Fin management for business

Order Description Please write a 200-word report plan for each of the followin" rel="nofollow">ing questions: 1. Discuss how the concepts of agency theory can be used to explain" rel="nofollow">in the relationship that exists between the managers of a listed company and the providers of its equity fin" rel="nofollow">inance. Your answer should in" rel="nofollow">include an explanation of the followin" rel="nofollow">ing terms: (a) asymmetry of in" rel="nofollow">information; (b) agency costs; (c) the free-rider problem. 2. Distin" rel="nofollow">inguish between a primary and a secondary capital market and discuss the role played by these markets in" rel="nofollow">in corporate fin" rel="nofollow">inance. What are the desirable features of primary and secondary capital markets? 3. A company is plannin" rel="nofollow">ing to offer a discount for payment within" rel="nofollow">in 10 days to its customers, who currently pay after 45 days. Only 40 per cent of credit customers would take the discount, although admin" rel="nofollow">inistrative cost savin" rel="nofollow">ings of €4,450 per year would be gain" rel="nofollow">ined. If credit sales, which are unaffected by the discount, are €1.6m per year and the cost of short-term fin" rel="nofollow">inance is 8 per cent, what is the maximum discount that could be offered? 4. Brand plc generates profit after tax of 15 per cent on shareholders’ funds. Its current capital structure is as follows: Ordin" rel="nofollow">inary shares of 50c each 200,000 Reserves 400,000 600,000 The board of Brand plc wishes to raise 160,000 from a rights issue in" rel="nofollow">in order to expand existin" rel="nofollow">ing operations. Its return on shareholders’ funds will be unchanged. The current ex dividend market price of Brand plc is 1.90. Three different rights issue prices have been suggested by the fin" rel="nofollow">inance director: 1.80, 1.60 and 1.40. Determin" rel="nofollow">ine the number of shares to be issued, the theoretical ex-rights price, the expected earnin" rel="nofollow">ings per share and the form of the issue for each rights issue price. Comment on your results. 5. Bugle plc has some surplus funds that it wishes to in" rel="nofollow">invest. It requires a return of 15 per cent on corporate bonds and you have been asked for advice on whether it should in" rel="nofollow">invest in" rel="nofollow">in either of the followin" rel="nofollow">ing bonds which have been offered to it. (a) Bond 1: 12 per cent bonds redeemable at nomin" rel="nofollow">inal at the end of two more years. The current market value per £100 bond is £95. (b) Bond 2: 8 per cent bonds redeemable at £110 at the end of two more years. The current market value per £100 bond is also £95. 6. LJH plc is plannin" rel="nofollow">ing to buy a machin" rel="nofollow">ine which will cost £900,000 and which is expected to generate new cash sales of £600,000 per year. The expected useful life of the machin" rel="nofollow">ine will be eight years, at the end of which it will have a scrap value of £100,000. Annual costs are expected to be £400,000 per year. LJH plc has a cost of capital of 11 per cent. (a) Calculate the payback period, return on capital employed, net present value and in" rel="nofollow">internal rate of return of the proposed in" rel="nofollow">investment. (b) Discuss the reasons why net present value is preferred by academics to other methods of evaluatin" rel="nofollow">ing in" rel="nofollow">investment projects.