ANSWER 1-

(A)

Yes, I agree with the statement because, in any business for getting or earning
production, profit is the most important indicator. The primary motive of an
activity of the company is profit-making, as it is the prime manifestation of the
company's productivity and efficiency.

It consists of two primary functions:

 It shows the final financial outcomes of any company.

 It is said to be the primary source of development, the cost for the production of
any business.

The significant categories which shows the market relations earning profits
have the following functions:

 Economic impact as per the activities resulted bu the companies.

 Profit cannot determine the basis of any operations criterion.

 The fundamental financial law for planning is that its profit can be reinvested to
earn extra money, which results in more gains.
 It doesn't focus or show the differences in the profits obtained at two different
times. But the profit earned in current investment should be higher than the
profit gained in previous periods.

(B)

No, retain earnings are not costless reason behind this answer is the undistributed
amount of profit, which are also available for investing in any activity are
considered as retained earnings, and it is regarded as a free source of the cost it
happens because interest and dividend both are not payable retained profits. The
company that invests more expects more returns, whereas the shareholders who
pay more retains and bonuses earn less profit. Shortly, it is not a costless source of
financing. The cost produced by retained earnings should be at least equal to the
rate of shareholders' returns on reinvesting the dividend, which is paid by the
organizations.

ANSWER 2-

(A)

Money Time Value (MTV) is a valuable tool to help you recognize the importance
of money compared to time. It's a concept that investors also use to grasp the value
of capital better as it correlates with its potential value.

The fundamental concept of money's time value is that investment is worth more in
the present than it would be in the future, as the money we already have has the
chance to boost. This is mainly due to inflation in part.

$500 will give us more than the same $500 in the future.

Having this insight, the money concept's time value will help investors assess the
current value of the capital they have now, and how much it may be valuable in the
future. With spending, there's a certain amount of risk that need to remember while
using the money over time.

Money's time value is crucial because it enables investors to make a sensible

choice on what to do with their money. The TVM can help an investor understand
the most suitable option based on inflation, interest, risk, and returns.

(B)

In support of the answer, let's first consider or assume zero inflation rate; the things
which can be bought with the same monkey quantity will be the same throughout
the time.
Today's money is more valuable because it can be used to generate more profit or
wealth. It shows that the invested capital can be more profitable for attaining more
value in that period because it is in our control. For now, that knows it’s value is
more than in comparison to the future.

It can be described in three primary reasons:

 Risk level: There is no risk with the money we have today than the funds for
which we are not even sure that we'll have it.

 Purchasing power is high: Buying power shows the money value which we
can obtain. Because the inflation rate is always increasing, the amount of $50 is
higher than the cost of $50 will in the future.

 Opportunity cost: It mainly refers to the ability of investment. Investing today

can give more profit than spending the same amount of money in the future.

ANSWER 3-

(A)

Business Risk

 Business risk includes the impact found in the operations of the organization.
 It is a specific risk because of the environment in which the firm has to operate,
and the business risk is represented by the earnings before interest and tax
(EBIT) variability.
 Besides, the volatility is determined by both revenues and expenditures. Taxes
and expenses are influenced by the market's goods, price fluctuations, and the
proportion of fixed costs in overall costs.

Financial Risk
 Financial risk refers to the potential risk imposed on the company's
shareholders due to the use of debt in finance.
 Firms that offer more debt instruments will be at a higher financial risk than
most equity-financed firms.
 Financial risk can be calculated by factors like the financial leverage multiplier
of a company, overall debt-to-asset ratio, etc.

(B)

Lenders require a low rate of returns than any other shareholders. Debt shows a
low risk than any additional shares because of fewer claims on liquidation and
annual income.

Any ordinary shares are always more than the issued transaction costs, which
raises and serves debt.

Operating risk refers to the risk inherent in the operations of the firm. The
variability in earnings before interest and tax (EBIT) is represented here.

Also, the volatility is determined by sales and expenditures affected by the demand
for the company's goods, price fluctuations, and the proportion of fixed costs in
total costs. There will be no financial risk because there is no fixed cost.

Whereas financial risk relates to the amount burden imposed on the owners of the
company as a result of debt and preferential shares included in the enterprise's
capital structure. Firms that offer more debt instruments will be at a higher
financial risk than most equity-financed firms.

Others reasons can be:

 Obligations are usually more affordable than any value of surrendering.

 The cost of obligation is way less expensive than the price for any chance.
 It decreases tax rates in hand of paying for obligation.
ANSWER 4-

Walter's Model gives by Professor E. Walter explained that investment policy or

dividend policy could not be isolated because they are connected. The choice of
any formers gives the significant impacts to any firm's value.

He showed this relation with k and r.

Here, k= capital cost or any required return rate.

r= internal rate of returns

He explained this with three primary situations:

(a) r>k (it shows the growth of firms)

this situation indicates that the firms have Suitable profit-making investments
toward companies, which means that earnings can come as per investors'
expectations. It can be given by Dividend's payout ratio (D/P) of 0. This means
that the market share will be maximized while the company is retaining its gross
earnings.

(b) r<k (it shows Firms are declining)

This situation shows that the company does not have any investment that has
profitable opportunities to invest in any of their earnings. It shows that the rate of
any returns is lesser than the required returns on cost capital, and in these cases,
retentions are not profitable at all.

But in this situation, the wat in market price can be increased, paying all the
earnings through dividends among investors. Here optimum dividend policy will
work that is D/P will 100%.

(c) r=k (Normal Firms)

It shows that there is no optimal level of dividend policy. Still, it is not a subject of
whether profits are distributed or retained because all D / P ratios, ranging from 0
to 100, will remain constant in the market price of the shares.

It can also be said that the opportunities that are given profitable investments are
not provided, so investment returns are equal to capital cost and will not impact the
price of the market shares.

ANSWER 5-

NPP and IRR are both the processed method of compulsion.

Both assume that their project usually generates net inflow in any period, and
reinvestment is immediately showing the life of the project.

Both make the same assumptions.

The ranking of contradiction may be solved by testing its rationality of

reinvestment. And can be done two significant methods.

Here the capital cost is considered as the best alternative for maximizing returns.
Therefore, there will be no further opportunity in yielding the investment for
returns higher than capital cost.

Whereas, in IRR, the rate will be equal to unreal IRR.

The rationality of the reinvestment rate, followed by two methods, can

overcome the contradiction:

 Capital cost represents an optimum return on the next best alternative. So, no
investment opportunity can yield a performance that is greater than the cost of
capital. The rate is the same as the IRR still in the IRR system, which is not
valid.
 Also, the reinvestment is % for IRR for Project A and 18 percent for Project B,
which implies the company has the opportunity to reinvest per cash flow at
varying prices, that's why it is not deemed reasonable.
So, in the case of the IRR method, the assumption is not accurate and logical,
but it is valid for the NPV method.