Q1 (10 marks). Imagine you area member of the board of directors of SKland company, a private  corporation.  The  board  is  discussing  the  compensation  package  for  top executives. Please answer the following questions:

a.  What  are  the  advantages  and  disadvantages   of  a  corporation  compared  to  a proprietorship or partnership? (2 marks)

b.  When measuring the performance  of the  corporation,  which  would be  a  more effective indicator: the growth rate in reported profits or the growth rate in the stock's intrinsic  value?  Kindly  explain  your  reasoning  behind  selecting  the  preferred performance measure. (4 marks)

c. In your opinion, should the compensation of our management team be a fixed dollar amount, or should it be contingent on the firm's performance? Please provide your rationale for your chosen approach. (4 marks)

Q2 (10 marks). As a recent finance graduate and new investment advisor at Victoria Montage brokerage firm, your first task is to educate retail investors about financial markets. Your boss has provided you with the following questions that you need to address:

a.  Could  you  explain  the  distinction  between  primary  and  secondary  markets?  If someone purchased a JD  stock listed  on the NASDAQ, would it be considered  a primary or secondary trade? (2 marks)

b. Could you provide a brief overview of the FinTech innovations that have emerged in the past decade? How have these innovations been perceived in terms of their impact on the traditional financial industry? Please elaborate. (4 marks)

c. Could you provide a concise explanation of the term "efficiency continuum" in relation to financial markets? Additionally, what factors contribute to improving the price efficiency of a stock? (4 marks)

Q3 (16 marks). Harrington Inc. is considering two financial plans for the coming year. Management expects EBIT to be 30,000, assets (which is equal to its total invested capital) to be $100,000, and its tax rate to be 25%. Under Plan A it would finance the firm using 40% debt and 60% common equity. The interest rate on the debt would be 5%, but under a contract with existing bondholders the TIE ratio would have to be maintained at or above 12. Under Plan B, the maximum debt that met the TIE constraint would be employed. Assuming that sales, operating costs, assets, total invested capital, the interest rate, and the tax rate would all remain constant, by how much would the ROE  change in response to the change  in the  capital structure?

Q4 (24 marks). Complete the balance sheet and sales information using the following financial data:

Sales: 500,000

Total assets turnover: 2×

Days sales outstanding: 36.5 days (Calculation based on a 365-day year) Inventory turnover ratio: 4×

Quick ratio: 3×

Debt ratio: 60%

Q5 (22 marks). Lily just won the American Powerball (lottery) and she must choose    among three award options. She can elect to receive a lump sum today of $45 million,

to receive 6 end-of-year payments of $10 million, or to receive 10 end-of-year payments of $6 million. (20 marks)

a. If she thinks she can earn 8% annually, which should she choose? (8 marks) b. If she expects to earn 10% anuually, which is her best choice? (8 marks)

c. Explain how interest rates influence the optimal choice. (6 marks)