# Financial Management

Assignment Requirements

i will upload a report that needed to be  edited. there are three questions to be answered and its already answered but needs some changes.
regarding Q2:
please make sure that (what is a perfect market and what is a rational investor) is included in the answer.
and also M&M theory(proposition 1 without talking about tax)
regarding Q3:
make sure that its already explained
-the debt vs equity
-weighted average cost.
-both M&M theory proposition 1 and 2 (once with tax and once without)
-agency cost theory
-packing order theory
-signalling theory
when writing about these make sure you include that can tax add advantage to capital structure and is there an optimum structure.
also the referencing, i didn’t like the way he is referencing. i need a good paraphrasing and to paraphrase in the correct way.
Question 1
Apply the M&M formula to establish what you think the share should be the correct equilibrium price of Aguia’s shares? (10 marks)
Vu = Vl, Vu= composed of Equity alone (Pomba).
Vl = is a levered firm composed of Equity and Debt (Agua)

Cash flow
Unlevered(Pomba)
Levered(Agua)

EBIT
2,000,000
6,000,000

INTEREST (12%) for the levered firm

720,000

EBT
2,000,000
5,280,000

TAX (35%) (minus) TO GET
700,000
1,848,000

NET INCOME (Cash flow – debt + Equity)
1,300,000
3,432,000

We then get the difference which is 3,432,000 – 1,300,000 = 1,950,000
The tax benefit of Debt financing
The Interest on debt is deductable
Therefore, 720,000* 0.35 = 252,000
252,000/0.12 = 2,100,000
Vl = Vu +rEB
Vu = EBIT (1- rE/r0) = 1,300,000/0.1 = 130,000
Vl = Vu= rE B =  130000 +2,100,000 = 2,230,000
Therefore 6,000,000 – 2,230,000 = 3, 770,000 (equilibrium price for Aguia’s shares)
Explanation
Unlevered firm uses only Equity earnings to operate while the levered firm uses both equity and debt. Therefore in getting Earnings after tax, the levered  firm earnings will be arrived at after deducting the interest charged on the debt remembering that the interest has tax benefits. According to the formula VL represents the levered firm while Vu represents the Unlevered. M &M theory believes that there is no big difference for a firm either choosing to use debts alone or include equity due to the tax benefits  enjoyed hence the equality; thus the substitution of the figures to arrive at an answer.
Question 2
If the shares of both companies traded in a perfect market what should a rational investor do and what should happen to the share price of both companies? (10 marks)

Order Now
https://thecustomwritings.com/order/
YOU CAN ALSO PLACE OTHER SIMILAR ORDERS ON OUR WEBSITE AND GET AMAZING DISCOUNTS!!!

# Our Service Charter

1. ### Excellent Quality / 100% Plagiarism-Free

We employ a number of measures to ensure top quality essays. The papers go through a system of quality control prior to delivery. We run plagiarism checks on each paper to ensure that they will be 100% plagiarism-free. So, only clean copies hit customers’ emails. We also never resell the papers completed by our writers. So, once it is checked using a plagiarism checker, the paper will be unique. Speaking of the academic writing standards, we will stick to the assignment brief given by the customer and assign the perfect writer. By saying “the perfect writer” we mean the one having an academic degree in the customer’s study field and positive feedback from other customers.
2. ### Free Revisions

We keep the quality bar of all papers high. But in case you need some extra brilliance to the paper, here’s what to do. First of all, you can choose a top writer. It means that we will assign an expert with a degree in your subject. And secondly, you can rely on our editing services. Our editors will revise your papers, checking whether or not they comply with high standards of academic writing. In addition, editing entails adjusting content if it’s off the topic, adding more sources, refining the language style, and making sure the referencing style is followed.
3. ### Confidentiality / 100% No Disclosure

We make sure that clients’ personal data remains confidential and is not exploited for any purposes beyond those related to our services. We only ask you to provide us with the information that is required to produce the paper according to your writing needs. Please note that the payment info is protected as well. Feel free to refer to the support team for more information about our payment methods. The fact that you used our service is kept secret due to the advanced security standards. So, you can be sure that no one will find out that you got a paper from our writing service.
4. ### Money Back Guarantee

If the writer doesn’t address all the questions on your assignment brief or the delivered paper appears to be off the topic, you can ask for a refund. Or, if it is applicable, you can opt in for free revision within 14-30 days, depending on your paper’s length. The revision or refund request should be sent within 14 days after delivery. The customer gets 100% money-back in case they haven't downloaded the paper. All approved refunds will be returned to the customer’s credit card or Bonus Balance in a form of store credit. Take a note that we will send an extra compensation if the customers goes with a store credit.
5. ### 24/7 Customer Support

We have a support team working 24/7 ready to give your issue concerning the order their immediate attention. If you have any questions about the ordering process, communication with the writer, payment options, feel free to join live chat. Be sure to get a fast response. They can also give you the exact price quote, taking into account the timing, desired academic level of the paper, and the number of pages.

Excellent Quality
Zero Plagiarism
Expert Writers

or