Five years later, Beds Galore $($Pty$)$ Ltd is doing well. They made a profit of R$5500000$ in the last financial year. Over the past five years, Mervyn, now $33,$ has become an excellent Marketing Manager and is key to the profitability of the business.

The business decides to take out a keyperson policy on Mervyn to ensure the sustainability of the business if Mervyn should die or become disabled.

Thabo estimates that they would lose $30\%$ of their monthly profit for a period of six months should Mervyn die. They will also have to pay the following costs in respect of a replacement for Mervyn:

R$120000$ in placement fees

R$100000$ in relocation costs

A R$200000$ sign$-$on bonus.

Mervyns replacement would also have to attend an induction course in online marketing. This will cost R$80000.$

Thabo approaches Mervyn to determine whether he is willing to have a policy taken out on his life. Mervyn agrees, but only if an additional R$300000$ is paid to his wife, his only dependant, on his death. Thabo tries to convince Mervyn otherwise, but he insists on this condition.

Eventually it is agreed to fund the additional cost by increasing the value of the keyperson policy on Mervyns life by R$300000.$ It is also stipulated that the keyperson policy on Mervyns life be structured in such a way that the premiums on the policy will be deductible from the income tax of the business.

Questions:

$1\mathrm{.}1$ Calculate Mervyns value as a keyperson of Beds Galore $($Pty$)$ Ltd by using the detailed specification of costs method. $(4)$

Note to student: show all calculations and round your answers off to the nearest rand.

$1\mathrm{.}2$ Explain why the keyperson policy on Mervyns life will not qualify for an estate duty exemption. $(2)$

$1\mathrm{.}3$ Calculate the value of the keyperson policy to make provision for the income tax and estate duty that will be levied on its proceeds. $(4)$