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DD Limited, South Africa, is a specialist manufacturer of electronic scooters. In seeking to expand...

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Accounting

DD Limited, South Africa, is a specialist manufacturer of electronic scooters. In seeking to expand its operations, it could acquire a French subsidiary company, AAA 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 22440000 Cost of machinery 8700000 Annual sales 33000000 Annual variable cost 14050000 Additional head office expenses 1300000 Existing head office expenses 3220000 Depreciation: machinery 10% on cost annually 870000 Acquisition Euro Acquire shares from existing shareholders 28000000 Redundancy costs 5000000 Annual Sales 39000000 Annual variable costs 18000000 Annual fixed costs 10000000 Consultants fees 750000 Additional information: - The project is expected to last for 7 years. - DD Limited, current cost of capital is 10%.- The French 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 R24.50 to the Euro (). Required: Compute the necessary calculations and advise DD Traders Limited if it is worth investing in neither, in one or both of these two opportunities.

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