INDEPENDENT UNIVERSITY, BANGLADESH

School of Business
MBA Program

SPRING –2021

Course: MBA 546 (International Financial Management)

Case Study Assignment

Title: AKIJ EYING MALAYSIA FIRM

Submitted By

Name ID
Khandakar Mohiuddin Alamgir 1910658
Refat Bin Wadud 2021609
Lutfun Nahar Anonna 1910652

Submitted To
Dr. Sarwar Uddin Ahmed

Date: 26 April, 2021

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 Table of Content

Executive Summary

Company background

Question & Answer

1. What method of international business should Akij follow for acquiring RRM?
2. Forecast the exchange rate between BDT and MYR by using forecasting
techniques?
3. Calculate the Weighted Average Cost of Capital (WACC)
4. Calculate Net Present Value (NPV)
5. Decide whether Akij should go for acquiring RRM

Conclusion

REFERENCES

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 Executive Summary

In this report, firstly we determined the method through which Akij should be acquiring
RRM, and that is Acquisition method. Then we focused on forecasting the exchange rate
between BDT & MYR by using forecasting techniques. Afterwards, we determined
Weighted Average Cost of Capital (WACC) & Net Present Value (NPV) of five years.
Finally, based on the outcomes of NPV calculation, we suggested if Akij should go for
Acquisition for Acquiring RRM.

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 Akij Eying Company background

Akij Group is one of the largest Bangladeshi industrial conglomerates. The industries under this
conglomerate include textiles, tobacco, food & beverage, cement, ceramics, printing and
packaging, pharmaceuticals, consumer products etc. The tradition of AKIJ GROUP is over 50
years old and throughout the long term Akij has set up itself as the fillup with certainty and much
loved modern group of Bangladesh. Akij Group is probably the greatest combination in
Bangladesh. It comprises of 24 major concern with exercises and various items. Akij Group sent
its attempt as a little jute merchant over 50 years back. The legacy of AKIJ GROUP is over half
a century old and over the years Akij has established itself as the full of confidence and much
revered industrial family of Bangladesh.

In this era of mass production, as it is very hard to stand out with one product, Akij Group
focuses on making the best in all sectors. Any company’s vision is actually the dream to which
the company always strives to reach where it may become possible or not. Akij Group is not
something different. Expanding the business in the abroad and becoming one of the market
leaders internationally are the visions of Akij Group.

The mission of Akij Group is to be the market leader through their best effort, suitable and
competitive marketing strategy and the consumers support. Now they are in the position of
challenger and their vision focuses on those missions, goals and objectives which will make
them able to be the leader from the challenger to the leader in the market.

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 Question & Answer

1. What method of international business should Akij follow for acquiring

RRM?

History of Akij Group stretches back to later part of the forties. In its infancy, the Group started
in humble way with jute trading which was known as the golden fiber of the country, earning
highest amount of foreign exchange. After that Akij have been completely successful in local
market if we look into the past trading of this company. The Group has plans for setting up more
projects. The projects are already in pipeline. Now at a certain portion of time will force them to
go global so acquiring RRM is the point in their product cycle to have an ultimate edge to secure
a better future.

The Akij Group is one of the biggest conglomerates in Bangladesh. It consists of 14 big
companies with diverse activities and different products, and launched its venture as a small jute
trader more than 50 years ago. Now Akij Group have the liquidity to acquire the existing
operations and grasp the market on spot in Malaysia as RRM already rejected so many. This will
leave them with an open certainty of doing business around the years and probably won’t have to
sweat about skills and technology RRM use to produce their unique line of products. Till that
happens, Akij Group will have a lot better business and also will inquire more product in their
product line.

Akij should follow Acquisition method for acquiring RRM. Akij can acquire RRM by
purchasing most of all RRM share’s and other assets in order to gain control over RRM.
Acquisitions, which are very common in business, may occur with the target company's
approval, or in spite of its disapproval. With approval, there is often a no-shop clause during the
process. We mostly hear about acquisitions of large well-known companies because these huge
and significant deals tend to dominate the news. An acquisition is defined as a corporate
transaction where one company purchases a portion or all of another company’s shares or assets.
Acquisitions are typically made in order to take control of, and build on, the target company’s

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strengths and capture synergies. There are several types of business combinations: acquisitions,
mergers and amalgamations. The acquiring company buys the shares or the assets of the target
company, which gives the acquiring company the power to make decisions concerning the
acquired assets without needing the approval of shareholders from the target company. Akij
should go for acquisition because Acquisition reduces entry barriers. Market entry can be a
costly scheme for small businesses due to expenses in market research, development of a new
product, and the time needed to build a substantial client base. An acquisition can help to
increase the market share of your company quickly. Even though competition can be
challenging, growth through acquisition can be helpful in gaining a competitive edge in the
marketplace. Akij can choose to take over other businesses to gain competencies and resources it
does not hold currently. Doing so can provide many benefits, such as rapid growth in revenues or
an improvement in the long-term financial position of the company, which makes raising capital
for growth strategies easier. Expansion and diversity can also help a company to withstand an
economic slump. When small businesses join with larger businesses, they are able to access
specialists such as financial, legal or human resource specialists. After a securing, admittance to
capital as a bigger organization is improved. Entrepreneurs are typically compelled to put their
own cash in business development, because of their powerlessness to get to enormous credit
reserves. In any case, with a procurement, there is an accessibility of a more noteworthy degree
of capital, empowering entrepreneurs to obtain reserves required without the need to dunk into
their own pockets. An organization generally has its own particular culture that has been creating
since its origin. Getting an organization that has a culture that contentions with yours can be
risky. Representatives and administrators from the two organizations, just as their exercises, may
not incorporate just as envisioned. Workers may likewise detest the move, which may raise
hostility and uneasiness. After considering all benefits and drawbacks of acquisition we can say
Akij should follow acquisition for acquiring RRM.

