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ASSIGNMENTS QUESTIONS

ASSIGNMENT 1

You are a financial consultant hired by “Green Harvest Ltd,” a Zambian agribusiness startup specializing in organic maize farming. The company is at a crossroads and must make critical financial decisions to ensure long-term sustainability and growth.

Green Harvest is currently registered as a sole proprietorship but is considering converting to a corporation to attract investors. The company has identified two potential projects: Project

A: Purchase advanced irrigation equipment (ZMW 1.2 million upfront cost) to reduce water dependency and increase yield. Expected annual cash flows: ZMW 400,000 for 5 years and Project B: Expand into Malawi by acquiring a small farm (ZMW 2 million upfront cost). Expected annual cash flows: ZMW 600,000 for 4 years, with political risk potentially reducing cash flows by 20% in Year 3. Green Harvets has two financial options: to acquire debt through a local bank that offers a loan at 12% interest or to sell equity to an impact investor who has proposed 25% ownership for ZMW 1.5 million. The founders aim to align with Zambia’s National Climate Change Policy but worry about short-term profitability trade-offs.

Required:

• Compare the pros and cons of sole proprietorship corporation for Green Harvest, considering control, liability, taxation, and access to capital. Recommend the optimal structure with justification.
• Calculate the NPV and Payback Period for both projects (assume a 10% discount rate) and critically evaluate which project aligns with Green Harvest’s goals, incorporating risk and non-financial factors.
• Advise whether GreenHarvest should use debt, equity, or a Consider the impact on cash flows, risk, and incentives for stakeholders.
• Discuss how Green Harvest can balance shareholder wealth maximization with stakeholder Propose one ESG-linked financial metric to track.

ASSIGNMENT 2

ZimGold Mining (Pvt) Ltd, a Zimbabwean gold mining company, is evaluating a major expansion project to modernize its extraction facilities and adopt sustainable mining practices. The company faces volatile gold prices, high inflation, and regulatory pressure to reduce environmental harm. The initial investment is USD 5 million (50% for new machinery, 50% for solar energy infrastructure).

Expected Cash Flows:

Years 1–3: USD 1.8 million annually (pre-tax).

Years 4–5: USD 1.2 million annually (due to higher maintenance costs).

Zimbabwe’s Risks: 25% inflation, potential currency devaluation, and ESG compliance costs (USD 200,000/year from Year 2).

The mine is financed by debt from local banks offer USD 3 million at 18% interest (high due to country risk) as well as equity from a South African investor proposes USD 2 million for 15% equity but demands a 20% IRR hurdle rate.

The Minerals Marketing Corporation of Zimbabwe (MMCZ) requires all miners to reduce carbon emissions by 30% in 5 years. Failure to comply risks a 10% revenue penalty.

Required:

• Calculate the NPV of the project using a Weighted Average Cost of Capital (WACC) of 22% (reflects Zimbabwe’s risk premium).

• Conduct a sensitivity analysis on NPV for:
  • A 15% drop in gold
  • A 10% increase in ESG compliance
• Recommend whether ZimGold should proceed, considering inflation and regulatory
• Critique the CAPM’s applicability for ZimGold given Zimbabwe’s hyperinflation and illiquid stock market.

• Calculate the WACC using the proposed financing mix (debt/equity) and advise on optimal capital structure.
• Analyze how sustainable finance principles could mitigate ZimGold’s risks (e.g., ESG- linked bonds, carbon credits).
• Propose one non-financial metric to align with Zimbabwe’s National Development Strategy (NDS1).

• Advise if ZimGold should prioritize shareholder returns or stakeholder value