Corporate Finance Analysis: Investment Appraisal and Market Efficiency

This report conducts a corporate finance analysis of Riverlea, evaluating a confectionery production investment opportunity. The analysis employs investment appraisal techniques like NPV, IRR, payback period, and discounted payback period, alongside the CAPM model to determine the cost of capital. Sensitivity analysis explores different revenue scenarios. The report also investigates the impact of announcements on Riverlea's share price and assesses market efficiency, concluding that Riverlea exhibits strong-form market efficiency. Furthermore, it suggests a short-selling strategy to capitalize on share price movements. The findings support the viability of the confectionery project and offer insights into trading strategies.

Running head: CORPORATE FINANCE ANALYSIS
Corporate Finance Analysis
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
The overall viability of the project is mainly detected by using different investment appraisal
techniques such as NPV, IRR, payback period, and discounted payback period. Furthermore,
relevant CAPM model is also used to derive the overall cost of capital, which could be used
in the investment appraisal techniques. The focus is mainly to identify whether the
organisation will be able to generate higher returns in future with the investment opportunity.
Therefore, it could be mentioned that the organisation could commence with the production
of confectioneries, as it might provide higher returns in future. The relevant cash flow
generation, investment appraisal techniques, and sensitivity analysis is used to identify
viability of the project and the return that it could provide under different situation. Hence, it
is advisable for the organisation that start with the production of confectioneries, is it might
help in accumulating higher capital in future.
The main focus of the report is to identify the overall you impact of announcement on
the share price of Riverlea. In addition, the report it also used to identify whether shares of
Riverlea have strong form of market efficiency, which could lead to sudden spike in share
price. After conducting the adequate evaluation and calculation of the share price it could be
identified that Riverlea has strong form of market efficiency, as its prices reacted to the
announcement efficiently. Furthermore, the use of short selling strategy could eventually help
the investors in gaining more income from the overall share price movement of Riverlea.

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Table of Contents
Part 1:.........................................................................................................................................3
1. Introduction:...........................................................................................................................3
2. Findings:.................................................................................................................................3
2.1 Portraying the calculation for Discounted Rate:..................................................................3
2.2 Deriving the cash flow under normal circumstances:..........................................................5
2.3 Sensitivity Analysis:.............................................................................................................7
2.3.1 Deriving the cash flow when there is 40% probability for 40% lowers incremental
revenues:....................................................................................................................................7
2.3.2 Deriving the cash flow when 10% probability is there for 20% increase in incremental
revenues:....................................................................................................................................9
3. Concussion and Recommendations:....................................................................................11
Part 2:.......................................................................................................................................11
1. Introduction:.........................................................................................................................11
2. Findings:...............................................................................................................................12
2.1 Calculating and determining whether the stock is semi-strong efficiency:.......................12
2.2 Portraying the overall trading strategy:..............................................................................14
3. Concussion and Recommendations:....................................................................................14
Reference and Bibliography:....................................................................................................15

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Part 1:
1. Introduction:
The evaluation of the assignment is mainly conducted on the overall business
opportunity that is presented to Riverlea for producing confectioneries. The overall viability
of the project is mainly detected by using different investment appraisal techniques such as
NPV, IRR, payback period, and discounted payback period. Furthermore, relevant CAPM
model is also used to derive the overall cost of capital, which could be used in the investment
appraisal techniques. The focus is mainly to identify whether the organisation will be able to
generate higher returns in future with the investment opportunity.
2. Findings:
2.1 Portraying the calculation for Discounted Rate:
The relevant discounting factor is mainly identified by calculating the CAPM returns
with risk free rate of 5.05%, Beta of 1.56, and market return of 9.22%. From the overall
calculation of CAPM relevant cost of capital is derived at 11.55%, which could be used in
detecting viability of the project. Moreover, this relevant detection of cost of capital is mainly
helpful in reducing the negative impact of inflation on returns provided by Investments.

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Guleria, Tiwari and Sharma (2017) argued that due to unforeseen circumstances cost of
capital loses its value due to the negative impact from economic crisis.

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2.2 Deriving the cash flow under normal circumstances:

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Evaluate the investment appraisal techniques under normal circumstances mainly portray a positive NPV of $911,726 with an internal
rate of return of 21.07%. This is directly indicates the overall viability of the project, which is presented to Riverlea. The project also has a fever
period of 3.9 years and a discounted payback period of 5.4 years, which is relatively below the overall project life. The overall positive
investment appraisal techniques indicate the viability of investment opportunity provided to the company. In this context, Harris (2017) stated
that use of adequate investment appraisal techniques directly allows the organisation to select the most viable investment option, which could
generate the highest return.

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

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Therefore under the adverse circumstances, where 40% of the revenue will decline due to a 40% probability, the project is still viable.
The positive NPV of $693,199 with an IRR of 19.31% directly indicates viability of the project providing higher returns from investment.
Moreover the overall payback period is calculated at 3.9 years while the discounted payback period is detected to be 5.5 years. This is relatively
a positive attribute, which needs to be evaluated by the organisation and help in selecting the most viable investment option. On the contrary,
Mayer, Breun and Schultmann (2017) argued that use of investment appraisal techniques does not guarantee the returns that will be provided
from a particular investment.

