(b) On 1 January 2020, Waja Bhd has a net cash flow to equity of RM1 million. The company expects the net cash flow to increase by 5% each year for the next 4 years.

Thereafter, the net cash flows are expected to remain constant at RM1.5 million per year. The required rate of return for the company is 10%.

Required:

(i) Calculate the business value of Waja Bhd. (6 Marks)

(ii) Assume on that date, Waja Bhd is trading at RM1.90 per share and there are 5 million ordinary shares outstanding. What would be your advice to potential investors. (3 Marks)

(iii) Discuss two advantages and two limitations of using discounted cash flow model for share valuation. (4 Marks)