Imperfect Market and Economic competitiv Situation †Free Samples

Question: Discuss about the Imperfect Market and Economic Situation. Answer: Introduction The conceptualisation of imperfect market refers to that economic situation where the market is not able to meet the meticulous standards of a perfectly competitive market situation as it has been established by partiality be a model stated by Marshellian theory. An imperfect market scenario takes place when the buyers and sellers can influence the production or price or the various types of perfect information which are unknown to the market actors (Orens, Aerts and Lybaert 2013). Discussion Based on the perpetuity formula marketing value of firm is defined as the future cash flows divided by weighted average cost of capital (WACC). It is to be further noted that you are value of WACC leads to higher market value of the company. In reality an instance of value being derived from marketing imperfection can be considered when a firm is considering retiring equal amounts of equity or issuing of debts. Based on the capital structure model proposed by Miller and Modigliani has been assumed that capital markets are perfect in nature (Hung, Wong and Zhang 2015). However, through years of research it has been seen that Mark marketing imperfections such as taxes such as US tax code and simple specification over values benefit can bring significant amount of changes to the value of the firm. It has been for the discerned that the Modigliani and Miller approach ignores the personal taxes which are responsible for decreasing the investors debt return and in turn increase the prefere nce of investors for equity. In case of capital gains the difference is evident from the fore and red difference and in case of dividend some portion are deductible in nature. Some of the other theories for market imperfections affecting the capital structure has been seen in terms of contracting costs. In an imperfect market there are several alternative is to contract the optimal behaviour of the firm. Contracting costs us seen similar with taxes was primary motives are for static trade-off for debt theory (Rodgers, Choy and Guiral 2013). In order to quantify the value of market imperfections we can add the value of debt to the firm due to interest deductibility. Some of the more complex tax shields have been seen in terms of uneven or limited time payments and certain tax shields which can be used as a tool for overcoming financial distress. The financial distress can arise as a result of bankruptcy. This is seen to involve various types of direct and indirect cost such as legal, accounting, professional fees, your organisation losses. Several types of indirect costs such as reputation loss, operating losses and total value of market share. The other aspect of market imperfection has been seen in terms of information costs. With the flow of as asymmetric information, information about the existing leverage of the firm may be revealed. The managers may further take advantage of this leveraging information and issue equity is which can be overvalued or issued eight which can be undervalued. The following information ca n be further used to signal future prospects of the firm. This is seen in terms of issuing the equities for preserving the financial flexibility and signalling good prospects of financial growth. On the other hand, the issuing of debt is associated to that situation when expected cash flows are stable and strong. In the following marketing imperfection further leads to pecking order theory (Pehrsson 2014). It has been further identified that agency costs are a result of the different types of costs which are incurred as a result of principal agent problem. In most of the large companies it has been identified that financial providers are not able to actively manage the companys activities. The companys further employ agents were possible for these actions which are not always gives the best result in terms of interests of debt holders are the equity (Hu et al. 2013). As the case concerned is related to issuing of debt, the management may consider raising the money from the debt holders in order to invest in a low-risk project. However, As soon as the company receives the funds, they decide to invest it in a project with a higher return (Singh and Yerramilli 2014). Conclusion The concepts discussed in the report have been able to focus on the relevant topics that are responsible for determining the value of a farm for market imperfections. It has been further seen that, any change in the market which leads to change in the WACC, shall be responsible for changing the firms value. The main approach is discussed are related to bankruptcy costs, agency costs, taxes, information costs and various implications of the management division related to the same. References Hu, N., Qi, B., Tian, G., Yao, L. and Zeng, Z. (2013) The impact of ineffective internal control on the value relevance of accounting information, Asia - Pacific Journal of Accounting Economics?: APJAE, 20(3), p. 334. doi: 10.1080/16081625.2013.765026. Hung, M., Wong, T. J. and Zhang, F. (2015) The Value of Political Ties Versus Market Credibility: Evidence from Corporate Scandals in China, Contemporary Accounting Research, 32(4), pp. 16411675. doi: 10.1111/1911-3846.12134. Orens, R., Aerts, W. and Lybaert, N. (2013) Customer value disclosure and cost of equity capital, Review of Accounting and Finance, 12(2), pp. 130147. doi: 10.1108/14757701311327696. Pehrsson, A. 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