Question 4

1. "A proposed merger will take advantage of available economies of scale". Discuss briefly with TWO (2) points what does it mean with the statement. (6 Marks)
2. Consider the following pre-merger information about Belinjau Berhad and Lengkuas Berhad:

	Belinjau Berhad	Lengkuas Berhad
Shares outstandin	300,000	150,000
Price er share	RM13.80	RM6.OO

Belinjau Berhad is considering acquiring Lengkuas Berhad as part of the firm's competitive strategy. Belinjau Berhad is evaluating two possible options either to pay RM5.50 in cash for every share of Lengkuas Berhad or to offer 40% of its stock. Both firms are 100% equity-financed. Belinjau Berhad estimates that the incremental benefits from this exercise to be worth RM450,000.

From the above information you are required to answer the following questions.

i. Compute the value of Lengkuas Berhad to Belinjau Berhad. (3 Marks) ii. Analyze which acquisition option should Belinjau Berhad choose. (6 Marks)

(Total: 15 Marks)