QUESTION 3 a) Supercom Bhd. is one of the three firms in the telecommunication industry. The other two are National Telecom Bhd and TT Bhd. A corporate analyst has collected the following data for Supercom Bhd. for the current year: Earnings Before Interest and Taxes Corporate Taxes Depreciation Expense Deferred Taxes Capital expenditure Working Capital Investment Assets Acquisition Net of Asset Sold Cost of Capital Number of Shares Outstanding RM 550 million 110 million 60 million 25 million 160 million 95 million 10 million 8% 80 million i) Calculate the total Free Cash Flow (FCF) to the firm for Supercom Bhd for the current year. (5 marks) Suppose Bhd the FCF is expected to grow at 5% per year for the next two years. However, the growth rate after that is expected to be very uncertain and the analyst decided to use the terminal value' approach in estimating the cash flows beyond second year. Specifically, he decided to estimate the terminal value of the firm by using the 'Cash Flow Multiple method based on the two comparable firms in the industry stated below: Notes: 1. Operating Cash Flow for Supercom Bhd at the end of year two is expected to be RM750 millions. 2. Total Debt for Supercom Bhd. is constant at RM2400 million Continued... TBH 5/11 Comparable Firms National Telecom Bhd TT Bhd Operating Cash Flow (OCF) in current year RM400 million RM300 million Total Market Value of Equity RM5000 million RM4200 million i) Calculate the Terminal Value in year 2 for Supercom. (5 marks) ii) Using 2-stage FCF approach, estimate a fair corporate value for Supercom Bhd and its stock value per share. (5 marks) QUESTION 3 a) Supercom Bhd. is one of the three firms in the telecommunication industry. The other two are National Telecom Bhd and TT Bhd. A corporate analyst has collected the following data for Supercom Bhd. for the current year: Earnings Before Interest and Taxes Corporate Taxes Depreciation Expense Deferred Taxes Capital expenditure Working Capital Investment Assets Acquisition Net of Asset Sold Cost of Capital Number of Shares Outstanding RM 550 million 110 million 60 million 25 million 160 million 95 million 10 million 8% 80 million i) Calculate the total Free Cash Flow (FCF) to the firm for Supercom Bhd for the current year. (5 marks) Suppose Bhd the FCF is expected to grow at 5% per year for the next two years. However, the growth rate after that is expected to be very uncertain and the analyst decided to use the terminal value' approach in estimating the cash flows beyond second year. Specifically, he decided to estimate the terminal value of the firm by using the 'Cash Flow Multiple method based on the two comparable firms in the industry stated below: Notes: 1. Operating Cash Flow for Supercom Bhd at the end of year two is expected to be RM750 millions. 2. Total Debt for Supercom Bhd. is constant at RM2400 million Continued... TBH 5/11 Comparable Firms National Telecom Bhd TT Bhd Operating Cash Flow (OCF) in current year RM400 million RM300 million Total Market Value of Equity RM5000 million RM4200 million i) Calculate the Terminal Value in year 2 for Supercom. (5 marks) ii) Using 2-stage FCF approach, estimate a fair corporate value for Supercom Bhd and its stock value per share
