1.1 Research Question
“Should Mrs. X invest in a Rubber plantation in the North East of Thailand?” This question was chosen as a friend of my family has recently been offered an investment opportunity in the North East of Thailand. Mrs. X has no knowledge of how to assess the project. The opportunity for investment is further complicated by a very long period before any returns are seen.
1.2 Theoretical Framework
Financial assessment tools including payback period, accounting rate of return and net present value. In addition cash flow will be examined over the life of the project which has been limited to a fixed period of 15 years.
Firstly secondary research will be conducted into the market for rubber and substitute products. The primary research conducted will include an interview with the investor to discuss her financial situation and her feelings about investing in the rubber business and her knowledge of the market. Any financial data relating to the potential investment will be examined and the basis of any forecasts made will also be investigated.
1.4 Anticipated Difficulties
A number of difficulties may occur during this project. First I am uncertain about how much data the potential investor has and secondly it is difficult to make accurate predictions about projects with very long lives. It is also difficult to assess given the changing business environment however in order to combat this problem a conservative approach is used.
Decide on a validated title
Complete Research Proposal
Carry out primary and secondary research
Complete Analysis and Discussion
Complete Conclusion and Recommendations
Complete Bibliography and Appendices
Hand in first draft of coursework to supervisor
Complete final draft of coursework
Mrs. X is considering investing in a Rubber plantation in Thailand as she is dissatisfied with the returns she is seeing from money she has invested in the bank. She currently receives an interest rate of 2%. She is currently employed and has no immediate need for the money and therefore is content to invest the money longer term. She also feels it would be nice to help develop rural employment opportunities. She was uncertain of how to assess the project proposed to her.
The project would call for the investment in land in North east Thailand and the purchase of rubber trees. The land would require clearance and returns would only occur in the seventh year. The plantation would provide employment for 7 -10 people once the tress had reached maturity.
In order to assess the project an investment appraisal was conducted. The accounting rate of return indicates a positive 18.99% return which might indicate acceptance of the project however the payback period indicates the risk associated with the project as payback does not occur for 11.56 years. The DCF calculations show a loss of 174,161 bht on the project at a discount rate of 8.5 % but do not take into consideration the value of the land and the rubber wood. Therefore on this basis the project is recommend for acceptance.
However secondary research also shows that rubber prices are cyclical and very difficult to predict and increased supply is expected from India where the government is subsidizing farmers. Furthermore the world economic recession and possible development of synthetic rubber are also potential threats. However despite these risks and the on the basis that the information supplied by the potential investor is accurate then the project appears attractive.
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Mrs. X has been offered an area of land (26 square rai) in Northeast Thailand at a cost of 780000 baht. The land is suitable for growing rubber...
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