QUESTION 1 (25 Marks) Morgan Limited is a company based in South Africa. They are specialist who manufacture curtains. They are seeking to expand its operations, it has the opportunity to acquire a French subsidiary company, French Curtains Limited, or set up a new division in its home market, The relevant figures for these two options are: Set up new division at home Rand Cost of setting up premises 70 000 000 Cost of machinery 30 000 000 Annual sales 47 000 000 Annual variable cost 9000 000 Additional head office expenses 1 000 000 Existing head office expenses 650 000 Depreciation (Included in annual sales calculation as an expense) 3 000 000 Acquisition Acquire shares from existing shareholders Annual sales Annual variable costs Annual fixed costs Consultant fees Euro 33 000 000 11 000 000 3 500 000 500 000 275 000 Additional information: The project is expected to last for 10 years, Morgan Limited, current cost of capital is 16% The French inflation is expected to be below the South African inflation by 3% per year, throughout the life of this investment The current exchange spot rate is R22 to the Euro (). Required: 1.1 Make all necessary calculations for the two options. 1.2 Advise Morgan Limited on the viability of these two opportunities. (22 marks)