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NBS-5908A Business Finance
Homework 1
You are asked to complete the following home questions and exercises found at the end of
each relevant chapter in your textbook. I will not check whether you have attempted them
or not and therefore, I will not mark them or provide feedback.
The homework serves as ‘self-assessment’; however, I would like to encourage you to
discuss with your study group buddies.
Further, you are welcome to join the Drop-in Q&A sessions: Fridays 10:00 – 13:00 via the
“Online Classroom” Section on Blackboard to ask any questions about this module such as
lecture contents and homework & seminar exercise questions and I will be more than happy
to help out.
Finally, although I have also provided detailed answers and solutions for the homework, my
advice would be to address the exercises without considering the solutions and only then to
check your answers and workings.
Chapter 1: Goals and Governance of the Corporation
The following questions and exercises found at the end of the relevant chapter in your
textbook “Brealey, R. A., Myers, S. C., Marcus, A. J., (2017). Fundamentals of Corporate
Finance, 9th Edition, McGraw-Hill, ISBN: 978-1259921964.”
Q3. Financial Decisions. What is the difference between capital budgeting decisions and
capital structure decisions?
Q13. Financial Managers. Explain the differences between the CFO’s responsibilities and the
treasurer’s and controller’s responsibilities.
Q14. Goals of the Firm. Give an example of an action that might increase short-run profits
but at the same time reduce stock price and the market value of the firm.
Q15. Cost of Capital. Why do financial managers refer to the opportunity cost of capital?
How would you find the opportunity cost of capital for a safe investment?
Q16. Goals of the Firm. You may have heard big business criticized for focusing on shortterm performance at the expense of long-term results. Explain why a firm that strives to
maximize stock price should be less subject to an overemphasis on short-term results than
one that simply maximizes profits.
Q22. Cost of Capital. British Quince comes across an average-risk investment project that
offers a rate of return of 9.5%. This is less than the company’s normal rate of return, but one
of Quince’s directors notes that the company can easily borrow the required investment at
7%. “It’s simple,” he says. “If the bank lends us money at 7%, then our cost of capital must
be 7%. The project’s return is higher than the cost of capital, so let’s move ahead.” How
would you respond?
Q35. Reputation. As you drive down a deserted highway, you are overcome with a sudden
desire for a hamburger. Fortunately, just ahead are two hamburger outlets; one is owned by
a national brand, and the other appears to be owned by “Joe.” Which outlet has the greater
incentive to serve you cat meat? Why?