Voor$-$En$-$Toe Ltd is in the pharmaceutical industry sector and has been expanding in the recent past

due to a change in its strategic direction from regulated medicines to natural remedies and holistic

medicine. The company has recently identified a project it wants you to evaluate and recommend

whether they should accept or reject. You are provided with the following tabulated financial and

additional information:

Details Year $1$ Year $2$ Year $3$ Year $4$ Year $5$

R$000$ R$000$ R$000$ R$000$ R$000$

Sales $3675054023615866977070451$

Raw Materials $($herbs$,$

chemicals, etc$)$

$58859075119791471414495$

Labour Salaries and

Wages of Scientists and

Lab Assistants

$1177018150239583074628989$

Other variable overheads $525662752851957$

Fixed overheads $52505513578860786381$

Other operating costs $31203353360039784015$

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 R$75$m and

R$25$m respectively. It 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 after tax are similar to cash inflows 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 R$30$m which is paid at the beginning of the project $($ie immediately$).$

Required:

Given the information above, calculate the following:

i$.$ Profits for the periods $(20$ marks$)$

ii$.$ Weighted average cost of capital $(4$ marks$)$

iii. Net present value of the proposed project $(13$ marks$)$

iv$.$ Recommendation on the acceptance or rejection of the project with justifications $(3$

marks$)$

v$.$ Discuss the advantages of the net present value technique over the payback period and

internal rate of return techniques when capital budgeting $(10$ marks$)$

Round off the rand amounts to the nearest rand. The discount factor should be rounded to three

decimal places.