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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
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