Valuation Formulas with Many Market Imperfections

Need help with your homework? Look no further! Our subject experts are ready to effortlessly handle your assignments, so you can finally say goodbye to stress and hello to top grades.

Please enable JavaScript in your browser to complete this form.
Click or drag files to this area to upload. You can upload up to 3 files.
Get a response in under 15 min

In this chapter, one must have learned the responsibilities of a corporate manager which includes:

  1. Taking care of income taxes of corporate
  2. Taking care of personal income taxes of the investors
  3. How the expected bankruptcies cost can be raised
  4. How can managers be leading equity on their pet project?

So the question now is how to work upon the NPV that is net present value of the firm under the presence of such mentioned issues along with capital structure that has an ability to change the same. How will capital structure and firm value be determined under the working of imperfections of capital market?

In order to answer all the questions, one must recall a fact about the perfect market which states that average capital cost is not equal to marginal capital that can be compared in any internal return rate of a new project. A significant difference can be seen in a scenario raising cost of one more dollar and that of billion dollars.

And hence, the current capital cost is just considered as a number in the balance sheet which is of no use. On the other hand, the average capital cost is more useful if the forces that influenced the average capital cost are likely to repeat influence the marginal capital cost currently as well. In fact, the average capital cost is somewhere near to the marginal capital cost of today in majorly large firms.

The figure 18.5 is a demonstration of the value of the firm considering various perspectives in the market. The value of the firm can be 100$ but it is considered 80$ under imperfections of market. In addition to tax shelter which is created under tax deductibility, other factors can equally significant under the algebraic formula of APV as well as WACC. One can see in the extreme row where income tax corporate mitigation is broken down with worth value of 5$.

And under such a situation, corporate income taxes were not a significant factor in the same because only 5$ reduction is noticed under 20$ of reduction because of income taxes of corporate. The rest of 15$ reduction due to market imperfection is more significant in such a case where it enters the value of the firm by directly associating with 75$ of the Net present value of the firm. Under such a case, one can think of an approach of APV related to other imperfections but such methods would be rarely useful. Why, if you ask?

18.10 A Do You Need Other Valuation (APV or WACC) Formulas?

There are certain methods with which you can understand proper income tax handling technique.

If fully taxed, capital cost and expected cash flows could help in corporate income tax reduction and also inducing extra debt shelter.

Valuation Formulas with Many Market Imperfections 28

Expected cash flow and working with it is easy because of corporate income taxes (actual) that is reflected. This can also be stated as a flow to equity methodology.

  1. In case your company is facing situations of bankruptcy, determining the financial losses is tough. Adjustments cannot be made with only debt details. Here we can see that reduction in bankruptcy costs can be attained with the help of equity financing.
  2. In case, the investors of you company receive fully taxed interest, evaluating those amount on a personal level will ensure difficulty in the process. Remedy of correcting those personal taxes is utilizing equity financing adjustment.
  3. Suppose a company has financial stability on the foundation of equity amount. Now, it is up to you to determine how much funds you should allocate on a favored project of yours. This will also include the handling of debt financing.

In order to have a direct equivalent related to methodologies like flow to equity, capital cost and expected cash flows will be reflecting the following factors.

  1. Suppose you have a pet project. In order to finance it, the best thing that you can do is hiking the expected cash flow. This can be attained by debt addition.
  2. This hike in expected cash flow also proves to be beneficial in bankruptcy probability reduction.
  • There are specific claims basing on which you can decrease personal income taxes of investors.

You can easily optimize your company by considering these facts. This can be a handy option which can definitely give you and your company protection from market imperfection.

Valuation Formulas with Many Market Imperfections 29

Valuation Formulas with Many Market Imperfections 30

 

Links of Previous Main Topic:-

Links of Next Financial Accounting Topics:-

Homework Blues?

Get expert help with homework for all subjects.

  • NPlagiarism-free work
  • NHonest Pricing
  • NMoney-back guarantee

Latest Reviews

Solved Sample Works

Accounting Homework

Corporate Accounting Sample

Biology Homework

Genetics Assignment Sample

Essay Writing Help

Business Plan Sample

Homework Help FAQs

Our Answers to Your Questions

How do I submit my homework?
K
L

Getting homework help is very simple with us. Students can either send us the homework via email or they can upload it to our online form here. For a quicker response, You can also chat with us at WhatsApp and submit homework directly. You are sure to get a response from our side within 10 minutes.

