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SECTION B ANSWER ANY TWO (2) QUESTIONS QUESTION 2 [30 MARKS] (a) Agency theory is a management and economic theory that attempts to explain relationships and self-interest in business organisations. It describes the relationship between principals/agents and delegation of control. It explains how best to organise relationships in which one party (principal) determines the work and which another party (agent) performs or makes decisions on behalf of the principal (Jensen and Meckling, 1976; Schroeder et al., 2011). Discuss. [10 marks] (b) Explain how far managerial incentive schemes based on share options and profit targets ensure that managers pursue the goal of maximising shareholder wealth. [5 marks] (c) Identify and briefly describe the three forms of the efficient market hypothesis. [9 marks) (d) Company A is considering a project which has an initial investment of $280,000. The project is expected to generate annual cash inflow of $50,000 for 6 years. Depreciation is allowed on the straight line basis. It is estimated that the project will generate scrap value of $17,500 at end of the 6th year. Calculate its accounting rate of return assuming that there are no other expenses on the project. [6 marks]