Facebook provided the researchers with investigation

Running head: FINANCIAL MANAGEMENT
Financial management
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Part A...............................................................................................................................................2
1.1 Introduction.......................................................................................................................2
1.2 Literature Review..................................................................................................................2
1.3 Efficient market hypothesis...................................................................................................3
1.4 Impact of social media on efficiency of stock market...........................................................6
1.5 Using information from social media for make investment related decisions......................6
1.6 Conclusion.............................................................................................................................6
Part B...............................................................................................................................................7
2.1 Evaluation of proposed project..............................................................................................7
2.2 computation and analysis of findings....................................................................................9
2.3 Decision in context of proposed project................................................................................9
Reference.......................................................................................................................................10
Appendix........................................................................................................................................12

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Part A
1.1 Introduction
Boom of the social media in past decades has changed the manner in which the investors
forecast stock market. As the social media offers wide volumes of the real time opinion for the
users, investors potentially can exploit the information through leveraging the processing
technique of machine learning as well as natural language. In recent times, repeatedly popular
news channels are reporting that predicting market through alternative data like micro-blog
messages are becoming the mainstream among the institutional investors. Generally the investors
always look for gaining the edge on rest of the market. As per the traditional market theory
predicting the future movement for stock market is wasted effort. Growth in popularity and size
of social media sites such as Twitter and Facebook provided the researchers with investigation
regarding science for predicting another source for data (Paniagua and Sapena 2014)
1.2 Literature Review
Drawing on the theories as well as prior findings in context of behavioural finance, it is
believed that when the sentiments of investors may forecast the returns on the future stocks, it is
also expected to be impacted through the returns of past stocks. It means that the potential
casualty circleamong stock returns and micro-blog sentiment such casualty circle shall be taken
into consideration under analysis.Twitter became the well-known website that that allows more
than 500 million members sending average of 340 million tweets daily all of which include more
or less 140 characters. In recent times, investors in the stock market have turned to the Twitter as
the investment tool. Appeal of Twitter as an investment pool lies in the ability of the users in
relaying the information regarding the entity, ideas for investment and market sentiment in
concise and short manner (Liu et al. 2015). At present, investors generally turn to website of
StockTwits for sharing the information. StockTwits that was developed in 2008 boasts 300,000
investors, public entities and market professional those use this site for sharing information and
ideas regarding the market as well as individual stocks. StockTwit is the platform like Twitter
that is focused on the investors and operates in the similar way. Generally the users share short
messages regarding particular index or stock applying the $ symbol before the ticker symbol that
allows the StockTwit organizing information or streams regarding particular index or stock. It

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further allows significant amount of the information to aggregate in single place which in turn
helps the researchers analysing the relationship among stock market and the social media
websites (Sul, Dennis and Yuan 2014).
During the period of dot-com bubble in late 1990s, online messages board and blogs that
was focussed on the information of stock market as well as speculation became well-known. Past
researches primarily have used the online message board as a mean for aggregating the sentiment
of investors. Quality of information provided by Twitter has also been analysed. Twitter allows
the people to re-share or re-tweet the previous tweets as well as following others, underlining
accurate information, isolating naturally and eliminating the poor information (Enikolopov,
Petrova and Sonin 2018).
1.3 Efficient market hypothesis.
Efficient market hypothesis (EMH) is the investment approach that is primarily generated
from the concept that is attributed to research of Eugene Fama in his book “Efficient capital
market: A review of theory and empirical work”. In his book Famastated the basic idea which is
virtually not possible in beating the market in consistent basis for making basis for return on
investment that will exceed overall average in market as it has been reflected by the major stock
indexes. In accordance with the theory of Fama, if an investor is lucky and buy the stock that will
provide him with short-term profits in long run, the investor cannot hope realistically to attain the
return on investment which is considerably higher as compared to the market average (Alexander
and Gentry 2014). Fama’s investment theory carries same implication for the investors as
Random Walk Theory that is based on the number of suppositions regarding the securities
market and the manner in which they function. These conventions include1 idea that is critical to
the validity of EMH that is the confidence that all the information those are relevant to the stock
prices is widely and freely available and shared universally among the investors. As always there
are wide number of buyers as well as sellers in market, movement of price always takes place
efficiently. Hence, stocks are generally trading at the current value of fair market (Li et al. 2014).
Three variations are there for the hypothesis – weak, strong and semi-strong those
represent 3 different expected levels for market efficiency.

