Question 1. John Doe has recently been appointed as Chief Risk Officer for Tutale(pty) Ltd, however, John realised that the company rely heavily on fixed-interest bearing debt for financing, moreover,the rare earth stone business may not be sustainable in the long run. Kindly advice John on what to advice management on the financial and business risk for Tutule(pty)Ltd.
Question 2. Mr.Reg (a well known entrepreneur) was offered an investment oppertunity which needed an initial outlay of $5000.It was expected that this investment will yield a return of $1000 per annum for the next ten years.
The cost of capital is estimated to be 15%
Mr. Reg requested you to evaluate this opportunity by determining
a) The net present value (NPV)
b) The discount pay-back period
c) And to advise him whether to invest or not