, MAC2602
ASSIGNMENT 1 SEMESTER 2
2026
DUE 8 SEPTEMBER 2026
PART A (44 marks; 53 minutes)
(A1) Identification and Discussion of Eight ESG Factors
The following economic, social, environmental, and governance (ESG) factors are evident from the
scenario and can affect PG's operations:
Economic Factor: Interest Rate Risk (Cost of Capital). The acquisition of the facility was financed
by a long-term loan at an annual interest rate of 11%. Fluctuations in market interest rates
could affect the cost of future borrowing or the refinancing of this debt, impacting PG's
profitability and investment decisions.
Economic Factor: Foreign Exchange Risk. PG operates in South Africa, Mozambique, Eswatini,
and Lesotho. Operations in different countries expose the company to fluctuations in exchange
rates (e.g., Rand vs. Metical or Lilangeni), which can affect the value of earnings, asset
valuations, and the competitiveness of exports.
Social Factor: Labour Relations and Employment. Labour unions have raised concerns about the
hiring of illegal immigrants by contractors. This poses a risk of strikes, industrial action, and
reputational damage. PG's response to prioritize hiring locals for in-service training is a direct
attempt to mitigate this social risk and maintain stable labour relations.
Social Factor: Community Relations and Job Creation. PG supplies products to over 60,000
retailers and employs over 15,000 people. Its operations significantly impact local communities
through job creation and economic activity. However, the illegal immigrant controversy could
strain relationships with local communities who may feel that job opportunities are being taken
by non-locals.
Social Factor: Skills Development. The decision to prioritize locals for in-service training
demonstrates a commitment to developing the local workforce. This improves the company's
talent pool, enhances employee morale, and contributes to the socio-economic development of
the communities in which it operates.
, Environmental Factor: Environmental Footprint and Compliance. The scenario explicitly
mentions that some grain mills and food production plants faced challenges with their
environmental footprint. This exposes PG to regulatory fines, increased scrutiny from
environmental authorities, and reputational damage from environmentally conscious
consumers and investors. The environmental assessment study cost highlights the importance
of evaluating and mitigating these risks before acquisitions.
Governance Factor: Compliance and Ethical Sourcing. The issue regarding the hiring of illegal
immigrants by contractors directly relates to PG's governance practices. It demonstrates the
need for robust due diligence, contractor oversight, and compliance with immigration laws.
Failure to manage this could lead to legal penalties and harm the company's reputation for
ethical conduct.
Governance Factor: Acquisition Strategy and Financial Oversight. The acquisition of the canning
facility and the subsequent concern about potential overpayment highlight governance risks
related to investment decisions. The process involved a due diligence review and an
environmental study. This factor underscores the importance of rigorous financial analysis,
board oversight, and accountability in capital allocation to ensure that acquisitions create
shareholder value.
(A2) Quantitative Analysis and NPV Calculation
Investment Appraisal for the Fruit Products Western Cape Canning Facility
1. Investment in Machinery and Facility
Total Cost of Facility: R2,000 million
Cost of Machinery: R1,000 million
Cost of Building (Balancing Figure): R2,000m - R1,000m = R1,000 million
2. Annual Depreciation and Tax Allowances
Accounting Depreciation (Straight-line, 5% per annum):
Annual Depreciation = R1,000m * 5% = R50 million per year
Tax Wear-and-Tear Allowance (210% per annum):
This allowance is on a straight-line basis. The rate is effectively 210% of cost per annum.
The cost of the asset is R1,000 million.
Tax Allowance = R1,000m * 210% = R2,100 million per year.
Note: This is a very high tax allowance that will result in a significant tax loss in each year
from the machinery alone. The allowance exceeds the cost of the asset in a single year,
which is unusual but must be applied as stated.
ASSIGNMENT 1 SEMESTER 2
2026
DUE 8 SEPTEMBER 2026
PART A (44 marks; 53 minutes)
(A1) Identification and Discussion of Eight ESG Factors
The following economic, social, environmental, and governance (ESG) factors are evident from the
scenario and can affect PG's operations:
Economic Factor: Interest Rate Risk (Cost of Capital). The acquisition of the facility was financed
by a long-term loan at an annual interest rate of 11%. Fluctuations in market interest rates
could affect the cost of future borrowing or the refinancing of this debt, impacting PG's
profitability and investment decisions.
Economic Factor: Foreign Exchange Risk. PG operates in South Africa, Mozambique, Eswatini,
and Lesotho. Operations in different countries expose the company to fluctuations in exchange
rates (e.g., Rand vs. Metical or Lilangeni), which can affect the value of earnings, asset
valuations, and the competitiveness of exports.
Social Factor: Labour Relations and Employment. Labour unions have raised concerns about the
hiring of illegal immigrants by contractors. This poses a risk of strikes, industrial action, and
reputational damage. PG's response to prioritize hiring locals for in-service training is a direct
attempt to mitigate this social risk and maintain stable labour relations.
Social Factor: Community Relations and Job Creation. PG supplies products to over 60,000
retailers and employs over 15,000 people. Its operations significantly impact local communities
through job creation and economic activity. However, the illegal immigrant controversy could
strain relationships with local communities who may feel that job opportunities are being taken
by non-locals.
Social Factor: Skills Development. The decision to prioritize locals for in-service training
demonstrates a commitment to developing the local workforce. This improves the company's
talent pool, enhances employee morale, and contributes to the socio-economic development of
the communities in which it operates.
, Environmental Factor: Environmental Footprint and Compliance. The scenario explicitly
mentions that some grain mills and food production plants faced challenges with their
environmental footprint. This exposes PG to regulatory fines, increased scrutiny from
environmental authorities, and reputational damage from environmentally conscious
consumers and investors. The environmental assessment study cost highlights the importance
of evaluating and mitigating these risks before acquisitions.
Governance Factor: Compliance and Ethical Sourcing. The issue regarding the hiring of illegal
immigrants by contractors directly relates to PG's governance practices. It demonstrates the
need for robust due diligence, contractor oversight, and compliance with immigration laws.
Failure to manage this could lead to legal penalties and harm the company's reputation for
ethical conduct.
Governance Factor: Acquisition Strategy and Financial Oversight. The acquisition of the canning
facility and the subsequent concern about potential overpayment highlight governance risks
related to investment decisions. The process involved a due diligence review and an
environmental study. This factor underscores the importance of rigorous financial analysis,
board oversight, and accountability in capital allocation to ensure that acquisitions create
shareholder value.
(A2) Quantitative Analysis and NPV Calculation
Investment Appraisal for the Fruit Products Western Cape Canning Facility
1. Investment in Machinery and Facility
Total Cost of Facility: R2,000 million
Cost of Machinery: R1,000 million
Cost of Building (Balancing Figure): R2,000m - R1,000m = R1,000 million
2. Annual Depreciation and Tax Allowances
Accounting Depreciation (Straight-line, 5% per annum):
Annual Depreciation = R1,000m * 5% = R50 million per year
Tax Wear-and-Tear Allowance (210% per annum):
This allowance is on a straight-line basis. The rate is effectively 210% of cost per annum.
The cost of the asset is R1,000 million.
Tax Allowance = R1,000m * 210% = R2,100 million per year.
Note: This is a very high tax allowance that will result in a significant tax loss in each year
from the machinery alone. The allowance exceeds the cost of the asset in a single year,
which is unusual but must be applied as stated.
