Question 1:

As a financial analyst, you are required to value a company which has expected earnings before interest and taxes (EBIT)of RM26 million every year beginning in one year. The depreciation is expected to be equal to capital spending and there will be no required investments in working capital. The shares outstanding for the firm is 10 million shares. The company uses 50% debt financing and has a debt cost of capital of 6%, a beta of 0.8 and a tax rate of 50%. The risk-free rate is 6% and the market risk premium is 5%.

a) Calculate the value per share using the WACC method.

b) Calculate the value per share using Adjusted present value method (APV).

c) Calculate the value per share using the flow to equity method (FTE)