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CHAPTER 17

EXPANDING BUSINESS

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LEARNING OBJECTIVES

1. Explain the alternative that can be used to expand the business.

2. Describe how capital budgeting can be used to evaluate investment

3. Explain the purposes of merger and acquisition, the process and benefits

4. Explain how business can have an effective short term asset management

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INTRODUCTION

Objective of conventional business is to maximize shareholders wealth while in

Islamic business the goal is not to maximize but to have a just profit.

One of the method is to have good investment plan. In expending business, investment

plays a major role.

Other alternative can be done is through merger and acquisition.

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INVESTMENT DECISION

Companies venturing outside Malaysia

Tabung Haji CIMB Bank AirAsia Felda

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CLASSIFICATION OF CAPITAL EXPENDITURE

Expension of current business AirAsia Felda Tabung Haji

Developing new business Proton Honda

Investment in an assets Industries from labour intensive to

technology intensve

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CAPITAL BUDGETTING TASK

Capital Budgeting Capital budgeting is a required managerial

tool. One duty of a financial manager is to

choose investments with satisfactory cash flows and rates of return.

Therefore, a financial manager must be able to decide whether an investment is worth undertaking and be able to choose intelligently between two or more alternatives through evaluating and comparing before selecting the project.

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CAPITAL BUDGETING TASK

Propose New Projects Estimate Cash Flows of Projects Determine Whether Projects Are Feasible Implementing Feasible Projects Monitor Projects that were implemented

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SHORT TERM INVESTMENT DECISION

Types of investment is known as working capital management which also known as short term assets and liabilities.

Short Term Assets

• Cash•S/term securities• Acct receivable

• Inventory

Short Term Liabilities

• Acct Payable• S/term loan

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INVESTMENT STRATEGY

Liquidity Management

Accounts Receivable

Management

InventoryManagement

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MERGER & OTHR FORMS OF RESTRUCTURING

Immediate Growth – TM Touch (013) under Telekom Malaysia with Celcom (019)

Economic of Scale – TM Touch and Celcom. Media Prima (TV3, Channel 9, 8 TV, NTV7, Hot FM, Fly FM, 1 FM)

Managerial Benefits – BOC-BBMB then BCB merge CIMB becomes CIMB Bank acquire Southern Bank

Tax Benefit

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MERGER ANALYSIS

Identify PotentialMerger

Prospect

Make Merger Decision

Evaluate PotentialMerger

Prospect

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MERGER PROCEDURES

Financing of Merger

Integrating theBusiness

Tender Offer

Post MergerEvaluation

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Tutorial Questions

As per discuss questions page 218…