Riverlea Share Price Efficiency Analysis

This assignment analyzes the efficiency of Riverlea's share price market following the announcement of extra income. It evaluates the share price movement, compares it to expected valuations, and proposes a long trading strategy to capitalize on potential returns. The analysis aims to determine if Riverlea's share market exhibits semi-strong form efficiency.

Running head: CORPORATE FINANCIAL MANAGEMENT
Corporate Financial Management
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The overall report directly evaluates the investment option that is presented to Riverlea. In
addition, the report provides relevant calculations for deriving the discounting rate and
adequate investment appraisal techniques used in evaluating viability of the project.
Moreover, sensitivity analysis is also conducted to evaluate the project under adverse and
positive circumstances, which in turn might help in detecting viability of the project. The
relevant evacuation of the production of confectioneries under different circumstances depicts
viability of the project, which could generate higher return. Hence, the positive values
depicted by the investment appraisal techniques mainly indicate viability of the project.
Therefore, it is advisable to Riverlea to commence with the production of confectioneries, as
it could help in improving returns and increasing firm value in future.
The main aim is to identify the relevant changes in share price of Riverlea after the
accouchement of extra income in future. Moreover, the adequate evaluation is been
conducted to detect whether the shares of Riverlea comes under weak market efficiency.
Furthermore, the share price value of Riverlea after announcement of the extra income did
not increase the anticipated impact on share price. This relatively indicates that shares of the
company have semi medium form of market efficiency.

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Table of Contents
Part 1:.........................................................................................................................................3
1. Introduction:...........................................................................................................................3
2. Findings:.................................................................................................................................3
2.1 Calculating the Discounted Rate:.........................................................................................3
2.2 Drafting the expected cash flows of the project:..................................................................4
2.3 Sensitivity Analysis:.............................................................................................................6
2.3.1 Drafting the cash flow when 40% probability is there for 40% lowers incremental
revenues:....................................................................................................................................6
2.3.2 Drafting the cash flow when 10% probability is there for 20% increase in incremental
revenues:....................................................................................................................................8
3. Concussion and Recommendations:....................................................................................10
Part 2:.......................................................................................................................................10
1. Introduction:.........................................................................................................................10
2. Findings:...............................................................................................................................11
2.1 Determining that stock has semi-strong market efficiency:...............................................11
2.2 Portraying the relevant trading strategy:............................................................................13
3. Concussion and Recommendations:....................................................................................13
Reference and Bibliography:....................................................................................................14

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Part 1:
1. Introduction:
The overall aim of the report is to identify the relevant viability of the new project,
which could help in increasing relevant firm value in future. In addition, the report provides
relevant calculations for deriving the discounting rate and adequate investment appraisal
techniques used in evaluating viability of the project. Moreover, sensitivity analysis is also
conducted to evaluate the project under adverse and positive circumstances, which in turn
might help in detecting viability of the project.
2. Findings:
2.1 Calculating the Discounted Rate:
From the overall evaluation of the above figure, relevant discounting rate that needs to
be used in the investment appraisal techniques could be identified. This could eventually help
in detecting the NPV value and discounted payback period value. The relevant detection of
the CAPM value is mainly helpful in identifying viability of the project. The calculation
maidenly needs risk free asserts, which is 5.05%, while the beta of the stock is calculated to
1.56 and market return is detected at 9.52%. This mainly helps in identifying the CAPM
value to be at 12.03%, which is used in the investment appraisal techniques (Willcocks
2013).

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2.2 Drafting the expected cash flows of the project:
From the overall evaluation of the above figure, relevant viability of the project under normal circumstance could be identified. The
figure directly evaluated different investment appraisal techniques such as discounted payback period, payback period, IRR and NPV valuation

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to detect viability of the project. The relevant NPV of the project under normal circumstances is mainly detected at $886,728, with an IRR of
21.49%, discounted payback period of 6.6 years and payback period of 4.6 years. The investment appraisals techniques mainly help in detecting
the overall financial stability of the project, which is presented from the project. This could eventually help in generating higher revenue from
investment in future. Caulfield, Bailey and Mullarkey (2013) mentioned that use of adequate investment appraisal techniques is mainly used by
organisation to evaluate the project with other investment opportunities.

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2.3 Sensitivity Analysis:
2.3.1 Drafting the cash flow when 40% probability is there for 40% lowers incremental revenues:

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Moreover, from the evaluation of the above figure in lower incremental revenue the overall NPV of the project is mainly detected at
$675,490 with an IRR of 19.75%, payback period of 4.6 year and discounted payback period of 6.9 years. Hence, the relevant evaluation could
eventually help in detecting viability of the project under adverse circumstances, where there is a probability of 40% for the reduction of revenue
by 40%. This could directly increase relevant profitability, which might be incurred from operations by commencing with the overall project
(Aggarwal and Thakur 2013).

