Akij Eying Malaysian Firm

Akij group, one of the experienced business groups in Bangladesh has been considering the possibility of acquisition of a Malaysian Company- Robin Resources Malaysia (RRM) Sdn Bhd with its subsidiary Robina Flooring Sdn Bhd.

Till 2015 it was quite impossible for any Bangladeshi company to invest in foreign countries. Foreign exchange regulations of 1947 have been amended to consider off-shore investment proposals on a case-by-case basis. The following table presents approved and rejected foreign investment proposal since 2014 in Bangladesh.

Robin manufactures medium-density fiber board, wood floor tiles and other wood products and export to more than 60 countries of the world. The company generates USD 8-9 million in profit every year. This acquisition would cost USD 80 million. Akij will invest USD 20 million. Rest of the 48 million will be borrowed and remainder 12 million will be financed from dividend income. The spot exchange rate is BDT 1 = .05 MYR (Malaysian Ringgit).

Akij will be charged 10% on its borrowed fund. It is in 35 percent tax bracket. Akij maintains a capital structure of 40 percent debt and 60 percent equity. Risk-free rate is 7 percent in Bangladesh. Akij has a beta of 1.5 and the market return is 12%.

Table: Investment details in equivalent MYR

Sl No.		Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
1	Initial Investment	(85,000,000)
2	After Tax Profit		5473538	5473538	5473538	5473538	5473538
3	Salvage Value						80,000,000
4	Exchange Rate	1 MYR = BDT 20

Requirements: (Show your Calculations)

1. What method of international business should Akij follow for acquiring RRM?
2. Forecast the exchange rate between BDT and MYR by using forecasting techniques.
3. Calculate the Weighted Average Cost of Capital (WACC).
4. Calculate Net Present Value (NPV).
5. Decide whether Akij should go for acquiring RRM.

Report:

The main report should be not more than 10 pages not including the appendix [typewritten, double -spaced].

Put the details of the computations in the appendix.

Presentation:

• Present the project in PowerPoint format.