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 Weak form – this form of EMH presumes that prices for the securities replicate all the
available information regarding public market however it may not replicate new
information which is not available yet publically. In addition, it ptresumes that the past
information in context of volumes, returns and prices are independent of the future prices.
Weak form of EMH implies that the strategies associated with technical trading is not
able to provide the consistent additional returns as past prices performance is not able to
predict the future prices action those are based on the new information. Under this form
while it discounts the technical analysis leaves the open opportunitythat superior the
fundamental analysis that may deliver the means for outperforming overall average
market return on the investment (Chen et al. 2014).
 Semi-strong form – this form of theory terminates usefulness of fundamental as well as
technical analysis. Semi-strong form of EMH integrates the weak form of assumption and
it expands on the same through assuming that the prices quickly adjusts with any new
information publically available and hence rendering the elementary analysis that is
incapable of having the predictive power regarding the movements of future prices. For
instance, while the monthly report for non-farm payroll in US is issued each month,
prices can be seen adjusting speedily as market considers new information (Azar and Lo
2016).
 Strong form – this form of EMH holds that the prices always entirely reflect private as
well as public information. It includes all the information available publically new or
current as well as historical along with the insider information. Even the information
those are not available to the investors publically for instance, the information those are
only known to the CEO of the entity, are presumed to be factored already and always into
the current stock price of the entity. Hence, in accordance with the strong form of EMH,
even the insider knowledge cannot provide the investors with prognostic edge that will
allow them to generate the returns on consistent basis that will exceed overall average of
the market (Colicev et al. 2018).
EMH has been the subject matter for significant debate over past few decades with the
recent flow in the interest in Singaporean market. Economies in the East Asiawent through
massive inflows of capital inviting queries of whether the markets are adequately efficient for the
purpose of further investment as well as development. EMH is applicable to Singapore in

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strong-form. The same can be established through the interaction between the share price of the
company and its EPS. As per the news it has been proved that the Singaporean market is
dynamic over reactive system and the investors are not rational always. One of the ways is to
analyse the share price of the company that is for Singapore Airlines and its EPS. During past 3
years share prices of the entity fell and the EPS has been dropped by 5.8% in each year. If
compared, share price has been declined compound is not as bad as the drop in the EPS. This
signifies that market retains some of the optimism around the stability of long-tern earnings
irrespective of past declines in the EPS (St 2019).
(Source: St 2019).
While looking into the investment returns, it is crucial to take into account the difference
among the return in share price and total return to shareholders. On the other hand, share price
return only reflects changes in share price; total return to shareholder includes value of the
dividends and benefits of discounted capital raise or spin-off. Hence, for the entities that pay the
generous amount of dividends, total return to shareholders is generally lot higher as compared to
the share price return. In case of Singapore Airlines, it had total return to shareholders of -2.3%
for past 3 years. It is more than the share price return that has been mentioned previously.
Dividends paid by the entity have therefore boosted total return to shareholders (St 2019).

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1.4 Impact of the social media on efficiency of stock market
Social media is the electronic communication through which the users generate the online
communication for exchanging information, personal messages, ideals as well as other content.
As large number people are active in Twitter and advent of the Cashtag where the users may use
# for hash tagging their tweets. As the same is linked with the financial information, it is very
simple to find out the financial information for the people regarding the entity on Twitter through
searching the cashtag of the firm. For instance, the cashtag of General Motors (GM) is $GM. As
it is already mentioned above that Twitter is the form of dissemination, it enhances the stock’s
liquidity through using the bid-asks spreads as proxy for the liquidity. This is specifically holds
good for the small visibility firms. Usage of social media like Facebook and Twitter for
disseminating the news regarding the products recalls assists in lowering the negative reactions
from the market as the firm is able to do the damage control (Li et al. 2014).
1.5 Using information generated from social media to make investment related decisions
In the financial investment world, timing is the most important thing. In past times,
successful decisions were made based on the knowledge those are generated from the traditional
media, personal connections and trade publications. However with rise in the social media there
is more efficient and quicker way for gathering the data that influence the judgements of the
investors. Social media can help in taking quick decisions where delay of one minute may make
the difference of thousand dollars. For instance, Twitter is the most up-to-date and immediate
source for the news. Stories in the social media are published hours before the corporations issue
them which in turn help the investors to take quick and informed decisions (Braojos-Gomez,
Benitez-Amado and Llorens-Montes 2015).
1.6 Conclusion
From the above discussions it can be determined that expansion of internet in past periods
has provided the researchers with new avenues for exploring art of prediction. Online forums as
well as blogs help the individuals in sharing the thoughts, information and opinions with one
another in context of imaginable subject. It is quite evidential that even single post in the social
media has great impact. Rapid expansion of the social media in last few years has altered the
manner in which the people used to communicate the information, opinions and ideas with each
other. Hence, social media plays important role in decision making process of the investors.

