4. Sudar Products Bhd has been operating its business successfully for nearly 30 years. It is a Malaysian listed company which manufactures, markets and distributes a large range of toys and computer...

(a) Calculate the expected cost of investment and the standard deviation

Extracted text: 4. Sudar Products Bhd has been operating its business successfully for nearly 30 years. It is a Malaysian listed company which manufactures, markets and distributes a large range of toys and computer games for children. The company generates its revenue from both toys and computer games division. The toys division specialises in the production of different types of toys and operates from its own factories located in the northern and southern region of Malaysia. The computer games division has its office in the central region. The company's budget committee is reviewing its capital budget for the upcoming year. All the investments were evaluated and selected on the criteria that these investments will contribute positive net present value and enhanced earnings of the company for the upcoming year. The fund requirements for all of its investments was prepared based upon the forecast cost of the investments and the associated probabilities. The budget committee developed probabilities' estimates using a computer model which simulates a number of possible future inflation scenarios. The computer model has been built with the aid of a firm of financial consultants. Economic condition Probabilities Cost of investment RM’000 High inflation 0.4 30,000 Moderate inflation 0.5 28,000 Low inflation 0.1 24,000


Extracted text: The ordinary share of Sudar Products Bhd has an ex dividend market value of RM6.20 per share. An ordinary dividend of 28 sen per share for 2014 has just been paid. The pattern of recent dividends is as follows: Year 2010 2011 2012 2013 Dividends per share (sen) 22 23 25 20 The company's next year's dividend follows the past dividend trend. It has 30 million shares outstanding. Sudar Products Bhd also has in issue 6.5% bonds redeemable in six years' time with a total nominal value of RM15 million. The market value of each RM100 bond is RM102.50. Redemption will be at nominal value. Sudar Products Bhd's forecasted net income is RM31 million. The company's target capital structure will be maintained at current level. REQUIRED: a) Calculate the expected cost of investment and the standard deviation.