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2.3.2 Drafting the cash flow when 10% probability is there for 20% increase in incremental revenues:

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The relevant evaluation could be conducted under different circumstance, when there is a probability of 10% for the increment in revenue
by 20%. This could directly allow the company to evaluate the maximum profitability, which might be incurred from operations ( Willcocks
2013). The relevant NPV under the positive circumstance is mainly calculated at $913,133 with an IRR of 21.69%. In addition, the Payback
period is detected at 4.6 years with the discounted payback period of 6.5 years. This mainly indicates viability of the project that is aimed by
Riverlea, which could in turn improve relevant profitability of the organisation

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3. Concussion and Recommendations:
The relevant evaluation of the case study and adequate investment appraisal
calculations have allowed the organisation to commence with the project. The relevant
evacuation of the production of confectioneries under different circumstances depicts
viability of the project, which could generate higher return. Hence, the positive values
depicted by the investment appraisal techniques mainly indicate viability of the project.
Therefore, it is advisable to Riverlea to commence with the production of confectioneries, as
it could help in improving returns and increasing firm value in future.
Part 2:
1. Introduction:
The main aim is to identify the relevant changes in share price of Riverlea after the
accouchement of extra income in future. Moreover, the adequate evaluation is been
conducted to detect whether the shares of Riverlea comes under strong market efficiency.

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2. Findings:
2.1 Determining that stock has semi-strong market efficiency:

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The above figures and tables mainly represent the overall impact of the
announcements, which was conducted by Riverlea, as seen in its share price movement from
Day 0 to Day 5. Relevant increment of 101% can be seen in day 0 as compared to day -1.
This mainly indicates that the news had a positive impact on the shareholder and is depicting
a semi strong form of market efficiency. Moreover, the evaluation directly indicates that the
Under reaction

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share price would increase to $6.28, whereas the share price did not increase more than
expected to $4.35. However, the share price from day 01 to 05 mainly halted between -2%
and 2%, which does not show any kind of contraction in the share price (Boboc and Dinica
2013). Furthermore, it is also seen that share price from day -2 to day -1 has mainly increased
by 80%, which indicates the relevant information about the news was leaded and adequately
reflected on the share price. Thus, it could be identified that the share price valuation of
Riverlea has semi strong form of efficient market.
2.2 Portraying the relevant trading strategy:
From the relevant evaluation of the share price movement of Reverlea after the
announcement, it is assumed that buying the shares could directly help in generating higher
returns for the investors. From the relevant evaluation, it could be understood that the share
price of the company is did not increase, as the actual valuation according to the income
impact is around $6.28. Therefore, buying the shares could eventually provide a relevant
return of 47.29%, which is adequate for the investors. Urquhart and Hudson (2013) stated
that trading strategies mainly allow the investors to generate higher returns and reduce the
loss if market does not go as predicted.
3. Concussion and Recommendations:
The relevant evaluation of the case study and calculation it could be identified that use
of long trading strategy could help in improving profitability of the investor. Furthermore, the
share price value of Riverlea after announcement of the extra income did not increase the
anticipated impact on share price. This relatively indicates that shares of the company have
semi medium form of market efficiency.

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Reference and Bibliography:
Aggarwal, A. and Thakur, G.S.M., 2013. Techniques of performance appraisal-a
review. International Journal of Engineering and Advanced Technology (IJEAT), 2(3),
pp.2249-8958.
Boboc, I.A. and Dinică, M.C., 2013. An algorithm for testing the efficient market
hypothesis. PloS one, 8(10), p.e78177.
Bodie, Z., 2013. Investments. McGraw-Hill.
Caulfield, B., Bailey, D. and Mullarkey, S., 2013. Using data envelopment analysis as a
public transport project appraisal tool. Transport Policy, 29, pp.74-85.
Dong, H., Bowers, H.M. and Latham, W.R., 2013. Evidence on the efficient market
hypothesis from 44 global financial market indexes. Economics Research
International, 2013.
Mulley, C., Tyson, R., McCue, P., Rissel, C. and Munro, C., 2013. Valuing active travel:
Including the health benefits of sustainable transport in transportation appraisal
frameworks. Research in Transportation Business & Management, 7, pp.27-34.
Urquhart, A. and Hudson, R., 2013. Efficient or adaptive markets? Evidence from major
stock markets using very long run historic data. International Review of Financial
Analysis, 28, pp.130-142.
Westerlund, J. and Narayan, P., 2013. Testing the efficient market hypothesis in conditionally
heteroskedastic futures markets. Journal of Futures Markets, 33(11), pp.1024-1045.
Willcocks, L., 2013. Information management: the evaluation of information systems
investments. Springer.

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Willcocks, L.P., 2013. 9 Evaluating the Outcomes of Information Systems Plans Managing
information technology evaluation—techniques and processes". Strategic Information
Management, p.239.