Question 2 d At the end of the year 2004, BAIT Bhd had free cash flow to equity (FCFE) of RM250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE: 0 Growth Rate Year 2005 10% 0 2006 1596 2007 20% 2009 25% 2009 25% 2010 15% 2011 10% 0 2012 7% From year 2013 onward, growth in FCFE is expected to remain constant at 5 percent per year. The stock has a beta of 1.3 and the current market price is RMSS. Currently the yield on 10-year Treasury notes is 5 percent and the equity risk premium is 4 percent s 0 0 Calculate: L the required rate of return on equity. (2 marks) the present value now (Year 2004) of FCFE during the period of increasing growth (that is for years 2005 to 2008). (10 marks) the present value now (Year 2004) of FCFE during the period of declining growth (that is for years 2009 to 2012). (2 marks) iv. the present value now (Year 2004) of FCFE during the period of constant growth (that is for years 2013 onwards). (3 marks) v. the intrinsic value of the stock now (Year 2004). (3 marks) 0 b. The common stock of WON Bhd is currently selling for RM40 a share. A dividend of RM2.00 per share was just paid. You are estimating that this dividend will grow at a constant rate of 10 percent. 0 L.. Using the constant growth dividend valuation model, calculate the required rate of return if RM40 is assumed to be a reasonable trading price. (3 marks) II. If WON Bhd is a new company that produces a relatively unknown product, is the 0 constant growth model a good valuation method for a potential investor to use? Justify your answer. (2 marks) 0 TOTAL 25 MARKS 4/13 0 0 n