FIN70104: How do agency problems impact a firm’s financial and operational decisions? Discuss how agency costs can lead: Financing the Corporation Assignment, TU, Malaysia

Question 1

How do agency problems impact a firm’s financial and operational decisions? Discuss how agency costs can lead to suboptimal investment choices and reduced shareholder wealth.

Question 2

i) Ahmad is considering an investment where he will receive a series of 10 annual cash flows of RM1,000 each. Assuming his required return is 8% per annum, what is the maximum amount he is willing to pay for this investment if the first cash flow occurs:

– today
– At the end of year 4(draw a timeline)

ii) Lucy is considering an insurance plan where she will pay 10 annual premiums of RM1,000 each, and the insurance will mature in 15 years. The insurance company will pay an interest rate of 8% per annum. How much will she receive at the end of year 15 if the first payment occurs:

– today
– At the end of year 4

You wish to set up a foundation to give an annual donation in perpetuity to your favorite charity, so you deposit RM15,000 today in a trust account that earns 7%pa.

i) How much will your annual donation be if the first one is in one year’s time?
ii) How much will your annual donation be if the first one is in four year’s time?

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