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

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The last scenario many represents of positive here, where there is a probability of 10% that revenue will increase by 20%. in this scenario
the overall NPV mainly portrayed a positive $939,042 with an IRR of 21.28%. The payback period calculated at 3.9 years, discounted payback
period is detected to be 5.4 years. This relevant increment in revenues due to positive value mainly indicates the overall range within which the
overall profitability of the investment opportunity can be seen. Therefore, under sensitivity analysis it could be identified that the project is a
viable approach, which could directly allow the organisation to generate higher firm value in future. Hirschi and Selvin (2017) stated that use of
adequate sensitivity analysis directly allows the organisation to detect viability of the project under both adverse and positive circumstances

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3. Concussion and Recommendations:
The evaluation of the overall calculation that is conducted in the above tables mainly
represent the viability of the investment opportunity for Riverlea. Therefore, it could be
mentioned that the organisation could commence with the production of confectioneries, as it
might provide higher returns in future. The relevant cash flow generation, investment
appraisal techniques, and sensitivity analysis is used to identify viability of the project and
the return that it could provide under different situation. Hence, it is advisable for the
organisation that start with the production of confectioneries, is it might help in accumulating
higher capital in future.
Part 2:
1. Introduction:
The main focus of the report is to identify the overall you impact of announcement on
the share price of Riverlea. In addition, the report it also used to identify whether shares of
Riverlea have strong form of market efficiency, which could lead to sudden spike in share
price.

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2. Findings:
2.1 Calculating and determining whether the stock is semi-strong efficiency:

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The adequate calculations are mainly conducted and represented in the above figures,
which could help in detective the overall reaction of investors regarding the announcements
of increased future revenue. Furthermore, from the overall calculation it could be identified
that relevant increment of 101% in share price is witness from day -1 to day 0. This is mainly
due to the news announcement conducted by the company (Laird and Venables 2017). The
reaction of the investor regarding me future profit mainly indicates that the shares of the
company have strong form of market efficiency. However, the calculation indicated that
Overeaction

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share price of the company will rise to $3.10, which is due to the spontaneous reaction the
share price went as high as $4.35.
Moreover, the Share price of the company mainly declined from day 0 to day 5,
which represents consolidating stage for the shares, where prices retrace back to the actual
value. This unorthodox price movement of the shares from day 0 to day 5 does not indicate
the dishes have strong form of market efficiency.
2.2 Portraying the overall trading strategy:
Share price movement mainly indicate that short selling strategy could be beneficial
for the investor, as it might help in capturing the retracement trade to achieve fair value share
price. This would decline the share price from $4.35 to $3.10, which will provide a relevant
return of 28.76% for the investor. In this context, Li .and Trutnevyte (2017) stated that use of
adequate trading strategies allows investors to minimise the risk and maximize the return
from investment.
3. Concussion and Recommendations:
After conducting the adequate evaluation and calculation of the share price it could be
identified that Riverlea has strong form of market efficiency, as its prices reacted to the
announcement efficiently. Furthermore, the use of short selling strategy could eventually help
the investors in gaining more income from the overall share price movement of Riverlea.

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Reference and Bibliography:
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analysis. Handbook of Social Policy Evaluation, p.57.
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Guleria, A., Tiwari, P. and Sharma, R., 2017. Cost of Cultivation and Economic Feasibility of
Grafted Harar (Terminalia chebula) In Himachal Pradesh. Int. J. Pure App. Biosci, 5(2),
pp.1005-1011.
Harris, E., 2017. Strategic project risk appraisal and management. Routledge.
Hirschi, T. and Selvin, H.C., 2017. Delinquency research: An appraisal of analytic methods.
Routledge.
Laird, J.J. and Venables, A.J., 2017. Transport investment and economic performance: A
framework for project appraisal. Transport Policy, 56, pp.1-11.
Li, F.G. and Trutnevyte, E., 2017. Investment appraisal of cost-optimal and near-optimal
pathways for the UK electricity sector transition to 2050. Applied Energy, 189, pp.89-109.
Markham, J.W., Gabilondo, J. and Hazen, T.L., 2017. Corporate Finance: Debt, Equity, and
Derivative Markets and their Intermediaries, 4th. West Academic Publishing.
Mayer, C., Breun, P. and Schultmann, F., 2017. Considering risks in early stage investment
planning for emission abatement technologies in large combustion plants. Journal of cleaner
production, 142, pp.133-144.

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Mohagheghi, V., Mousavi, S.M., Aghamohagheghi, M. and Vahdani, B., 2017. A new
approach of multi-criteria analysis for the evaluation and selection of sustainable transport
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COMPUTATIONAL INTELLIGENCE SYSTEMS, 10(1), pp.605-626.
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Value Management for Construction Projects (pp. 13-29). Springer International Publishing.
Vickerman, R., 2017. Beyond cost-benefit analysis; the search for a comprehensive
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