DISCUSSION

Answer-01:

Sensitivity analysis: It deals with an exposure of those factors which could bring about significant

effects on NPV of the project. Sensitivity analysis is normally done by stepping every variable

through pessimistic, most likely and optimistic value.

Break-even analysis: It deals with the findings of the specific value of a particular variable at

which the NPV of a project gets to be zero.

Scenario analysis: It is the procedure of evaluating the expected value of a portfolio after a given

timeframe, assuming appropriate changes in the values of the portfolio's securities, for example,

change in the interest rate.

Both sensitivity and scenario analysis can be important components in determining whether

or not to make an investment. Break-even analysis is important because it helps the business to

decide the structure of cost and the number of units that should be sold to make a profit or cover a

cost.

Answer-02:

Supply and demand in the market determine stock price. The price to earnings ratio (P/E

ratio) is the ratio of market price per share to earnings per share. PE gives the investors an idea if

the stock has adequate growth potential thats why it is an important ratio. The P/E ratio of Wal-

Mart is 13.2. It is below than average, and below half of competitor Costco's P/E ratio of 28.1.

This P/E ratio proposes that Wal-Mart is capable of working successfully for the value investors.

Answer-03:

Economic value added (EVA) is an internal measure of performance management that

compares net operating profit to aggregate cost of capital. Economic Value Added (EVA) is
valuable because it can use as an indicator of how productive organization projects are in this

manner serves as a reflection of performance of the management.

Market value added (MVA) is a computation that demonstrates the distinction between

the market estimation of an organization and the capital contributed by the investors, both

shareholders and bondholders. Market value added (MVA) is a valuable measure to examine how

much value an organization has added to the wealth of its shareholders.

Answer-04:

I. Leasing transactions are often termed as balance sheet mining transactions because they

are used to free up funds tied up in assets.

II. One of the potential advantages of having a lease categorized as an operating lease instead

of a capital lease is the potential tax benefits. An operating lease might allow deducting

installments as operating expenses amid the period in which an individual pays them.

III. Several specific factors may make the overall risk in these types of leases. For e.g. the

inherent risks of ownership, default claims, collateral, Interest and tax assumptions, etc.

Answer-05:

Companies pay dividends if they have excess earning from which they choose to pay

dividends to shareholders. Dividends are valuable because they give a steady income flow that can

improve the returns on investment. Dividends are better than reinvesting into new projects because

an organization that reduces or eliminates its current dividend payments might be seen unfavorably

and its prices of stock may diminish.

Answer-06:

Kingfisher plc is a public limited company headquartered in London. Kingfisher plc has a

Retention Ratio also called plow back ratio of 57.43% which is higher as compared to its peer and
refers that it might generate higher growth in the future and can produce potential dividend yield

and higher share price.

Answer-07:

A share buyback refers to the purchase by a company of its shares from the marketplace.

Dividends and Buybacks can significantly boost shareholder returns. Share repurchases are usually

more flexible for the organization, while dividends are more flexible for the shareholders.

Answer-08:

Direct cost is a cost generates as a direct result of bankruptcy including loss of tax losses,

liquidation of assets and, legal and accounting costs.

Indirect cost is a cost of financial distress that can occur even if bankruptcy is avoided

including increasing costs of doing business, distracted management concentrated on financing

and not on the management of business operations.

Answer-09:

The primary difference between Chapter 07 and Chapter 11 bankruptcy is that under a

Chapter 7 bankruptcy filing, the assets of the debtor are sold off to pay the though in Chapter 11,

the indebted person negotiates with lenders to modify the terms of the loan without liquidating the

assets. Many companies that have filed for Chapter 7 bankruptcy includes Adam Aircraft

Industries, Acclaim Entertainment, Air America (radio network), Alaska Aces (ECHL), Aloha Air

Cargo, and Aloha Airlines.

Answer-01:

Answer-02:

The main difference in the value of both gas stations is because of one element, and that is

the difference in the capital structure of them two. Owner's fund totally finances one of the gas

station, and the debt totally finances another. The value of the 100% equity financed firm is

considered to be more than the value of 100% debt financed firm. The motivation behind why the

value of an equity-financed organization is more than the completely debt-financed firm is that the

bankruptcy rate of the completely debt-financed company is greater when contrasted with an

equity-financed firm. An optimum debt/equity ratio needs to be maintained to appreciate the

advantages of leverage.

There are various detriments of having 100% debt in the capital structure, for example.

There is a probability of hostile takeover of the firm by any other firm.

High debt in capital structure implies burden of higher interest rate cost on the debt.

Management can lose the control over the organization.

Answer-03:

The stock price reveals both the future and present estimation of dividends got by the

shareholders. On the other hand, the profits reflect the current year performance as it were. The

profit maximum tries to enhance the profits of this current year to the detriment of future profits.

However, the maximum stock price will be considered the entire stream of cash flows that is

created by the firm. Therefore, they are suitable to looking forward.

Answer-04:

P/E ratio measures the no of times the profit of the most recent year at which share price is

quoted and in which the profit can equivalent to current market price. Liquidity or excess cash
reflects lower profitability, decay in managerial effectiveness additionally impacts dividend

policies and liberal credit. Too little liquidity may prompt to reduced return or rate, various better

opportunities for business missed, and organization is proclaimed technical insolvent, therefore, it

is important to maintain a higher level of working capital management. Consequently, the cash

management needs to choose while assessing the investment decision whether to put resources

into long-term projects or to put resources into short-term projects. So, it should have been opposed

relation to be said amongst risk and returns from the investment.

Utilizing receivables to financing necessary expenses rather focusing on producing

reserves so with jury examining the corporate liquidity transaction needs to work out on the two

methodologies qualitative and quantitative approach. The quantitative approach looks forward to

maximum utilization of the cash for the assets, and qualitative approach conceptualizes on the

capacity to meet all potential and present demands on the cash in a way that it decreases cost and

amplifies the firms value.

Answer-05:

We will take a look at some of the most important ratios for the valuation of Facebook

includes Price Earnings Ratio, Price to Sales Ratio (P/S Ratio), Profit/Earnings to Growth (PEG)

ratio, Value per Active User, Debt-Equity Ratio, Interest Coverage Ratio, Cash Flow to Debt Ratio,

Current Ratio, Quick Ratio, Cash Ratio, and Cash Conversion Cycle. Further we will choose peer

companies like LinkedIn and google. When the valuated company is from the technology industry,

the task becomes especially tricky. Technology companies operate in a complex business

environment, with many layers of operation and innovation within.

Answer-06: