QUESTION 2 Pulse Limited is a South African based manufacturer of Generators, an award-winning generator. The company is currently investigating two investment projects. The information is given below: Project Malls Involves extending the company's production facility in Cape Town. The plant will cost R122 000 000 and is expected to create an additional annual profit of R35 200 000 for the 6 years life of the project. The following expenses were included in the annual profit: Depreciation was calculated on the straight-line method, over the life of project. - Share of existing overheads, borne by head office amounting to R400 000p.a. - Additional fixed cost of R325 000. Project CTM Involves setting up an independent manufacturing facility in Taiwan. The cost of the facility would be an initial outlay 99 700 000 Taiwan dollars. This would result in: - annual profit of 45 000 000 Taiwan dollars, for the 6 years of the project. - The annual fixed costs and variable costs are 6 000 000 and 3 200 000 Taiwan dollars respectively. These costs were not included in the profit calculation. - Consultant fees of 720 000 Taiwan dollars were not included in the calculation of profit for Project CTM. Note: - Pulse Limited current cost of capital is 12%. - The Taiwanese inflation is expected to exceed the South African inflation by 4% p.a. throughout the life of the project. - The current spot rate exchange is 4.2 Taiwan dollars to the Rand. Compute the necessary calculations and advise Pulse Limited if it is worth investing in neither, in one or both of these two opportunities. 2.1 QUESTION 2 Pulse Limited is a South African based manufacturer of Generators, an award-winning generator. The company is currently investigating two investment projects. The information is given below: Project Malls Involves extending the company's production facility in Cape Town. The plant will cost R122 000 000 and is expected to create an additional annual profit of R35 200 000 for the 6 years life of the project. The following expenses were included in the annual profit: Depreciation was calculated on the straight-line method, over the life of project. - Share of existing overheads, borne by head office amounting to R400 000p.a. - Additional fixed cost of R325 000. Project CTM Involves setting up an independent manufacturing facility in Taiwan. The cost of the facility would be an initial outlay 99 700 000 Taiwan dollars. This would result in: - annual profit of 45 000 000 Taiwan dollars, for the 6 years of the project. - The annual fixed costs and variable costs are 6 000 000 and 3 200 000 Taiwan dollars respectively. These costs were not included in the profit calculation. - Consultant fees of 720 000 Taiwan dollars were not included in the calculation of profit for Project CTM. Note: - Pulse Limited current cost of capital is 12%. - The Taiwanese inflation is expected to exceed the South African inflation by 4% p.a. throughout the life of the project. - The current spot rate exchange is 4.2 Taiwan dollars to the Rand. Compute the necessary calculations and advise Pulse Limited if it is worth investing in neither, in one or both of these two opportunities. 2.1
