Answer the following economic questions. Kindly answer all questions.

14 A quoted company's shares have a nominal value of 10.25 per share. The shares have been trading at prices between 10.40 and 10.43 per share for almost two years. The shareholders are concerned that the share price is not growing. The directors wish to raise further equity by means of a rights issue in order to invest in new projects, but informal discussions with shareholders suggest that a rights issue would be unpopular. One of the directors has suggested a scrip issue in order to boost shareholder confidence in the hope that a rights issue would then be more likely to succeed. Set out the advantages and disadvantages of the director's suggestion. [5] 15 A company requires all proposals for investment projects to be supported by a net present value calculation. One of the directors has suggested that proposals should also indicate opportunity costs. Discuss the advantages and disadvantages of the director's suggestion. [5] 16 Discuss the potential advantages and disadvantages of using probability trees for the evaluation of long term projects. [5] 17 Discuss the ways in which the external auditor adds credibility to a company's published financial statements. [5] 18 Discuss the potential risks and benefits associated with having very rapid receivables and inventory turnover ratios. [5]A life insurance company uses the three-state illness-death model as shown below to calculate premiums for a 2-year sickness policy issued to healthy policyholders aged 58. H = healthy S = sick Pr Vx D = dead S, denotes the state occupied by the policyholder at age 58 +, so that So = H (healthy) and S, = H, S or D (healthy, sick or dead) for t = 1, 2. The transition intensities used by the insurer are defined in the following way: P38+1 = P(S, + = k |S, = j), 1 =0, 1 For f = 0, 1, it is assumed that: HH P58+1 = 0.92 HS P58+ = 0.05 SH P58+1 = 0.65 SS P58+1 = 0.25 The policy provides a benefit of $5,000 at the end of each year if the policyholder is then sick, and a benefit of t20,000 at the end of the year of death. Calculate the expected present value of the benefits under this policy, assuming an interest rate of 5% pa. [5]A life insurance company issued 1,000 identical single premium deferred annuity contracts to men aged 40 exact on 1 January 2005. The contract provides an annual pension of f10,000 payable annually in advance from 1 January 2025 and for the whole of life thereafter, or a return of the single premium immediately on death before that date. (i) Calculate the net single premium. Basis: before retirement assume AM92 Ultimate mortality and 4% pa interest; after retirement assume interest and mortality such that aeg = 17. [4] (ii) On 1 January 2010, there were 976 of the original policies still in force; one year later the number in force had reduced to 973. Death was the only cause of exit during the year. Calculate the company's mortality profit from these policies during the year 2010, assuming that the company calculates its reserves on the same basis as the premium basis. [5] [Total 9]