Question
Veg Oil Ltd is a regional producer of palm oil in South East Asia. The company exportsmost of its product to Europe and thePacificnations.VegOil is
Veg Oil Ltd is a regional producer of palm oil in South East Asia. The company exportsmost of its product to Europe and thePacificnations.VegOil is considering to secure its supply chain by investing in palm oil plantation in one of the world's main palm oil producing countries - Malaysia and Indonesia.The company's plan to issue bonds and new ordinary shares to raise the money for the investment. Veg Oil estimates the weighted average cost of capital for the project will be at 12%.
The following data are the estimates for the project in these countries.
Malaysia
Indonesia
Initial investment ($'000,000)
20
20
Land lease (years)
25
30
Payback period (years)
15
14
IRR (%)
12.50%
16.25%
The existing shareholders voiced their concerns on issues related to practices in thepalm oil plantation in the two countries. Their concern are largely influenced by anarticleby National Geography. The board of directors of the company also concern on how the investors react on if this project goes through.
Required
Evaluate the proposal. Your answer should include the financial and non-financial factors.
refer the image for clarification
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