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CORPORATE FINANCE—Tutorial Questions

Tutorial questions are selected from the fourth edition of the textbook, with some
modification. Note the following terms: CQ – refers to concept questions provided at the
end of sub-sections within chapters; EOCQ – refers to questions provided in “Questions
and Problems” at the end of each chapter of the fourth edition.

TUTORIAL 1
CHAPTER 1: INTRODUCTION TO CORPORATE FINANCE
1.

CQ 1.3c) Why is the corporate form superior when it comes to raising cash?

2.

CQ 1.4a) What is the goal of financial management?

3. CQ 1.5b) What are agency problems and how do they come about? What are agency
costs?
4. EOCQ 2) Evaluate the following statement: ‘Managers should not focus on the
current share value because doing so will lead to an overemphasis on short-term profits at
the expense of long-term profits.’
5. EOCQ 12) Assume a perfect certainty two-period world. Jeff Rush Dramas(JRD)
has the following investment opportunities available:
Project
Outlay
IRR%
1
$110,000
22
2
$ 60,000
30
3
$76,000
9
4
$90,000
17
5
$93,000
6
The market rate of interest is 10 per cent.
a. If JRD had an initial endowment of $500,000 and undertook all desirable
projects, what would be the value of JRD?
b. J Low is a shareholder of the firm and she owns 10%. What dividend would
she receive in period 1 and period 2 if the firm undertakes all desirable
investments?
c. Assume the dividends are the only income J Low receives and JRD plans to
pay $23,000 in period 1 and $32,850 in period 2 to her. If she requires
$50,000 in period 1, how much will she have available to spend in period 2?

1

30 each.4 million.CHAPTER 2: FINANCIAL STATEMENTS. selling at $2. Its Balance Sheet shows net assets as $12. EOCQ 15) Alice Ltd has 5 million shares on issue. What is the difference between market and book value? Which is more relevant? Why? 2 . TAXES AND CASH FLOW 6.