Durban Delights is a catering business that is considering acquiring Freshest Fruit and Vegetables. Freshest Fruit and Vegetables is an unlisted, privately owned business, which has accumulated losses of R6 200 000 due to an inability to sell its products in the market. The owners of the company are asking R12 million for their business. The management of Durban Delights anticipate that Freshest Fruit and Vegetables assets will produce recurring unlevered cash-flows of R4.25 million per year for the next three years and R6.0 million per year for the seven years thereafter. In addition, Durban Delights estimate that the benefits of being able to better co-ordinate the delivery of fruit and vegetables to their catering premises will reduce their costs by approximately R400 000 per annum, whilst revenues are estimated to increase by R200 000 per, both for the next ten years.Durban Delights, which has a tax rate of 35%, will enjoy a reduction in taxable income for Freshest Fruit and Vegetables entire tax carryover loss. Freshest Fruit and Vegetables has a capital structure of R7 million equity and R5 million debt. Durban Delights have a required rate of return on this project of 15%.

How would you Advise the management of Durban Delights?