Question 3

(a) Explain what is meant by corporate governance. Why is there no single code of corporate governance applied to all countries of the world?

(b) In terms of capital budgeting, explain what is meant by the internal rate of return. What are two advantages and two disadvantages of the internal rate of return?

(c) Lens Plc is considering investing in a new machine that improves the efficiency of producing eye glasses. The machine costs 200,000 and will become obsolete after 4 years-time. The projected cash inflows from the machine are expected to be 50,000 in year 1, 60,000 in year 2, 70,000 in year 3, and 200,000 in year 4. The required rate of return on the investment is 10%. The financial manager of Lens Plc has asked that you use three investment evaluation techniques and write a report explaining in detail whether Lens Plc should invest in this machine today. Would your recommendation change if the required rate of return increased to 15%? Explain why or why not.