SIDC Module 12 Equity financing, dividend policy and valuation question: year's free cash flow to the firm

SIDC Module 12Equity financing, dividend policy and valuation

Next year's free cash flow to the firm is RM50 million, growing 3% a year forever. The WACC is 9%. The company has RM300 million of debt and 100 million shares. What is the value per share?

A RM2.56
B RM5.33
C RM5.56
D RM8.33

Show the answer and explanation

Answer: B. RM5.33

Enterprise value = FCFF1 ÷ (WACC − g) = 50 ÷ 0.06 = RM833.3 million. Equity value = 833.3 − 300 = RM533.3 million, or RM5.33 a share. RM8.33 forgets to deduct debt (FCFF values the whole firm). RM2.56 ignores growth (50 ÷ 0.09 = 555.6, less 300). RM5.56 ignores both growth and the debt. Source: SIDC Module 12 Study Outline (Jul-Dec 2026) Section 6 Topics 10-12 (Equity Financing, Dividend Policy, Valuation); A. Damodaran, Investment Valuation (as at October 2026).

Common mistake

Treating firm value as equity value without subtracting debt.

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Original study material mapped to the public SIDC Module 12 syllabus. Unofficial, not endorsed by SIDC or the SC. Verify figures and rules against current guidance before relying on them.