Section C (32 marks)

Attempt all questions in this Section.

Question

There are a number of cafs serving only coffee in Malaysia. Among the popular one is Aman Coffee, and its headquarters is located in Cyberjaya, Selangor. Aman Coffee Berhad is the best known supplier of coffee in Malaysia. Currently it has a total of 200 outlets in Malaysia.

During the first quarter of 2021, its stock traded in the range of RM5.00 RM6.00 per share. At the end of its 2020 fiscal year (31 December 2020), Aman Coffee had 130 million common shares outstanding, debt with a market value of about RM200 million, and had not issued any preferred stock. In fiscal year-2020, its free cash flow was about RM23.3 million. It revenues and operating profits grew at compound annual rates of about 27% and 38% respectively, between fiscal years 2018 2020. Indeed, many customers were patronizing Aman Coffee during that period. The coffee market is growing and, at the same time, competition is getting stiffer. Analyst predicted that Aman Coffee would experience about 25% growth in free cash flow (FCF) from the end of 2021 through 2024, followed by 10% annual growth thereafter as a result of competition and maturation of the market.

You are appointed as a consultant by Aman Coffee Berhad to appraise the companys stock price. You are required to provide answers to the following questions:

1. Determine the free cash flows (FCFs) of the company during the 2021 2024 period.

(5 marks)

2. Determine the present value of the annual free cash flow (FCF) of the company during 2021 2024 period. The weighted average cost of capital (WACC) to be used depends on the last alphabet of your mothers name as shown in the table below.

(6 marks)

3. Using the WACC, determine the horizon value of the firm in 2024. Then, find the present value of the horizon of the firm.

(5 marks)

4. Based on (b) and (c), determine the market value of the firm.

(4 marks)

5. Determine the value of equity.

(3 marks)

6. What is the price of company stock per share? Is the value of the companys stock comparable to the price of the stock currently traded on Bursa Malaysia? Justify.

(4 marks)

7. What is the other approach that can be used for valuation of common stock? Present the equation of this approach to determine the value of a stock. What is the main advantage of using corporate valuation model as compared to this approach?

(4 marks)

Last alphabet of your mothers name	Discount rate %
A D	11
E H	12
I L	13
M P	14
Q U	15
V Z	16

E.g., If your mothers name is Mariam; so the last alphabet is M. You need to select 14% discount rate. (Shirley)