Answer to Question #68023 in Other for Dan

Question

Your friend has some money to invest and is deciding between an investment in Dolly Ltd or Yaalu Ltd. In the most recent reporting period, Dolly Ltd made a profit after tax of R1 250 000 after investing R8 500 000, compared to Yaalu’s after-tax profit of R1 000 000 after investing R6 000 000. The average return that investors are currently looking for in the market is 15% (cost of capital). On the basis of the higher profit achieved, your friend believes that Dolly Ltd is the superior investment. Discuss your friend’s investment choice. In doing so, suggest other financial data that should be considered. Discuss and analyse the benefits and limitations of each. What non-financial data may be of interest to inform your friend’s investment decision?