REQUIREMENT 1

Shahizee Bhd is considering acquiring Shazimie Bhd either for cash or stock purchase. Information before the merger (Pre-merger) is stated below:

	Shazimie Bhd	Shahizee Bhd
Market price per share	$2.40	$6.00
Shares outstanding	2.5 million	15.0 million

$1.2 million cash is available for acquisition. The estimated synergy value of the acquisition is $0.8 million.

Calculate the market price per share of the merger based on cash and stock basis.

Calculate the net present value (NPV) of the merger based on cash and stock basis.

Which acquisition basis would be better? Explain why.

REQUIREMENT 2

Steel (M) Bhd would like to hedge its US$10 million payable to CS Electronics, a US electrical manufacturer which is due in 90 days. Given the exchange and interest rates as follows:

Spot rate	RM3.0982/92/US$
90 days forward rate	RM3.1030/50/US$
Malaysian interest rate	7% per annum
US interest rate	4% per annum

Determine the future cost of meeting the obligation using the money market and forward market hedge. Which technique would the company choose and why?

REQUIREMENT 2

Amanah (M) Berhad has been operating in Germany and plans to finance its plant expansion by borrowing in either RM or with maturity of one year. Given the corporate tax in Germany is 25%.

Spot rate	RM4.0480/
Expected Year End	RM4.0530/
Malaysia interest rate (annualized)	7%
Germany interest rate (annualized)	9.5%

What is the before-tax ringgit cost of loan?

Based on the after-tax ringgit cost, suggest in which currency would the company borrow?

At what exchange rate would the company be indifferent between borrowing in Malaysia or Germany?

REQUIREMENT 3

Sunny Corporation, is a Malaysian affiliate that has its operations in Jakarta, Indonesia. The firm is contemplating either to borrow in Malaysia at 16 percent per annum or in Jakarta at 12 percent per annum. The Ringgit is expected to depreciate from RM0.0320 / Rph100 at the beginning of the year to RM0.0360 / Rph100 at the end of the year. The corporate tax rate on the earnings of Jentayu's Indonesian affiliate is 36 percent.

What is the expected before tax Ringgit cost of the Rupiah loan?

What is the expected after tax Ringgit cost of the Rupiah loan?

What is the expected after tax Ringgit cost of the Ringgit loan?

Based on the above costs, in which currency should the firm borrow?

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