Principles of Financial Investments – Finance theory argues that the primary objective of the firm should be to maximize shareholder wealth

Question 1

a) Finance theory argues that the primary objective of the firm should be to maximize shareholder wealth. Discuss the arguments for and against this primary objective in comparison to other possible objectives.

b) Explain what a stock market index is. Your answer should include examples and also discuss the information investors need to know about an index in order to properly interpret it.

c) Outline the Efficient Market Hypothesis (EMH) and distinguish between the three levels of market efficiency.

Order Now - AllAssignmentHelp

Order Now – AllAssignmentHelp

Question 2

Cedar Plc is listed on the London Stock Exchange. It has 25 million ordinary shares in issue that have a nominal value of £1 each and a market value of £3.45 per share, the company has just paid an annual dividend of 6p and expects dividends to grow at a rate of 7.5% per year. Cedar Plc also has 20 million preference shares in issue that pay a fixed dividend of 5p per year. Finally Cedar has 10-year, 6% coupon bonds in issue, the bonds have a total market value of £32 million and a yield to maturity of 4.5%. The current rate of corporation tax is 30%.

a) Calculate the market value of the equity (ordinary shares) for Cedar Plc.

b) Calculate the cost of capital on the equity for Cedar Plc.

c) If the cost of capital on the preference shares of Cedar is 8%, calculate the total market value of the preference shares of the company.

Free Live Chat

Free Live Chat

d) Calculate the (after tax) cost of capital of the debt (bonds) for Cedar Plc.

e) Calculate the weighted average cost of capital (WACC) for Cedar Plc.

f) When firms require additional funds to finance new capital investment they generally have a choice between using retained earnings, issuing bonds or issuing shares. Discuss the advantages and disadvantages for the firm of each of these three sources of capital.

 

AllAssignmentHelp provides similar kind of Assignment Help in  -

Finance Assignment Help  | Personal Finance Planning Assignment Help |   Corporate Finance Planning Assignment Help

Principles of Financial Investments – Finance theory argues that the primary objective of the firm should be to maximize shareholder wealth