QUESTION 14

1. Tea Life Ltd is considering expanding its current tea plantation portfolio. The company is currently looking at two countries - SriLanka and Malaysia. The company's plan to issue bonds and new ordinary shares to raise money for the investment. This gives rise to a 15% weighted average cost of capital.
2. The following data are estimates for the project in these countries.
5. Sri Lanka
6. Malaysia
7. Initial investment ($'000,000)
8. 250
9. 500
10. Land lease (years)
11. 10
12. 15
13. Payback period (years)
14. 7
15. 11
16. IRR (%)
17. 15%
18. 16.25%
20. A preliminary study by the company's investment team indicates that tea contributes significantly to SriLankan's economy, primarily in the country's export and employment. Approximately, 5% of Sri Lankanswork at tea plantation (BBC, 2018). However, reports on unfavorableworking conditions andrecent development in the country raises security concerns.
21. Tea plantation is only a small portion of agriculture industry in Malaysia. Hence, there are not as many Malaysians are employed by this industry relative to its populations and the SriLanka. The investment team at Tea Life also finds that that Malaysia introduced minimum wage in 2016 and was revised in 2019 from approx. A$300 to A$400 per month.
22. Required
23. Evaluate the proposals. Your answer should include the financial and non-financial factors.
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