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Finance for business decision - Speech or Presentation Example

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Agency theory basically explains that managers may take actions which are in their own favour rather than serving the interests of the…
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Finance for business decision
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As such the role of external auditors, regulatory agencies as well as credit rating agencies become critical because they need to highlight the information which may be detrimental for the interests of the shareholders. The overall role of the external monitors therefore should be up to taking care of the fact that the firm reports all the relevant and pertinent information which may have an impact on the decision making ability of the investors. The case of Enron is considered as one of the leading examples where the external monitors of the firm failed to carry out their responsibilities.

The Enron was finally liquidated and the investors lost their money owing to the fraudulent accounting practices of the firm which went unnoticed by the firm’s auditors as well as external agencies. (b) Suppose that you decide to invest $1,308.25 in four equal quarterly instalments, at the same rate of 9.2% p.a. compounding quarterly. The first instalment is invested immediately. What is the accumulated value at the end of one year? The differences between the two investment choices are due to the compounding.

In first investment, whole amount is invested whereas in second investment, it is converted into an annuity and is invested with compound interest. The second option yielded higher accumulated value because of the impact of the annuity. (a) Francine wishes to invest in a 5-year corporate bond that pays coupons semi-annually. The bond has a face value of $1 million and pays half-yearly coupons at a rate of 4% p.a. Suppose that her required rate of return on this investment is 6.5% p.a. How much is she willing to pay for this bond?

The market price of the bond is higher than the value of the bond at Francine’s required rate of return. Since the bond is selling at discount therefore she should not invest into this bond at this market price. Lamb Limited plans to set aside $28,000 at the end of each year in order to accumulate $100,000

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