Question

eg Oil Ltd is a regional producer of palm oil in South East Asia. The company exports most of its product to Europe and the Pacific nations.  Veg Oil 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 the palm oil plantation in the two countries. Their concern are largely influenced by an article by 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.

Answer 1