You have graduated in accounting from a renowned university in Malaysia and are currently employed as a junior accountant trainee in Puncak Dagangan Bhd (PDB), a multinational diversified listed company in Malaysia. PDB is an established investment holding company and is currently focussing on its national expansion project in the state of Kedah.

Datuk Paduka Ibrahim, the PDB's CEO, proposes to acquire Aman Sdn Bhd (ASB), a young property development company located in Sungai Petani, Kedah. ASB is having difficulty to sustain its cash flow following recent economic downturn in the property sector in Malaysia. Some of its housing projects require immediate pump of cash to withstand. The current return to shareholders for a company in the same industry as ASB is 8% although it is expected that an additional risks premium of 4% will be applicable to ASB, being a smaller and unlisted company.

ASB paid dividend of RM2 per share in 2018 and announced to pay annual dividend of RM2.05 for 2019. The expected cash flows before tax for ASB for 2019, 2020 and 2021 are RM2 million, RM2.5 million and RM3 million, respectively. ASB is expected to sustain its 2021 after tax cash flows in the future indefinitely. Assume that corporate tax rate remains at 25% per annum.

Extract from ASB Statement of Financial Position as at 30 June 2018 is as follows:

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Period 1 2 3 4 Single sum factor 8% 0.926 0.857 0.794 0.735 12% 0.893 0.797 0.712 0.636 Ordinary Annuity factor 8% 12% 0.926 0.893 1.783 1.690 2.577 2.402 3.312 3.037 Period 1 2 3 4 Single sum factor 8% 0.926 0.857 0.794 0.735 12% 0.893 0.797 0.712 0.636 Ordinary Annuity factor 8% 12% 0.926 0.893 1.783 1.690 2.577 2.402 3.312 3.037

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ANSWER As a junior accountant trainee at Puncak Dagangan Bhd PDB I have been tasked to analyze the p... View the full answer