QUESTION 4 (25 MARKS)

(a) The increase in international activities does not change the main objective of the financial manager of shareholder wealth maximisation, but it does add complexity to the managers job. Discuss critically. (15 marks)

(b) Marks Company has an outstanding issue of convertible bonds with a $1,000 par value. These are convertible into 50 shares of common stock. They have a 10 per cent coupon and a 10-yearmaturity. The interest rate on a straight bond of similar risk is eight per cent. PV of 8% for 10 years is 0.463 and PV of annuity of 8% for 10 years is 6.710.

(i) Calculate the straight bond value of the bond. (2 marks)

(ii) Calculate the conversion value of the bond when the market price of the stock is $30/share. (2 marks)

(iii) What is the least you would expect the bond to sell for at a market price of common stock of $18/share? (1 mark) .

(c) The current exchange rates between India and Mauritius, is 2 Indian Rupees (INR) equal to per Mauritian Rupee (Rs). Assume that inflation rate in India is 25 per cent and 2 per cent in Mauritius, how would you have expected the exchange rate to change in that particular year? (5 marks)