QUESTION FOUR Mamma Limited, South Africa, is a specialist manufacturer of electronic scooters. In seeking to...
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QUESTION FOUR Mamma Limited, South Africa, is a specialist manufacturer of electronic scooters. In seeking to expand its operations, it could acquire a French subsidiary company, Lux Limited, or set up a new division in its home market. The relevant figures for these two options are: Set up a new division at home Cost of setting up premises Cost of machinery Annual sales Annual variable cost Additional head office expenses Existing head office expenses Depreciation: machinery 10% on cost annually Acquisition Acquire shares from existing shareholders Redundancy costs Annual Sales Annual variable costs Annual fixed costs Consultants fees Rand 8 440 000 7 700 000 52 000 000 14 000 000 750 000 1 005 000 770 000 Euro 5 000 000 800 000 11 000 000 3 000 000 2 000 000 600 000 Additional information: • The project is expected to last for 5 years. • Mamma Limited, the current cost of capital is 11%. • The French inflation is expected to be below the South African inflation by 2% per year, throughout the life of this investment. • The current exchange spot rate is R21.82 to the Euro (€). Required: Compute the necessary calculations and advise Mamma Traders Limited if it is worth investing in neither, in one or both of these two opportunities. QUESTION FOUR Mamma Limited, South Africa, is a specialist manufacturer of electronic scooters. In seeking to expand its operations, it could acquire a French subsidiary company, Lux Limited, or set up a new division in its home market. The relevant figures for these two options are: Set up a new division at home Cost of setting up premises Cost of machinery Annual sales Annual variable cost Additional head office expenses Existing head office expenses Depreciation: machinery 10% on cost annually Acquisition Acquire shares from existing shareholders Redundancy costs Annual Sales Annual variable costs Annual fixed costs Consultants fees Rand 8 440 000 7 700 000 52 000 000 14 000 000 750 000 1 005 000 770 000 Euro 5 000 000 800 000 11 000 000 3 000 000 2 000 000 600 000 Additional information: • The project is expected to last for 5 years. • Mamma Limited, the current cost of capital is 11%. • The French inflation is expected to be below the South African inflation by 2% per year, throughout the life of this investment. • The current exchange spot rate is R21.82 to the Euro (€). Required: Compute the necessary calculations and advise Mamma Traders Limited if it is worth investing in neither, in one or both of these two opportunities.
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Managerial accounting
ISBN: 978-0471467854
1st edition
Authors: ramji balakrishnan, k. s i varamakrishnan, Geoffrey b. sprin
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