Student No.

: 2020214348
Business Risk and Economic Value Added
3Sixty (Pty) Ltd
(a) 3Sixty has only 2 suppliers for its main raw material input, galvanized steel pipe
both these suppliers situated in the same region.
• They are at the mercy of these companies and are in a weak bargaining
position.
• There is a risk that these suppliers could fail to supply the necessary
number of pipes, or they could suddenly increase their selling price since
they have bargaining power and 3Sixty will not have any other option but
to pay.
Transportation of raw materials is costly and involves significant logistical
management.
• 3Sixty faces the risk of production delays if there are problems with
transporting the pipes.
• The transport industry has suffered from strikes in the recent past and future
strikes could negatively affect 3Sixty business as a result of delays in
receiving the pipes or failure to deliver to their clients on time.
The volume, complex and changing nature of labour, environmental and health &
safety regulations.
• Strict and complex regulatory environmental laws pose a threat both to
3Sixty’s profitability (which may decline due to fines and penalties for non-
compliance), as well as their business continuity which may be affected if
forced to close down temporarily or permanently due to breach of laws and
regulations.
The introduction of carbon taxation is further expected to reduce profits.
• This increases the risk of 3Sixty business not being viable in future in light of
the already declining profitability.
Three executive members will be retiring in the near future.
• This could result in the company facing a major lack of leadership and
direction.
(b)
Alternative 1
Earning after tax 2790000
Less: Cost of financing -2095500
(15500000*13.5%)
EVA 697500

Alternative 2
Earning after tax 3306600
Less: Cost of financing -5341111
(46444444*11.5%)
-2034511

The reason behind the different answers is because alternative 2 has more
invested capital than alternative 1.