. Discuss how executive compensation can be used to reduce agency problems between shareholders and management of a company. 2. Prepare (using a spreadsheet package) an entire duration amortization schedule as follows: Initial amount: Shs 7,000,000/=; rate of interest: 13.5% per annum; period: 12 years payable monthly in arrears. An additional amount of Shs 640,000/= is repaid with the 25th installment, and the monthly installment recomputed to fully pay the loan balance in the initially agreed period. The rate of interest is adjusted to 15% per annum with effect from the end of the fifth year. The monthly repayment is recomputed to fully pay the loan balance in in two years less than had initially been agreed. The borrower enhances his monthly repayments by Shs 24,000/= per month from the end of month 76. The borrower is advanced an additional Shs 1,200,000/= at the end of month 83 and the monthly repayment is recomputed to fully pay the loan balance in one year more than the latest duration adjustment. 3. The Alpha Corporation obtains a bank loan that is disbursed as follows: Shs 32 million, Shs 16 million, Shs 8 million, Shs 4 million and Shs 2 million at the beginning of years one, two, three, four and six respectively. The loan is repaid in four equal annual installments of Shs 8 million beginning at the end of years seven, and a final amount at the beginning of year 12. Given a rate of inflation of 4.0% per annum during the period, and if Alphas real cost of the loan is 17% per annum, what should the final repayment be? 4. A loan of Shs 6,000,000/= disbursed one year from today is repaid in four installments commencing at the end of year three. The second repayment is at the end of year five and is half as much again as the first installment and is 15% less than the third installment (due at the end of year six). The final installment is due at the end of year eight and is 25% more than the first installment. The rate of interest is 10% per annum in years one and two; 13% per annum in years three and four; and 12% per annum thereafter. Compute the amount of each installment. 6. Consider the following project data: A Shs 10 million feasibility study will be conducted at t =0. If the study indicates potential, the firm will spend Shs 30 million at t= 1 to build a prototype. The best estimate is that there is an 70% chance that the study will indicate potential and 30% chance that it will not. If reception of the prototype is good the firm will spend Sh. 400 million to build a production plant at t=2. The best estimate is that there is a 40% chance that the prototypes reception will be poor. If the plant is built, theres a 65% chance of a t=3 cash inflow of Shs 800 million and a 35% chance of Shs 450 million cash inflow. If the inflow at t=3 is Shs 800 million, there are 25% and 75% chances of Shs 350 million and Shs 200 million inflows respectively at t=4. If the inflow at t=3 is Shs 450 million, there are 55% and 45% chances of Shs 320 million and Shs 220 million inflows respectively at t=4. The plant has a salvage value of Shs 150 million at t=5. If the appropriate cost of capital is 14.5% what is the projects expected NPV?