Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Question 2 Answer the following questions regarding the goal of finance and agency. (a) The goal of finance is to maximise shareholders' wealth. A company
Question 2 Answer the following questions regarding the goal of finance and agency. (a) The goal of finance is to maximise shareholders' wealth. A company is already meeting the government standards of safety and health at the work place. Suppose the company spends money to upgrade the cafeteria as well as provide some recreational facilities for its workers. Discuss whether this means that the management of the company is not maximising shareholder wealth. (b) The CEO of the company is an agent of the shareholders (the principal). Appraise the claim that since the CEO of a company owns 55% of the shares of a company there is no agency problem. (16 marks) Question 3 John is looking at several options to fund his son's 4-year university degree. The university fees of $45,000 a year will have be paid starting 11 years from today. He is analysing an insurance plan that pays out $45,000 a year for 4 years with the first payout 11 years from today. The insurance plan has several payment options: Option 1 Pay $60,000 today. Option 2 Beginning 1 year from today, pay $12,000 a year for the next 8 years. Option 3 Beginning 1 year from today, make payments each year for the next 8 years. The first payment is $11,000 and the amount increases by 5% each year. Answer the following questions regarding the options above: (a) Calculate the present value of each option. Use a 10% discount rate. (b) Analyse which option John should choose. (c) If the discount rate is not given to you, what would be an appropriate discount rate to use? (24 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started