Corporate finance, restructuring and the investment environment

Section 8 of Module 12 (up to 25% of the paper) is the widest: the Malaysian capital market and its regulators, strategic management and shareholder value, EVA and MVA, financing decisions and capital structure theory, corporate restructuring and M&A, and structured products. Most items are conceptual, with short EVA, WACC, MM and synergy calculations.

3 min read4 sections

Checked against SIDC Module 12 Study Outline (Jul–Dec 2026) Topics 1, 3, 4, 8, 16 and 17; Brealey, Myers and Allen, Principles of Corporate Finance; Companies Act 2016 ss.366-368; Securities Commission Malaysia Act 1993; Malaysian Code on Take-overs and Mergers 2016. Calculations verified in Python. As at October 2026. Independent prep, not endorsed by SIDC or the SC.

Must-know for the exam

EVA = NOPAT − WACC × invested capital = (ROIC − WACC) × capital.
MVA = market value of debt and equity − capital invested.
WACC = E/V × ke + D/V × kd × (1 − t).
MM (no tax): value is independent of capital structure; ke = ku + (ku − kd) × D/E.
MM with corporate tax: VL = VU + t × D (value of the interest tax shield).
Trade-off theory: tax shields versus distress costs give a target debt ratio; pecking order: internal funds, then debt, then equity.
Acquirer's gain = synergy − premium paid; EPS bootstrapping is not value creation.
Schemes of arrangement under the Companies Act 2016 need the required majority and court sanction, then bind the whole class.
The SC regulates and develops the capital market; Bursa Malaysia is the front-line regulator of its market.
Capital-protected structured product = zero-coupon bond + option; protection depends on the issuer and holding to maturity.

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Traps that cost marks

Forgetting the capital charge, or adjusting an after-tax WACC for tax again.
Reporting market value instead of the excess over capital.
Thinking EVA is a market measure.
Leaving out the tax shield on debt.
Mixing the no-tax and with-tax versions of MM.
Adding the debt rather than the tax shield on it.
Assuming the cost of equity is unchanged by gearing.
Confusing the pecking order with the trade-off theory.

Value creation: EVA and MVA

A strategy creates value only if returns on the capital it uses exceed the cost of that capital. EVA measures one period's economic profit after a charge on all capital; MVA is the market's verdict on value created to date (in effect the present value of expected future EVA).

Examples: NOPAT RM120m, capital RM1,000m, WACC 9% gives EVA RM30m; ROIC 11% against a 9% WACC on RM600m gives RM12m.

Trap: reporting NOPAT or the capital charge as EVA, or treating revenue or profit growth as value creation.

Takeaway: value = return above the cost of capital, on all the capital.

Financing decisions

View	Claim
MM 1958 (no tax)	Capital structure irrelevant; ke rises with gearing
MM 1963 (tax)	Debt adds t × D in tax-shield value
Trade-off	Optimal ratio balances tax shields and distress costs
Pecking order	Retained earnings, then debt, equity last
Stakeholder	Weigh all affected groups, not only shareholders

Gearing magnifies EPS swings: degree of financial leverage = EBIT ÷ (EBIT − interest). Distress costs include bankruptcy costs, lost customers and under-investment.

Trap: applying the tax version of MM to a no-tax question, or listing the interest tax shield as a distress cost.

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