Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – WACC components Cost of equity Cost of debt D/E ratio Tax rate

Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – Cost of Equity Cost of equity components – Beta: 2.60 (From Quamnet.com) – Risk-free rate: 2.96% – Market return: 15.19% Cost of equity calculation – CAPM = Risk free rate + Beta × (Market return – Risk-free rate) – 34.75%

Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – Cost of Equity Risk-free rate: Exchange Fund Notes during 15 years on September, 2008

Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – Cost of Equity Market return: Daily geometric average growth rate of Hang Seng Index of the last 30 years, then obtain effective annual growth rate

Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – Cost of Debt Retrieved directly from Huiyuan’s 2007 annual report 6.49%

Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – Cost of equity = 34.75% – Cost of debt = 6.49% – D/E ratio = 0.33 – Tax rate = 33% (from Huiyuan’s 2007 annual report)

Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – D/E ratio calculation Book value of debt = HKD 2,225,987,000 – Total liabilities from Huiyuan's 2007 consolidated balance sheet Market value of equity = HKD 6,741,866,376 – Share price = HKD 4.59 » Average closing price as quoted on the Stock Exchange for the 60 trading days prior to and including the last trading date – Number of shares = 1,468,816,204 » Stated in Huiyuan’s 2007 annual report

Background Synergy Value Evaluation Equity Value Cost of Capital Calculation – WACC Formula – Cost of Capital = 27.20%

Background Synergy Value Evaluation Equity Value