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 Question & Answer

2. Forecast the exchange rate between BDT and MYR by using forecasting
techniques?

From historical data, we have found that in 20th December 2014, the exchange rate was 1
BDT=0.046 MYR. The exchange rate between BDT and MYR in 2015 is given 1 BDT= 0.05
MYR. So, the percentage change in the value of MYR is, (.05-0.046)/0.046 = 8.7% which means
that MYR is expected to appreciate by 8.7% for upcoming years. Now we would use this
forecast to calculate the future exchange rates between BDT and MYR.

As a hedger, Akij is not supposed to invest in Malaysia when the forward rate is lower than
current spot rate. Let’s assume that this time Akij is considering the project from a speculator’s
perspective when the forward rate of MYR is 1 MYR = 18 BDT due to unexpected government
control and the given spot rate of MYR is 1 MYR= 20 BDT. This rate of spot rate and forward
rate in the market between MYR and BDT gives us a value of E (e) = p= (F/S)-1 = (17.75/20)-1
= -0.1125 or 11.25% depreciation for MYR. The forecasted exchange rate between MYR and
BDT based on this 11.25% depreciation forecast of MYR is given below on the table.

Again, in 2015, the interest of Bangladesh and Malaysia was 5.513% and 3.307% respectively.
So five years compounded interest rate of BDT would be (1.05513) ^5 – 1 = 30.78%. And the
five year compounded return on MYR would be (1.03307) ^5 -1 = 17.67%. So the five years
forward premium or discounting of MYR would be (1+0.3078)/ (1+0.1767) -1 = 0.1114=
11.14%. That means MYR is expected to appreciate by 11.14% for the next five years.

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 Question & Answer

3. Calculate the Weighted Average Cost of Capital (WACC):

We need to determine the Weighted Average Cost of Capital (WACC) for Akij to calculate the
Net Present Value of the project Akij is planning to execute. We can’t determine the NPV of the
project by only cost of debt Kd or cost of equity Ke. Because, the capital structure of Akij is
given, debt 40% and equity 60%. So we must determine the NPV using WACC which includes
both cost of debt and cost of equity. Other given information’s are cost of borrowing for Akij is
10%, the risk free rate of Bangladesh is 7%, beta of Akij is 1.5 and the market return is 12%.
Akij is subjected to 35% tax bracket. From this given data we first calculate the cost of equity
(Ke) by using CAPM equation which is Ke= Rf + B (Rm-Rf). So the cost of equity for Akij is
Ke= 7%+1.5(12%-7%) = 14.50%. Now we calculate the WACC for Akij. We know Kc=
(D/D+E) Kd (1-t)+(E/D+E) Ke. According to these given information’s the WACC for Akij is
WACC= 0.4x0.1x (1-0.35) + 0.6x0.145= 0.113= 11.3%.

ANSWER:

Here,

IR = 10% Tax (t) = 35%

Rf = 7% Debt = 40%

Beta = 1.5 Equity = 60%

Rm = 12%

Cost of Debt

Kd = y (1-t)

= 10% (1-.35)

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= 0.065 or 6.5%

Cost of Equity

Ke = Rf + B (Rm - Rf)

= 7% + 1.5 (.12-.07)

= 0.145 or 14.5%

Weighted Average Cost of Capital = (D/D+E) Kd + (E/D+E) Ke

= (.40*6.5) + (.60*14.5)
= 2.6 + 8.7

= 11.3%

The weighted average cost of capital (WACC) is 11.3%

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 Question & Answer

4. Calculate Net Present Value (NPV):

To calculate NPV we first have to convert the after tax cash flows of the project with respect to
the forecasted yearly future exchange rates. The value we get from this process is the amount of
cash flows to the parent company. Then we calculate the NPV for yearly cash flows using the
WACC as the discount rate which we calculated earlier as 11.3%. When the MYR is expected to
appreciate by 8.7% we get a cumulative NPV of BDT 1,599,376,725. When the MYR is
expected to depreciate by 11.25% we get a cumulative cash flow of BDT ……….. When the
MYR is expected to appreciate by 11.14% we get a cumulative NPV of BDT ……...

