental Organizations (NOGs), factories, and the
private sector. There are 603 health facilities registered and licensed by the City
Administration in 2004/05 including 28 hospitals, 26 health centers, 507 clinics, and 42
health posts. Currently the private sector is leading in terms of ownership of number of
health facilities. It owns and operates 64.68% of the number of health facilities.

Though there have been some improvements in health status of residents in recent years it
is still at a low level. HIV/AIDS is registering a declining trend but the prevalence rate is
still very high in the city, which is another indication to the low level of development of
health service in the city.
According to the Ministry of Health one clinic is to serve a maximum of 5,000 people to
achieve a reasonable level of quality and coverage standard in health service in the
country. Supply gap/shortfall in health service in the city is calculated based on this
standard parameter. The result is that the supply of clinic is short of the demand by
30.3%, and to achieve the standard set by the Ministry of Health additional clinics are
required.

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Therefore, considering the shortage of medical service in the city, it is assumed that the
envisaged Specialized clinic will have adequate present and future market.

2. Projected Demand

The demand for health service facilities has unfilled gaps when compared to the standard
set by the Ministry of Health. The present observed gap is expected to be influenced in
the future by the rate of population growth and economic development. Accordingly,
based on the population projection by CSA and the standard requirement for clinics as set
by Ministry of Health and assuming the present existing clinics continue operating, the
number of additional Specialized clinics required is shown in Table 3.1 below.

Table 3.1
PROJECTED DEMAND FOR TOTAL ADDITIONAL SPECIALIZED
CLINICS

Year Total Additional

Specialized
Clinics
2006 88
2007 105
2008 122
2009 140
2010 159
2011 177
2012 195
2013 214
2014 233
2015 251
2016 270
2017 288
2018 306
2019 324
2020 342
2021 359
2022 376

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3. Pricing

For the purpose of this study a price of Birr 50 and Birr 150 per check up for out-patients
and per night for in-patients respectively is adopted. More over, for x-ray check up and
laboratory analysis of blood and stool, the envisaged clinic will charge Birr 40 and Birr 25
respectively.

B. SERVICE CAPACITY AND PROGRAMME

1. Capacity

The clinic will have a capacity to treat 20 out patients per day. Therefore, the clinic will
treat 7,320 out-patients per year, Moreover, the clinic will have 12 beds for in-patients and
assuming that one patient will stay 3 days on average, the total annual number of in-
patients will be 1,464. Out of the total 8,784 patients that will be treated in the envisaged
clinic in a year, 80 % are assumed to make x-ray and laboratory checkups.

2. Service Program

The Specialized Clinic can deliver 24 hour medical service throughout the year from the
very beginning of its operation.

4. MEDICAL SUPPLIES & UTILITIES

A. MEDICAL SUPPLIES
Emergency drugs and medical supplies required by the Specialized clinic are outlined in
Table

4.1 below. The total cost is estimated to be about Birr 27,000. The materials can be sourced
locally from establishments such as PHARMID or pharmacies.

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 Table
4.1 DRUG & MEDICAL SUPPLIES REQUIREMENTS & COST
[PACKETS]

Sr. No. Cost 'Birr

Description
Quantity FC LC Total
1 Adrenaline injection 20 13,000 7,000 20,000
2 Minophyllioc injection 10 8,125 4,375 12,500
3 Savlon (Chlorhexidine +
Cotrimide) 25 17,875 9,625 27,500
4 Alcohol Solution 79% 15 7,313 3,938 11,250
5 Dextrese 40% injection 5 1,625 875 2,500
6 Ergometrine maleate injection,
tabs 10 8,775 4,725 13,500
7 Hydrocortisone sodium succinate 5 6,500 3,500 10,000
8 Lidocaine hydrochloride injection 5 5,688 3,063 8,750
9 Procaine hydrochloride injection 5 4,388 2,363 6,750
10 Vitamin k injection 5 6,500 3,500 10,000
11 Hyoscine hydropromide injection 10 7,475 4,025 11,500
12 Bandage different sizes 20 14,560 7,840 22,400
13 Cotton 20 - 13,000 13,000
14 Disposabel syringe different
types 10 8,775 4,725 13,500
15 Disposable needle different types 10 6,175 3,325 9,500

Grand Total 116,773 75,878 192,650

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 B. UTILITIES

The major utilities required by a Specialized clinic are electricity and water. These are
given in Table 4.2.

Table
4.2 ANNUAL UTILITIES REQUIREMENT &
COST

Item Unit Of Qty Unit Rate Cost (Birr)

Measure
Electricity kWh 110,000 0.4736 52096
Water m3 1,000 3.25 3250
Total 55,346

5. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1) Process Description

The processes involved in the delivery of medical services at a Specialized clinic include:
 Receiving/registering of patients;
 Arranging orders to see doctors;
 Seeing doctors; laboratory/other tests, and
 Diagnosis and prescription.

