1) What key advantages and disadvantages are associated with holding companies? What is pyramiding and what are its consequences?

2) Meranti, Bhd. is considering the acquisition of Kenanga, Bhd. at a cash price of RM1.5 million. Kenanga, Bhd. has short-term liabilities of RM500,000. As a result of acquiring Kenanga, Bhd., Meranti, Bhd. would acquire the copyrights of a national best-seller which would provide an estimated cash flow of RM300,000 for the next five years. The firm has a cost of capital of 20 percent.

What is the approximate net present value of this acquisition?

3) Family Stores, Bhd., is a holding company that has decision making power over both General Stores and Star Stores. Family Stores owns General Stores and Star Stores common stock valued at RM15,000 and RM12,000, respectively. Generals Store balance sheet lists RM130,000 of total assets; Star Stores has total assets of RM110,000. Family Stores has total common stock equity of RM20,000.

a. What percentage of the total assets controlled by Family Stores does its common stock equity represent?

b. If a stockholder holds RM5,000 worth of Family Stores common stock equity, and this amount gives this stockholder voting control, what percentage of the total assets controlled does this stockholders equity investment represent?