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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 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: 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 BFN2244 FINANCIAL STATEMENT ANALYSIS 17 February 2021 Comparable Firms Operating Cash Flow (OCF) in current year RM400 million RM300 million Total Market Value of Equity RM5000 million RM4200 million National Telecom Bhd TT Bhd Comparable Firms Operating Cash Flow (OCF) in current year RM400 million RM300 million National Telecom Bhd TT Bhd 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) b) You are given the following information for ABB Company. As of year 1, the company's book value is RM80,000 and its cost of capital is 15%. Year 1 Year 2 Year 3 Year 4 Year 5 Sales RM135,000 RM130,000 RM130,000 RM120,000 RM160,329 Operating expenses 100,000 90,000 85,000 70,000 119,900 Depreciation 10,000 11,300 12,770 14,430 14,430 Net income 25,000 28,700 32,230 35,570 25,998 Dividends 8,000 4,355 3,120 12,700 10,820 Expected Book value 80,000 ROCE 0.313 0.296 0.266 0.236 0.150 Dividends for year 6 and beyond are expected to remain at year 5 level. a) Compute Company's abnormal earnings for year 1 to year 5 (5 marks) b) Use an accounting based valuation model to estimate the value of Company's equity on January 1st of year 1, year 2, year 3, year 4 and year 5 (5 marks) (Total: 25 marks) 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 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: 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 BFN2244 FINANCIAL STATEMENT ANALYSIS 17 February 2021 Comparable Firms Operating Cash Flow (OCF) in current year RM400 million RM300 million Total Market Value of Equity RM5000 million RM4200 million National Telecom Bhd TT Bhd Comparable Firms Operating Cash Flow (OCF) in current year RM400 million RM300 million National Telecom Bhd TT Bhd 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) b) You are given the following information for ABB Company. As of year 1, the company's book value is RM80,000 and its cost of capital is 15%. Year 1 Year 2 Year 3 Year 4 Year 5 Sales RM135,000 RM130,000 RM130,000 RM120,000 RM160,329 Operating expenses 100,000 90,000 85,000 70,000 119,900 Depreciation 10,000 11,300 12,770 14,430 14,430 Net income 25,000 28,700 32,230 35,570 25,998 Dividends 8,000 4,355 3,120 12,700 10,820 Expected Book value 80,000 ROCE 0.313 0.296 0.266 0.236 0.150 Dividends for year 6 and beyond are expected to remain at year 5 level. a) Compute Company's abnormal earnings for year 1 to year 5 (5 marks) b) Use an accounting based valuation model to estimate the value of Company's equity on January 1st of year 1, year 2, year 3, year 4 and year 5 (5 marks) (Total: 25 marks)

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