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Part B
2.1 Evaluation of proposed project
Turk Transmission Ltd is the profitable and fast growing entity that is located in
Uzbekistan. It is planning to commission the pipeline for the length of 35 km among 2 locations
for carrying gas to electricity board in Tashkent. The project will be evaluated through various
approaches like payback period, ROCE, NPV and IRR.
Payback period – it is the to time required for recovering costs of the investment. In other words,
it is the time length absorbed by an investment to reach the break-even point. Desirability for any
project is directly dependent upon the payback period as shorter length of payback period is
taken as more attractive as an investment. It is computed through dividing amount of investment
by the cash flow (Gorshkov et al. 2018).
Advantages of payback period approach are as follows –
 Risk focus – this approach is focussed on how quickly the money can be recovered from
the investment that is essentially measured through risk. Hence, payback period can be
applied for comparing associated risk of the projects with dissimilar payback periods.
 Simplicity – this approach is considerable simple for understanding as well as
computation. While the analysts carry out rough analysis for he proposed project,
payback period can be computed without using even the electronic spreadsheet or
calculator (Gorshkov et al. 2014)
Disadvantages of payback period approach are as follows –
 Time value of money – major disadvantage of this approach is that is ignores time value
of money. Hence, cash flows generated during early periodsare assigned higher weights
as compared to the ash flow received in later years.
 Ignores profitability – projects with short payback period does not signify its profitability.
If cash flows ends at the payback period or reduced drastically, the project may never
return the profit and hence, it will be unwise decision to invest in the same (Gorshkov et
al. 2014)

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Return on capital employed (ROCE) – it is the financial metricappliedfor measuring the
profitability of the entity as well as efficiency with which the capital is being used. It is
calculated by dividing the cash profit by the amount of average investment (Edwards 2014)
Advantages of ROCE approach are as follows –
 It one among the few financial ratios that is used to capture monetary return on debt as
well as equity. As such the same is used by most of the investors as the criteria for the
strategies of investment portfolio.
 It assists in comparing the entities with various capital structure and hence, it is
considered as very good approach for the purpose of peer comparison (Edwards 2014)
Disadvantages of ROCE approach are as follows –
 The ratio is computed on the basis of book value and hence return does not reflect market
value
 ROCE is exposed to the risk of accounting manipulation that can lead to elevated returns.
Segregation of the long term liabilities as the current liabilities can be an example for
such manipulation in accounting (Edwards 2014)
Net present value (NPV) – it is the value of difference among the PV of cash inflows and cash
outflows those are discounted at the specific rate. It is the method of computing the return on the
investment. It accounts for the time value of money and transforms the future cash flows into
present value (Gallo 2014)
Advantages of NPV approach are as follows –
 Major advantage of NPV approach is it takes into consideration the time value of money.
 Another advantage of this approach is that it considers cost of the capital and inherent
risk while making estimations regarding future (Žižlavský 2014).
Disadvantages of NPV approach are as follows –
 Biggest disadvantage of this approach is it involves guesswork to some extent regarding
the capital cost. Assuming too low capital cost will lead to suboptimal investment
whereas assuming too high capital cost will lead to forgoing of too many investments.

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 This approach is not useful while comparing 2 projects of different sizes as this approach
result in dollars amount and the size of NPV output is established through size of input
(Žižlavský 2014).
Internal rate of return (IRR) – this is a capital budgeting approach used to measure the potential
profitability of the project. It is the discounting rate where the NPV of the project is zero.
Advantages of IRR approach are as follows –
 Time value of money – major advantage is that it takes into account the time value of
money while evaluating the project.
 Simplicity – this approach is attractive as it is very easy to compute and understand
(Patrick and French 2016)
Disadvantages of IRR approach are as follows –
 It does not consider the economies of scale
 Cannot be used for mutually exclusive projects and contingent or dependent projects are
ignored while computing the IRR (Patrick and French 2016).
2.2 computation and analysis of findings
It is found that the payback period is 6.25 years and ROCE is 30.08% which are
appropriate for accepting the project. However, the NPV of the project is -$4.66 million and the
IRR is 14.65% whereas the required return on the project is 15%
2.3 Decision in context of proposed project
As the NPV of the project is negative and the IRR is lesser as aginst required rate of
return, the project shall not be accepted even if the payback period is less than the project’s
useful life.

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Appendix