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COURSE CODE FIN 3011

COURSE TITLE FINANCIAL MANAGEMENT II

SECTION 3

SEMESTER 2, 2018/2019

COMPANY REPORT ON COST OF CAPITAL

LECTURER’S NAME SIR ASRUL DAHARI

NAME MOHD ZABER AMIN BIN YATAU (1714451)

DATE OF SUBMISSION 26th MARCH 2019

1.0 BACKGROUND SymLife - 1538 Bolton Bhd, one of Malaysia's oldest property developers, was established in 1964 as Bolton Properties Ltd. Listed on the Kuala Lumpur Stock Exchange (now Bursa Malaysia Securities Bhd) in the 1970s, the developer's first township development was Taman Midah in Cheras, Kuala Lumpur. The subsequent years saw the company diversify into food franchising and retailing, quarrying and liquid bulk terminal operations. Other businesses Bolton has ventured into include financial services, equipment trading, hotels and cement manufacturing. SYMPHONY LIFE BERHAD (formerly known as Bolton Berhad) is a property developer in Malaysia. The company’s core business activities are categorised into four key segments, Property Development segment comprises property development, property management and maintenance and property marketing consultancy; Property Investment segment is involved in the property investment and property management and maintenance; Construction and Quarry Operations segment comprises construction works and quarry operations; and Other Operations comprise other investments and investment holdings. The company predominantly carries out its operations in Malaysia. SYMPHONY LIFE BERHAD is one of the oldest and most established property developers in Malaysia. SYMPHONY LIFE began its humble beginnings as a property developer, then known as Bolton Properties Limited, on 15 July 1964.

2.0 CONTENTS Fraser and Neave Holdings Bhd performance in the last four quarters: Quarter Quarter date Financial year EPS (sen) 3 31-12-2018 31-03-2019 5.24 2 30-09-2018 31-03-2019 5.76 1 30-06-2018 31-03-2019 5.46 4 31-03-2018 31-03-2018 1.35 Annualised EPS = 5.24 x 4 = 20.96 sen Price earnings ratio = Market price as at 31-12-2018 / EPS = RM 0.330M/ RM 0.0524 = 6.298 Capital structure weights: Book value (RM) Market value (RM) Book value (%) 1 560,117,000 560,117,000 Debt 64.37 Equity2 310,000,000 1,000,000,000 35.63 1, 560,117,000 870,117,000 100

1 Note 1 2 Note 2

DPS (sen) 0.00 0.00 0.00 0.00

Market value (%) 35.90 64.10 100

Cost of capital components: Cost of debt3 = 0.6437 (5.80%) + 0.3590(5.25%) = 5.62% Cost of debt (after-tax)4 = 5.62% (1 – 0.0643) = 4.26% Cost of equity5 = 0.035 + [1.47(0.08-0.035)] = 0.1012 = 10.12%

WACC (BV) = 4.74% (0.6437) + 10.12% (0.3563) = 6.66% WACC (MV) = 4.74% (0.3590) + 10.12% (0.6410) = 8.19% In evaluating investment, the company should accept a project which has a return higher than the WACC. If an investment is evaluated using the book value, an investment should be accepted if the return is more than 6.66% and should be rejected if it is less than 6.66%. WACC under market value reflects the current market price therefore is more relevant to the decision making process. If an investment is evaluated using the market value, an investment should be accepted if the return is higher than 8.19% and should not be taken if it is less than 8.19%.

Note 1: Debt Total debt = Short term loans + Long term loans = RM 101,245,000 + RM 458,872,000 = RM 560,117,000 Book value = RM 560,117,000/ RM 870,117,000 = 0.6437 Market value = RM 560,117,000/ RM 1,560,117,000 = 0.3590 Note 2: Equity Book value = RM 310,000,000/ RM 870,117,000 = 0.356 Market value = RM1,000,000,000/ 1,560,117,000 = 0.644

Note 3: Cost of debt 3 Note 3

4 Tax rate is 6.43% (From https://klse.i3investor.com/financial/YoY/quarter/1538/31-Dec2018_567629403.jsp) 5Note M : https://www.malaysiastock.biz/Stock-Chart.aspx?securitycode=1538&mode=D

Short term loans =RM 101,245,000 / RM 560,117,000 = 0.1808 Long term loans = RM 458,872,000/ RM 560,117,000 = 0.8192...