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Q1. Define an â€Å"efficient market† and the three forms of market efficiency. Explain how each of the forms differs from a perfect market. We will write a custom essay sample on Business Finance Written Assignment or any similar topic only for you Order Now Define arbitrage and explain what kind of information is needed for you to obtain arbitrage in each of the forms of market efficiency. (5 points) Q2. Please compare the advantages and disadvantages of the following investment rules: Net Present Value (NPV), Payback Period, Discounted Payback Period, Average Accounting Return, Internal Rate of Return (IRR) and Profitability Index (PI). You can start by considering the following questions for each investment rule: Does it use cash flows or accounting earnings? Does it consider all cash flows or not? Does it apply a proper discount rate? Whether the acceptance criteria are clear and reasonable? In what situation it can be applied? What kind of weakness does it have? ) (5 points) Question 1 An efficient market is advocated by a hypothesis that under free movement of information, the true value of securities are fairly priced, which immediately and accurately reflect all information available to investors. By the assumptions that rational investors evaluate the price by ascertained future cash flows, and are able to learn and react quickly to new information once delivered, investors do not expect to achieve returns in excess of average market returns. The three forms of market efficiency are weak, semi-strong, and strong. Different degree of information is reflected by price in different forms. Under weak form, the prices reflect all past publicly available information, like historical prices movements. Under semi-strong form, the prices reflect all publicly available information, like financial statements and news reports. Under strong form, the prices reflect all public and private information. Generally, because of quick reflection of information in price and quick response of investors to the market, it is impossible for investors to obtain or use new information to find undervalued stocks. To illustrate, in weak form, using past prices for technical analysis is useless to predict future trend as past information is irrelevant to the future. In semi-strong form, using fundamental analysis is not useful as the prices are immediately adjusted once the information widely circulated in the market. In strong form, finding undervalued stocks is not consistent as all information is well known. Thus, no investors can earn excess return by trading the information or selling the stocks with too high expected returns. A perfect market is where no arbitrage opportunities occur (i. e. Law of One Price) because complete information is shared among all investors. Compared with efficient market, no distinction in degree of information is reflected in price here. Arbitrage means the practice of buying and selling equivalent goods in different markets to take advantage of a price difference. An arbitrage opportunity occurs if making a profit without taking any risk. An efficient market does not necessarily mean investors cannot yield excess return. Instead, an arbitrage opportunity does exist if they ask for appropriate information quickly. If a market achieves strong form efficiency given that it is mature enough, no investor can yield any excess return in long run. Thus, no more information is needed. On the other hand, private and latest public information are needed to obtain arbitrage in semi-strong and weak form efficiency respectively. (395 words) Question 2 Use of cash flows and discount rate All investment rules are determined by estimated cash flows but only NPV, IRR and PI consider all cash flows throughout the project’s life. Except payback period, the cash flows are discounted by proper discount rate under each rule. A positive NPV expects the project adding value to firm and shareholders’ wealth. All discounted expected future cash flows are taken into consideration compared with the initial cost. The discount rate estimates the risk level and the return and thus it is appropriate. Thus, NPV is the best because it accounts for time value of money and risk of cash flows. IRR is the return that set NPV to zero. Similarly, the calculation is based on cash flows and discount rate (i. e. same benefit as NPV). It provides a simple tool without estimating all details but intuitively appealing to know. If IRR is high enough, the time spent on estimating a required cost of capital is avoidable. PI measures benefit per unit cost based on time value of money to estimate an additional value to firm. Two versions of PI provide same decision and both are easy to understand and communicate. For calculating PI, NPV calculation is used and thus PI’s advantage is same as NPV’s. Payback period is the amount of time for future cash flows taken to recover the initial investment. It is a scanning tool for uncertain cash flows. However, it ignores cost of capital and time value of money since only cash flows for that current period are concerned. Also, not all cash flows are considered as cash flows beyond payback period are ignored. Similar to payback period, the only difference is discounted payback period better considers discount rate (i. e. time value of money). Therefore, payback period on a discounted basis will be longer. Clearness and reasonableness of acceptance criteria NPV, IRR and PI can provide clear and reasonable criteria while only NPV can be applied to all situations. The NPV rule is to accept a stand-alone project with positive NPV or a mutually exclusive project with the highest NPV. As NPV is estimated absolutely, the rule can still be applied despite of different scale of projects. The IRR rule is to accept a stand-alone project with IRR greater than cost of capital or a mutually exclusive project with the highest IRR. However, IRR rule is consistent with NPV rule only if all negative cash flows precede positive cash flows. In other words, the conflict is due to non-conventional ash flows and change in signs more than once. Thus, non-existent or multiple IRR(s) may cause uncertainty in decision making. IRR is unreliable when mutually exclusive projects are different in scale, risk and time horizon. PI is closely related to NPV, generally leading to identical decisions. PI helps evaluate and identify the optimal combination under resource constraint, especially for limited budget. The project with the highest PI should be chosen first. Nevertheless, it ignores the size factor and thus leads to incorrect decisions among mutually exclusive projects. Moreover, PI cannot be applied during multiple resource constraints. The rule of (discounted) payback period is to accept the project if it is less than a pre-specified length of time. It is easily understood and simply used because of clear acceptance criteria. However, an arbitrary cutoff point is required for determination. It is subjective since ignoring the impact of cash flows after payback period favors short –term projects and biases against long –term projects. Conclusion NPV is the most commonly used investment criteria and true at any time. If any conflicts exist among the investment rules, NPV rule should prevail. 605 words) Reference 1. Hong Kong Institute of Investors (2001), â€Å"Efficient Market Hypothesis†, retrieved 1 April 2012, from http://td. hkii. org/investu/168ch7/7-5. php 2. NYU Stern, â€Å"Market Efficiency – Definition and Tests†, retrieved 1 April 2012, from http://pages. stern. nyu. edu/~adamodar/New_Home_Page/invemgmt /effdefn. htm 3. Wikipedia, â€Å"Efficient-market hypothesis†, retrieved 1 April 2012, from http://en. wikipedia. org/wiki/Efficient-market_hypothesis 4. Wretch (21 February 2006), â€Å"Efficient Market Hypothesis†, retrieved 1 April 2012, from http://www. wretch. cc/blog/jeysafe/3421966 How to cite Business Finance Written Assignment, Essay examples

Machine Against Machines Wannabi Employees-Myassignmenthelp.Com

Question: Discuss About The Machine Against Machines Wannabi Employees? Answer: Introducation The present case is based on the Sale of Goods Act of Fiji and to certain extent; the rights of the consumers have also been attracted here. Under the provision of the Sale of Goods Act, it has been mentioned that the term goods includes any chattels that are to be used in personal way or for trading purpose[1]. There are a number of provisions mentioned under the arena of Sale of Goods Act, which are providing necessary rules for the proper use of goods and services. There are provisions regarding the rights and duties of the buyer and the seller and certain conditions that are necessary for the sale of the goods[2]. Division 8 of the Sale of Goods Act deals with the performance of the contract. The rules regarding the delivery of goods have been mentioned here in a systematic way. Certain rights are given to the buyer regarding the goods in this chapter. The Act has given power to the buyers to examine the goods before use and the necessary provision regarding the same has been men tioned under section 35 of the Act[3]. According to section 35, if in any case, the buyer had not examined the goods that he purchased, the law gives him an opportunity to examine the same after the purchase. It has been mentioned that until the buyer examines the product, it will be presumed that the buyer does not accept the same[4]. It is also the duty of the seller to give the buyer an opportunity to examine the product. After examining the product, if the buyer thinks that the product meets all the requirements, then he will accept the same under section 36 of the Sale of Goods Act[5]. In this case, certain principles of the Consumer law will also applicable. Under the Consumer law, it has been stated that if a consumer buys some product and later comes to know that the product is a disputed one, he has every right to return the goods to the manufacturer or to the seller. He can file a complaint before the Consumer council of Fiji regarding the same. He can claim damage regarding the same and he may get the full refund as against the alleged product. However, there are certain rules stated under the Consumer Law. It has been stated that the consumer owes the burden of proof and it is his responsibility to collect all the evidences regarding the truthfulness of the allegation made by him. In this case, it has been observed that Mr. Spin had signed a document during the time of buying the machine without knowing the conditions stated therein. In this case, certain provisions of the contract law have also been applied. In LEstrange v Graucob [1934] 2 KB 394, it was held that when an able bodied person signs a document, it will be deemed that he put his signature after understanding all the criteria of the document[6]. The same principle had applied in the case of Fiji development Bank v Raqona [1984] 30 FLR 151. However, there are certain exclusion clauses mentioned under the Contract law of Fiji. As per this doctrine, a person can be excluded from his liability regarding the signed documents if the below points are fulfilled: Under the law of Fiji, there are three conditions where the principle of exclusion clause will not be applied[7]. If fraud has been done as against a person and he had signed the document based on the facts, the provision regarding the exclusion clause will be applied. Another ground is misrepresentation. In Curtis v Chemical Cleaning Co [1951] 1 KB 805, plaintiff was misrepresented by the shopkeeper who had hide the fact that there are certain clauses regarding the liability of the shopkeeper to certain extent[8]. After signing the slip, when the plaintiff regarding the matter has found certain disputes, it was contended by the defendant that plaintiff had already signed the slip that containing the facts that the shopkeeper will not be liable for any dispute regarding the product. The last rule is on Non Est Factum. In Gallie v lee another [1971] AC 1004, it was held that if there is differences occurred regarding the contractual product and the substances of the same. Application: Therefore, from the above mentioned stand points, it should be kept in mind that the applicability of the rules mentioned above has certain strong sides. In the present case, Mr. Spin had bought a machine from Winnabi Machines and one of the employees of the company showed the same. The employee told Mr. Spin about the modernization of the machine and showed the usage of the same. Mr. Spin had agreed to the offer and buy the machine from the company and bring the same to his company. However, at the time of the purchasing the same, the machine was not examined by him[9]. Rather, he had to fill up a form regarding the purchase without noticed the conditions stated there. When he installed the machine, he found that the product is different than that he ordered and the product is quite old in nature. It has also been observed by him that there are certain complications present in the machine and it is hard to tackle the same. The outcome of the machine has created a negative impact on the productivity of the company owned by Mr. Spin. After an allegation made by Spin, the company told that he himself had signed the documents where certain provisions were mentioned regarding the liability of the company and therefore, he has no right to go against the company. According to the principle of section 35 of the Sale of Goods Act, the buyer has a right to examine the product after he purchased the same. It has been observed by the case that Mr. Spin had not examined the product after purchasing the same. It is also the duty of the seller to let the buyer examined the product and gives him an opportunity regarding the same. However, in the present case, Mr. Spin did not get any opportunity to examine the product and therefore, it can be stated that there is a violation regarding the breach of section 35 of the Sale of Goods Act observed. The principle laid down under the consumer law has also been applicable here. It is clear that the machine showed by the employee of Wannabi machines was different than that of the machine purchased by him[10]. The employee was showed a modern machine and the product bought by Mr. Spin was not modern. Perhaps, it was difficult to operate the machine and he had to face a lot of problem due to the sharp blades of the machine. The outcome of it had created a negative impact on the business of Mr. Spin. Under the Consumer law of Fiji, it