Answer all questions
Total Marks: 100.
Q1. 'The most important function of any Central Bank is to undertake monetary control operations'. Discuss with specific reference to the Bank of England, highlighting its recent success or otherwise.
(25 Marks)
Q.2
a. Discuss the role of banking in business. (10 Marks)
b. Set out the specific role played by Investment Banking and the challenges of corporate governance. (15 Marks)
Q.3
a. The calculation of the Weighted Average Cost of Capital (WACC) is theoretically simple but practically difficult. Discuss. (10 Marks)
(b) Two-fifths of the total market value of Jefferson plc consists of loan stock with a cost of 10%. Nelson plc is identical to Jefferson except that its capital structure is all equity and its cost of equity is 16%.
According to Modigliani & Miller, ignoring taxation, what would be the cost of equity of Jefferson plc? (5 Marks)
(c) Does an optimal capital structure exist? Discuss. (10 marks)
Q.4
a. The primary financial objective of a company is the maximization of the wealth of shareholders …per corporate finance theory. However, this objective is usually replaced by the surrogate objective of maximization of the company's share price. Discuss how this substitution can be justified. (15 marks)
b. Explain why maximization of a company's share is preferred compared to maximization of sales …as a financial objective. (10 marks)
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