Morgan Limited is a company based in South Africa. They are specialist who manufacture curtains. They are seeking to expand its operations, it has the opportunity to acquire a French subsidiary company, French Curtains 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 Rand

Cost of setting up premises 70 000 000

Cost of machinery 30 000 000

Annual sales 47 000 000

Annual variable cost 9 000 000

Additional head office expenses 1 000 000

Existing head office expenses 650 000

Depreciation (Included in annual sales calculation as an expense) 3 000 000

Acquisition Euro

Acquire shares from existing shareholders 33 000 000

Annual sales 11 000 000

Annual variable costs 3 500 000

Annual fixed costs 500 000

Consultant fees 275 000

Additional information:

The project is expected to last for 10 years.

Morgan Limited, current cost of capital is 16%.

The French inflation is expected to be below the South African inflation by 3% per year, throughout the life of this investment

The current exchange spot rate is R22 to the Euro ().

Required:

1. Make all necessary calculations for the two options

2 Advise Morgan Limited on the viability of these two opportunities.