has been stated that any consumer can bought an action as against the seller or the manufacturer if the product served by them is a disputed one. In the matter of the undersigned document of the product, it can be stated that it was the duty of the seller to make the buyer aware of the conditions that are stated in the slip and therefore, if there is a laxity regarding the same has happened, the provision of the exclusion clause will not be applied. According to the principle laid down under the case of Curtis v Chemical Cleaning Co [1951] 1 KB 805, it can be said that it is the liability of the seller to narrate the exclusion clauses to the buyer[11]. If the seller had failed to meet the requirements properly, the acts of the seller will be treated as of misrepresentation in nature. Conclusion: Therefore, from the above-mentioned facts and the case laws, it can be stated that the case is attracting several principles laid down under the Sale of Goods Act, Contract Act and Consumer law. The interest of the buyer is protected by several legislatures in Fiji. However, in the present case, certain advices are required as per the provisions of the Sale of Goods Act. It can be stated that Mr. Spin has every right to claim damages from the company as the company violated the provision of section 35 of the Sale of Goods Act. In this case, buyer has all the opportunities to return the disputed product to the company and seek for refund of the money or to claim for damage from the alleged company[12]. References Bakshi, P. M. "41_The Sale of Goods Act, 1930." (2016). Bourrel, Marie, et al. "Building in-country capacity and expertise to ensure good governance of the deep sea minerals industry within the Pacific region."Marine Policy(2017). DeWitt, Helen. "Candide's Garden: A Parable."Dissent61.4 (2014): 36-37. Fried, Charles.Contract as promise: A theory of contractual obligation. Oxford University Press, USA, 2015. Khatri, Bhumika. "Getting the definition of'consumer'right-Worrying about the smaller ones in Fiji." (2016). Krhmer, Daniel, and Roland Strausz. "Optimal sales contracts with withdrawal rights."The Review of Economic Studies82.2 (2015): 762-790. Laemmli, Thomas.Transfer of ownership in international sales of goods. Diss. University of Cape Town, 2014. McGee, Andrew. "The Reform of English Insurance Law-Attracting Business in the 21st Century."Asian Bus. Law.16 (2015): 73. Moscatelli, Alberto. "The struggle for control."Nature nanotechnology8.12 (2013): 888-890. Naidu, Suwastika, R. D. Pathak, and Anand Chand. "11. Towards a double triangle model of socially desirable HRM practices and firm performance in small-island developing states."Corporate Social Responsibility and Human Resource Management: A Diversity Perspective(2014): 192. Stewart Firth, Firth, Jon Fraenkel, and V. Lal Brij.The 2006 military takeover in Fiji: a coup to end all coups?. ANU Press, 2013. Yeung, Horace, and Flora Huang. "Certainty Over Clemency: English Contract Law in the Face of Financial Crisis."The Effects of Financial Crises on the Binding Force of Contracts-Renegotiation, Rescission or Revision. Springer International Publishing, 2016. 285-305.v [1] Bakshi, P. M. "41_The Sale of Goods Act, 1930." (2016). [2] Naidu, Suwastika, R. D. Pathak, and Anand Chand. "11. Towards a double triangle model of socially desirable HRM practices and firm performance in small-island developing states."Corporate Social Responsibility and Human Resource Management: A Diversity Perspective(2014): 192. [3] Bourrel, Marie, et al. "Building in-country capacity and expertise to ensure good governance of the deep sea minerals industry within the Pacific region."Marine Policy(2017). [4] Khatri, Bhumika. "Getting the definition of'consumer'right-Worrying about the smaller ones in Fiji." (2016). [5] Laemmli, Thomas.Transfer of ownership in international sales of goods. Diss. University of Cape Town, 2014. [6] Fried, Charles.Contract as promise: A theory of contractual obligation. Oxford University Press, USA, 2015. [7] McGee, Andrew. "The Reform of English Insurance Law-Attracting Business in the 21st Century."Asian Bus. Law.16 (2015): 73. [8] Yeung, Horace, and Flora Huang. "Certainty Over Clemency: English Contract Law in the Face of Financial Crisis."The Effects of Financial Crises on the Binding Force of Contracts-Renegotiation, Rescission or Revision. Springer International Publishing, 2016. 285-305.v [9] Krhmer, Daniel, and Roland Strausz. "Optimal sales contracts with withdrawal rights."The Review of Economic Studies82.2 (2015): 762-790. [10] Stewart Firth, Firth, Jon Fraenkel, and V. Lal Brij.The 2006 military takeover in Fiji: a coup to end all coups?. ANU Press, 2013. [11] Moscatelli, Alberto. "The struggle for control."Nature nanotechnology8.12 (2013): 888-890. [12] DeWitt, Helen. "Candide's Garden: A Parable."Dissent61.4 (2014): 36-37.