Waste from the clinic is disposed off through Incinerator - incorporated –while other
waste is disposed off through connection to the city`s drainage system.
A Specialized clinic does not have negative impact on the environment.

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2. Source of Technology:

An agent of equipment supplier is PHARMID

B. ENGINEERING

1. Equipment

Equipment required for a Specialized clinic are outlined in Table 5.1 below. The
estimated cost of the equipment is about Birr 834,365.

Table
5.1 EQUIPMENT RQUIREMENT &
COST
Sr. Items Qty Cost (Birr)
No.
1 Sphygmomanometer 1 350
2 Clinical Thermometers 2 set 20
3 Diagnostic set 1 200
4 Adult Scale 1 750
5 Infant Scale 1 425
6 Examination bed 1 1,500
7 Infusion stand 1 300
8 Dressing Trolleys 1 500
9 Refrigerator 1 4,000
10 Catheter 1 20
11 Stethoscope 1 150
12 Binocular Microscope 1 10,000
13 Centrifuge 1 3,000
14 Lab bench 1 1,100
15 Timer 1 120
16 Photometer 1 50,000
17 Waterbath 1 1,260
18 Test Tube racks 1 set 500
19 Slides 1 set 80
20 Cover Slides 1 70
21 Hemocytometer with cover slide 1 350
22 Electrical boiler 1 1,500
23 Delivery table 1 1,200
24 Foetal monitor 1 4,250
25 Vacuum extractor/low forceps 1 2,450
26 Aspirator/manual 1 100
27 Breast pump 1 400
28 Resuscitator/Ambu bag 1 800

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 Sr. Items Qty Cost (Birr)
No.
29 Suction machine 1 9,000
30 Portable light/mobile 1 4,900
31 Auxiliary operating light 1 10,000
32 Vaginal speculum 1 70
33 Minor operating set 1 500
34 Autoclave 1 14,000
35 Delivery Kit 1 500
36 Ultra sound 1 200,000
37 X-ray Machine 1 500,000
38 Oxygen Cylinder 1 2,500
39 Incinerator 1 7,500
Total 834,365

2. Land, Building and Civil Works

The total land area required for specialized clinic is estimated to be about 600 m 2. The
built- up area is about 200m2. It is estimated that building cost would be about Birr
500,000.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city governments depending on the level of development.

In Addis Ababa the city’s Land Administration And Development Authority is directly
responsible in dealing with matters concerning land. Accordingly, the initial land lease
rate in Addis Ababa set by the Authority based on the location of land is as shown in
Table 5.2.

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 Table
5.2 INITIAL LAND LEASE RATE IN ADDIS
ABABA

Sr. Land Initial Price in

No Location of the land Grade m2
1 Central Business zones 1 1167.3
2 1062.9
3 916.2
4 751.5
5 619.2
Places That are Under
2 Transit 1 716.4
2 647.1
3 559.8
4 472.5
5 384.3
3 Expansion Zones 1 245.7
2 207
3 150.3
4 132.3

Source; Addis Ababa City Land Administration Authority

As can be seen from Table 5.3, the initial land lease rate ranges from Birr 1,167.3 to
132.3 per m2 .

Currently, most of the health facilities in Addis Ababa are located on the central business
zones of the city. Therefore, places under transit and expansion zones are recommended
as the best locations for the project. Accordingly, the average of the highest land lease
rates in places under transit and expansion zones, which is Birr 481.05 m2 is adopted.

The Federal Legislation on the Lease Holding of Urban Land legislation has also set the
maximum on lease period and the payment of lease prices ( see Table 5.3 and Table 5.4).

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 Table 5.3
LEASE PERIOD

Lease Period
Type of Service ( Years)
Residential area 99
Industry 80

Education, cultural research health, sport,

NGO and religious 99
Trade 70
Urban Agriculture 15
Other service 70

Table 5.4
LEASE PAYMENT PERIOD

Period of Payment
Sr. According to the Grade of
No. Service Type Towns
Private residential are obtained
1 through tender or negotiation 50 - 60 years
2 Trade 40 - 50 years
3 Industry 40 - 50 years
4 Real estate 40 years
5 Urban Agriculture 8 - 10 years
6 Trade and social service 40 - 50 years
7 Others 40 years

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%. For those that pay the entire amount of the lease will receive 0.5% discount from
the total lease value and those that pay in installments will be charged interest based on
the prevailing interest rate of banks. Moreover, based on the type of investment, two to
seven years grace period shall also be provided. The lease price is payable after the grace
period annually.

