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Contents
Question: 1:......................................................................................................................................2
Question: 2:......................................................................................................................................6
Question: 3:......................................................................................................................................7
Reference:......................................................................................................................................12
Question: 1:
5. Receivable days:
6. Payable days
8. Debt/Equity ratio:
9. Return on equity
2020 2021 2022
Net income 174.00 156.00 133.00
Equity 485.00 609.00 685.00
90.00%
80.00%
70.00%
60.00%
Gross profit margin
50.00% Net profit margin
Net asset turnover
40.00% Return on equity
Return on capital
30.00% employed
20.00%
10.00%
0.00%
2020 2021 2022
However, the efficiency ratios of the company have shown a mixed performance where
receivable days have decreased in comparison to FY 2020. But, the payable days of Shaybah Plc
have also declined, due to which the company will need to make payable quickly. It can be said
the overall performance of the company is not satisfactory because the debt ratio has also
increased which means that the reliance of Shaybah Plc on an outside debt has increased
(Haralayya, 2022).
140.00
120.00
100.00
80.00
Receivable days
60.00 Payable days
40.00
20.00
0.00
2020 2021 2022
Wealth maximization means that the share price of Shaybah Plc is increasing and the company
wants to increase its market capitalization. The increase in the share price of the company
directly impacts its growth perspective, and position in the market (Haralayya, 2022). When the
company wants to increase the wealth maximization of the company, it means that they are
trying to increase the value, Wealth maximization is also done by companies to attract new
investors because it will help Shaybah Plc to increase the number of employees employed by the
company. This will help the company to perform better in the future.
Shaybah Share price
21.2
21 21
20.8
20.6
20.4
20.2
20 20
19.8
19.6
19.4
2020 2021
Question: 2:
Different costs are associated with the financing of projects with debt and equity financing.
Equity capital reflects the ownership of a company, while debt capital reflects the obligation of
Shaybah Plc. In most cases, the cost of equity is more than the cost of debt, because the risk of
shareholders is more than the risk of lenders. After all, lenders get preferential rights in every
case, where repayments are made to them at regular intervals. In return, the return that is
promised to shareholders is not guaranteed, because companies are not under an obligation to
pay dividends at regular intervals (Ma,& Zeng, 2022).
The retained earnings also come with a cost and it is the cost of the earnings that the shareholders
have to forego.
If Shaybah Plc uses the retained earnings as its finance source then it will have opportunity costs
of earnings foregone by the shareholders to keep the money in Shaybah Plc instead of investing
it in the business, or investing it outside of the business.
Hence, every source of funds that the company uses comes with costs, and the shareholders
should identify that the return from investment should always be more than the costs associated
with the project, or the costs that the company will incur to complete the project. Hence,
company Shaybah should use the above methods to raise money for their projects.
Question: 3:
Cumulative
Project A inflows Payback
NPV 54.64
Project A
Year0 Year1 Year2 Year3 Year4 Year5
NPV 45.29
3. Internal rate of return:
Project A
Year0 Year1 Year2 Year3 Year4 Year5
NPV 54.64
IRR 11%
Project A
Year0 Year1 Year2 Year3 Year4 Year5
NPV 45.29
IRR 12%
4. Analysis:
NPV :
It helps to consider the time value of money concept.
It is considered to be more relevant for the evaluation of financial opportunities.
Payback period:
It is the easiest form of financial appraisal technique.
It also provides how quickly funds can be recovered.
IRR
It is using the cash flow and time value concept to generate the information.
It also provides an indication of the efficiency, and yield of the project (Kipkirui,
& Kimungunyi, 2022).
Discussion over the computation and result find out in the above table
From the above, it can be said, that there are two projects within which Zebra Toon Plc
has to choose one project, and different investment appraisal analysis techniques have
been used by the company to evaluate the decision (Dobrowolski, & Drozdowski 2022).
Based on the payback period, Zebra Toon Plc should select project B, because the
payback period of the company is low, and due to this the company will be able to
recover their money fast. However, these criteria will be used by the company if time is
an important consideration for them to decide the viability of the project.
On the other hand, based on NPV, project A should be used because the NPV of that
project is high, and when the decision is to be taken by Zebra Toon Plc between two or
more projects, the project with a higher NPV is selected, because it means that the
company will be able to earn higher inflows, in the given amount of time (Shou, 2022,
July).
Also, the IRR of project B is higher and is equal to the cost of the project or the cost of
discounting, and hence, based on IRR also, project B should be chosen by Zebra Toon
Plc.
Suggestion
Hence, based on the payback period, Zebra Toon Plc should invest in project A, and based on
IRR company should invest in project B.
Reference:
Dobrowolski, Z., & Drozdowski, G. (2022). Does the Net Present Value as a Financial Metric Fit
Investment in Green Energy Security? Energies, 15(1), 353. https://www.mdpi.com/1996-
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Haralayya, B. (2022). Impact of Financial Statement Analysis on Financial Performance in
Lahoti Motors Bidar. Iconic Research And Engineering Journals, 5(9), 197-206.
https://www.irejournals.com/formatedpaper/1703261.pdf
Haralayya, B. (2022). Impact of Ratio Analysis on Financial Performance in Royal Enfield
(Bhavani Motors) Bidar. Iconic Research And Engineering Journals, 5(9), 207-222.
https://www.researchgate.net/profile/Dr-Haralayya/publication/359186861_Impact_Of_Ratio_A
nalysis_on_Financial_Performance_in_Royal_Enfield_Bhavani_Motors_Bidar/links/
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Enfield-Bhavani-Motors-Bidar.pdf
Kipkirui, L. P., & Kimungunyi, S. (2022). EFFECT OF NET PRESENT VALUE
INVESTMENT APPRAISAL PRACTICE ON FINANCIAL PERFORMANCE OF CEMENT
MANUFACTURING FIRMS IN KENYA. International Research Journal of Economics and
Finance, 4(2). https://www.irjp.org/index.php/IRJEF/article/viewFile/79/99
Ma, Y., Xiao, K., & Zeng, Y. (2022). Bank debt versus mutual fund equity in liquidity
provision. Jacobs Levy Equity Management Center for Quantitative Financial Research Paper.
https://www.hhs.se/globalassets/swedish-house-of-finance/seminars/2022/yiming-ma.pdf
Rhodes, W. R., Lipsky, J., Checki, T. J., Cooper, R. J., Dudley, W. C., Jin, K., ... & Walker, M.
(2022). Debt transparency: the essential starting point for successful reform. Capital Markets
Law Journal.
https://www.brettonwoods.org/sites/default/files/documents/SDWG_Debt_Transparency_The_E
ssential_Starting_Point_for_Successful_Reform.pdf
Shou, T. (2022, July). A Literature Review on the Net Present Value (NPV) Valuation Method.
In 2022 2nd International Conference on Enterprise Management and Economic Development
(ICEMED 2022) (pp. 826-830). Atlantis Press.
https://www.atlantis-press.com/article/125975449.pdf