Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Baker Limited, South Africa, is a specialist manufacturer of hydraulic pumps. In seeking to expand its operations, it could acquire a French subsidiary company,
Baker Limited, South Africa, is a specialist manufacturer of hydraulic pumps. In seeking to expand its operations, it could acquire a French subsidiary company, Hydro Limited, or set up a new division in its home market. The relevant figures for these two options are: Set up 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 Rand 19 540 000 8 400 000 107 500 000 26 040 000 2 150 000 1 120 000 840 000 Euro 24 000 000 4 500 000 36 000 000 Annual variable costs Annual fixed costs Consultants fees Additional information: -The project is expected to last for 9 years. -Bakers Limited, current cost of capital is 9%. 16 000 000 10 000 000 760 000 -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 R21.40 to the Euro (). 1.1 Compute the necessary calculations and advise Bakers Traders Limited if it is worth investing in neither, in one or both of these two opportunities. (25 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started