7/30/2019 Proposed Corporate Finance Nov 2012 Assessment Criteria

http://slidepdf.com/reader/full/proposed-corporate-finance-nov-2012-assessment-criteria 1/3

LSC MBA CORPORATE FINANCE ASSIGNMENT NOVEMBER 2012

PROPOSED ASSESSMENT CRITERIA/ SUGGESTED SOLUTION

Question 1

Developments of corporate governance and the need to address agency problem are

contemporary issues facing corporations when managers are given the task to maximise

shareholders wealth.

Required:

a.  Review relevant literature on the above key terms and briefly discuss with a

critical view on why ‘fit and proper test’ is important to ensure that ‘audit 

committee’ safeguard the interest of both investors and stakeholders.

b.  Business risk exposures include credit, market and operational risk and risk

mitigation based on desired risk appetite and tolerance will address the agency

problem. Identify a briefly explain the types of risk exposures and suggest how to

mitigate the risk exposures to attain a reasonable cost of capital.

(20 marks)

Student should be able to identify and cite relevant literature from various sources (5

marks)

Student should be able to explain what is meant by ‘fit and proper’ and the role of ‘audit

committee’ from relevant sources (5 marks) Both the concept and how credit, market and operational risk exposure arises is to be

illustrated (5 marks)

Suggest at least on risk mitigation technique for each type of risk and to link with cost of 

capital based on term structure of interest rate (mentioned in class) and CAPM model. (5

marks)

Question 2

Your corporate investment decision process begins with strategic intent and end

with effective implementation. The Board of directors have requested you to

propose an investment policy that outlines the process and discuss the following key

considerations with an illustration.

a.  Availability sources of fund and criteria to choice of funds for your

investment project

b.  Initial capital requirement and cost of financing

c.  Product positioning and life cycle

d.  Cash flows amount and timinge.  Human capital requirement

7/30/2019 Proposed Corporate Finance Nov 2012 Assessment Criteria

http://slidepdf.com/reader/full/proposed-corporate-finance-nov-2012-assessment-criteria 2/3

f.  Expected profits and operating cash flow

g.  External factors affecting your investment performance

h.  Exit strategy, capital redemption and profit distribution

i.  Industry requirement and market competition

Your 3 to 4 page proposal is to rationalize and persuade the BOD to consider your

proposal for approval to future investments.

(20 marks)

The template on investment decision making process can be used as the basis to

propose an investment policy. (5 marks)

Ability to relate most of the considerations highlighted to the process would be

useful to demonstrate a comprehensive understanding of the topic. (10 marks)

A well-articulated and presented investment policy that provides guidance to Boardmembers, management and staff in terms of decision, execution and accountability

would be excellent. (5 marks)

Question 3

Corporate financial decision on optimal capital structure would significantly

influence the cost of capital. The choice of cost of capital as discount rate also takes

into consideration the risk exposures of the firm as quantified in the discount rate.

Briefly explain why capital structure is important based on ‘Modigliani and Miller

models’ and explain how target optimal capital can be attained to meet both

shareholders and bondholders expectations.

(10 marks)

Identify securities industry requirements and relevant literature on credible financial

instruments and highlight the distinct features between equity and debt financing

with reference to shares and bonds.

(10 marks)

A brief description of Modigliani and Miller (MM) Model to demonstrate student

appreciation of the importance and relevance of the model is to be assessed. (5

marks)

Ability to illustrate the turning point of optimal capital from both cost of capital and

corporate value will be useful.

(5 marks)

7/30/2019 Proposed Corporate Finance Nov 2012 Assessment Criteria

http://slidepdf.com/reader/full/proposed-corporate-finance-nov-2012-assessment-criteria 3/3