Reference no: EM132764869

Questions -

Question 1 - Poll Bhd is an all equity firm specializing in pharmaceutical industry. Under its current dividend policy, it pays out all of its earnings as dividends to shareholders and does not expect any growth in earnings. The current earnings per share is recorded at RM4.50.

The company's stock returns have a correlation of 0.35 with the market portfolio returns, and have a standard deviation of 30%. The returns of the market portfolio have a standard deviation of 15%. The risk-free return is 3.5% per annum and the market offers 9% return.

Required -

a) Calculate the share price of Poll Bhd.

b) Poll Bhd is considering diversifying their business and invest in a new project in Japan. The investment will allow the company to pay 40% of its earnings as dividend. It is expected that the return on equity will increase to 11%. Assume that Poll Bhd proceeds with this new project, calculate the expected growth rate in earnings.

c) Currently the stock market is uninformed of the Poll Bhd new investment opportunity. The Company has decided to announce the news in the following week to the public in a press conference. Calculate the change in Poll's stock price right after the announcement made. (10 marks)

d) Explain how your analysis in part (c) can be explained by the Efficient Market Hypothesis.

Question 2 - Many decisions in financial management are taken in a framework of conflicting stakeholder viewpoints. Identify the stakeholders and some of the financial management issues involved in the following situations:

i) A private company converting into a public company;

ii) A highly geared public listed company in Bursa Malaysia - Ohio Bhd attempts to restructure its capital finance.