Part B (50 marks)

Answer to all the questions below in not more than 500 words:

Discuss whether the companys decision not to borrow, thereby limiting investment expenditure, is in the best interests of its shareholders.

What are the major business functions and decisions for which the firms financial managers are responsible?

In most years, new issues of stock are a tiny fraction of total stock market trading. In other words, secondary market volume is much greater than primary market volume. Does the fact that firms only occasionally sell new shares mean that the stock market is largely irrelevant to the financial manager?

Explain the concept of Stock Market Equilibrium and for a stock to be in equilibrium, what two conditions must hold?