Master of Finance (Specialized) Exam Question No. 431: 'Corporate Valuation and Capital Structure Calculations'

3) Suppose the company raises RMB 40 million through borrowing, repaying only interest annually while maintaining a constant loan balance of RMB 40 million. With a corporate income tax rate of 40%, calculate the stock price after investing in this project. 4) Under leverage, due to increased cost of sales and financial distress costs, annual cash flows decline to RMB 12 million, while the discount rate remains at 15%. Calculate the stock price. (Intensified Sprint Review, p. 147) III. Capital Structure Adjustment 1. Company X is evaluating how to adjust its capital structure. Currently, it has 40 million shares outstanding, trading at RMB 20 per share. Its market-value debt-to-equity ratio is 0.25; its equity beta (β) is 1.2; its debt is rated AAA, with a market interest rate approximately equal to the current risk-free rate of 8%; the market risk premium is 5%; and its corporate tax rate is 25%. (Unless otherwise specified, assume all other factors remain unchanged, and all debt is perpetual.) (1) Calculate the company’s current weighted average cost of capital (WACC). (2) The company plans to issue RMB 200 million in new debt during the current stock market downturn to repurchase shares. If the share repurchase plan is executed, what will the stock price become? (3) (Continuing from part 2) However, increased leverage will directly downgrade the company’s credit rating to AA, raising the market interest rate to 9%. If the company implements this plan, what will its WACC become? (4) The company may alternatively increase its financial leverage via other means. According to its existing development plan, next year’s capital investment requirement is RMB 200 million, and the planned dividend yield (i.e., dividend payout ratio) for next year is 10%. If the company fully funds next year’s capital expenditure by issuing new debt, what will be the expected stock price and debt-to-equity ratio at the end of next year? (Dividends have been distributed before year-end.) (Intensified Sprint Review, p. 216) 2. Listed company W is a leading enterprise in the steel industry. Due to sector-wide cyclical weakness, W performed poorly in 2015 and now faces mounting debt and difficulty servicing maturing principal and interest obligations. It is exploring a debt-to-equity swap scheme. Currently, W has 5 billion shares outstanding, trading at RMB 5 per share; its market-value debt-to-equity ratio is 3; its equity beta (βₛ) is 1.7; its debt is rated AA, with a debt beta (βb) of 0.4; the risk-free rate is 2%; the market risk premium is 10%; and its corporate tax rate is 25%. (1) Calculate the company’s current WACC. (2) Calculate the company’s unlevered beta (βᵤ). (3) Assume the company converts one-third of its debt into common equity at the current stock price. What will the post-conversion share value be? (4) Assume the company converts one-third of its debt into common equity. What will the post-conversion share value be? (5) (Continuing from part 3) As the debt-to-equity swap significantly reduces financial leverage, the company’s credit rating improves to AAA, and its debt beta (βb) declines to 0.3. Calculate the company’s enterprise value and WACC under this scenario. (Intensified Sprint Review – Supplement, p. 30)

For Hong Kong-listed companies, is secondary equity financing (i.e., post-IPO fundraising) bullish or bearish for the secondary market?

Last week, I published an article titled 'In Hong Kong, IPO Listing Is Only the Starting Point—Ongoing Post-IPO Fundraising Matters More', which introduced six common methods of secondary fundraising. Some readers asked whether such fundraising activities are bullish or bearish for the secondary market. Today, I’ll elaborate further. What is secondary fundraising for Hong Kong-listed companies? Beyond initial public offerings (IPOs), subsequent equity financing is also a common method for raising capital in the Hong Kong market. When listed companies require additional funds—for example, to strengthen their capital base, expand operations, pursue mergers and acquisitions, or repay debt—yet wish to avoid increasing debt, they often consider issuing additional shares. Overall, regulatory approval procedures for secondary fundraising in the Hong Kong market are relatively relaxed. Typically, as long as the company complies with the Hong Kong Exchanges and Clearing (HKEX) Listing Rules, investors endorse the fundraising purpose, and are willing to invest, the fundraising can proceed smoothly. Over the past five years, placements have accounted for approximately 70% of total post-IPO fundraising volume among Hong Kong-listed companies, making placements the predominant form of secondary fundraising. After a Hong Kong-listed company announces a placement, its share price typically falls. The main reasons are: 1. Placement offers are commonly priced at a discount to attract third-party investors. Without lock-up periods, such discounted placements may trigger selling pressure. 2. Equity dilution resulting from share issuance. However, there is no need for excessive concern—there are numerous cases where share prices surged significantly following placements. Placements are merely a fundraising tool—not inherently bearish. Several factors help assess their impact on share price: First, examine the specific use of proceeds. If the company operates in a sector with strong growth prospects—and the funds will support business expansion, increase market share, or boost R&D investment—this is generally bullish. Conversely, if the company raises funds for projects with uncertain prospects or excessively long timelines, investor skepticism may drive the share price down. Second, evaluate the strength and reputation of the placing subscribers. If well-known investment institutions, funds, or prominent individuals participate as subscribers, it signals market confidence in the company’s prospects—thus acting as a bullish catalyst. Such institutions and high-profile investors possess deep expertise in capital markets and superior insight into the company’s true financial health and industry outlook. Their participation often triggers follow-on buying by other investors—for instance, the market meme 'Gao Ling enters → stock jumps 20cm' reflects this dynamic. Third, consider the placement price. The placement price primarily reflects market perception of the company’s business prospects and valuation. A narrow discount—or even a premium—on the placement price indicates strong market confidence and willingness to pay a higher price, signaling positive sentiment.

H.B. Fuller (FUL) Could Be 24% Below Fair Value On Credit Refinancing

Jul 21, 2026

H.B. Fuller refinanced its credit agreement to extend maturities and secure lower interest margins, yet shares trade significantly below fair value estimates. Analysts highlight revenue growth potential despite risks from solar segment weakness and high net debt ratios.

Simply Wall Street

H.B. Fuller (FUL) Could Be 24% Below Fair Value On Credit Refinancing

Sahm

H.B. Fuller (FUL) Stock Estimated 24% Below Fair Value After Credit Refinancing

Simply Wall Street

2026-07-09

H.B. Fuller Stock Outlook Hinges on Margins, Mix and M&A

2026-07-09

FUL Stock Is Riding Medical, Aerospace and Pricing Trends

2026-07-10

H. B. Fuller (FUL) Identified as Attractive Value Investment