Question 4

a) Discuss three (3) factors that might lead investors to prefer low dividend pay-out

and three (3) factors that lead investors to prefer high dividend pay-out

b) Syarikat Diamond City is analyzing the possible acquisition of Syarikat IOE

Property. Both firms have no debt. Syarikat Diamond City believes the

acquisition will increase its total after tax annual cash flows by RM4 million

indefinitely. The current market value of Syarikat IOE Property is RM120 million,

and that of Syarikat Diamond City is RM170.7 million. The appropriate discount

rate for the incremental cash flows is 10 percent

i) Should Syarikat Diamond City offer 40 percent of its stock or

RM135 million in cash to Syarikat IOE Property's shareholders?

ii) Discuss three (3) factors that need to be

considered if Syarikat Diamond City wants to finance the acquisition

either in cash or shares