QUESTION 3 Kgomotso Ltd is in the manufacturing sector and has been expanding in the recent past due to a change in its strategic direction. The company has a recently identified project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information: Details Sales Materials Labour Other variable overheads Fixed overheads Other operating costs Year 1 R'000 36 750 5 885 11 770 525 5 250 3 120 Year 2 R'000 54 023 9 075 18 150 662 5 513 3 353 Year 3 R'000 61 586 11 979 23 958 752 5 788 3600 Year 4 R'000 69 770 14 714 30 746 851 6 078 3978 Year 5 R'000 70 451 14 495 28 989 957 6381 4015 Additional information: The tax rate is 28% and payable in the year profits are made; The company is financed by 75% equity and 25% debt with market values of R75m and R25m respectively. The company has an equity beta of 1,2. The rate on treasury bills issued by the South African Reserve Bank is 5% and considered to have no risk. The market risk premium is 7,5%. The company's after-tax cost of debt is 6%; Profits are similar to cash flows for the purposes of this project evaluation; and All receipts and payments arise at the end of the year to which they relate except for the project's initial outlay of R30m which is paid at the beginning of the project (ie immediately). Required: Given the information above, calculate the following: i. Profits for the periods. ii. Weighted average cost of capital. iii. Net present value of the proposed project. iv. Recommendation on the acceptance or rejection of the project with justifications. v. Discuss the advantages of the net present value technique over the payback period and internal rate of return techniques when capital budgeting. Note: All answers must be typed out and workings must be shown