Corporate Finance Questions and Answer 2022

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Question 1:.................................................................................................................................3
a. Indicating the project that maximises shareholder wealth:....................................................3
b. Explaining the relevant reasons:............................................................................................3
Question 2:.................................................................................................................................3
a. Discussion the concept of “agency relationships”:................................................................3
b. Discussing the concept of “market efficiency and asset pricing”:.........................................4
Question 3:.................................................................................................................................4
a. Monthly payment:..................................................................................................................4
b. First interest payment:............................................................................................................4
c. First principal payment:..........................................................................................................4
d. ATMC owe on this loan after making monthly payments for four years:.............................5
e. Present value of this difference:.............................................................................................5
f. Quarterly payments:................................................................................................................5
g. ATMC owe on this loan after making quarterly payments for four years:............................6
h. Annual percentage rate on the original:.................................................................................6
i. Effective annual rate on the original 10 year:.........................................................................6
Question 4:.................................................................................................................................6
a. Bond’s yield to maturity:........................................................................................................6
b. Coupon yield of the bond over the next year:........................................................................7
c. Calculating the bonds worth:..................................................................................................7
d. Interested in buying this bond:...............................................................................................7
e. Gain or loss on this bond since yesterday:.............................................................................7
Question 5:.................................................................................................................................8
a. Calculating the duration of each bond:...................................................................................8

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b. Calculating the percentage change in each bond’s price:......................................................8
c. Commenting on the relationship between bond price sensitivity to interest rates and its
duration:.....................................................................................................................................9
References and Bibliography:..................................................................................................10

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Question 1:
a. Indicating the project that maximises shareholder wealth:
Cash flow ($)
Year Project A Project B
0 -$2,35,000.00 -$2,35,000.00
1 $1,20,000.00 $10,000.00
2 $1,00,000.00 $50,000.00
3 $60,000.00 $60,000.00
4 $20,000.00 $1,00,000.00
5 $10,000.00 $1,20,000.00
Discount
rate 12% 12%
NPV $12,953.69 -$11,861.89
IRR 15.21% 10.42%
Project A will maximise shareholders wealth.
b. Explaining the relevant reasons:
The analysis has mainly indicated Project A has a positive NPV and higher IRR than
discount rate in comparison to Project B.
Question 2:
a. Discussion the concept of “agency relationships”:
Agency relationship is mainly a concept, where the principal gives legal authority to
an agent for acting on their behalf while dealing with the third party. Thus, management is
considered the agent of the shareholders, where all the relevant legal actions are taken by
them to secure the interest of the owners (Damodaran 2016).