Corporate Finance for Federal Reserve Bank -myassignmenthelp.com

Question: Discuss about theCorporate Finance for Federal Reserve Bank. Answer: Depicting how discount rate is derived and evaluating its significance in relation to other factors Discount rate is mainly identified as the moral interest that is used by commercial and other financial depositories for loans received from Federal Reserve Bank. The discounting rate directly indicates the relevant interest rate, which could be used for identifying the discounted cash flow. The main factors and benefits that could be portrait by the discount rate is relevant evaluation of an investment opportunity. Discounting rate is directly used by companies for identifying the overall future cash flows value in present time. This directly helps the management to meet adequate investment decisions, which could in turn generate the required level of income and stability within the organisation. Jarmolowicz et al. (2014) mentioned that evaluation of adequate discounting rate directly allows the organisation to identify the benefits that could be provided by different investment and choose the most appropriate investment opportunity. Evaluating the alternatives for depicting the effect on price per share and shareholders wealth: Dividend payment Value Share price $ 116.00 Expenses $ 13,325.00 outstanding shares 5,125 Alternative share price $ 113.40 Alternative share price $ 113.40 Dividend $ 2.60 Shareholder's wealth $ 116.00 Share repurchase Value Expenses $ 13,325.00 Number of share repurchase 115 Share price $ 116.00 Shareholder's wealth $ 116.00 From the overall evaluation alternative share price is mainly at $113.40, while the shareholder wealth is mainly at $116. On the other hand, using share repurchase could eventually make the share price constant, where both share price and shareholder wealth will be at $116. Depicting the EPS and PER of Mustangs under two different scenarios: Dividend payment Value Alternative share price $ 113.40 EPS $ 4.25 P/E ratio 26.68 Share repurchase Value EPS $ 4.25 outstanding shares 5,125 Number of share repurchase 115 Actual outstanding shares 5,010 New EPS $ 4.35 Share price $ 116.00 New EPS $ 4.35 P/E 26.68 Depicting in real world scenario the actions that could be recommended: From the evaluation of both scenarios share buyback is not recommended for you would purposes, as it directly reduces the overall cash availability of the company while declining the number of circulated shares. On the other hand, dividend payment is one of the reliable opportunities that could be conducted by the company. However, share buyback would eventually increase demand for the company while decreasing its capability to acquire more projects. From the overall evaluation dividend payment is mainly considered to be one of the most viable actions, which is conducted by the company. Hence, the dividend payment needs to be conducted by the company. Discussing whether companys dividend policy is not as important as its capital structure policy: The statement indicating that company's dividend policy is not as adequate as company's capital structure policies is relatively adequate. The companies with strong capital structure are mainly able to generate the required level of income by investing in adequate projects. This could eventually help in providing relevant dividends by the company as they have strong capital structure to support the dividend expense. Companies with dividend policy could eventually end up losing the required level of capital for expansion and growth process. Therefore, it is important for companies to increase their capital structure and generate the required level of profits from operations. Travlos, Trigeorgis and Vafeas (2015) mentioned that the use of adequate capital structure policy could eventually help in strengthening the financial capability of the organisation, while improving its ability to compensate and acquire more projects, which could help in attaining sustainable growth. Depicting the process and amount by which increment in income could be conducted without increasing the risk: Helena's Health Food Earnings before interest 20,000 Market value of debt 58,000 Kd 5.50% Ke 13% Market value of equity 143,818 Actual Total market value 201,818 Equilibrium value 181,818 WACC 5.32% Investment 2,876.36 Expected increment in income 152.93 Total amount received 3,029.29 Depicting the potential advantage and disadvantage to a companys owner for increasing proportion of debt in capital market: There is relevant advantage for increasing debt in an organisation, as it might help in reducing the overall tax expenses and increasing the retained income of the organisation. The relative use of debt could eventually help in fixing the overall expenses that needs to be conducted by the company for acquiring the capital to complete their endeavours. However, there are limitations of using excessive debt, as it increases the overall insolvency condition of the organisation. Moreover, the use of debt could also increase the interest payments, which might claw into the profits of the organisation (Graeber and Piketty 2014). Depicting how much has Connor made or lost: Particulars Value 90 day future contract 93.67 Close out position value 92.46 Face value 1,000,000 Contract number 5 Actual investment 468,350,000 Close out position 462,300,000 Loss in transaction (6,050,000) Depicting how much has Milly made or lost in total: Particulars Value 10-year bond futures 94.69 Close out position value 96.02 Face value 100,000 Contract number 2 Actual investment 18,937,000 Close out position 19,204,000 Profit in transaction 267,000 Depicting how much has Michelle made or lost in total: Particulars Value SPI 200 futures 5,350.00 Close out position value 5,480.00 1 Contract number 5 Actual investment 26,750 Close out position 27,400 Profit in transaction 650 Explaining the determinants of future prices and factors that might cause future market price at maturity to be different from the spot market prices: The key determinants of the future prices can be identified from the volatility in capital market. The relevant changes in the future prices if due the continuous shift in the demand and supply of shares. In addition, the factors that might cause the future market price at maturity to be different from spot prices are the