QUESTION 1 (25 Marks)

(a) Explain five (5) possible control mechanisms that could be imposed by the shareholders to monitor the behaviour of managers.

(10 marks)

b) You have an opportunity to receive RM1,000 three years from now, if you can earn 6% on your investment, how much you should pay now?

(c) Setiawan Berhads shares are currently valued at RM10.00. The annual dividend growth rate is 5%. The dividend paid in the previous year was RM0.80. The flotation cost is RM1.50. Calculate the cost of external common equity.

(d) The 10% preferred stocks can be issued at a premium of 20% over their market value. The dividend is paid based on the par value. The par value of the preferred stock is RM120, and the issue cost RM5. The current share price of the preferred. stock is RM40.