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QUESTION 2 [25 MARKS] Sprite Limited is a Zmbabwean based manubcture of heavy duty equipment The company is curently investgating two projects for expansion. itcan only undertake one of them and has asked your advibe in deciding which one to proceed with Project 1: Production at the exising factory could be expanded. The cost of the new plant for this option would be an inifal ouflay of ZWS45 milion. This would result in an addifonal ZWS950 000 proit being eamed in each of the 10 years that the project would last. The rew plant to be fully depreciated over the 10 years, on a staight-line basis, in accordance with the company's accounting policy. The financial bam thas also detemined tux the new plant mustbear its chave of the existing overteads and that amounted to ZN5150 000 per ancum. These expenses were also included in he profit calculation. Consulart fees costR550 000 . Project 2: Producton could be increased by purchasing a new manutactuing faciliy in South Atica. The cost of he faclity would be an inital outlay of P250 milion. Arnual sales for the 10 year peciod is expected b be R125 million annually, and fxed and variable cost of RSO milion and R64.4 million respectively. The fixed cost includes depreciation of ReS milion per annum. Consulants fees is expected b be R1.45 million. Addibonal infomaton: - The South Atican infation is expectad to exceed he Zmbabweaninfaton by 2% troughout he life of the project - Sprite's cost of capial is curenty 12%. - The current spotexchange rate is R7.50ZWs. Required: 21 Make all the necessary calculations bor he two opfors in order b advise Sprite Limited if it is worth investing inneiher, in one or in both of these projects (25 Marks) QUESTION 2 [25 MARKS] Sprite Limited is a Zmbabwean based manubcture of heavy duty equipment The company is curently investgating two projects for expansion. itcan only undertake one of them and has asked your advibe in deciding which one to proceed with Project 1: Production at the exising factory could be expanded. The cost of the new plant for this option would be an inifal ouflay of ZWS45 milion. This would result in an addifonal ZWS950 000 proit being eamed in each of the 10 years that the project would last. The rew plant to be fully depreciated over the 10 years, on a staight-line basis, in accordance with the company's accounting policy. The financial bam thas also detemined tux the new plant mustbear its chave of the existing overteads and that amounted to ZN5150 000 per ancum. These expenses were also included in he profit calculation. Consulart fees costR550 000 . Project 2: Producton could be increased by purchasing a new manutactuing faciliy in South Atica. The cost of he faclity would be an inital outlay of P250 milion. Arnual sales for the 10 year peciod is expected b be R125 million annually, and fxed and variable cost of RSO milion and R64.4 million respectively. The fixed cost includes depreciation of ReS milion per annum. Consulants fees is expected b be R1.45 million. Addibonal infomaton: - The South Atican infation is expectad to exceed he Zmbabweaninfaton by 2% troughout he life of the project - Sprite's cost of capial is curenty 12%. - The current spotexchange rate is R7.50ZWs. Required: 21 Make all the necessary calculations bor he two opfors in order b advise Sprite Limited if it is worth investing inneiher, in one or in both of these projects (25 Marks)

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