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Question 2 (30 marks) Chan Kee Industries is a listed company producing solar panel for the South East Asia and South Asia markets. It is planning to expand the existing business and grows through acquisition. The finance director has identified a takeover target Lam Kee Co. Lam Kee's most recent partial Balance Sheet revealed the following capital structure: Bonds (8% coupon, mature in 4 years) Preferred Stock (9%, $100 face value) Common Stock ($2 par value) Retained Earnings A A A A 100m 20m 80m 50m Additional information: 1. The bond has a par value of $1,000 and presently sells at $1,140. 2. The preferred stock consists of 200,000 shares presently sells at $93.50. 3. Lam Kee's recent earnings per share was $1.20 and the dividend payout ratio was 50 per cent. Lam Kee is expected to maintain a growth rate of earnings and dividends at 7% to 9%. 4. The yield on a 20-year Treasury bond is 5% and the expected return on the stock market is 13%. 5. A financial analyst provides an estimate of the company's common stock beta to be around 1.4. 6. The estimated free cash flow of Lam Kee for the coming year will be around $52 million and is expected to grow at 2% to 3% and the WACC for Lam Kee will be around 13%. 7. The P/E ratios of listed companies in the same business as Lam Kee has a range from 6 to 7.5 times. Required: a. Produce a range of share price using different methods of valuation for Lam Kee. (24 marks) b. What is the meaning of a stock market being semi-strong efficient? Discuss the significance to a listed company when the stock market is semi-strong efficient. (6 marks)

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