QUESTION $4(21$ marks$)$

Jomo Ltd is considering making a bid for Ikapa Ltd$.$

The following information should be used to value Ikapa Ltd$.$

Statement of profit or loss for the most recent accounting

period $(2023)$

Revenue

Cost of sales

Gross profit

Operating expenses $($excluding depreciation$)$

Depreciation

Profit from operations

Finance costs

Profit before tax

Taxation

Profit after tax

Additional information:

Selling prices are expected to rise at $9\%$ per year for the next $3$ years and then stay

constant thereafter.

Sales volumes are expected to rise at $6\%$ per year for the next $3$ years and then stay

constant thereafter.

Assume that cost of sales is a completely variable cost.

Operating expenses $($excluding depreciation$)$ are expected to increase at $8\%$ per year

for the next $3$ years and then stay constant thereafter.

Depreciation is expected to increase by R $2$ million in the first year, then decrease by

R $1$ million in the second year and then stay constant in the future.

Ikapa Ltd finance costs are expected to decrease by $R1$ million in both the first and

second years respectively and then stay constant in the future.

Ikapa Ltd would like to replace outdated computer equipment at a cost of $R5$ million in

the first year. As soon as the new equipment is bought, some of the old computer

equipment will be sold for R $0\mathrm{.}8$ million. After the system changeover, the remainder of

the old computer equipment will be sold for $R1\mathrm{.}5$ million the following year.

The marginal tax rate is $27\%,$ payable in the year in which the liability arises.