Evaluate the investment opportunities

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Shiny Cut Diamond Pty Ltd is an Australian company and a regional supplier of commercial-grade diamonds in the European market. The  company is considering to secure its supply chain by investing in a diamond mining operation. Two countries have been identified for this venture - South Africa and Sierra Leone.  The company's plan to issue bonds and new ordinary shares to raise the money for the investment. Shiny Cut estimates the weighted average cost of capital for the project will be at 13%.

The following data are the estimates for the project in these countries. 

 

South Africa

Sierra Leone

Initial investment ($'000,000)

15

10

Land lease (years)

7

7

Payback period (years)

6

3

IRR (%)

13.50%

17.25%

The existing shareholders voiced their concerns on issues related to practices in the diamond mining industry in certain countries. Their concerns are largely influenced by issues that leading to and surrounding the Kimberly Process. The board of directors of the company are aware of the issues and are developing a plan to respond to the investors.

Required

Evaluate the investment opportunities. Provide reasons for your decision taking into account the financial and non-financial factors.

Reference no: EM133267271

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