Address the following questions appropriately explaining your answers in detail.

17 Company financial statements contain many figures that are really matters of opinion rather than fact. The figures for tangible fixed assets are subject to a variety of estimates and assumptions. Explain the role of estimates and assumptions in arriving at the figures for tangible fixed assets in company balance sheets. [5] 18 One of the biggest problems arising from the preparation of consolidated financial statements is the identification of subsidiaries and associates. Explain how holding companies identify subsidiaries and associates. [5]1. Consider the following constrained two-period optimization problem: max u(C1, C2) = - exp(-791) - Bexp(-yc2) (1) subject to: ci + R 02 5 I (2) where y > 0 is the coefficient of absolute risk aversion (CARA), BE (0, 1) is the discount factor, (c1, c2) is the optimal bundle of consumption in periods 1 and 2, I is the given total income during the two periods, R is the gross interest rate. (a) Set up the Lagrangian function for the above optimization problem, and derive the first order conditions.(i) Calculate the present value of a continuously payable annuity that is initially paid at a rate of $200 pa but decreases linearly to $100 pa after 10 years, assuming a force of interest of 6() =0.2-0.01, where r is the time from Commencement (measured in years). [5] (ii) Calculate the accumulated value of the annuity after 10 years at the same force of interest. (2] [Total 7]