a. Calculate Net Present Value (NPV): Exchange rate MYR appreciates by 8.7%
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Initial 85,000,000
Investme
nt
After Tax 5,842,919 5,842,919 5,842,919 5,842,919 5,842,919
Profit
Salvage 80,000,000
Value
Net Cash 5,842,919 5,842,919 5,842,919 5,842,919 74,157,081
Flow
Exchange 20 BDT 21.74 23.63 25.69 27.92 30.35
Rate
Convert 1,700,000,0 127,025,05 138,068,17 150,104,58 163,134,29 177,332,59
to BDT 00 9.1 6 9.1 8.5 1.7
PV at 113,415231 110,067,10 106,841,48 103,674,79 100,623,27
12% .3 4.6 1.6 5.9 4.9
Cumulati 1,586,584,7 1,589,932,8 1,593,158,5 1,596,325,2 1,599,376,7
ve NPV 69 95 18 04 25

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 b. Calculate Net Present Value (NPV): Exchange rate MYR appreciates by
11.25%

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Initial 85,000,000
Investme
nt
After Tax 5,842,919 5,842,919 5,842,919 5,842,919 5,842,919
Profit
Salvage 80,000,000
Value
Net Cash 5,842,919 5,842,919 5,842,919 5,842,919 74,157,081
Flow
Exchange 20 BDT 21.74 23.63 25.69 27.92 30.35
Rate
Convert 1,700,000,0 127,025,05 138,068,17 150,104,58 163,134,29 177,332,59
to BDT 00 9.1 6 9.1 8.5 1.7
PV at 113,415231 110,067,10 106,841,48 103,674,79 100,623,27
12% .3 4.6 1.6 5.9 4.9
Cumulati 1,58658476 158993289 1,593,158,5 1,596,325,2 1,599,376,7
ve NPV 9 5 18 04 25

c. Calculate Net Present Value (NPV): Exchange rate MYR Depreciate by 11.25
%

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Initial 85,000,000
Investme
nt
After Tax 5,842,919 5,842,919 5,842,919 5,842,919 5,842,919

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Profit
Salvage 80,000,000
Value
Net Cash 5,842,919 5,842,919 5,842,919 5,842,919 74,157,081
Flow
Exchange 20 BDT 21.74 23.63 25.69 27.92 30.35
Rate
Convert 1,700,000,0 127,025,05 138,068,17 150,104,58 163,134,29 177,332,59
to BDT 00 9.1 6 9.1 8.5 1.7
PV at 113,415231 110,067,10 106,841,48 103,674,79 100,623,27
12% .3 4.6 1.6 5.9 4.9
Cumulati 1,586,584,7 1,589,932,8 1,593,158,5 1,596,325,2 1,599,376,7
ve NPV 69 95 18 04 25

Question & Answer

5. Decide whether Akij should go for acquiring RRM:

Akij should acquire RRM because in fifth year we can see that NPV is positive which is
527,306,086.4 A positive net present value indicates that the projected earnings generated by a
project or investment - in present dollars - exceeds the anticipated costs, also in present dollars. It

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is assumed that an investment with a positive NPV will be profitable, and an investment with a
negative NPV will result in a net loss.

Akij should execute the project and acquire RRM. Because when the MYR is expected to
appreciate by 8.7% we get a positive cumulative NPV from the project. Also when MYR is
expected to appreciate by 11.14% the project provides a positive NPV. We usually reject projects
of foreign investments when we expect foreign currencies to depreciate against our local
currency. But the project also generates a positive NPV when we are forecasting the MYR to
depreciate by 11.25% every year. So this forecast also supports the project to be accepted by
Akij. Because this indicates that if the market faces an adverse movement and the value of the
MYR falls, Akij will still generate a positive NPV from the project at least up to 11.25%
depreciation of MYR in coming years.

Conclusion

Akij is one of the leading company in Bangladesh. The service they providing their customer is
very good. In our report, firstly we determined the method through which Akij should be
acquiring RRM, and that is Acquisition method. Then we focused on forecasting the exchange
rate between BDT & MYR by using forecasting techniques. Afterwards, we determined
Weighted Average Cost of Capital (WACC) which is 11.3% & Net Present Value (NPV) of five

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years. Finally, based on the outcomes of NPV calculation, we decided if Akij should go for
Acquiring RRM or not.

References

https://www.akij.net/

https://dsebd.org/

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Table-1: Forecasting Future Exchange rates

.0087 -.1125 .1114

2015 20 20 20
2016 21.74 17.75 22.23
2017 23.63 15.75 24.71
2018 25.69 13.98 27.46
2019 27.92 12.41 30.52
2020 30.35 11.01 33.92

Year Exchange rate MYR Exchange rate MYR Exchange rate MYR
appreciates by 8.7% appreciates by 11.14 % Depreciate by 11.25
%
2016 1 MYR= 21.74 BDT 1 MYR= 22.23 BDT 1 MYR= 17.75 BDT
2017 1 MYR= 23.63 BDT 1 MYR= 24.71 BDT 1 MYR= 15.75 BDT
2018 1 MYR= 25.69 BDT 1 MYR= 27.46 BDT 1 MYR= 13.98 BDT
2019 1 MYR= 27.92 BDT 1 MYR= 30.52 BDT 1 MYR= 12.41 BDT
2020 1 MYR= 30.35 BDT 1 MYR= 33.92 BDT 1 MYR= 11.01 BDT

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