Corporate Financial Management: Riverlea Project Evaluation Report

This comprehensive report evaluates an investment option presented to Riverlea, employing discounted rate calculations and investment appraisal techniques such as NPV, IRR, and payback period to assess project viability. Sensitivity analysis is conducted under varying revenue scenarios to determine the project's robustness. The analysis indicates positive values across investment appraisal techniques, suggesting the project's potential to generate higher returns and enhance firm value. The report also investigates the impact of extra income announcements on Riverlea's share price, revealing a semi-strong form of market efficiency. The findings support the recommendation for Riverlea to proceed with the confectionery production, as it is expected to improve returns and increase the company's value. The report provides detailed calculations and analysis to support its conclusions.

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: