QUESTION 132 MarksFinance Hut Limited's summarised income statements for the past two years are shown below:20212020R'000R'000Operating profit6,5005,500Interest expenses1,000900Profit before tax5,5004,600Tax at 25%1,3751,150Profit after tax4,1253,450Additional information is as follows:1. The allowance for doubtful debts was R300,000 at 1 January 2020, R250,000 at 31 December 2020 and R350,000 at 31 December 2021.2. Research and development costs of R500,000 were incurred during each of the years 2020 and 2021 on Project Segi. These costs were expensed in the income statement, as they did not meet the requirements of financial reporting standards for capitalisation. Project Segi is not complete yet.3. At the end of 2020, the company had completed another research and development project, Project Mo. Total expenditure on this project had been R1,500,000, none of which had been capitalised in the financial statements. The product developed by Project Mo went on sale on 1 January 2021, and the product was a great success. The product's lifecycle was only two years, so no further sales of the product are expected after 31 December 2021.4. The company incurred non-cash expenses of R15,000 in both years.5. Capital employed (equity plus debt) per the statement of financial position was R33,500 000 at 1 January 2020, and R37,000 000 at 1 January 2021.6.The pre-tax cost of debt was 5% in each year. The estimated cost of equity was 12% in 2020 and 14% in 2021. The rate of corporate income tax was 25% during both years.27.The company's capital structure was 60% equity and 40% debt.8.There was no provision for deferred taxREQUIRED:1.1. The Chairman of the Board (Chairman Mo) of Finance Hut has requested you to Calculate the Economic Value Added for the 2021 and 2020 financial periods.(20 marks)1.2 Explain the merits and problems of using the return on investment, residual income and the economic value added methods