Questions: Address all the questions clearly explaining your answers fully.

12 Modigliani and Miller argue that gearing is irrelevant, but this argument depends in part on the fact that investors can borrow in order to invest in shares issued by companies that are under geared. Discuss the extent to which personal gearing can be a realistic substitute for corporate gearing. [5] 13 Discuss the potential advantages and disadvantages of using a finance lease to acquire an asset rather than borrowing the cost of the asset in order to purchase it outright. [5] 14 Discuss the difficulties faced by underwriters in setting an appropriate fee in respect of an offer for sale at a fixed price. [5]A company examining its employee retention rates considers the number of complete years a new employee works for a particular division before leaving. The results are shown in the table below: Division A 00 6 Division B Division C 10 5 7 (i) Perform a one-way analysis of variance at the 5% level to compare the retention rates for the three divisions. [5] (ii) Present the data in a simple diagram and hence comment briefly on the validity of the assumptions required for the analysis of variance. [2] (iii) Concern is expressed over the variability of the results in Division B. It is thought that this might be significantly different from the assumed common underlying variance. (a) Write down an estimate for the underlying common variance for all three divisions. (b) Calculate an unbiased estimate for the variance in Division B based on the data for Division B only. (c) Test at the 5% level whether the variance in Division B is significantly different from your estimate in (iii)(a). [5] [Total 12](i) Calculate the combined present value of an immediate annuity payable monthly in arrears such that payments are $1,000 pa for the first 6 years and $400 pa for the next 4 years, together with a lump sum of $2,000 at the end of the 10 years. [3] (ii) Calculate the amount of the level annuity payable continuously for 10 years having the same present value as the payments in (i). [3] (iii) Calculate the accumulated values of the first 7 years' payments at the end of the 7th year for the payments in (i) and (ii). [3] Basis: Assume an interest rate of 12% pa convertible monthly. [Total 9]