Question Management Q QUESTION 1: Chapter 3 In the last decade there has been a shift towards the direct transfer of funds from investors to the corporate sector. Examine some of the reasons for this trend. QUESTION 2: Chapter 4 (Annuity payment and term loan) On 31 December Liz Klemkosky bought a yacht for $50 000, paying a deposit of $10 000 and agreeing to pay the balance in 10 equal annual instalments that would include both the principal and 10% interest. How big would the annual payments be? QUESTION 3: Chapter 9 What is the efficient markets hypothesis? Explain this concept in your own words. QUESTION 4: Chapter 10 Some practising financial analysts focus on earnings per share (EPS) as a major determinant of the firm's share price a. Explain the link between EPS and the share price b. What are the limitations of this approach to share valuation? QUESTION 5: Chapter 10 (Bond valuation) You own a bond with a par value of $1000 that pays a $100 annual coupon. The bond matures in 15 years. You required rate of return is 12% p.a a. Calculate the value of the bond b. How does the value of the bond change if your required rate of return (i) increases to 15% p.a, or (ii) decreases to 8% p.a? c. Assume that the bond matures in 5 years instead of 15 years. Recompute your answer in part (b) QUESTION 6: Chapter 12 Greenberg Trading is considering two mutually exclusive projects, one with a four-year life and one with a nine-year life. The next cash flows from the two projects are as follows: Year Project A Project B 0 -$160 000 -$160 000 1 65 000 35 000 2 65 000 35 000 3 65000 35 000 4 85000 40 000 5 40 000 6 40 000 7 45 000 8 45 000 9 45 000 a. Assuming a 10% required rate of return on both projects, calculate each project's EAA. Which project should be selected? b. Calculate the present value of an infinite-life replacement chain for each project. QUESTION 7: Chapter 14 Problem 14-21 (attachment file) QUESTION 8: Chapter 18 (Cost of a term loan) Temple Freight Forwarding Company needs $300 000 to finance the construction of several prefabricated metal warehouse. The firm that manufactures the warehouses has offered to finance the purchase with a $50 000 down payment followed by five annual instalments of $69 000 each. Alternatively, Temple's bank has offered to lend the firm $300 000 to be repaid in 10 half-yearly instalments based on a nominal annual rate of interest of 16%. Finally, the firm could finance the needed $300 000 through a loan from a finance broker requiring a single lump-sum payment of $425 000 in five years. a. What is the effective annual rate of interest on the loan from the warehouse manufacturer? b. What will the annual payments on the bank loan be? c. What is the annual rate of interest for the term loan from the finance broker? d. Based on cost considerations only, which source of financing should Temple select?