QUESTION TWO (25 Marks) Maa Limited, South Africa, is a specialist manufacturer of security doors and gates. In seeking to expand its operations, it has the opportunity to acquire a Dutch subsidiary company, Baby Guard, or set up a new division in its home market. The relevant figures for these two options are: Set up new division at home Cost of setting up premises Cost of machinery Annual sales Annual variable cost Additional head office expenses Existing head office expenses Depreciation: machinery 10% on cost annually Rand 60 000 000 36 000 000 46 000 000 12 000 000 2000000 1 600 000 6 000 000 Acquisition Acquire shares from existing shareholders Redundancy costs Annual Sales Annual variable costs Annual fixed costs Consultants fees Euro 22 000 000 7 000 000 38 000 000 19 000 000 7 000 000 14 000 000 Additional information: - The project is expected to last for 10 years. - Maa Limited, current cost of capital is 12%. - The Dutch inflation is expected to be below the South African inflation by 1% per year, throughout the life of this investment - The current exchange spot rate is R18 to the Euro (). Required: 2.1 Make all necessary calculations for the two options. 22) 2.2 Advise Maa Limited on the viability of these two opportunities. (3)