How much will my homework cost?
K
L

The cost of paying someone to do your homework varies depending on the service and the type of assignment. We have listed our standard pricing plans for popularly used writing services. For other kind of assignments, You can get a free instant quote from us using our online form.

We also accept partial payment to start working on your assignment help. You can pay the remaining amount when your task gets completed. No pressure of up-front payment. No hidden order costs.

Can I receive help with my homework anytime?
K
L

Yes, you can receive help with your homework anytime with us. Our online homework help services are available 24/7, allowing you to receive assistance with your homework anytime, anywhere.

For urgent homework requests, reach out to us through our LiveChat or WhatsApp channels and one of our friendly support agents will assist you in finding the right expert for your online homework help request immediately. With our services, you can rely on 24/7 availability and meeting deadlines.

Are online homework websites budget-friendly for students like me?
K
L

Yes, Our Online Homework Help websites are an affordable solution for you as a student. Compared to traditional tutoring services, MyHomeworkHelp prices their homework help services honestly and within the budget of college students. This makes it easier for you to receive assistance with your homework without breaking the bank.

What is your plagiarism-free policy?
K
L

At myhomeworkhelp, we take plagiarism very seriously and ensure that all solutions provided by our tutors are original and authentic. Our tutors are trained to provide custom-made solutions, tailored specifically to meet the requirements of each student. We do not provide pre-written papers. All our homeswork solutions are made from scratch, guaranteeing 100% orignal homework answers.

Additionally, we have strict plagiarism-detection tools in place to check all submissions for authenticity.

Is using an Online Homework Help Service cheating?
K
L

Using online homework help services is not equivalent to cheating. Our services are intended to support students with their homework and provide them with the resources they need to succeed academically. With the help of our online homework help services, students can receive immediate assistance with their homework from any location, at any time.

At myhomeworkhelp, we are committed to promoting academic integrity. Our tutors provide solutions that serve as guides for drafting your own work. It is not acceptable to submit someone else's work as your own, as this constitutes academic plagiarism.

Can I chat with my tutor?
K
L

Using our secure chat board, you can now chat directly with your assigned tutor. The chats are encrypted both ways to secure your privacy. This makes your contact with the tutor directly & confidentially, so you can better explain any requirements or changes if needed or just need updates.

You can't contact the experts outside of chat board platform. Sharing any personal information, including but not limited to contact information, goes against our Terms and Conditions and therefore may result in permanently blocking you from the platform. We take any personal data very seriously and we do it for the safety of our users.

Know more about chat board here.

What is your money-back guarantee policy?
K
L

It’s worth noting that our online homework help service rarely leads to disappointment among students. Our expert tutors, along with our support and quality assurance team, are dedicated to providing the best possible experience for our customers. However, if for any reason a student is unsatisfied with their homework help solution, we offer unlimited revisions until they are fully satisfied.

In the rare event that a student remains unsatisfied even after revisions, we offer a money-back guarantee. We want all of our students to feel confident and secure when they turn to us for assistance with their homework, and this guarantee is just one way that we demonstrate our commitment to providing the best possible service. If you have any concerns about our services or the quality of the work you receive, please contact us for support.

What is the expertise of the tutor assigned to do my homework?
K
L

At myhomeworkhelp, we take pride in our team of qualified and experienced tutors. All of our tutors undergo a rigorous selection process and are required to have a minimum of a master's degree in their respective fields. Additionally, they must pass a series of tests to demonstrate their proficiency and ability to deliver quality work. We believe in transparency and providing our clients with the best possible service. You can be confident in the expertise of the tutor assigned to do your homework.

What about privacy & confidentiality?
K
L

Using My Homework Help is absolutely safe. We care about your security, therefore we encrypt all personal data to make every user feel safe while using our services and we don’t share any personal information with any third parties without your permission. Your credit card information is not stored anywhere at My Homework Help, and use of PayPal relies on their secure payment networks. Your identity, payment and homework are in safe hands. You can always be certain of getting professional help and remaining anonymous, while using My Homework Help.