The a2 Milk Company Limited [30 marks] Source 1: The a2 Milk Company Limited Annual Report 2019 https://thea2milkcompany.com/wp-content/uploads/The-a2-Milk-Company_FY19-AnnualReport_

double-pages-1.pdf Source 2: The a2 Milk Company Limited (A2M.AX) Yahoo Finance https://au.finance.yahoo.com/quote/A2M.AX/

a) Consider the 2019 Annual Report of The a2 Milk Company Limited (A2M). Briefly explain how the "A2M" governance is organized. Do you notice any strategies in place to align manager and shareholder interests based on the Annual Report? Provide one brief example. [5 marks]

b) What is the Net Working Capital for "A2M" both in 2018 and 2019. What type of current asset management strategy is the company pursuing? Explain why and what are the pros and cons of this strategy. [4 marks]

c) Consider "A2M" 2019 Annual Report. Identify three of the major risks discussed. Are these risks systematic or unsystematic? Why? [3 marks]

d) You are trying to value "A2M" share today (End of June 2019). Assume the current price of the share in the stock market is $17.15 and that you would like to hold the investment for 4 years. Assume that "A2M" will pay its first dividend ($0.5 AUD) one year from now. The total dividend will be paid as a lump sum (at once). After this you also estimate that the dividends will grow respectively at 30%, 25% per year. After that (starting in time 3) you estimate dividends will grow at a constant rate of 5% forever. Assume that today the Australian treasury notes is 1.5%, the market risk premium is 10% and the beta of "A2M" is 0.8. Based on this price would you purchase the share? Why or why not? [10 marks]

e) "A2M" wants to reduce its weighted average cost of capital by replacing some of its equity with long-term debt. Assume that "A2M" would like to raise $200 million with a new issuing of bonds. Assume that the issue will have a coupon rate of 3% with a 5 year maturity. Assume this are semi-annual coupon bonds and each have a face value of $1.000 and the required rates of return for similar bonds in the market is 4%. What would be the issuing price of these bonds? How many bonds does the company have to sell in order to achieve its target? [8 marks]