Financial Management Workbook QUESTION 1 BWM (Lid), South Africa, is a specialist manufacturer of automotive engines. In seeking to expand its operations, it has the opportunity to acquire a German subsidiary company, Hesse Dynamics, or set up a new division in its home market. The relevant figures for these two options are: Rand Set up new division at home 40 400 000 Cost of setting up premises 18 000 000 Cost of machinery 14 000 000 Annual sales 5 000 000 Annual variable cost 1 000 000 Additional head office expenses 500 000 2 200 000 Existing head office expenses Depreciation: machinery 10% on cost annually Acquisition Euro 10 000 000 Acquire shares from existing shareholders 3 500 000 Redundancy costs 18 000 000 Annual Sales 9 500 000 Annual variable costs 3 500 000 Annual fixed costs 5 800 000 Consultants fees Additional information: . The - The project is expected to last for 10 years. -BWM (Ltd), current cost of capital is 12%. - The German inflation is expected to be below the South African inflation by 1% per year, throughout the life of this investment. Current exchange spot rate is R12 to the Euro (). Scanned with CamScanner Financial Management Workbook Required: 1.1 Make all necessary calculations for the two options. 1.2 Advise BWM (Ltd) on the viability of these two opportunities. Scanned with CamScanner