Instructions: For each question, please read the argument carefully and discuss why you agree or disagree with it. You must assess the argument itself rather than other information such as occupations of speakers. Your answer is not subject to any word limit, but a short and concise answer is preferred. Question 1. 10 marks Your financial advisor, Bob, shows two funds, A and B, for your investments and says "I recommend Fund A because its expected return is higher." Do you agree with Bob? Explain why. Question 2. [10 marks In the board meeting, the CFO says, "Our firm's cost of equity is higher than the cost of debt by 3%. We thus must finance the new project by issuing debts rather than equity." Do you agree with the CFO? Explain why. Question 3. [10 marks A food company holds default-free government bonds by 10% of its assets. The treasurer says, "Weighted average of our cost of debt and cost of equity underestimates our business risks." Do you agree with the treasurer? Explain why. Question 4. [10 marks ABC inc. offers a M&A deal to a car manufactoring firm, which can accept or decline it within a year. At the same time, oil producing countries are negotiating to stailize the oil price, which is a key factor for the manufacturing cost of automobile industry. The failure of negotiations will make the oil price extremely volatile. An analyst says, "If the oil price negotiations fail, the M&A offer will deteriorate the value of ABC inc. greatly." Do you agree with the analyst? Explain why. Question 5. 10 marks Doe family owns a firm (DEF inc.), which accounts for more than 90% of their household wealth. To protect the management philosophy of the founder, the owners are not willing to sell the shares to outsiders. An investment banker says, "The cost of capital of a comparable firm, which has the same leverage ratio, is 9%. DEF inc., however, must use higher cost of capital in the project valuations because, unlike DEF inc., the comparable firm is owned by a number of investors who can diversify their portfolio." Do you agree with the investment banker? Explain why