continuous trading from investors, changes in volatility, and demand perception of investors. These factors mainly result in the difference in spot and future prices of stocks (Rezende and Richardson 2015). Calculating theoretical value of a right to one new share: Particulars Value Share price 24.00 Subscription price 21.10 Issue 4.00 Number of shares required 1.00 Value of the right in cents 1.45 Calculating ex-rights price and the amount of right per share: Particulars Value Share price 24.00 Subscription price 21.10 Issue 4.00 Value of introduced shares 84.40 Market value of 5 shares 108.40 Therefore theoretical ex-right share value 21.68 Depicting what will happen if subscription price was $26: If the overall subscription price was $26, while the shares were trading in the market for the value of $24, then there will be no buyers for the stock. This is mainly demand and supply concept, were the overall subscription needs to be lower than market prices, as it will instigate the investors to opt for the issued shares. Depicting the minimum possible subscription price: According to theory, the minimum possible subscription price, which could be provided by the company, needs to be greater than $0. Discuss if company conducts share issue then overall value of investors shareholding is reduced: The relevant investment is only true if investor does not take part in the right issue, which could in turn affects its overall shareholding in the company. In addition, the increment in shares would eventually raise the overall supply, while demand among investors would remain unchanged. This could directly result in declining share value and affect shareholding of the investor. Gielens et al. (2017)mentioned that share price of the company is mainly derived from the rising demand and supply of shares in the market. Describing and evaluating the range of agency relationships that exist for an incorporated entity, while describing the extent to which value is incorporated in the entity: Agency relationship is one of the essential factors that allow the organisation to work smoothly, as it helps in controlling the old activities of the organisation. Agency relationship is integrated in operations and existence of a corporate entity, as it helps the organisation to effectively conduct its daily operations. The range of agency relationships starts from the production facility, while moving towards office, sales and representative facilities of the organisation. The organisations without the help of agency relationship are not able to improve productivity, as it helps in smoothing their daily operations. Bodie (2013) mentioned that managers of an organisation are mainly responsible for building relationship with the workers, which could help in smoothly finishing the production capacity of the organisation. Agency relationship directly indicates that all the managers have to act according to the duties without pursuing their personal interest. This Agency relationship mainly allows the organisation to conduct all the relevant activities that is needed for improving their overall productivity. The agency relationship is mainly identified as legal right or authority that is provided by the organisation to personal in the management for controlling its overall activities. Use of agency theory directory allows the organisation to accumulate relevant individuals, which could help in conducting its operations. In addition, the agency theory directly acts on behalf of the organisation as a third party, All the relevant dealings and creating a fiduciary relationship. Hoenen and Kostova (2015) stated that agency relationship can be conducted on both oral and written form, where adequate person needs to be selected for the job. On the other hand, Hannafey and Vitulano (2013) argued that without a dequate check the overall agents could use manipulator and unethical measures in acquiring wealth and reducing productivity of the organisation. The identified agents of an organisation could adequately increase both sales and productivity of the company. The incorporated organisations have relevant management and directors were responsible for making relevant decisions. However, due to increased operations the managers need to appoint relevant representatives such as agent, which could take relevant decisions on behalf of the company. Without the help of agency relationship organisations will not be able to expand and grow, as minor decisions needs to be conducted by a relevant representatives of the organisation (Pepper and Gore 2015). In addition, companies with agent relationship are able to increase the operation is capability, as the agents conduct dealing on behalf of the organisation References and Bibliographies: Bodie, Z., 2013.Investments. McGraw-Hill. Gielens, K., Geyskens, I., Deleersnyder, B. and Nohe, M., 2017. The New Regulator in Town: The Effect of Walmart's Sustainability Mandate on Supplier Shareholder Value.Journal of Marketing. Graeber, D. and Piketty, T., 2014. Soak the Rich: An exchange on capital, debt, and the future.The Baffler, (25), pp.148-154. Hannafey, F.T. and Vitulano, L.A., 2013. Ethics and executive coaching: An agency theory approach.Journal of business ethics,115(3), pp.599-603. Hoenen, A.K. and Kostova, T., 2015. Utilizing the broader agency perspective for studying headquarterssubsidiary relations in multinational companies.Journal of International Business Studies,46(1), pp.104-113. Jarmolowicz, D.P., Cherry, J.B.C., Reed, D.D., Bruce, J.M., Crespi, J.M., Lusk, J.L. and Bruce, A.S., 2014. Robust relation between temporal discounting rates and body mass.Appetite,78, pp.63-67. Pepper, A. and Gore, J., 2015. Behavioral agency theory: New foundations for theorizing about executive compensation.Journal of management,41(4), pp.1045-1068. Pradhan, R.S., Shrestha, R., Bhandari, S., Limbu, P., Acharya, R. and Maharjan, S., 2016. Impact of firm capital structure decisions on debt agency problem: Evidence for Nepal.Nepalese Journal of Finance,3(1), pp.1-12. Rezende, M.L. and Richardson, J.W., 2015. Economic feasibility of sugar and ethanol production in Brazil under alternative future prices outlook.Agricultural Systems,138, pp.77-87. Travlos, N.G., Trigeorgis, L. and Vafeas, N., 2015. Shareholder wealth effects of dividend policy changes in an emerging stock market: The case of Cyprus.