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Regarding, the terms and conditions of land lease the Addis Ababa City Government
have adopted Article 6 of the Federal Legislation with very minimal changes. Therefore,
for the purpose of this project profile since the project is engaged in social service , 99
years lease period, 50 years lease payment completion period, 5% down payment and
seven years grace period is used.

Accordingly, the land lease cost of the project, at rate of Birr 481.05 per m 2 for 99 years
of holding is estimated at Birr 28.57 million. Assuming 5% of the total cost ( Birr 1.42 )
will be paid in advance as down payment and the remaining Birr 27.14 million will be
paid in equal installments with in 50 years, the annual lease payment is estimated at Birr
542,913.

6. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The manpower requirement for Specialized clinic is given in Table 6.1 below. The annual
salary requirement is estimated to be about Birr 381,000.

Table 6.1
MANPOWER REQUIREMENT & LABOUR COST

Sr. Description Req. Salary (Birr)

No. No. Monthly Annual
1 Specialist/General Practioner – Head 1 12,000 144,000
2 Specialist 1 12,000 144,000
3 Nurse 2 3,000 36,000
4 Receptionist 2 1200 7,200
5 X-ray Technician 1 1,500 18,000
6 Laboratory Technician 1 1,500 18,000
7 Cleaner 1 350 4,200
8 Guard 2 800 9,600
Total 28 31,750 381,000

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 B. TRAINING REQUIREMENT

The qualification of the professionals would be adequate for the operation of the specialized
clinic.

7. FINANCIAL ANALYSIS

The financial analysis of the Specialized clinic project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity
70 % loan
Bank interest 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Medicine and medical supplies 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of medical equipment

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 A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
3.84 million. The major breakdown of the total initial investment cost is shown in Table
7.1.

Table 7.1
INITIAL INVESTMENT COST

Sr. Cost Items Local Foreign Total

No. Cost Cost Cost
1 Land lease value 1,420.00 - 1,420.00
2 Building and Civil Work 500.00 - 500.00
3 Medical Equipment 834.37 - 834.37
4 Office Furniture and Equipment 150.00 - 150.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 355.08 - 355.08
7 Working Capital 130.16 - 130.16
Total Investment Cost 3,839.61 - 3,839.61

* N.B Pre-production expenditure includes interest during construction ( Birr 255.08

thousand ) and Birr 125 thousand costs of registration, licensing and formation of
the company including legal fees, commissioning expenses, etc.

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 B. OPERATING COST

The annual operating cost at full capacity operation is estimated at Birr 1.06 million
(see Table 7.2). The major components of the operation cost are direct labour, medicine
and medical supplies and cost of finance accounting for 21.42%, 18.05% and 14.33% of
the total operation cost respectively. The remaining 46.20% is the share of utility, labour
overhead, depreciation, repair and maintenance and administration cost.

Table 7.2
ANNUAL OPERATING COST AT FULL CAPACITY ('000
BIRR)

Items Cost %
Medicine and medical
supplies 192.65 18.05
Utilities 55.35 5.19
Maintenance and repair
41.72 3.91
Labour direct 228.60 21.42
Labour overheads
95.25 8.92
Administration Costs 152.40 14.28
Land Lease Cost - -
Total Operating Costs 765.97 71.76
Depreciation 148.44 13.91
Cost of Finance 152.97 14.33
Total Production Cost
1,067.38 100

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 C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 283.48 thousand to
Birr 429.48 thousand during the life of the project. Moreover, at the end of the project life
the accumulated cash flow amounts to Birr 3.55 million.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yard
stick for evaluating the financial position of a firm. It is also an indicator for the strength
and weakness of the firm or a project. Using the year-end balance sheet figures and other

relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point of the project including cost of finance when it starts to operate at full
capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 38 %
Sales – Variable Cost

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4. Payback Period

The payback period, also called pay – off period is defined as the period required to
recover 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 6 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It 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 this porject is computed to be 14.46 %

indicating the vaiability of the project.

6. 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
principal a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 1.13 million which is acceptable.

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 D. ECONOMIC BENEFITS

The project can create employment for 10 persons. In addition to contributing to the
improvement of the city’s population health, the project will generate Birr 1.16 million in
terms of tax revenue. The establishment of the project will contribute to improving the
life of the residents of the City Administration.

E. ENVIRONMENTAL IMPACT OF THE PROJECT

The Government accords utmost importance to control environmental pollution. The

hospital should have an environmental friendly attitude and adopt pollution control
measures by process modification and technology substitution.
In this regard the hospital will undertake a separate and detail Environmental impact
Assessment.

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